SANDRIDGE ENERGY INC 10-Q

ITEM 1. Financial Statements SANDRIDGE ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) September 30, 2021 December 31, 2020 ASSETS Current assets Cash and cash equivalents $ 96,738 $ 22,130 Restricted cash - other 2,264 6,136 Accounts receivable, net 29,365 19,576 Prepaid expenses 1,279 2,890 Other current assets 80 80 Total current assets 129,726 50,812 Oil and natural gas properties, using full cost method of accounting Proved 1,442,972 1,463,950 Unproved 12,905 17,964 Less: accumulated depreciation, depletion and impairment ( 1,371,123 ) ( 1,375,692 ) 84,754 106,222 Other property, plant and equipment, net 98,951 103,118 Other assets 358 680 Total assets $ 313,789 $ 260,832 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued expenses $ 46,778 $ 51,426 Derivative contracts 4,129 — Asset retirement obligation 16,099 16,467 Other current liabilities 600 984 Total current liabilities 67,606 68,877 Long-term debt — 20,000 Asset retirement obligation 36,339 40,701 Other long-term obligations 1,727 3,188 Total liabilities 105,672 132,766 Commitments and contingencies (Note 9) Stockholders’ Equity Common stock, $ 0.001 par value; 250,000 shares authorized; 36,674 issued and outstanding at September 30, 2021 and 35,928 issued and outstanding at December 31, 2020 37 36 Warrants 88,520 88,520 Additional paid-in capital 1,062,376 1,062,220 Accumulated deficit ( 942,816 ) ( 1,022,710 ) Total stockholders’ equity 208,117 128,066 Total liabilities and stockholders’ equity $ 313,789 $ 260,832 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenues Oil, natural gas and NGL $ 46,584 $ 27,547 $ 114,403 $ 84,134 Other — 129 — 526 Total revenues 46,584 27,676 114,403 84,660 Expenses Lease operating expenses 9,080 8,069 26,266 32,409 Production, ad valorem, and other taxes 2,219 2,333 6,929 7,386 Depreciation and depletion — oil and natural gas 2,092 7,525 6,790 45,728 Depreciation and amortization — other 1,513 1,698 4,482 6,071 Impairment — 44,043 — 253,797 General and administrative 2,229 2,493 6,841 12,290 Restructuring expenses ( 1,696 ) 1,199 614 1,643 Employee termination benefits — 3,184 49 8,431 (Gain) loss on derivative contracts 4,129 5,299 4,129 ( 7,168 ) (Gain) loss on sale of assets 761 ( 178 ) ( 18,952 ) ( 100 ) Other operating (income) expense, net ( 202 ) 62 ( 315 ) 369 Total expenses 20,125 75,727 36,833 360,856 Income (loss) from operations 26,459 ( 48,051 ) 77,570 ( 276,196 ) Other income (expense) Interest expense, net ( 256 ) ( 569 ) ( 387 ) ( 1,653 ) Other income (expense), net 2,396 ( 129 ) 2,711 5 Total other income (expense) 2,140 ( 698 ) 2,324 ( 1,648 ) Income (loss) before income taxes 28,599 ( 48,749 ) 79,894 ( 277,844 ) Income tax expense (benefit) — — — ( 646 ) Net income (loss) $ 28,599 $ ( 48,749 ) $ 79,894 $ ( 277,198 ) Net income (loss) per share Basic $ 0.78 $ ( 1.36 ) $ 2.20 $ ( 7.78 ) Diluted $ 0.77 $ ( 1.36 ) $ 2.15 $ ( 7.78 ) Weighted average number of common shares outstanding Basic 36,577 35,783 36,318 35,649 Diluted 36,996 35,783 37,200 35,649 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) (In thousands) Common Stock Warrants Additional Paid-In Capital Accumulated Deficit Total Shares Amount Shares Amount Nine Months Ended September 30, 2021 Balance at December 31, 2020 35,928 $ 36 6,734 $ 88,520 $ 1,062,220 $ ( 1,022,710 ) $ 128,066 Issuance of stock awards, net of cancellations 6 — — — — — — Stock-based compensation — — — — 236 — 236 Issuance of common stock for general unsecured claims 201 — — — — — — Issuance of warrants for general unsecured claims — — 247 — — — — Cash paid for tax obligations on vested stock awards — — — — ( 19 ) — ( 19 ) Net income — — — — — 35,043 35,043 Balance at March 31, 2021 36,135 $ 36 6,981 $ 88,520 $ 1,062,437 $ ( 987,667 ) $ 163,326 Issuance of stock awards, net of cancellations 425 1 — — ( 1 ) — — Stock options exercised and Stock-based compensation — — — — 584 — 584 Cash paid for tax obligations on vested stock awards — — — — ( 594 ) — ( 594 ) Net income — — — — 16,252 16,252 Balance at June 30, 2021 36,560 $ 37 6,981 $ 88,520 $ 1,062,426 $ ( 971,415 ) $ 179,568 Stock-based compensation — — — — 236 — 236 Issuance of stock awards, net of cancellations 114 — — — — — — Cash paid for tax obligations on vested stock awards — — — — ( 286 ) — ( 286 ) Net income — — — — — 28,599 28,599 Balance at September 30, 2021 36,674 $ 37 6,981 $ 88,520 $ 1,062,376 $ ( 942,816 ) $ 208,117 Nine Months Ended September 30, 2020 Balance at December 31, 2019 35,772 $ 36 6,659 $ 88,520 $ 1,059,253 $ ( 745,357 ) $ 402,452 Common stock issued for general unsecured claims 38 — — — — — — Stock-based compensation — — — — 185 — 185 Issuance of warrants for general unsecured claims — — 47 — — — — Cash paid for tax obligations on vested stock awards — — — — ( 1 ) — ( 1 ) Net loss — — — — — ( 12,670 ) ( 12,670 ) Balance at March 31, 2020 35,810 $ 36 6,706 $ 88,520 $ 1,059,437 $ ( 758,027 ) $ 389,966 Issuance of stock awards, net of cancellations 55 — — — — — — Stock-based compensation — — — — 583 — 583 Cash paid for tax obligations on vested stock awards — — — — ( 1 ) — ( 1 ) Net loss — — — — — ( 215,779 ) ( 215,779 ) Balance at June 30, 2020 35,865 36 6,706 88,520 $ 1,060,019 $ ( 973,806 ) $ 174,769 Issuance of stock awards, net of cancellations 41 — — — — — — Stock-based compensation — — — — 2,004 — 2,004 Cash paid for tax obligations on vested stock awards — — — — ( 62 ) — ( 62 ) Net loss — — — — — ( 48,749 ) ( 48,749 ) Balance at September 30, 2020 35,906 36 6,706 88,520 $ 1,061,961 $ ( 1,022,555 ) $ 127,962 The accompanying notes are an integral part of these condensed consolidated financial statements . 