SANDRIDGE ENERGY INC 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page(s) Management’s Report on Internal Control Over Financial Reporting 58 Report of Independent Registered Public Accounting Firm 59 Consolidated Balance Sheets at December 31, 2020 and 2019 61 Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019 62 Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Years Ended December 31, 2020 and 2019 63 Consolidated Statements Cash Flows for the Years Ended December 31, 2020 and 2019 64 Notes to Consolidated Financial Statements 65 57 Table of Contents Management’s Report on Internal Control over Financial Reporting Management of SandRidge Energy, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013) (the COSO criteria). Based on management’s assessment using the COSO criteria, management concluded the Company’s internal control over financial reporting was effective as of December 31, 2020. /s/ CARL F. GIESLER, JR. /s/ SALAH GAMOUDI Carl F. Giesler, Jr. President and Chief Executive Officer Salah Gamoudi Senior Vice President, Chief Financial Officer and Chief Accounting Officer 58 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of SandRidge Energy, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of SandRidge Energy, Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statement of operations, changes in stockholders' equity (deficit), and cash flows, for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Proved Oil and Natural Gas Properties, Depletion, and Impairment — Refer to Notes 1, 8, and 9 to the consolidated financial statements Critical Audit Matter Description The Company’s proved and natural gas properties are amortized using the unit-of-production method and are evaluated for impairment using a ceiling limitation calculation. The development of the Company’s oil and natural gas reserve quantities and the related future net revenues requires management to make significant estimates and assumptions related to the intent and ability to complete undeveloped proved reserves within a five-year development period, rates of production, and future development costs. As a result of changing market conditions, commodity prices and future development costs, assumptions can change from period to period, causing the estimates of proved reserves to change. The Company engages independent petroleum engineers to estimate oil and natural gas reserves using these estimates, assumptions, and engineering data. Changes in these assumptions could materially affect the Company’s depreciation, depletion and impairment expenses. The proved oil and natural gas properties balance was $1.5 billion and the associated accumulated depreciation, depletion and impairment was $1.4 billion as of December 31, 2020. Depreciation, depletion- oil and natural gas expense was $50.3 million for the year ended December 31, 2020. Impairment was $218.4 million for the year ended December 31, 2020. 59 Table of Contents Given the significant judgments made by management, performing audit procedures to evaluate the Company’s oil and natural gas reserve quantities and the related net revenues including management’s estimates and assumptions related to forecasted rates of production requires a high degree of auditor judgment and an increased extent of effort. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures to address management’s significant judgments and estimates associated with oil and natural gas reserves quantities and related future net revenues included the following, among others: a. We evaluated the reasonableness of management’s estimated reserve quantities by performing the following: i. Evaluating the experience, qualifications and objectivity of independent petroleum engineers. ii. For a sample of proved developed wells, we evaluated the well’s expected forecasted production by comparing such the expected decline rate of production in future periods to historical production volumes and decline rates of the well. /s/ DELOITTE & TOUCHE LLP Houston, Texas March 4, 2021 We have served as the Company's auditor since 2019. 60 Table of Contents SandRidge Energy, Inc. and Subsidiaries Consolidated Balance Sheets December 31, 2020 2019 (In thousands) ASSETS Current assets Cash and cash equivalents $ 22,130 $ 4,275 Restricted cash - other 6,136 1,693 Accounts receivable, net 19,576 28,644 Derivative contracts — 114 Prepaid expenses 2,890 3,342 Other current assets 80 538 Total current assets 50,812 38,606 Oil and natural gas properties, using full cost method of accounting Proved 1,463,950 1,484,359 Unproved 17,964 24,603 Less: accumulated depreciation, depletion and impairment ( 1,375,692 ) ( 1,129,622 ) 106,222 379,340 Other property, plant and equipment, net 103,118 188,603 Other assets 680 1,140 Total assets $ 260,832 $ 607,689 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued expenses $ 51,426 $ 64,937 Asset retirement obligations 16,467 22,119 Other current liabilities 984 1,367 Total current liabilities 68,877 88,423 Long-term debt 20,000 57,500 Asset retirement obligations 40,701 52,897 Other long-term obligations 3,188 6,417 Total liabilities 132,766 205,237 Commitments and contingencies (Note 13) Stockholders’ Equity Common stock, $ 0.001 par value; 250,000 shares authorized; 35,928 issued and outstanding at December 31, 2020 and 35,772 issued and outstanding at December 31, 2019 36 36 Warrants 88,520 88,520 Additional paid-in capital 1,062,220 1,059,253 Accumulated deficit ( 1,022,710 ) ( 745,357 ) Total stockholders’ equity 128,066 402,452 Total liabilities and stockholders’ equity $ 260,832 $ 607,689 The accompanying notes are an integral part of these consolidated financial statements. 61 Table of Contents SandRidge Energy, Inc. and Subsidiaries Consolidated Statements of Operations Year Ended December 31, 2020 2019 (In thousands, except per share amounts) Revenues Oil, natural gas and NGL $ 114,450 $ 266,104 Other 526 741 Total revenues 114,976 266,845 Expenses Lease operating expenses 43,431 90,938 Production, ad valorem, and other taxes 9,634 19,394 Depreciation and depletion—oil and natural gas 50,349 146,874 Depreciation and amortization—other 7,736 11,684 Impairment 256,399 409,574 General and administrative 15,327 32,058 Restructuring expenses 2,733 — Employee termination benefits 8,433 4,792 Gain on derivative contracts ( 5,765 ) ( 1,094 ) Other operating (income) expense 206 ( 608 ) Total expenses 388,483 713,612 Loss from operations ( 273,507 ) ( 446,767 ) Other (expense) income Interest expense, net ( 1,998 ) ( 2,974 ) Other (expense) income, net ( 2,494 ) 436 Total other (expense) income ( 4,492 ) ( 2,538 ) Loss before income taxes ( 277,999 ) ( 449,305 ) Income tax benefit ( 646 ) — Net loss $ ( 277,353 ) $ ( 449,305 ) Loss per share Basic $ ( 7.77 ) $ ( 12.68 ) Diluted $ ( 7.77 ) $ ( 12.68 ) Weighted average number of common shares outstanding Basic 35,689 35,427 Diluted 35,689 35,427 The accompanying notes are an integral part of these consolidated financial statements. 62 Table of Contents SandRidge Energy, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity (Deficit) Common Stock Warrants Additional Paid-In Capital Accumulated Deficit Total Shares Amount Shares Amount (In thousands) Balance at December 31, 2018 35,687 $ 36 6,604 $ 88,516 $ 1,055,164 $ ( 295,995 ) $ 847,721 Issuance of stock awards, net of cancellations 40 — — — — — — Common stock issued for general unsecured claims 45 — — — — — — Stock-based compensation — — — — 4,460 — 4,460 Issuance of warrants for general unsecured claims — — 55 4 ( 4 ) — — Cash paid for tax withholdings on vested stock awards — — — — ( 367 ) — ( 367 ) Cumulative effect of adoption of ASU 2016-02 — — — — — ( 57 ) ( 57 ) Net loss — — — — — ( 449,305 ) ( 449,305 ) Balance at December 31, 2019 35,772 36 6,659 88,520 1,059,253 ( 745,357 ) 402,452 Issuance of stock awards, net of cancellations 96 — — — — — — Common stock issued for general unsecured claims 60 — — — — — — Stock-based compensation — — — — 3,031 — 3,031 Issuance of warrants for general unsecured claims — — 75 — — — — Cash paid for tax withholdings on vested stock awards — — — — ( 64 ) — ( 64 ) Net loss — — — — — ( 277,353 ) ( 277,353 ) Balance at December 31, 2020 35,928 $ 36 6,734 $ 88,520 $ 1,062,220 $ ( 1,022,710 ) $ 128,066 The accompanying notes are an integral part of these consolidated financial statements. 63 Table of Contents SandRidge Energy, Inc. and Subsidiaries Consolidated Statements of Cash Flows Year Ended December 31, 2020 2019 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 277,353 ) $ ( 449,305 ) Adjustments to reconcile net loss to net cash provided by operating activities Provision for doubtful accounts 3,202 16 Depreciation, depletion and amortization 58,085 158,558 Impairment 256,399 409,574 Debt issuance costs amortization 792 558 Write off of debt issuance costs — 142 Gain on derivative contracts ( 5,765 ) ( 1,094 ) Cash received (paid) on settlement of derivative contracts 5,879 6,266 Gain on sale of assets ( 100 ) — Stock-based compensation 3,012 4,254 Other 149 ( 187 ) Changes in operating assets and liabilities increasing (decreasing) cash Receivables 5,867 15,829 Prepaid expenses 452 ( 714 ) Other current assets 458 ( 301 ) Other assets and liabilities, net 1,134 ( 610 ) Accounts payable and accrued expenses ( 12,968 ) ( 17,217 ) Asset retirement obligations ( 3,081 ) ( 4,445 ) Net cash provided by operating activities 36,162 121,324 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures for property, plant and equipment ( 8,762 ) ( 191,678 ) Acquisitions of assets ( 3,701 ) 236 Proceeds from sale of assets 37,556 1,593 Net cash provided by (used) in investing activities 25,093 ( 189,849 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 59,000 211,096 Repayments of borrowings ( 96,500 ) ( 153,596 ) Debt issuance costs ( 160 ) ( 911 ) Reduction of financing lease liability ( 1,233 ) ( 1,374 ) Cash paid for tax withholdings on vested stock awards ( 64 ) ( 367 ) Net cash (used in) provided by financing activities ( 38,957 ) 54,848 NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS and RESTRICTED CASH 22,298 ( 13,677 ) CASH, CASH EQUIVALENTS and RESTRICTED CASH, beginning of year 5,968 19,645 CASH, CASH EQUIVALENTS and RESTRICTED CASH, end of year $ 28,266 $ 5,968 The accompanying notes are an integral part of these consolidated financial statements. 64 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Nature of Business. SandRidge Energy, Inc. is an oil and natural gas acquisition, development and production company headquartered in Oklahoma City, Oklahoma with a principal focus on developing and producing hydrocarbon resources in the United States. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly owned or majority owned subsidiaries, including its proportionate share of the Royalty Trust. All intercompany accounts and transactions have been eliminated in consolidation. Reclassifications. Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation. These reclassifications have no effect on the Company’s previously reported results of operations. Use of Estimates. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of assumptions, judgments and estimates include: oil, natural gas and NGL reserves; impairment tests of long-lived assets; the carrying value of unproved oil and natural gas properties; depreciation, depletion and amortization; asset retirement obligations; determinations of significant alterations to the full cost pool and related estimates of fair value used to allocate the full cost pool net book value to divested properties, as necessary; valuation allowances for deferred tax assets; income taxes; valuation of derivative instruments; contingencies; and accrued revenue and related receivables. Although management believes these estimates are reasonable, actual results could differ significantly from those estimates. Going Concern Consideration. The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Cash and Cash Equivalents. The Company considers all highly-liquid instruments with an original maturity of three months or less to be cash equivalents as these instruments are readily convertible to known amounts of cash and bear insignificant risk of changes in value due to their short maturity period. Restricted Cash. The Company maintains restricted escrow funds as required by certain contractual arrangements in accordance with the Plan. In addition, the Company maintains funds related to collateralize letters of credit and credit cards issued by lenders that were party to the Prior Credit Facility. Accounts Receivable, Net. The Company has receivables for sales of oil, natural gas and NGLs, as well as receivables related to the drilling, completion, and production of oil and natural gas, which have a contractual maturity of one year or less. An allowance for doubtful accounts has been established based on management’s review of the collectibility of the receivables in light of historical experience, the nature and volume of the receivables and other subjective factors. Accounts receivable are charged against the allowance, upon approval by management, when they are deemed uncollectible. Refer to Note 5 for further information on the Company’s accounts receivable and allowance for doubtful accounts. Fair Value of Financial Instruments. Certain of the Company’s financial assets and liabilities are measured at fair value. Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Company’s financial instruments, not otherwise recorded at fair value, consist primarily of cash, restricted cash, trade receivables, prepaid expenses, and trade payables and accrued expenses. The carrying values of cash, trade receivables and trade payables are considered to reflect fair values due to the short-term maturity of these instruments. See Note 4 for further discussion of the Company’s fair value measurements. Fair Value of Non-financial Assets and Liabilities. The Company also applies fair value accounting guidance to initially, or as events dictate, measure non-financial assets and liabilities such as those obtained through business acquisitions, property, plant and equipment and asset retirement obligations. These assets and liabilities are subject to fair value adjustments 65 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements only in certain circumstances and are not subject to recurring revaluations. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two as considered appropriate based on the circumstances. Under the discounted cash flow method, estimated future cash flows are based on management’s expectations for the future and include estimates of future oil and natural gas production or other applicable sales estimates, operational costs and a risk-adjusted discount rate. The Company may use the present value of estimated future cash inflows and/or outflows, third-party offers or prices of comparable assets with consideration of current market conditions to fair value its non-financial assets and liabilities when necessary. Derivative Financial Instruments. The Company enters into oil and natural gas derivative contracts to manage risks related to fluctuations in prices of its expected oil and natural gas production. The Company considers current and anticipated market conditions, planned capital expenditures, and any debt service requirements when determining whether to enter into oil and gas derivative contracts. The Company may also, from time to time, enter into interest rate swaps in order to manage risk associated with its exposure to variable interest rates. The Company recognizes its derivative instruments as either assets or liabilities at fair value with changes in fair value recognized in earnings unless designated as a hedging instrument. The Company has elected not to designate price risk management activities as accounting hedges under applicable accounting guidance. The Company nets derivative assets and liabilities whenever it has a legally enforceable master netting agreement with the counterparty to a derivative contract. The related cash flow impact of the Company’s derivative activities are reflected as cash flows from operating activities unless the derivative contract contains a significant financing element, in which case, cash settlements are classified as cash flows from financing activities in the consolidated statements of cash flows. See Note 6 for further discussion of the Company’s derivatives. Oil and Natural Gas Operations. The Company uses the full cost method to account for its oil and natural gas properties. Under full cost accounting, all costs directly associated with the acquisition, exploration and development of oil, natural gas and NGL reserves are capitalized into a full cost pool. These capitalized costs include costs of unproved properties and internal costs directly related to the Company’s acquisition, development, and production activities and capitalized interest. The Company capitalized gross internal costs of $ 0.7 million and $ 5.7 million during the years ended December 31, 2020 and 2019, respectively. Capitalized costs are amortized using the unit-of-production method. Under this method, depreciation and depletion is computed at the end of each quarter by multiplying total production for the quarter by a depletion rate. The depletion rate is determined by dividing the total unamortized cost base plus future development costs by net equivalent proved reserves at the beginning of the quarter. Costs associated with unproved properties are excluded from the amortizable cost base until it has been determined that proved reserves exist or a lease is impaired. Unproved properties are reviewed at the end of each quarter to determine whether the costs incurred should be reclassified to the full cost pool and amortized. The costs associated with unproved properties are primarily the costs to acquire unproved acreage. All items classified as unproved property are assessed, on an individual basis or as a group if properties are individually insignificant, on a quarterly basis for possible impairment. The assessment includes consideration of various factors, including, but not limited to, the following: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; assignment of proved reserves; and whether the proved reserves can be developed economically. During any period in which these factors indicate an impairment, all or a portion of the associated leasehold costs are transferred to the full cost pool and become subject to amortization. Costs of seismic data are allocated to unproved leaseholds and transferred to the amortization base with the associated leasehold costs on a specific project basis. Under the full cost method of accounting, total capitalized costs of oil and natural gas properties and electrical infrastructure assets, net of accumulated depreciation, depletion and impairment, less related deferred income taxes may not exceed the ceiling limitation. A ceiling limitation calculation is performed at the end of each quarter. If the ceiling limitation is exceeded, a write-down or impairment of the full cost pool is required. A write-down of the carrying value of the full cost pool is a non-cash charge that reduces earnings and impacts stockholders’ equity and typically results in lower depreciation and depletion expense in future periods. Once incurred, a write-down cannot be reversed at a later date. The ceiling limitation calculation is prepared using SEC prices adjusted for basis or location differentials, held constant over the life of the reserves. If applicable, these prices would be further adjusted to include the effects of any fixed price arrangements for the sale of oil and natural gas. Derivative contracts that qualify and are designated as cash flow hedges 66 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements are included in estimated future cash flows, although the Company historically has not designated any of its derivative contracts as cash flow hedges. The future cash outflows associated with future development or abandonment of wells are included in the computation of the discounted present value of future net revenues for purposes of the ceiling limitation calculation. Sales and abandonments of oil and natural gas properties being amortized are accounted for as adjustments to the full cost pool, with no gain or loss recognized, unless the adjustments would significantly alter the relationship between capitalized costs and proved oil, natural gas and NGL reserves. A significant alteration would not ordinarily be expected to occur upon the sale of reserves involving less than 25 % of the proved reserve quantities of a cost center, unless it results in a greater than 10 % change to the depletion rate. Property, Plant and Equipment, Net. Other capitalized costs, including other property and equipment, such as electrical infrastructure assets and buildings, are carried at cost or the fair value established on the Emergence Date. Renewals and improvements are capitalized while repairs and maintenance are expensed. Depreciation of such property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from 7 to 39 years for buildings and 1 to 27 years for the electrical infrastructure assets and other equipment. When property and equipment components are disposed, the cost and the related accumulated depreciation are removed and any resulting gain or loss is reflected in the consolidated statements of operations. Realization of the carrying value of property and equipment is reviewed for possible impairment whenever events or changes in circumstances indicate that estimated future net operating cash flows directly related to the asset or asset group including disposal value is less than the carrying amount of the asset or asset group. Impairment is measured as the excess of the carrying amount of the impaired asset or asset group over its fair value. See Note 9 for further discussion of impairments. Capitalized Interest. Interest is capitalized on assets being made ready for use using a weighted average interest rate based on the Company’s borrowings outstanding during that time. During the year ended December 31, 2020 the Company capitalized interest of approximately $ 0.7 million on unproved properties that were not currently being depreciated or depleted and on which exploration activities were in progress. During the year ended December 31, 2019 the Company capitalized interest of approximately $ 1.5 million on unproved properties that were not currently being depreciated or depleted and on which exploration activities were in progress. Debt Issuance Costs. The Company includes unamortized line-of-credit debt issuance costs, if any, related to its New Credit Facility in other assets in the consolidated balance sheets. Other debt issuance costs related to long-term debt, if any, are presented in the balance sheets as a direct deduction from the associated debt liability, if material. Debt issuance costs are amortized to interest expense over the term of the related debt. When debt is retired, any unamortized costs, if material are written off and included in gain or loss on extinguishment of debt. Asset Retirement Obligations. The Company owns oil and natural gas assets that require expenditures to plug, abandon and remediate associated property at the end of their productive lives, in accordance with applicable federal and state laws. Liabilities for these asset retirement obligations are recorded at the estimated present value at the time the wells are drilled or acquired, with the offsetting increase to property cost. These property costs are depreciated on a unit-of-production basis within the full cost pool. The liability accretes each period until it is settled or the asset is sold and the liability is removed. Both the accretion and the depreciation are included in the consolidated statements of operations. The Company determines its asset retirement obligations by calculating the present value of estimated expenses related to the liability. Estimating future asset retirement obligations requires management to make estimates and judgments regarding timing, existence of a liability and what constitutes adequate restoration. Inherent in the present value calculation are the timing of settlement and changes in the legal, regulatory, environmental and political environments, which are subject to change. See Note 12 for further discussion of the Company’s asset retirement obligations. Revenue Recognition and Natural Gas Balancing. Sales of oil, natural gas and NGLs are recorded at a point in time when control of the oil, natural gas and NGL production passes to the customer at the inlet of the processing plant or pipeline, or the delivery point for onloading to a delivery truck, net of royalties, discounts and allowances, as applicable. Additionally, the Company deducts transportation costs from oil, natural gas and NGL revenues. Taxes assessed by governmental authorities on oil, natural gas and NGL sales are included in production, ad valorem and other taxes in the consolidated statements of operations. See Note 16 for further information on the Company's accounting policies related to revenues. 67 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements The Company accounts for natural gas production imbalances using the sales method, which recognizes revenue on all natural gas sold even though the natural gas volumes sold may be more or less than the Company's ownership entitles it to sell. Liabilities are recorded for imbalances greater than the Company’s proportionate share of remaining estimated natural gas reserves. The Company has recorded a liability for natural gas imbalance positions of $ 1.1 million and $ 1.6 million at December 31, 2020 and 2019, respectively. The Company includes the gas imbalance positions in other long-term obligations in the consolidated balance sheets. Allocation of Share-Based Compensation. Equity compensation provided to employees directly involved in exploration and development activities is capitalized to the Company’s oil and natural gas properties. Equity compensation not capitalized is recognized in general and administrative expenses, production expenses, and other operating expense in the accompanying consolidated statements of operations. Restructuring expenses . Restructuring expenses represent fees and costs associated with our outsourcing and relocation of certain corporate specific functions that are of a non-recurring nature, and expenses related to the 2016 bankruptcy. Income Taxes. Deferred income taxes reflect the net tax effects of temporary differences between the amounts of assets and liabilities reported for financial statement purposes and their tax basis. