SandRidge Energy readjusts 2013 plan to cut costs, boasts strong asset base and $2 billion liquidity

By Lisa Kerner

Charlotte, N.C., May 8 - SandRidge Energy Inc. made changes to its business plan for the year to include a focus on capital discipline and lowering risk levels, primarily in its Mississippian Play, with a higher portion of capital directed toward drilling producing wells.

The company plans to spend $700 million less on capex in 2013, or $1.45 billion. Capex for the first quarter was about $393.8 million, compared to $580.2 million for the first quarter of 2012.

"We've also been focused on reducing general and administrative expenses and expect G&A to be an annual run rate of $150 million by the fourth quarter of this year," chief financial officer James Bennett said during the company's first-quarter 2013 earnings call Wednesday.

"This is approximately 30% below our first quarter 2013 run rate and 25% below 2012 levels."

Despite the focus on cost reduction, Bennett is pleased with SandRidge's current financial position.

"Beyond 2013, we have an asset base that can for many years comfortably support double-digit production growth and anticipate targeting an annual capex level in the similar range to our updated 2013 guidance," said Bennett. According to the company's updated guidance, it is targeting full-year G&A of $5.20 to $5.80 per barrel of oil equivalent.

"Our balance sheet and financial flexibility provides us running room to develop our assets over the next several years. Couple this with having no bond maturities until 2020 and over 37 million barrels of oil hedged through 2015, and we're in the best financial position in the company's history."

SandRidge's 2020 senior notes now represent its nearest bond maturity.

The company had debt at quarter-end of $3.2 billion, $1.1 billion below year-end levels.

"Recall that we recently reduced our total debt in connection with the Permian asset sale, redeeming $1.1 billion of senior notes," Bennett said.

"The debt reduction resulted in annual interest expense savings of nearly $100 million, extended our maturity profile and resulted in a reduction of our overall cost of debt."

SandRidge's consolidated leverage ratio at the end of the quarter was 2.65 times, which is more than one and a half turns lower than the level a year ago.

"Excellent" liquidity

"Our liquidity position remains excellent (at) $2.1 billion at quarter-end, consisting of $1.3 billion of cash and our undrawn credit facility," the CFO said.

In mid-March, following the divestiture of its Permian assets, SandRidge's credit facility was reaffirmed, and the borrowing base was maintained at $775 million.

"Based on our new drilling plans, we expect our existing liquidity and cash flow to be able to fund capex through 2015," said Bennett.

SandRidge was in compliance with all applicable covenants contained in its debt agreements during the three months ended March 31, 2013 and through May 7.

Financial highlights

Oil and natural gas revenue increased 40% to $478 million in the first quarter from $341 million in the same period of 2012 as a result of increases in oil and natural gas production. Oil production increased 30%, and natural gas production increased 74% from the year-ago quarter.

Operating cash flow for the period was up at $182 million, compared with $151 million in the prior-year period for the Oklahoma City-based oil and natural gas company.

SandRidge reported a net loss applicable to common stockholders of $493 million, or $1.03 per diluted share, for the first quarter of 2013, compared with a net loss of $232 million, or $0.58 per diluted share, for the first quarter of 2012.

Adjusted net income was $2 million for the quarter, versus $21.1 million for the prior-year period.

Adjusted EBITDA was $270 million for first-quarter 2013 compared to $185 million for first-quarter 2012.

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