PER SandRidge Permian Trust

OKLAHOMA CITY, Nov. 3, 2011 /PRNewswire/ -- SandRidge Energy, Inc. (NYSE: SD) today announced financial and operational results for the quarter and nine months ended September 30, 2011.

Key Financial Results

Third Quarter

• Adjusted EBITDA of $169 million ($179 million including realized gains on out-of-period derivative contract settlements) for third quarter 2011 compared to $149 million ($197 million including realized gains on out-of-period derivative contract settlements) in third quarter 2010.
• Operating cash flow of $144 million for third quarter 2011 compared to $116 million in third quarter 2010.
• Net income available to common stockholders of $561 million, or $1.16 per diluted share, for third quarter 2011 compared to net income available to common stockholders of $298 million, or $0.73 per diluted share, in third quarter 2010.
• Adjusted net income of $2.8 million, or $0.01 per diluted share, (adjusted net income of $12.7 million, or $0.03 per diluted share, including realized gains on out-of-period derivative contract settlements) for third quarter 2011 compared to adjusted net loss of $24.3 million, or $0.06 per diluted share, (adjusted net income of $23.7 million, or $0.06 per diluted share, including realized gains on out-of-period derivative contract settlements) in third quarter 2010.

Nine Months

• Adjusted EBITDA of $479 million ($519 million including realized gains on out-of-period derivative contract settlements) for the first nine months of 2011 compared to $448 million ($534 million including realized gains on out-of-period derivative contract settlements) in the first nine months of 2010.
• Operating cash flow of $378 million for the first nine months of 2011 compared to $338 million in the first nine months of 2010.
• Net income available to common stockholders of $441 million, or $0.97 per diluted share, for the first nine months of 2011 compared to net income available to common stockholders of $361 million, or $1.24 per diluted share, in the first nine months of 2010.
• Adjusted net loss of $2.0 million, or $0.00 per diluted share, (adjusted net income of $38.8 million, or $0.08 per diluted share, including realized gains on out-of-period derivative contract settlements) for the first nine months of 2011 compared to adjusted net income of $11.3 million, or $0.04 per diluted share, (adjusted net income of $96.5 million, or $0.31 per diluted share, including realized gains on out-of-period derivative contract settlements) in the first nine months of 2010.

Adjusted net income available (loss applicable) to common stockholders, adjusted EBITDA and operating cash flow are non-GAAP financial measures. Each measure is defined and reconciled to the most directly comparable GAAP measure under "Non-GAAP Financial Measures" beginning on page 10.

Highlights

• Drilled 255 wells during third quarter 2011 and 716 wells during first nine months of 2011.
• Oil production in third quarter 2011 of 3.19 MMBbls compared to 2.77 MMBbls in second quarter 2011 and 2.22 MMBbls in third quarter 2010.
• Total production in third quarter 2011 of 6.18 MMBoe compared to 5.64 MMBoe in second quarter 2011 and 5.40 MMBoe in third quarter 2010.
• Current daily production of 70 MBoe per day.
• Increased position in new Mississippian play to approximately 700,000 net acres.
• Closed $621 million SandRidge Permian Trust IPO, received approximately $250 million in initial proceeds upon closing of Mississippian joint venture and announced sale of East Texas properties for $231 million.
• Projected funding surplus of approximately $500 million in 2011 with multiple options available to fund 2012 capital budget.
• Cash balance of approximately $225 million and current liquidity of approximately $1 billion.

Full Year 2011 and 2012 Production Guidance

The company produced 6.18 MMBoe in the third quarter of 2011, compared to 5.64 MMBoe in the second quarter of 2011 and 5.40 MMBoe in the third quarter of 2010. Production from the Permian Basin grew from approximately 23,600 Boe per day in the third quarter of 2010 to approximately 30,200 Boe per day in the third quarter of 2011. This reflects the previously announced sales of non-core Permian assets producing approximately 3,100 Boe per day. The company grew its Mississippian horizontal production from approximately 1,600 Boe per day in the third quarter of 2010 to over 12,700 Boe per day in the third quarter of 2011.

The company has revised its production guidance for 2011 to 23.4 MMBoe from the previous guidance of 23.9 MMBoe. Although production is projected to exceed expectations in the Mid-Continent region due to the success of the Mississippian horizontal drilling program, the company is projecting an overall shortfall of approximately 500 MBoe in production, as compared to prior guidance, due to facility constraints in the Central Basin Platform, and underperformance in the Gulf Coast, Gulf of Mexico and the Pinon Field.