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. The Company has elected an accounting policy in which interest and penalties on income taxes resulting from the underpayment or late payment of income taxes due to a taxing authority or relating to income tax contingencies are presented as a component of the income tax provision, rather than as interest expense. Earnings per Share. Basic earnings per common share is calculated by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing earnings available to common stockholders by the weighted average number of diluted common shares outstanding, which includes the effect of potentially dilutive securities. Potentially dilutive securities consist of unvested restricted stock awards, performance share units, warrants, and stock options using the treasury method. Under the treasury method, the amount of unrecognized compensation expense related to unvested stock-based compensation grants or the proceeds that would be received if the warrants were exercised are assumed to be used to repurchase shares at the average market price. When a loss exists, all potentially dilutive securities are anti-dilutive and are therefore excluded from the computation of diluted earnings per share. See Note 20 for the Company’s earnings per share calculation. Commitments and Contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Environmental expenditures are expensed or capitalized, as appropriate, depending on future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefit are expensed. Environmental liabilities related to future costs are recorded on an undiscounted basis when assessments and/or remediation activities are probable and costs can be reasonably estimated. See Note 13 for discussion of the Company’s commitments and contingencies. Concentration of Risk. All of the Company’s commodity derivative transactions have been carried out in the over-the-counter market, which involves the risk that the counterparties may be unable to meet the financial terms of the transactions. The counterparties for all of the Company’s commodity derivative transactions have an “investment grade” credit rating. The Company monitors the credit ratings of its commodity derivative counterparties on an ongoing basis and considers their credit default risk ratings in determining the fair value of its commodity derivative contracts. The Company’s commodity derivative contracts have been with multiple counterparties to minimize exposure to any individual counterparty. The Company was not required to provide collateral to counterparties in order to secure commodity derivative instruments. The Company had master netting agreements with all of its commodity derivative counterparties, which allowed the Company to net its commodity derivative assets and liabilities for like commodities and derivative instruments with the same counterparty. As a result of the netting provisions, the Company’s maximum amount of loss under commodity derivative transactions due to credit risk was limited to the net amounts due from the counterparties under the commodity derivative contracts. The Company’s loss was further limited as any amounts due from a defaulting counterparty that was a lender under 68 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements the Prior Credit Facility could have been offset against any amounts owed to the same counterparty under the Prior Credit Facility. The Company operates a substantial portion of its oil and natural gas properties. As the operator of a property, the Company makes full payment for costs associated with the property and seeks reimbursement from the other working interest owners in the property for their share of those costs. The Company’s joint interest partners are primarily independent oil and natural gas producers. If the oil and natural gas exploration and production industry in general was adversely affected, the ability of the joint interest partners to reimburse the Company could be adversely affected. Purchasers of the Company’s oil, natural gas and NGL production consist primarily of independent marketers, large oil and natural gas companies and gas pipeline companies. The Company believes alternate purchasers are available in its areas of operations and does not believe the loss of any one purchaser would materially affect its ability to sell the oil, natural gas and NGLs it produces. The Company had sales exceeding 10% of total revenues to the following oil and natural gas purchasers (in thousands): Sales % of Revenue December 31, 2020 Plains Marketing, L.P. $ 40,058 34.8 % Targa Pipeline Mid-Continent West OK LLC $ 38,287 33.3 % Sinclair Crude Company $ 36,375 31.6 % December 31, 2019 Targa Pipeline Mid-Continent West OK LLC $ 85,780 32.1 % Sinclair Crude Company $ 74,810 28.0 % Plains Marketing, L.P. $ 69,214 25.9 % Recently Adopted Accounting Pronouncements . Accounting Standards Updates ("ASU") 2016-13 - In March 2016, the FASB issued ASU 2016-13, “Financial Instruments —Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments,” which changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaced the previously required incurred loss approach with an expected loss model for instruments measured at amortized cost. The company adopted this ASU on January 1, 2020 using a modified retrospective approach; however, the impact was not material upon adoption. Recent Accounting Pronouncements Not Yet Adopted. ASU 2020-04 - In March 2020, FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), to facilitate the effects of reference rate reform on financial reporting. This ASU provides optional practical expedients and exceptions for applying US GAAP provisions to contracts, hedging relationships, and other transactions that reference LIBOR, or other reference rates expected to be discontinued because of reference rate reform, if certain criteria are met. The provisions of this ASU do not apply to contract modifications made and hedging transactions entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in ASU 2020-04 are effective, for all entities, as of March 12, 2020 through December 31, 2022. The Company is currently reviewing the potential impact of the upcoming LIBOR reference rate change on its current contracts and hedging relationships and will determine the applicable provisions of ASU 2020-04. ASU 2019-12 - In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies various aspects of accounting for income taxes, including requirements related to hybrid tax regimes, the tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of entities not subject to tax, the intraperiod tax allocation exception to the incremental approach, ownership changes in investments, interim-period accounting for enacted changes in tax laws, and year-to-date loss limitation in interim-period tax accounting. The standard is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted, and will be applied on a prospective basis. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements. 69 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements 2. Supplemental Cash Flow Information Supplemental disclosures to the consolidated statements of cash flows are presented below (in thousands): Year Ended December 31, 2020 2019 Supplemental Disclosure of Cash Flow Information Cash paid for interest, net of amounts capitalized $ ( 1,260 ) $ ( 2,157 ) Cash received for income taxes $ 616 $ — Supplemental Disclosure of Noncash Investing and Financing Activities Purchase of PP&E in accounts payable $ 396 $ 4,592 Right-of-use assets obtained in exchange for financing lease obligations $ 67 $ 3,347 Carrying value of properties exchanged $ 3,890 $ 5,384 3. Acquisitions, Divestitures and Disposal of Assets and Oil and Gas Properties 2020 Acquisitions and Divestitures On September 10, 2020, the Company acquired all of the overriding royalty interests held by SandRidge Mississippian Royalty Trust II ("the Trust") for a net purchase price of $ 3.3 million, given our 37.6 % ownership of the Trust. The Company accounted for this transaction as an asset acquisition and allocated the purchase price of the acquisition plus the transactions costs to oil and gas properties. On August 31, 2020, the Company closed on the previously announced sale of its corporate headquarters building located in Oklahoma City, OK, for net proceeds of approximately $ 35.4 million. See Note 9 for additional discussion on the sale of the building. 2019 Acquisitions and Divestitures Nonmonetary transaction. During the third quarter of 2019, the Company transferred its interest in certain proved oil and natural gas properties located in Comanche, Harper and Sumner counties in Kansas along with associated electrical infrastructure and an insignificant amount of accounts receivable with an aggregate estimated fair value of $ 5.4 million, for an interest in certain other proved oil and natural gas properties located in Comanche, Harper and Barber counties in Kansas. The fair value of the assets given in the transaction approximated their carrying value, therefore no gain or loss was recognized on the transfer. 4. Fair Value Measurements The Company measures and reports certain assets and liabilities on a fair value basis and has classified and disclosed its fair value measurements using the levels of the fair value hierarchy noted below. The carrying values of cash, restricted cash, accounts receivable, prepaid expenses, certain other current and non-current assets, accounts payable and accrued expenses and other current liabilities and other long-term obligations included in the consolidated balance sheets approximated fair value at December 31, 2020 and December 31, 2019. Additionally, the carrying amount of debt associated with borrowings outstanding under the New Credit Facility approximates fair value as borrowings bear interest at variable rates. As a result, these financial assets and liabilities are not discussed below. Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. Level 3 Measurement based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable for objective sources ( i.e., supported by little or no market activity). 70 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements Assets and liabilities that are measured at fair value are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of the fair value assets and liabilities and their placement within the fair value hierarchy levels. The determination of the fair values, stated below, considers the market for the Company's financial assets and liabilities, the associated credit risk and other factors. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. The Company has assets and liabilities classified in Level 2 of the hierarchy as of December 31, 2019, as described below. Level 2 Fair Value Measurements Commodity Derivative Contracts. The fair values of the Company’s oil and natural gas fixed price swaps are based upon inputs that are either readily available in the public market, such as oil and natural gas futures prices, volatility factors and discount rates, or can be corroborated from active markets. Fair value is determined through the use of a discounted cash flow model or option pricing model using the applicable inputs discussed above. The Company applies a weighted average credit default risk rating factor for its counterparties or gives effect to its credit default risk rating, as applicable, in determining the fair value of these derivative contracts. Credit default risk ratings are based on current published credit default swap rates. Fair Value - Recurring Measurement Basis There are no open commodity derivatives contracts as of December 31, 2020. The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis by the fair value hierarchy (in thousands): December 31, 2019 Fair Value Measurements Netting(1) Assets/Liabilities at Fair Value Level 1 Level 2 Level 3 Assets Commodity derivative contracts $ — $ 114 $ — $ — $ 114 $ — $ 114 $ — $ — $ 114 ____________________ (1) Represents the impact of netting assets and liabilities with counterparties where the right of offset exists. Transfers. During the years ended December 31, 2020 and 2019, the Company did not have any transfers between Level 1, Level 2 or Level 3 fair value measurements. Fair Value of Non-Financial Assets and Liabilities See Note 9 for discussion of the Company’s impairment valuations. 5. Accounts Receivable A summary of accounts receivable is as follows (in thousands): December 31, 2020 2019 Oil, natural gas and NGL sales $ 12,757 $ 22,281 Joint interest billing 6,421 5,165 Other 4,754 2,315 Total accounts receivable 23,932 29,761 Less: allowance for doubtful accounts ( 4,356 ) ( 1,117 ) Total accounts receivable, net $ 19,576 $ 28,644 71 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements The following table presents the balance and activity in the allowance for doubtful accounts for the years ended December 31, 2020 and 2019 (in thousands): Year Ended December 31, 2020 2019 Beginning balance $ 1,117 $ 1,295 Additions charged to costs and expenses (1) 3,239 6 Deductions (2) — ( 184 ) Ending balance $ 4,356 $ 1,117 ____________________ (1) The Company performed an assessment of receivable balances related to governmental and other regulatory items during the year ended December 31, 2020, and recorded a $ 2.5 million allowance that is non-recurring in nature. (2) Deductions represent the write-off of receivables and collections of amounts for which an allowance had previously been established. 