6 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 79,894 $ ( 277,198 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities Provision for doubtful accounts ( 2,329 ) 469 Depreciation, depletion, and amortization 11,272 51,799 Impairment — 253,797 Debt issuance costs amortization 57 477 Write off of debt issuance costs 174 — (Gain) loss on derivative contracts 4,129 ( 7,168 ) Cash received on settlement of derivative contracts — 11,197 (Gain) loss on sale of assets ( 18,952 ) ( 100 ) Stock-based compensation 1,036 2,753 Other 107 114 Changes in operating assets and liabilities ( 9,073 ) ( 8,784 ) Net cash provided by (used in) operating activities 66,315 27,356 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures for property, plant and equipment ( 8,615 ) ( 8,110 ) Acquisition of assets ( 3,545 ) ( 3,276 ) Purchase of other property and equipment ( 59 ) — Proceeds from sale of assets 38,086 37,243 Net cash provided by (used in) investing activities 25,867 25,857 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings — 39,000 Repayments of borrowings ( 20,000 ) ( 84,500 ) Reduction of financing lease liability ( 493 ) ( 977 ) Debt issuance costs ( 75 ) — Proceeds from exercise of stock options 21 — Cash paid for tax obligations on vested stock awards ( 899 ) ( 63 ) Net cash provided by (used in) financing activities ( 21,446 ) ( 46,540 ) NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS and RESTRICTED CASH 70,736 6,673 CASH, CASH EQUIVALENTS and RESTRICTED CASH, beginning of year 28,266 5,968 CASH, CASH EQUIVALENTS and RESTRICTED CASH, end of period $ 99,002 $ 12,641 Supplemental Disclosure of Cash Flow Information Cash paid for interest, net of amounts capitalized $ ( 168 ) $ ( 1,271 ) Cash received for income taxes $ — $ 616 Supplemental Disclosure of Noncash Investing and Financing Activities Purchase of PP&E in accounts payable $ 2,169 $ 683 Right-of-use assets obtained in exchange for financing lease obligations $ 960 $ 67 Carrying value of properties exchanged $ — $ 3,890 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation 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 Trusts. All intercompany accounts and transactions have been eliminated in consolidation. Interim Financial Statements. The accompanying unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes contained in the Company’s 2020 Form 10-K. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted, although the Company believes that the disclosures contained herein are adequate to make the information presented not misleading. In the opinion of management, the financial statements include all adjustments, which consist of normal recurring adjustments unless otherwise disclosed, necessary to fairly state the Company’s unaudited condensed consolidated financial statements. Significant Accounting Policies. The unaudited condensed consolidated financial statements were prepared in accordance with the accounting policies stated in the 2020 Form 10-K, as well as the items noted below. Use of Estimates. The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP 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 natural gas liquids (“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 the estimates used in the areas noted above are reasonable, actual results could differ significantly from those estimates. Going Concern Consideration. The accompanying condensed consolidated financial statements are prepared in accordance with GAAP, as applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Recently Adopted Accounting Pronouncements 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 Company adopted this ASU on January 1, 2021 using an applied prospective basis; 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 GAAP provisions to contracts, hedging relationships, and other transactions that reference London Inter-Bank Offered Rate ("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 believes the impact upon adoptions will not have a material impact on the financial statements. 8 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 2. 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 unaudited condensed consolidated balance sheets approximated fair value at September 30, 2021 and December 31, 2020. Additionally, the carrying amount of debt associated with borrowings outstanding under the credit facility dated November 30, 2020 ("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 from objective sources (i.e., supported by little or no market activity). 