As a result of continued drilling success, production has outgrown the existing company-owned and operated low-pressure gathering systems in the Central Basin Platform, causing excessive backpressure on the wells and negative impact to production. While the company is addressing these issues, it is also planning to reduce the rig count from 16 to 12 in the Central Basin Platform and increase from an average of 24 rigs to 26 rigs in the 2012 Mississippian drilling program.

While 2011 production is expected to be approximately 2% below the company's prior forecast, the expected year-over-year production growth is approximately 16% and, excluding the impact of asset sales, approximately 25%.

Production guidance for 2012 remains unchanged at 27.7 MMBoe. Oil and natural gas production is expected to be 16 MMBbls and 70 Bcf, respectively.

Drilling Activities

SandRidge averaged 31 rigs operating during the third quarter of 2011 and drilled 255 wells. The company drilled a total of 716 wells during the first nine months of 2011. A total of 250 gross (241 net) operated wells were completed and brought on production during the third quarter of 2011, bringing the total number of operated wells completed and brought on production during 2011 to 689 gross (665 net). Currently, the company has 34 rigs operating (including 3 drilling saltwater disposal wells), of which 20 are SandRidge-owned Lariat rigs.

Permian Basin. The company drilled 208 wells in the Permian Basin during the third quarter of 2011 and 607 wells during the first nine months of 2011 and has identified approximately 7,900 additional drilling locations on its 228,000 net acres there. SandRidge presently operates 14 rigs in the Permian Basin, all of which are operating on the Central Basin Platform drilling primarily Grayburg/San Andres vertical wells at depths ranging from 4,500 feet to 7,500 feet. The company plans to drill over 800 wells in the Permian Basin in 2011.

Mississippian Play. During the third quarter of 2011, SandRidge drilled 47 horizontal wells in the Mississippian play in northern Oklahoma and southern Kansas bringing the total number of operated wells drilled during 2011 in the Mississippian to 108. Industry-wide, approximately 320 horizontal wells have been drilled in the Mississippian across a 150-mile long area with SandRidge having drilled 147 wells. SandRidge has identified over 4,000 drilling locations on over 800,000 net acres it has leased in the play. The company presently has 20 rigs operating in the play, of which 17 are drilling horizontal producer wells with 3 drilling saltwater disposal wells, and plans to increase the Mississippian rig count to average 26 rigs in 2012. SandRidge plans to drill over 170 horizontal wells in the Mississippian play in 2011.

New Mississippian Play

SandRidge has increased its position to 700,000 net acres in the new Mississippian horizontal play that is comparable in size, characteristics and cost to the company's original Mississippian horizontal play. This new play is a shallow hydrocarbon system in a thick, porous, carbonate section with Devonian-aged source rocks analogous to the original Mississippian play. The Mississippian section ranges from 250 feet to 700 feet based on control from over 7,000 existing vertical wells within the play area.

Operational and Financial Statistics

Information regarding the company's production, pricing, costs and earnings is presented below:

Discussion of Third Quarter 2011 Financial Results

Oil and natural gas revenue increased 52% to $318.5 million in third quarter 2011 from $210.0 million in the same period of 2010 as a result of increases in oil production and realized reported oil prices. Oil production increased 44% to 3.2 MMBbls from third quarter 2010 production of 2.2 MMBbls mainly due to continued development of the company's oil properties in the Mississippian play and Permian Basin. Third quarter 2011 total production increased 14% to 6.2 MMBoe from 5.4 MMBoe in third quarter 2010. Realized reported prices, which exclude the impact of derivative settlements, were $79.31 per barrel and $3.64 per Mcf during third quarter 2011. Realized reported prices in the same period of 2010 were $63.90 per barrel and $3.57 per Mcf.

Production expense increased 31% to $86.6 million in third quarter 2011 from $66.1 million in the same period of 2010 due primarily to the addition of costs from newly completed oil wells brought on production during 2010 and 2011 with the rapid growth of the company's Permian Basin and Mississippian plays. Third quarter 2011 production expense was $14.01 per Boe compared to third quarter 2010 production expense of $12.23 per Boe.