6. Derivatives Commodity Derivatives The Company is exposed to commodity price risk, which impacts the predictability of its cash flows from the sale of oil and natural gas. On occasion, the Company has attempted to manage this risk on a portion of its forecasted oil or natural gas production sales through the use of commodity derivative contracts. The Company has not designated any of its derivative contracts as hedges for accounting purposes. All derivative contracts are recorded at fair value with changes in derivative contract fair values recognized as gain or loss on derivative contracts in the consolidated statements of operations. None of the Company’s commodity derivative contracts may be terminated prior to contractual maturity solely as a result of a downgrade in the credit rating of a party to the contract. Commodity derivative contracts are settled on a monthly basis, and the commodity derivative contract valuations are adjusted to the mark-to-market valuation on a quarterly basis. The following table summarizes derivative activity for the years ended December 31, 2020 and 2019 (in thousands): Year Ended December 31, 2020 2019 Gain on commodity derivative contracts $ ( 5,765 ) $ ( 1,094 ) Cash received on settlements $ ( 5,879 ) $ ( 6,266 ) Master Netting Agreements and the Right of Offset. The Company has master netting agreements with all of its commodity derivative counterparties and has presented its derivative assets and liabilities with the same counterparty on a net basis by commodity type in the consolidated balance sheets. As a result of the netting provisions, the Company's maximum amount of loss under commodity derivative transactions due to credit risk is limited to the net amounts due from its counterparties. As of December 31, 2019, the counterparties to the Company’s open commodity derivative contracts consisted of three financial institutions, all of which were also lenders under the Company’s Prior Credit Facility. The Company was not required to post additional collateral under its commodity derivative contracts as all of the counterparties to the Company’s commodity derivative contracts shared in the collateral supporting the Company’s Prior Credit Facility. 72 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements There are no open commodity derivatives contracts as of December 31, 2020. The following table summarizes (i) the Company's commodity derivative contracts on a gross basis, (ii) the effects of netting assets and liabilities for which the right of offset exists based on master netting arrangements and (iii) for the Company’s net derivative liability positions, the applicable portion of shared collateral under the Prior Credit Facility as of December 31, 2019 (in thousands): December 31, 2019 Gross Amounts Gross Amounts Offset Amounts Net of Offset Financial Collateral Net Amount Assets Derivative contracts - current $ 114 $ — $ 114 $ — $ 114 Total $ 114 $ — $ 114 $ — $ 114 Fair Value of Derivatives The following table presents the fair value of the Company’s derivative contracts on a gross basis without regard to same-counterparty netting (in thousands): December 31, Type of Contract Balance Sheet Classification 2019 Derivative assets Oil price swaps Derivative contracts - current $ 114 Natural gas price swaps Derivative contracts - current $ — Total net derivative contracts $ 114 See Note 4 for additional discussion of the fair value measurement of the Company’s derivative contracts. 7. Leases Topic 842 provides practical expedients to assist with the transition to the new standard. The Company elected the 'package of practical expedients,' and therefore did not have to reassess prior conclusions about lease identification, lease classification and initial indirect costs. The Company also elected the land easement practical expedient and short-term lease recognition exemption, under which leases with initial terms less than 12 months are not required to be presented on the balance sheet. The Company further elected the practical expedient to combine lease and non-lease components for asset classes including drilling rigs, compressors and various office equipment. The Company determines if an arrangement is or contains a lease at inception. A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. Lease liabilities were recognized based on the present value of the lease payments not yet paid over the lease term at January 1, 2019 for existing leases and at the commencement date for any new leases entered into subsequent to January 1, 2019. As most of the Company's leases do not provide an implicit rate, the Company's incremental borrowing rate was used as the discount rate when determining the present value of future payments. Lease assets are recognized based on the lease liability plus any prepaid lease payments and excluding lease incentives and initial direct costs incurred for the same periods. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that option will be exercised. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Operating leases are included in other assets, other current liabilities and other long-term obligations , and finance leases are included in other property, plant and equipment, other current liabilities and other long-ter m obligations on the accompanying consolidated balance sheet as of December 31, 2020. The Company had operating and financing leases for vehicles and equipment outstanding during the year ended December 31, 2020, which were not significant to the consolidated financial statements. The components of lease costs recognized for the Company's ROU leases are shown below (in thousands): 73 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements Year Ended December 31, 2020 Year Ended December 31, 2019 Short-term lease cost (1) $ 1,880 $ 9,994 Financing lease cost 1,220 1,397 Operating lease cost 169 188 Total lease cost $ 3,269 $ 11,579 ___________________ (1) There were no short-term lease costs capitalized as part of oil and natural gas properties during the year ended December 31, 2020 and $ 4.8 million in 2019. Portions of these costs were reimbursed to the Company by other working interest owners. 8. Property, Plant and Equipment Property, plant and equipment consists of the following (in thousands): December 31, 2020 2019 Oil and natural gas properties Proved $ 1,463,950 $ 1,484,359 Unproved 17,964 24,603 Total oil and natural gas properties 1,481,914 1,508,962 Less accumulated depreciation, depletion and impairment ( 1,375,692 ) ( 1,129,622 ) Net oil and natural gas properties capitalized costs 106,222 379,340 Land 200 4,400 Electrical infrastructure 121,819 126,482 Non-oil and natural gas equipment 1,563 12,665 Buildings and structures 3,603 77,148 Financing Leases 1,051 2,109 Total 128,236 222,804 Less accumulated depreciation and amortization ( 25,118 ) ( 34,201 ) Other property, plant and equipment, net 103,118 188,603 Total property, plant and equipment, net $ 209,340 $ 567,943 The average rates used for depreciation and depletion of oil and natural gas properties were $ 5.11 per Boe in 2020 and $ 12.28 per Boe in 2019. See Note 9 for discussion of impairment of other property, plant and equipment. Costs Excluded from Amortization The costs excluded from amortization was related to unproved properties, which were excluded from oil and natural gas properties subject to amortization at December 31, 2020 and 2019 were $ 18.0 million and $ 24.6 million, respectively. For leases that do not have existing production that would otherwise extend the lease term, the Company estimates that any associated unproved costs will be evaluated and transferred to the amortization base of the full cost pool within a three to five year period from the original lease date. For leases that are held by production, the Company estimates that any associated unproved costs will be evaluated and transferred to the amortization base of the full cost pool within a 10 -year period from the original lease date. In addition, the Company’s internal engineers evaluate all properties on a quarterly basis. 74 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements 9. Impairment The Company assesses the need to impair its oil and gas properties during its quarterly full cost pool ceiling limitation calculation. The Company analyzes various property, plant and equipment for impairment when certain triggering events occur by comparing the carrying values of the assets to their estimated fair values. The full cost pool ceiling limitation and estimated fair values of drilling, midstream, and other assets were determined in accordance with the policies discussed in Note 1. Impairment for the years ended December 31, 2020 and 2019 consists of the following (in thousands): Year Ended December 31, 2020 2019 Full cost pool ceiling limitation $ 218,399 $ 409,574 Other 38,000 — $ 256,399 $ 409,574 The ceiling limitation impairment charges recorded for the year ended December 31, 2020 resulted from various factors, including a decrease in proved reserve value driven by a significant decline in the trailing twelve-month weighted average oil and natural gas prices in the first, second and third quarters of 2020. Impairment recorded in the year ended December 31, 2019 largely resulted from a decrease in the trailing twelve-month weighted average SEC prices for oil and natural gas prices in 2019, lower NGL prices, increases in expected operating expenses, and other less significant inputs. See Note 21 for additional discussion of our oil and gas producing properties. For the quarter ended December 31, 2020, we recorded a full cost ceiling limitation impairment charge of $ 2.6 million. The asset impairment charge of $ 38.0 million recorded for the year ended December 31, 2020 resulted from the write down of the net carrying amount of the office headquarters building assets to their estimated fair value less estimated costs to sell the building. In May 2020, the Company entered into an agreement for the sale of its corporate headquarters building located in Oklahoma City, OK. The building sale closed on August 31, 2020. In accordance with the applicable accounting guidance, FASB ASC 360-10-45-9, the Company reclassified its corporate headquarters building net carrying amount from Other property, plant and equipment, net, to Assets held for sale on the Consolidated Balance Sheet at June 30, 2020. The Company also reclassified the liabilities associated with the corporate headquarters building from Accounts payable and accrued expenses to Liabilities held for sale on the Consolidated Balance Sheet at June 30, 2020. Further, the Company recorded an impairment charge of $ 38.0 million in the three-month period ended June 30, 2020 to write down the net carrying amount of the office headquarters building assets to their estimated fair value less estimated costs to sell the building. No impairment charges were recorded for the corporate headquarters building assets for the year ended December 31, 2019. Prior to the sale of the corporate headquarters building, the carrying amount of the building was assessed for recoverability and impairment using undiscounted cash flow measures of the consolidated Company as prescribed under ASC 360-10-35, rather than fair value as prescribed under ASC 360-10-45-9. 10. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following (in thousands): December 31, 2020 2019 Accounts payable and other accrued expenses $ 23,017 $ 29,423 Production payable 15,367 22,530 Payroll and benefits 5,640 7,021 Taxes payable 6,864 4,988 Drilling advances 477 514 Accrued interest 61 461 Total accounts payable and accrued expenses $ 51,426 $ 64,937 75 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements 11. Long-Term Debt Long-term debt consists of the following (in thousands): December 31, 2020 2019 New Credit Facility - Term Loan $ 20,000 $ — Prior Credit Facility — 57,500 Total debt 20,000 57,500 Less: current maturities of long-term debt — — Long-term debt $ 20,000 $ 57,500 Credit Facility. On November 30, 2020 the Company entered into a $ 30 million credit facility with a related party and affiliate of Icahn Enterprises and Icahn Agency Services LLC, as administrative agent (the “New Administrative Agent”). The New Credit Facility matures on November 30, 2023. The New Credit Facility consists of a $ 10 million revolving loan facility and a $ 20 million term loan facility. At December 31, 2020, the Company had a $ 20.0 million term loan outstanding under the New Credit Facility and $ 10.0 million available to be drawn under the New Credit Facility. The New Credit Facility replaced the Company’s Prior Credit Facility, dated February 10, 2017, as amended which was terminated effective November 30, 2020 and otherwise would have matured on April 1, 2021. The company used the $ 20.0 million term loan proceeds to repay the $ 12.0 million outstanding on the Prior Credit Facility on November 30, 2020. There are no scheduled borrowing base redeterminations under the New Credit Facility. The outstanding borrowings under the New Credit Facility bear interest at a rate tied to a utilization ratio of (a) LIBOR plus an applicable margin that varies from 200 to 300 basis points or (b) the base rate plus an applicable margin that varies from 100 basis points to 200 basis points. During the year ended December 31, 2020, the weighted average interest rate paid for borrowings outstanding under both the outstanding Prior Credit Facility and the New Credit Facility was approximately 3.2 %. The Company has the right to prepay loans under the New Credit Facility at any time without a prepayment penalty, other than customary “breakage” costs with respect to LIBOR loans. Furthermore, the New Credit Facility is secured by (i) first-priority mortgages on at least 95 % of the PV-9 pricing of the of all proved reserves included in the most recently delivered reserve report of the Company, (ii) a first-priority perfected pledge of substantially all of the capital stock owned by each credit party and (iii) a first-priority security interest in the cash, cash equivalents, deposit, securities and other similar accounts, and a first-priority perfected security interest in substantially all other tangible and intangible assets of the credit parties (including but not limited to as-extracted collateral, accounts receivable, inventory, equipment, general intangibles, investment property, intellectual property, real property and the proceeds of the foregoing). The New Credit Facility includes events of default and certain customary affirmative and negative covenants. The Company is required maintain certain financial covenants, commencing with the first full quarter ending after the effective date thereof to, maintain (i) a maximum consolidated total net leverage ratio, measured as of the end of any fiscal quarter, of no greater than 3.50 to 1.00 and (ii) a minimum consolidated interest coverage ratio, measured as of the end of any fiscal quarter, of no less than 2.25 to 1.00. As of December 31, 2020, the Company was in compliance with all applicable covenants and had a consolidated total net leverage ratio of ( 0.15 ) and consolidated interest coverage ratio of 26.71 . During the year ended December 31, 2020, the Company paid a related party, an affiliate of Icahn Enterprises, an immaterial amount of interest expense which is included on the Interest expense, net line item on the Consolidated Statement of Operations. The total outstanding balance of the New Credit facility is recorded in long-term debt on the consolidated balance sheet as of December 31, 2020. The Prior Credit Facility was amended and restated on June 21, 2019 and had a borrowing base of $ 75.0 million when it was terminated. The interest rate on outstanding borrowings under the restated credit facility was determined by a pricing grid tied to borrowing base utilization of (a) LIBOR plus an applicable margin that varies from 2.00 % to 3.00 % per annum, or (b) 76 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements the base rate plus an applicable margin that varies from 1.00 % to 2.00 % per annum. Quarterly, the Company paid commitment fees assessed at annual rates of 0.50 % on any available portion of the Prior Credit Facility. 12. Asset Retirement Obligations The following table presents the balance and activity of the Company’s asset retirement obligations (in thousands): Year Ended December 31, 2020 2019 Beginning balance $ 75,016 $ 60,064 Liability incurred upon acquiring and drilling wells 309 2,771 Revisions in estimated cash flows (1) ( 17,192 ) 12,208 Liability settled or disposed in current period ( 6,866 ) ( 5,379 ) Accretion 5,901 5,352 Ending balance 57,168 75,016 Less: current portion 16,467 22,119 Asset retirement obligations, net of current $ 40,701 $ 52,897 ____________________ (1) Revisions for the years ended December 31, 2020 and 2019 relate primarily to changes in estimated well lives due to changes in oil and natural gas prices and changes in plugging cost estimates. 13. Commitments and Contingencies Included below is a discussion of the Company's various future commitments and contingencies as of December 31, 2020. The commitments and contingencies under these arrangements are not recorded in the accompanying consolidated balance sheets. At December 31, 2020 the Company's only material commitment in each of the next five years and beyond is its asset retirement obligations. See Note 12. for additional discussions. Legal Proceedings. As previously disclosed, on May 16, 2016, the Company and certain of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Bankruptcy Court confirmed the joint plan of organization (the “Plan”) of the Debtors on September 9, 2016, and the Debtors subsequently emerged from bankruptcy on October 4, 2016. Pursuant to the Plan, claims against the Company were discharged without recovery in each of the following consolidated cases (the “Cases”): • In re SandRidge Energy, Inc. Securities Litigation , Case No. 5:12-cv-01341-LRW, USDC, Western District of Oklahoma; and • Ivan Nibur, Lawrence Ross, Jase Luna, Matthew Willenbucher, and the Duane & Virginia Lanier Trust v. SandRidge Mississippian Trust I, et al ., Case No. 5:15-cv-00634-SLP, USDC, Western District of Oklahoma The lead plaintiffs in both In re SandRidge Energy, Inc. Securities Litigation and Lanier Trust assert claims on behalf of themselves and (i) in In re SandRidge Energy, Inc. Securities Litigation, a class of all purchasers of SandRidge common stock from February 24, 2011 and November 8, 2012 under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and (ii) in Lanier Trust, a putative class of purchasers of SandRidge Mississippian Trust I and SandRidge Mississippian Trust II common units between April 7, 2011 and November 8, 2012 under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, both based on allegations that defendants, which include certain former officers of the Company and the SandRidge Mississippian Trust I, made misrepresentations or omissions concerning various topics including the performance of wells operated by the Company in the Mississippian region. Discovery in each of the Cases closed on June 19, 2019. Following a hearing on class certification in each of the Cases on September 6, 2019, the court granted class certification in In re SandRidge Energy, Inc. Securities Litigation on September 77 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements 30, 2019. The motion for class certification in Lanier Trust remains pending. On April 2, 2020, the individual defendants and SandRidge Mississippian Trust I filed motions for summary judgment seeking the dismissal of all claims asserted against them in the Lanier Trust matter. On the same date, the individual defendants filed motions for summary judgment seeking the dismissal of all claims asserted against them In re SandRidge Energy, Inc. Securities Litigation. The motions remain pending. In each of the Cases, lead plaintiffs seek to recover unspecified damages, interest, costs and expenses incurred in the litigation on behalf of themselves and class members. Although the claims against the Company in each Case have been discharged pursuant to the Plan, the Company remains a nominal defendant. The Company may also be contractually obligated to indemnify two former officers who are defendants and the SandRidge Mississippian Trust I against losses, claims, damages, liabilities and expenses, including reasonable costs of investigation and attorney’s fees and expenses, which it is required to advance, arising out of the Cases, although the Company disputes any such obligations. Such indemnification is not covered by insurance with respect to the Trust. As of October 2020, we have exhausted all remaining insurance coverage for the costs of indemnification and expect no further reimbursements. In light of the status of the Cases, and the facts, circumstances and legal theories relating thereto, the Company is not able to determine the likelihood of an outcome in either case or provide an estimate of any reasonably possible loss or range of possible loss related thereto. However, considering the exhaustion of insurance coverage available to the Company, such losses, if incurred, could be material. The Company has not established any liabilities relating to the Cases and believes that the plaintiffs’ claims are without merit. The Company intends to continue to vigorously defend against the Cases in its capacity as a nominal defendant. In addition to the matters described above, the Company is involved in various lawsuits, claims and proceedings, which are being handled and defended by the Company in the ordinary course of business. 14. Income Taxes The Company’s income tax (benefit) provision consisted of the following components (in thousands): Year Ended December 31, 2020 2019 Current Federal $ ( 646 ) $ — State — — ( 646 ) — Deferred Federal — — State — — — — Total (benefit) provision $ ( 646 ) $ — A reconciliation of the (benefit) provision for income taxes at the statutory federal tax rate to the Company’s actual income tax (benefit) provision is as follows (in thousands): 78 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements Year Ended December 31, 2020 2019 Computed at federal statutory rate $ ( 58,574 ) $ ( 94,354 ) State taxes, net of federal benefit ( 10,898 ) ( 20,500 ) Non-deductible expenses 18 137 Stock-based compensation 643 602 Return to provision adjustments ( 945 ) ( 6,096 ) Refund of AMT Sequestration ( 646 ) — Change in valuation allowance 69,285 120,211 Other 471 — Total (benefit) provision $ ( 646 ) $ — Deferred income taxes are provided to reflect the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The Company’s deferred tax assets have been reduced by a valuation allowance due to a determination made that it is more likely than not that some or all of the deferred assets will not be realized based on the weight of all available evidence. The Company continues to closely monitor and weigh all available evidence, including both positive and negative, in making its determination whether to maintain a valuation allowance. As a result of the significant weight placed on the Company’s cumulative negative earnings position, the Company continued to maintain the full valuation allowance against its remaining net deferred tax asset at December 31, 2019 and December 31, 2020. Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands): December 31, 2020 December 31, 2019 Deferred tax liabilities Investments (1) $ 34,816 $ 109,289 Derivative contracts — 29 Total deferred tax liabilities 34,816 109,318 Deferred tax assets Property, plant and equipment 317,063 300,704 Net operating loss carryforwards 365,772 383,418 Tax credits and other carryforwards 33,538 34,148 Asset retirement obligations 15,216 18,747 Other 2,500 2,290 Total deferred tax assets 734,089 739,307 Valuation allowance ( 699,273 ) ( 629,989 ) Net deferred tax liability $ — $ — ____________________ (1) Includes the Company’s deferred tax liability resulting from its investment in the Royalty Trusts. 79 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements Internal Revenue Code (“IRC”) Section 382 addresses company ownership changes and specifically limits the utilization of certain deductions and other tax attributes on an annual basis following an ownership change. As a result of the Chapter 11 reorganization and related transactions, the Company experienced an ownership change within the meaning of IRC Section 382 during 2016 that subjected certain of the Company’s tax attributes, including net operating losses ("NOLs"), to an IRC Section 382 limitation. This limitation has not resulted in cash taxes for any period subsequent to the ownership change. Since the 2016 ownership change, the Company has generated additional NOLs and other tax attributes that are not currently subject to an IRC Section 382 limitation. The Company's ability to use NOLs and other tax attributes to reduce taxable income and income taxes could be materially impacted by a future IRC 382 ownership change. Future transactions involving the Company's stock including those outside of the Company's control could cause an IRC 382 ownership change resulting in a limitation on tax attributes currently not limited and a more restrictive limitation on tax attributes currently subject to the previous IRC 382 limitation. As of December 31, 2020, the Company had approximately $ 1.4 billion of federal NOL carryforwards, net of NOLs expected to expire unused due to the 2016 IRC Section 382 limitation. Of the $ 1.4 billion of federal NOL carryforwards, $ 0.8 billion expire during the years 2025 through 2037, while $ 0.6 billion do not have an expiration date. Additionally, the Company had federal tax credits in excess of $ 33.5 million which begin expiring in 2029. The Company did not have unrecognized tax benefits at December 31, 2020 or 2019. The Company’s only taxing jurisdiction is the United States (federal and state). The Company’s tax years 2016 to present remain open for federal examination. Additionally, tax years 2005 through 2016 remain subject to examination for the purpose of determining the amount of federal NOL and other carryforwards. The number of years open for state tax audits varies, depending on the state, but is generally from three to five years . On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act provides relief to corporate taxpayers by permitting a five year carryback of 2018-2020 NOLs, removing the 80% limitation on the carryback of those NOLs, increasing the Section 163(j) 30% limitation on interest expense deductibility to 50% of adjusted taxable income for 2019 and 2020, and accelerates refunds for minimum tax credit carryforwards. Further, on December 27, 2020, the President of the United States signed into law the Consolidated Appropriations Act, 2021 (“Appropriations Act”). During the year ended December 31, 2020, no material adjustments were made to provision amounts recorded as a result of the enactment of the CARES Act or the Appropriations Act. In July 2020, the U.S. Treasury Department released final and proposed regulations on IRC Section 163(j) which limits business interest expense deductions. These regulations apply to tax years beginning January 1, 2021. However, taxpayers may choose to apply these regulations to tax years beginning after December 31, 2017. The Company plans to adopt the final regulations for the year ended December 31, 2020. This does not result in any material impact to the provision. 15. Equity Common Stock and Performance Share Units. At December 31, 2020, the Company had 35.9 million shares of common stock, par value $ 0.001 per share, issued and outstanding, including 0.1 million shares of unvested restricted stock awards, and 250.0 million shares of common stock authorized. The Company also has 0.2 million of performance share units and 0.1 million stock options outstanding at December 31, 2020 as discussed further in Note 17. Warrants. Since the fourth quarter of 2016, the Company has issued approximately 4.7 million Series A warrants and 2.0 million Series B warrants to certain holders of general unsecured claims as defined in the 2016 bankruptcy reorganization plan. These warrants are exercisable until October 4, 2022 for one share of common stock per warrant at initial exercise prices of $ 41.34 and $ 42.03 per share, respectively, subject to adjustments pursuant to the terms of the warrants. The warrants contain customary anti-dilution adjustments in the event of any stock split, reverse stock split, reclassification, stock dividend or other distributions. 80 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements The Tax Benefits Preservation Plan . On July 1, 2020, the Board declared a dividend distribution of one right (a “Right”) for each outstanding share of Company common stock, par value $ 0.001 per share to stockholders of record at the close of business on July 13, 2020. Each Right entitles its holder, under certain circumstances, to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock of the Company, par value $ 0.001 per share, at an exercise price of $ 5.00 per Right, subject to adjustment. The description and terms of the Rights are set forth in the tax benefits preservation plan, dated as of July 1, 2020, between the Company and American Stock Transfer & Trust Company, LLC, as rights agent (and any successor rights agent, the “Rights Agent”). The Company adopted the Tax Benefits Preservation Plan in order to protect shareholder value against a possible limitation on the Company’s ability to use its tax net operating losses (the “NOLs”) and certain other tax benefits to reduce potential future U.S. federal income tax obligations. The NOLs are a valuable asset to the Company, which may inure to the benefit of the Company and its stockholders. However, if the Company experiences an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), its ability to fully utilize the NOLs and certain other tax benefits will be substantially limited and the timing of the usage of the NOLs and such other benefits could be substantially delayed, which could significantly impair the value of those assets. Generally, an “ownership change” occurs if the percentage of the Company’s stock owned by one or more of its “five-percent shareholders” (as such term is defined in Section 382 of the Code) increases by more than 50 percentage points over the lowest percentage of stock owned by such stockholder or stockholders at any time over a three-year period. The Tax Benefits Preservation Plan is intended to prevent against such an “ownership change” by deterring any person or group from acquiring beneficial ownership of 4.9% or more of the Company’s securities. Subject to certain exceptions, the Rights become exercisable and trade separately from Common Stock only upon the “Distribution Time,” which occurs upon the earlier of: • the close of business on the tenth (10th) day after the “Stock Acquisition Date,” which is (a) the first date of public announcement that a person or group of affiliated or associated persons (with certain exceptions, an “Acquiring Person”) has acquired, or obtained the right or obligation to acquire, beneficial ownership of 4.9% or more of the outstanding shares of Common Stock (with certain exceptions) or (b) such other date, as determined by the Board, on which a person or group has become an Acquiring Person, or • the close of business on the tenth (10th) business day (or later date as may be determined by the Board prior to such time as any person or group becomes an Acquiring Person) following the commencement of a tender offer or exchange offer which, if consummated, would result in a person or group becoming an Acquiring Person. Any existing stockholder or group that beneficially owns 4.9% or more of Common Stock has been grandfathered at its current ownership level, but the Rights will not be exercisable if, at any time after the announcement of the Tax Benefits Preservation Plan, such stockholder or group increases its ownership of Common Stock by one share of Common Stock. Certain synthetic interests in securities created by derivative positions, whether or not such interests are considered to be ownership of the underlying Common Stock or are reportable for purposes of Regulation 13D of the Securities Exchange Act of 1934, as amended, are treated as beneficial ownership of the number of shares of Common Stock equivalent to the economic exposure created by the derivative position, to the extent actual shares of Common Stock are directly or indirectly held by counterparties to the derivatives contracts. Until the earlier of the Distribution Time and the Expiration Time, the surrender for transfer of any shares of Common Stock will also constitute the transfer of the Rights associated with those shares. As soon as practicable after the Distribution Time, separate rights certificates will be mailed to holders of record of Common Stock as of the close of business on the Distribution Time. From and after the Distribution Time, the separate rights certificates alone will represent the Rights. Except as otherwise provided in the Tax Benefits Preservation Plan, only shares of Common Stock issued prior to the Distribution Time will be issued with Rights. The Rights are not exercisable until the Distribution Time. The Tax Benefits Preservation Plan will expire on the earliest of: (i) the close of business on the day following the certification of the voting results of the Company’s 2021 annual meeting of stockholders or any prior special meeting of stockholders, if at such stockholder meeting a proposal to approve this Agreement has not been passed by the affirmative vote of the holders of at least majority of the shares of Common Stock entitled to vote at the 2021 annual meeting of stockholders or 81 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements any other meeting of the stockholders of the Company duly held prior to such meeting, (ii) the time at which the Rights are redeemed pursuant to the Tax Benefits Preservation Plan, (iii) the time at which the Rights are exchanged pursuant to the Tax Benefits Preservation Plan, (iv) the closing of any merger or other acquisition transaction involving the Company pursuant to an agreement of the type described in Section 13(f) of the Tax Benefits Preservation Plan, at which time, the Rights are terminated, (v) the time at which the Board determines that the NOLs are utilized in all material respects or that an ownership change under Section 382 would not adversely impact in any material respect the time period in which the Company could use the NOLs, or materially impair the amount of the NOLs that could be used by the Company in any particular time period, for applicable tax purposes and (vi) the Close of Business on July 1, 2023 (the earliest of (i), (ii), (iii), (iv), (v), and (vi) being herein referred to as the “Expiration Time”). In the event that any person or group (other than certain exempt persons) becomes an Acquiring Person (a “Flip-in Event”), each holder of a Right (other than any Acquiring Person and certain related parties, whose Rights automatically become null and void) will have the right to receive, upon exercise, shares of Common Stock having a value equal to two times the exercise price of the Right. In the event that, at any time following the Stock Acquisition Date, any of the following occurs (each, a “Flip-over Event”): • the Company consolidates with, or merges with and into, any other entity, and the Company is not the continuing or surviving entity • any entity engages in a share exchange with or consolidates with, or merges with or into, the Company, and the Company is the continuing or surviving entity and, in connection with such share exchange, consolidation or merger, all or part of the outstanding shares of Common Stock are changed into or exchanged for stock or other securities of any other entity or cash or any other property; or • the Company sells or otherwise transfers, in one transaction or a series of related transactions, fifty percent (50%) or more of the Company’s assets, cash flow or earning power, each holder of a Right (except Rights which previously have been voided as described above) will have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right. Shares Withheld for Taxes. The following table shows the number of shares withheld for taxes and the associated value of those shares (in thousands). These shares were accounted for as treasury stock when withheld, and then immediately retired. Year Ended December 31, 2020 2019 Number of shares withheld for taxes 51 56 Value of shares withheld for taxes $ 64 $ 367 16. Revenues The following table disaggregates the Company’s revenue by source for the years ended December 31, 2020 and 2019 (in thousands): Year Ended December 31, 2020 2019 Oil $ 73,621 $ 186,360 NGL 17,962 35,598 Natural gas 22,867 44,146 Other 526 741 Total revenues $ 114,976 $ 266,845 82 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements Oil, natural gas and NGL revenues. A majority of the Company’s revenues come from sales of oil, natural gas and NGLs. In accordance with the contracts governing these sales, performance obligations to customers are satisfied and revenues are recorded at a point in time when control of the oil, natural gas and NGL production passes to the customer at the inlet of the processing plant or pipeline, or the delivery point for onloading to a delivery truck. As the Company’s customers obtain control of the production prior to selling it to other end customers, the Company presents its revenues on a net basis, rather than on a gross basis. Pricing for the Company’s oil, natural gas and NGL contracts is variable and is based on volumes sold multiplied by either an index price, net of deductions, or a percentage of the sales price obtained by the customer, which is also based on index prices. The transaction price is allocated on a pro-rata basis to each unit of oil, natural gas or NGL sold based on the terms of the contract. Oil, natural gas and NGL revenues are also recorded net of royalties, discounts and allowances, and transportation costs, as applicable. Taxes assessed by governmental authorities on oil, natural gas and NGL sales are presented separately from revenues and are included in production, ad valorem, and other taxes expense in the consolidated statements of operations. Revenues Receivable. The Company records an asset in accounts receivable, net on its consolidated balance sheet for revenues receivable from contracts with customers at the end of each period. Pricing for revenues receivable is estimated using current month crude oil, natural gas and NGL prices, net of deductions. Revenues receivable are typically collected the month after the Company delivers the related production to its customers. As of December 31, 2020 and 2019 the Company had revenues receivable of $ 12.8 million and $ 22.3 million, respectively, and did not record any bad debt expense on revenues receivable during the year ended December 31, 2020. 