Capital Expenditures

The table below summarizes the company's capital expenditures for the three and nine-month periods ended September 30, 2011 and 2010:

Derivative Contracts

The tables below set forth the company's oil swaps and natural gas price and basis swaps for the years 2011 through 2015 as of October 31, 2011 and include contracts included in derivatives agreements with SandRidge Mississippian Trust I and SandRidge Permian Trust. During the third quarter of 2011, the company settled various oil swaps and natural gas basis swaps prior to their scheduled maturity dates and entered into additional oil swaps for the years 2012 through 2015.

Balance Sheet

The company's capital structure at September 30, 2011 and December 31, 2010 is presented below:

At September 30, 2011, the company's debt was $2.8 billion, a decrease of approximately $80 million from June 30, 2011. In the third quarter of 2011, the company raised approximately $581 million in proceeds from the sale of a portion of its interest in SandRidge Permian Trust (NYSE: PER) and approximately $250 million in initial proceeds (excluding purchase price adjustments) upon closing its Mississippian joint venture. The company used a portion of the proceeds from the transactions to repay borrowings under the senior credit facility. On October 31, 2011, the company had no amount drawn under its $790 million senior credit facility and approximately $225 million of cash, leaving approximately $1 billion of available liquidity (including the impact of outstanding letters of credit). The company was in compliance with all of the financial and other covenants contained in its debt agreements as of and during the nine months ended September 30, 2011. In October 2011, the company's senior credit facility borrowing base was reaffirmed at $790 million.

Operational Guidance

2011 Guidance Update: The company is updating certain 2011 guidance provided on August 4, 2011. Projected oil production has decreased to reflect expected shortfalls in the Central Basin Platform, Gulf Coast and Gulf of Mexico. Projected gas differentials have decreased to $0.60 from $0.75 as Mid-Continent natural gas rates and associated Btu comprise a higher percentage of total natural gas. DD&A – oil and gas has increased due to an update in the company's depletion rate. G&A – cash and interest expense have increased on a per unit basis due to the decrease in projected production. Adjusted net income attributable to noncontrolling interest reflects the effects of both SandRidge Mississippian Trust I and SandRidge Permian Trust and excludes noncash gain or loss on unrealized derivative positions for the trusts.

2012 Operational Guidance: The company is presenting full guidance for 2012.

Non-GAAP Financial Measures

Operating cash flow, adjusted EBITDA and adjusted net (loss applicable) income available to common stockholders are non-GAAP financial measures.

The company defines operating cash flow as net cash provided by operating activities before changes in operating assets and liabilities. It defines EBITDA as net income before income tax expense (benefit), interest expense and depreciation, depletion and amortization. Adjusted EBITDA, as presented herein, is EBITDA excluding interest income, realized gains on out-of-period derivative contract settlements, (gain) loss on sale of assets, transaction costs, loss on extinguishment of debt, settlement for prior claims and other various non-cash items (including noncontrolling interest, stock-based compensation, unrealized (gain) loss on derivative contracts, provision for doubtful accounts and inventory obsolescence).

Operating cash flow and adjusted EBITDA are supplemental financial measures used by the company's management and by securities analysts, investors, lenders, rating agencies and others who follow the industry as an indicator of the company's ability to internally fund exploration and development activities and to service or incur additional debt. The company also uses these measures because operating cash flow and adjusted EBITDA relate to the timing of cash receipts and disbursements that the company may not control and may not relate to the period in which the operating activities occurred. Further, operating cash flow and adjusted EBITDA allow the company to compare its operating performance and return on capital with those of other companies without regard to financing methods and capital structure. These measures should not be considered in isolation or as a substitute for net cash provided by operating activities prepared in accordance with generally accepted accounting principles ("GAAP"). Adjusted EBITDA should not be considered as a substitute for net income, operating income, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Therefore, the company's adjusted EBITDA may not be comparable to similarly titled measures used by other companies.

Management also uses the supplemental financial measure of adjusted net (loss applicable) income available to common stockholders, which excludes unrealized (gain) loss on derivative contracts, realized gains on out-of-period derivative contract settlements, transaction costs, loss on extinguishment of debt, settlement for prior claims and (gain) loss on sale of assets from income available to common stockholders. Management uses this financial measure as an indicator of the company's operational trends and performance relative to other oil and natural gas companies and believes it is more comparable to earnings estimates provided by securities analysts. Adjusted net (loss applicable) income available to common stockholders is not a measure of financial performance under GAAP and should not be considered a substitute for income available to common stockholders.

The tables below reconcile the most directly comparable GAAP financial measures to operating cash flow, EBITDA and adjusted EBITDA, and adjusted net (loss applicable) income available to common stockholders.