17. Share-Based Compensation Share-Based Compensation Omnibus Incentive Plan. The Omnibus Incentive Plan became effective on October 4, 2016 and authorizes the issuance of up to 4.6 million shares of SandRidge common stock. Persons eligible to receive awards under the Omnibus Incentive Plan include non-employee directors of the Company, employees of the Company or any of its affiliates, and certain consultants and advisors to the Company or any of its affiliates. The types of awards that may be granted under the Omnibus Incentive Plan include stock options, restricted stock, performance awards and other forms of awards granted or denominated in shares of common stock, as well as certain cash-based awards. At December 31, 2020, the Company had restricted stock awards, restricted stock units, performance share units and stock options outstanding under the Omnibus Incentive Plan. Forfeitures for these awards are recognized as they occur. Restricted Stock Awards. The Company’s restricted stock awards are equity-classified awards and are valued based upon the market value of the Company’s common stock on the date of grant. Outstanding restricted shares at December 31, 2020 will generally vest over either a one-year period or three-year period with a remaining weighted average contractual period of 0.5 years and have $ 0.3 million of associated unrecognized compensation cost. 83 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements The following table presents a summary of the Company’s unvested restricted stock awards: Number of Shares Weighted- Average Grant Date Fair Value (In thousands) Unvested restricted shares outstanding at December 31, 2018 365 $ 16.07 Granted 93 $ 8.06 Vested ( 210 ) $ 16.29 Forfeited / Canceled ( 15 ) $ 16.25 Unvested restricted shares outstanding at December 31, 2019 233 $ 12.66 Granted 105 $ 2.15 Vested (1) ( 174 ) $ 11.53 Forfeited / Canceled ( 50 ) $ 15.97 Unvested restricted shares outstanding at December 31, 2020 114 $ 3.26 ____________________ (1) The aggregate intrinsic value of restricted stock that vested during 2020 was approximately $ 0.2 million based on the stock price at the time of vesting. Restricted Stock Units. The Company’s restricted stock units awards are equity-classified awards and are valued based upon the market value of the Company’s common stock on the date of grant. Outstanding restricted stock units at December 31, 2020 will generally vest over a three-year period with a remaining weighted average contractual period of 2.42 years and have $ 1.2 million associated unrecognized compensation cost at year in December 31, 2020. Compensation expense was $ 0.3 million. The following table presents a summary of the Company's restricted stock units: Number of Units Weighted- Average Grant Date Fair Value (In thousands) Unvested restricted stock units outstanding at December 31, 2019 — — Granted 1,410 1.10 Unvested restricted stock units outstanding at December 31, 2020 1,410 $ 1.10 Performance Share Units. In September 2018, the Company granted an immaterial number of additional performance share units. The vesting for the performance share units issued in 2018 was accelerated in connection with executive terminations in third quarter of 2020. In August 2020, the Company granted additional performance share units. Outstanding performance share units at December 31, 2020 will generally vest over a three year period with a remaining weighted average contractual period of 2.69 years and $ 0.3 million unrecognized compensation cost at year in December 31, 2020. Compensation expense was immaterial. The following table presents a summary of the Company's performance share units: Number of Units Weighted- Average Grant Date Fair Value (In thousands) Unvested performance share units outstanding at December 31, 2018 111 $ 20.41 Vested ( 19 ) 15.11 Unvested performance share units outstanding at December 31, 2019 92 20.41 Granted 205 1.66 Vested (1) ( 92 ) $ 20.41 Unvested performance share units outstanding at December 31, 2020 205 $ 1.66 84 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements (1) The aggregate intrinsic value of performance share units that vested during 2020 was approximately $ 0.1 million. Stock Options The fair value of stock options is estimated on the date of the grant using a Black-Scholes valuation model that uses the weighted average assumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s common stock and other factors. The Company uses historical data on the exercise of stock options, post-vesting forfeitures and other factors to estimate the expected term of the stock-based payments granted. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Generally, stock options granted to employees and directors vest ratably over three years from the grant date and expire seven years from the date of grant. Assumptions For the Year Ended December 31, 2020 Risk-free interest rate 1.4 % Expected dividend yield — % Expected volatility 46.2 % Expected term 2.75 The following table presents a summary of the Company's stock option activity for the year ended December 31, 2020: Number of Shares Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Term(years) Aggregate Intrinsic Value (in millions) (In thousands) Outstanding at December 31, 2019 — $ — — $ — Granted 245 — Forfeited / Canceled ( 154 ) — Outstanding at December 31, 2020 (1) 91 $ — 2.68 $ 0.24 Exercisable at December 31, 2020 — $ — — $ — ____________________ (1) All outstanding stock options as of December 31, 2020, are expected to vest. In February 2020, the Company, granted nonqualified stock options. As of December 31, 2020, the total unrecognized compensation expense was immaterial and will be recognized over a weighted average period of 2.18 years. No options vested during the year ended December 31, 2020. 85 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements The following tables summarize the Company's share and incentive-based compensation for the years ended December 31, 2020 and 2019 (in thousands): Recurring Compensation Expense(1) Executive Terminations(2) Reduction in Force(2) Accelerated Vesting(3) Total Year Ended December 31, 2020 Equity-classified awards: Restricted stock awards and units $ 974 $ 508 $ 40 $ — $ 1,522 Performance share units 211 1,276 — — 1,487 Stock options 22 — — — 22 Total share-based compensation expense 1,207 1,784 40 — 3,031 Less: Capitalized compensation expense ( 19 ) — — — ( 19 ) Share and incentive-based compensation expense, net $ 1,188 $ 1,784 $ 40 $ — $ 3,012 Year Ended December 31, 2019 Equity-classified awards: Restricted stock awards $ 2,526 $ 197 $ 500 $ — $ 3,223 Performance share units 282 281 — — 563 Stock options 661 12 — — 673 Total share-based compensation expense 3,469 490 500 — 4,459 Less: Capitalized compensation expense ( 204 ) — — — ( 204 ) Share and incentive-based compensation expense, net $ 3,265 $ 490 $ 500 $ — $ 4,255 ____________________ (1) Recorded in general and administrative expense in the accompanying consolidated statements of operations. (2) Recorded in employee termination benefits in the accompanying consolidated statements of operations. (3) Recorded in accelerated vesting of employment compensation in the accompanying consolidated statements of operations. 18. Incentive and Deferred Compensation Plans Annual Incentive Plan. The Annual Incentive Plan ("AIP") incorporates quantitative performance measures, strategic qualitative goals and competitive target award levels for management and employees for the 2020 and 2019 performance years. Incentive bonus awards for 2020 will be provided at the discretion of the Board of Directors and will be paid in 2021. As of December 31, 2020, the Company had accrued approximately $ 2.6 million for the 2020 AIP. AIP Payments totaling $ 1.1 million were paid in 2020 for the 2019 performance year. 401(k) Plan. The Company maintains a 401(k) retirement plan for its employees. Under this plan, eligible employees may elect to defer a portion of their earnings up to the maximum allowed by the IRS. For the years ended December 31, 2020 and 2019, the Company made matching contributions to the plan equal to 100 % on the first 10 % of employee deferred wages, excluding incentive compensation, totaling $ 1.1 million and $ 2.2 million, respectively. The decrease in contributions is due primarily to reductions in force that occ urred in each of those years. Participants in the plan are immediately 100 % vested in the discretionary employee contributions and related earnings on those contributions. The Company's matching contributions and related earnings vest based on years of service, with full vesting occurring on the four th anniversary of employment. 86 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements 19. Employee Termination Benefits The following table presents a summary of employee termination benefits for the years ended December 31, 2020 and 2019 (in thousands): Cash Share-Based Compensation (4) Number of Shares Total Employee Termination Benefits Year Ended December 31, 2020 Executive Employee Termination Benefits (1) $ 1,009 $ 1,784 159 $ 2,793 Other Employee Termination Benefits 5,600 40 4 5,640 $ 6,609 $ 1,824 163 $ 8,433 Year Ended December 31, 2019 Executive Employee Termination Benefits (2) $ 1,194 $ 490 37 $ 1,684 Other Employee Termination Benefits (3) 2,608 500 44 3,108 $ 3,802 $ 990 81 $ 4,792 ____________________ (1) On July 1, 2020, the Company's then current Chief Financial Officer, Michael A. Johnson and Chief Operating Officer, John Suter, separated employment from the Company. As a result, the Company paid cash severance costs and incurred share-based compensation costs associated with these separations during 2020. (2) On December 12, 2019, the Company's then current CEO, Paul McKinney, separated employment from the Company, and on June 14, 2019, the Company’s then current Executive Vice President, General Counsel and Corporate Secretary, Philip Warman, separated employment from the Company. As a result, the Company paid cash severance costs and incurred share-based compensation costs associated with these separations during 2019. (3) As a result of a reduction in workforce in the second quarter of 2019, certain employees received termination benefits including cash severance and accelerated share-based compensation upon separation of service from the Company. (4) Share-based compensation recognized in connection with the accelerated vesting of restricted stock awards and performance share units upon the departure of certain executives and the reductions in workforce in 2020 and 2019 reflects the remaining unrecognized compensation expense associated with these awards at the date of termination. The unrecognized compensation expense was calculated using the grant date fair value for restricted stock awards and performance share units. One share of the Company’s common stock was issued per performance share unit. As of December 31, 2020 there were no longer any legacy employment contracts. See Note 17 for additional discussion of the Company’s share-based compensation awards. 87 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements 20. Loss per Share The following table summarizes the calculation of weighted average common shares outstanding used in the computation of diluted (loss) earnings per share: Net Loss Weighted Average Shares Loss Per Share (In thousands, except per share amounts) Year Ended December 31, 2020 Basic loss per share $ ( 277,353 ) 35,689 $ ( 7.77 ) Effect of dilutive securities Restricted stock awards (1) — — — Performance share units (1) — — — Warrants (1) — — — Diluted loss per share $ ( 277,353 ) 35,689 $ ( 7.77 ) Year Ended December 31, 2019 Basic loss per share $ ( 449,305 ) 35,427 $ ( 12.68 ) Effect of dilutive securities Restricted stock awards (1) — — — Performance share units (1) — — — Warrants (1) — — — Diluted loss per share $ ( 449,305 ) 35,427 $ ( 12.68 ) ____________________ (1) No incremental shares of potentially dilutive restricted stock awards, performance share units or warrants were included for the year ended December 31, 2020 and 2019, as their effect was antidilutive under the treasury stock method. See Note 17 for discussion of the Company’s share-based compensation awards. 21. Supplemental Information on Oil and Natural Gas Producing Activities (Unaudited) The supplemental information below includes capitalized costs related to oil and natural gas producing activities; costs incurred in oil and natural gas property acquisition, exploration and development; and the results of operations for oil and natural gas producing activities. Supplemental information is also provided for oil, natural gas and NGL production and average sales prices; the estimated quantities of proved oil, natural gas and NGL reserves; the standardized measure of discounted future net cash flows associated with proved oil, natural gas and NGL reserves; and a summary of the changes in the standardized measure of discounted future net cash flows associated with proved oil, natural gas and NGL reserves. Capitalized Costs Related to Oil and Natural Gas Producing Activities The Company’s capitalized costs for oil and natural gas activities consisted of the following (in thousands): December 31, 2020 2019 Oil and natural gas properties Proved $ 1,463,950 $ 1,484,359 Unproved 17,964 24,603 Total oil and natural gas properties 1,481,914 1,508,962 Less accumulated depreciation, depletion and impairment ( 1,375,692 ) ( 1,129,622 ) Net oil and natural gas properties capitalized costs $ 106,222 $ 379,340 88 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements Costs Incurred in Oil and Natural Gas Property Acquisition, Exploration and Development Costs incurred in oil and natural gas property acquisition, exploration and development activities which have been capitalized are summarized as follows (in thousands): Year Ended December 31, 2020 2019 Acquisitions of properties Proved $ 3,701 $ ( 210 ) Unproved — 2,653 Exploration 1,005 2,900 Development 3,563 156,210 Total cost incurred $ 8,269 $ 161,553 Results of Operations for Oil and Natural Gas Producing Activities The following table presents the Company’s results of operations from oil and natural gas producing activities (in thousands), which exclude any interest costs or indirect general and administrative costs and, therefore, are not necessarily indicative of the impact the Company’s operations have on actual net earnings. Year Ended December 31, 2020 2019 Revenues $ 114,450 $ 266,104 Expenses Production costs 53,474 110,711 Depreciation and depletion 50,349 146,874 Impairment 218,399 409,574 Total expenses 322,222 667,159 Loss before income taxes ( 207,772 ) ( 401,055 ) Income tax benefit (1) ( 51,750 ) ( 105,477 ) Results of operations for oil and natural gas producing activities (excluding corporate overhead and interest costs) $ ( 156,022 ) $ ( 295,578 ) ____________________ (1) Income tax (benefit) expense is hypothetical and is calculated by applying the Company’s statutory tax rate to (loss) income before income taxes attributable to our oil and natural gas producing activities, after giving effect to permanent differences and tax credits. Oil, Natural Gas and NGL Reserve Quantities Proved oil, natural gas and NGL reserves are those quantities, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible, based on oil, natural gas and NGL prices used to estimate reserves, from a given date forward from known reservoirs, and under existing economic conditions, operating methods, and government regulation prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain. The term “reasonable certainty” implies a high degree of confidence that the quantities of oil, natural gas and NGLs actually recovered will equal or exceed the estimate. To achieve reasonable certainty, the Company’s engineers and independent petroleum consultants relied on technologies that have been demonstrated to yield results with consistency and repeatability. The technologies and economic data used to estimate the Company’s proved reserves include, but are not limited to, well logs, geologic maps, seismic data, well test data, production data, historical price and cost information and property ownership interests. The accuracy of the reserve estimates is dependent on many factors, including the following: • the quality and quantity of available data and the engineering and geological interpretation of that data; 89 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements • estimates regarding the amount and timing of future costs, which could vary considerably from actual costs; • the accuracy of mandated economic assumptions; and • the judgment of the personnel preparing the estimates. Proved developed reserves are proved reserves expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well. Proved undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively large major expenditure is required for recompletion. The following table represents the Company’s estimate of proved oil, natural gas and NGL reserves attributable to the Company’s net interest in oil and natural gas properties, all of which are located in the continental United States, based upon the evaluation by the Company and its independent petroleum engineers of pertinent geoscience and engineering data in accordance with the SEC’s regulations. Over 90 % of the Company’s proved reserves estimates have been prepared by independent reservoir engineers and geoscience professionals and are reviewed by members of the Company’s senior management with professional training in petroleum engineering to ensure that the Company consistently applies rigorous professional standards and the reserve definitions prescribed by the SEC. Cawley, Gillespie & Associates and Ryder Scott, independent oil and natural gas consultants, prepared the estimates of proved reserves of oil, natural gas and NGLs for over 90 % of the Company’s net interest in oil and natural gas properties as of the end of one or more of 2020 and 2019. Cawley, Gillespie & Associates and Ryder Scott are independent petroleum engineers, geologists, geophysicists and petrophysicists and do not own an interest in the Company or its properties and are not employed on a contingent basis. The remaining proved reserves were based on Company estimates. The Company believes the geoscience and engineering data examined provides reasonable assurance that the proved reserves are economically producible in future years from known reservoirs, and under existing economic conditions, operating methods and governmental regulations. Estimates of proved reserves are subject to change, either positively or negatively, as additional information is available and contractual and economic conditions change. 2020 Activity . Proved reserves decreased from 89.9 MMBoe at December 31, 2019 to 36.9 MMBoe at December 31, 2020, primarily as a result of downward revisions of 45.0 MMBoe associated with the decrease in year-end SEC commodity prices for oil and natural gas consisting of ( 27.8 MMBoe from removing PUDs, and 17.3 MMBoe from remaining proved reserves). The Company also recorded 2020 production totaling 8.7 MMBoe and a decrease of 9.0 MMBoe attributable to well shut-ins, sales and other revisions. These reductions were partially offset by an 8.6 MMBoe increase associated with reduction in expenses and other commercial improvements, and purchases of 1.1 MMBoe of proved reserves. 2019 Activity . Proved reserves decreased from 160.2 MMBoe at December 31, 2018 to 89.9 MMBoe at December 31, 2019, primarily as a result of downward revisions of 50.9 MMBoe associated with the decrease in year-end SEC prices for oil and natural gas consisting of (i) 39.8 MMBoe from downgrading PUDs, and (ii) 11.1 MMBoe from remaining proved reserves. The Company also recorded a decrease of 10.9 MMBoe attributable to increased commodity price differentials, and a decrease of 3.2 MMBoe attributable to well performance. These reductions were partially offset by a 12.6 MMBoe increase associated with converting undeveloped well locations from SRLs to planned XRLs as well as reduced future estimated development capital on these undeveloped locations. 90 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements The summary below presents changes in the Company’s estimated reserves. Oil NGL Natural Gas Total (MBbls) (MBbls) (MMcf)(1) MBoe Proved developed and undeveloped reserves As of December 31, 2018 64,019 28,175 407,891 160,176 Revisions of previous estimates ( 25,530 ) ( 9,277 ) ( 142,239 ) ( 58,514 ) Extensions and discoveries 635 94 2,127 1,084 Sales of reserves in place ( 297 ) ( 223 ) ( 2,308 ) ( 905 ) Production ( 3,519 ) ( 2,910 ) ( 33,164 ) ( 11,956 ) As of December 31, 2019 35,308 15,859 232,307 89,885 Revisions of previous estimates ( 24,650 ) ( 2,246 ) ( 107,426 ) ( 44,800 ) Acquisitions of new reserves 74 437 3,391 1,076 Sales of reserves in place ( 163 ) ( 111 ) ( 1,827 ) ( 579 ) Production ( 2,084 ) ( 2,694 ) ( 23,552 ) ( 8,703 ) As of December 31, 2020 8,485 11,245 102,893 36,879 Proved developed reserves As of December 31, 2019 14,078 14,532 200,853 62,086 As of December 31, 2020 8,485 11,245 102,893 36,879 Proved undeveloped reserves As of December 31, 2019 21,230 1,327 31,454 27,799 As of December 31, 2020 — — — — _________________ (1) Natural gas reserves are computed at 14.65 pounds per square inch absolute and 60 degrees Fahrenheit. Standardized Measure of Discounted Future Net Cash Flows (Unaudited) The standardized measure of discounted cash flows and summary of the changes in the standardized measure computation from year to year are prepared in accordance with ASC Topic 932, Extractive Activities—Oil and Gas, ("ASC Topic 932"). The assumptions underlying the computation of the standardized measure of discounted cash flows may be summarized as follows: • the standardized measure includes the Company’s estimate of proved oil, natural gas and NGL reserves and projected future production volumes based upon economic conditions; • pricing is applied based upon SEC prices at December 31, 2020 and 2019, adjusted for fixed or determinable contracts that are in existence at year-end. The calculated weighted average per unit prices for the Company’s proved reserves and future net revenues were as follows: At December 31, 2020 2019 Oil (per Bbl) $ 36.54 $ 50.63 NGL (per Bbl) $ 6.40 $ 12.45 Natural gas (per Mcf) $ 0.87 $ 1.16 • future development and production costs are determined based upon actual cost at year-end; • the standardized measure includes projections of future abandonment costs based upon actual costs at year-end; and • a discount factor of 10% per year is applied annually to the future net cash flows. 91 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements The summary below presents the Company’s future net cash flows relating to proved oil, natural gas and NGL reserves based on the standardized measure in ASC Topic 932 (in thousands). December 31, 2020 2019 Future cash inflows from production $ 471,038 $ 2,254,530 Future production costs ( 270,512 ) ( 1,028,695 ) Future development costs (1) ( 81,687 ) ( 536,081 ) Future income tax expenses (2) — — Undiscounted future net cash flows 118,839 689,754 10% annual discount ( 13,853 ) ( 325,464 ) Standardized measure of discounted future net cash flows $ 104,986 $ 364,290 ____________________ (1) Includes abandonment costs. (2) The future income tax expenses have been computed using statutory tax rates, giving effect to allowable tax deductions and tax credits under current laws, including expected tax benefits to be realized from the utilization of net operating loss carryforwards. The following table represents the Company’s estimate of changes in the standardized measure of discounted future net cash flows from proved reserves (in thousands): Year Ended December 31, 2020 2019 Beginning present value $ 364,290 $ 1,045,603 Changes during the year Revenues less production ( 61,407 ) ( 155,772 ) Net changes in prices, production and other costs ( 135,652 ) ( 491,035 ) Development costs incurred — 90,591 Net changes in future development costs (1) ( 2,167 ) 450,162 Extensions and discoveries — 11,921 Revisions of previous quantity estimates (1) ( 99,533 ) ( 478,238 ) Accretion of discount 36,429 101,778 Purchases of reserves in-place 4,744 — Sales of reserves in-place ( 1,067 ) ( 3,331 ) Timing differences and other (2) ( 651 ) ( 207,389 ) Net change for the year ( 259,304 ) ( 681,313 ) Ending present value (3) $ 104,986 $ 364,290 ____________________ (1) The change in estimated future development costs and revisions of previous quantity estimates primarily reflect a decrease in planned PUD development due to declining year end SEC prices for oil and natural gas. The elimination of PUD development for the year ended December 31, 2020 resulted in a decrease of $ 73.8 million. (2) The change in timing differences and other are related to revisions in the Company’s estimated time of production and development. (3) Standardized Measure was determined using SEC prices, and does not reflect actual prices received or current market prices. 92 Table of Contents SandRidge Energy, Inc. and Subsidiaries Notes to Consolidated Financial Statements 22. Subsequent Events On March 3, 2021, the Company named Mr. Grayson Pranin, formerly its Vice President for Reserves and Engineering, as Senior Vice President and Chief Operating Officer. The Company also named Mr. Salah Gamoudi, the Company’s Chief Financial Officer and Chief Accounting Officer, as a Senior Vice President. It also named Mr. Dean Parrish, formerly its Director of Operations, as its Vice President of Operations. On February 5, 2021, the Company sold all of our oil and natural gas properties and related assets of the North Park Basin in Colorado for a purchase price of $ 47 million. The sale closed for net proceeds of $ 39.7 million in cash, which is net of effective to closing date adjustments. North Park Basin ("NPB") for the year ended December 31, 2020, represented $ 31.1 million, or 27.0 % of the Company's $ 115.0 million total consolidated Revenues, NPB represented $ 9.1 million, or 20.9 % of the Company's $ 43.4 million consolidated Lease operating expense, it represented $ 1.8 million, or 18.7 % of the Company's $ 9.6 million consolidated Production, ad valorem and other taxes, it represented $ 1.5 million or 18.1 % of the Company's consolidated capital expenditures of $ 8.3 million and NPB represented 0.9 MMBoe, or 10.3 % of the Company's consolidated total production volumes of 8.7 MMBoe. 93 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.