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 of 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 had liabilities classified in Level 2 of the hierarchy as of September 30, 2021 and none as of December 31, 2020 as described below. Level 2 Fair Value Measurements Commodity Derivative Contracts. As applicable, 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 The Company had liabilities classified in Level 2 of the hierarchy as of September 30, 2021 and no open commodity derivative contracts as of December 31, 2020. The following table summarize the Company’s assets measured at fair value on a recurring basis by the fair value hierarchy (in thousands): September 30, 2021 Fair Value Measurements Netting(1) Assets/Liabilities at Fair Value Level 1 Level 2 Level 3 Liabilities Commodity derivative contracts $ — $ 4,129 $ — $ — $ 4,129 Total $ — $ 4,129 $ — $ — $ 4,129 ____________________ (1) Represents the effect of netting assets and liabilities for counterparties with which the right of offset exists. 9 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Transfers. The Company did not have any transfers between Level 1, Level 2 or Level 3 fair value measurements during the three and nine-month periods ended September 30, 2021 and 2020. 3. 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 have been recorded at fair value with changes in derivative contract fair values recognized as a gain or loss on derivative contracts in the condensed consolidated statements of operations. Commodity derivative contracts were settled on a monthly basis, and the commodity derivative contract valuations were adjusted to the mark-to-market valuation on a quarterly basis. The following table summarizes derivative activity for the three and nine-month periods ended September 30, 2021, and 2020 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (Gain) loss on commodity derivative contracts $ 4,129 $ 5,299 $ 4,129 $ ( 7,168 ) Cash (paid) received on settlements $ — $ 619 $ — $ 11,197 Master Netting Agreements and the Right of Offset. As applicable, 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 in the unaudited condensed 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. 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 as of September 30, 2021 and no open positions as of December 31, 2020 (in thousands): September 30, 2021 Gross Amounts Gross Amounts Offset Amounts Net of Offset Financial Collateral Net Amount Liabilities Derivative contracts - current $ 4,129 $ — $ 4,129 $ — $ 4,129 Total $ 4,129 $ — $ 4,129 $ — $ 4,129 10 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) As of September 30, 2021, the Company's open derivative contracts consisted of natural gas and NGL commodity derivative contracts under which we will receive a fixed price for the contract and pay a floating market price to the counterparty over a specified period for a contracted volume. These commodity derivative contracts consisted of the following: Notional Units Weighted Average Fixed Price per Unit NGL Price Swaps: October 2021 - February 2022 2,605,000 Gallons $ 1.20 Natural Gas Price Swaps: October 2021 - February 2022 1,800,000 MMBtu $ 4.07 Because we did not designate any of our derivative contracts as hedges for accounting purposes, changes in the fair value of our derivative contracts were recognized as gains and losses in current period earnings. As a result, and as applicable, our current period earnings could have been significantly affected by changes in the fair value of our commodity derivative contracts. Changes in fair value were principally measured based on a comparison of future prices to the contract price at the end of the period. Fair Value of Derivatives The following table presents the fair value of the Company’s derivative contracts as of September 30, 2021 on a gross basis without regard to same counterparty netting (in thousands): Type of Contract Balance Sheet Classification September 30, 2021 Derivative liabilities NGL price swaps Derivative Contracts - Current $ 819 Natural gas price swaps Derivative Contracts - Current 3,310 Total net derivative contracts $ 4,129 See Note 2 for additional discussion of the fair value measurement of the Company’s derivative contracts. 4. Property, Plant and Equipment Property, plant and equipment consists of the following (in thousands): September 30, 2021 December 31, 2020 Oil and natural gas properties Proved $ 1,442,972 $ 1,463,950 Unproved 12,905 17,964 Total oil and natural gas properties 1,455,877 1,481,914 Less: accumulated depreciation, depletion and impairment ( 1,371,123 ) ( 1,375,692 ) Net oil and natural gas properties 84,754 106,222 Land 200 200 Electrical infrastructure 121,819 121,819 Other non-oil and natural gas equipment 1,602 1,563 Buildings and structures 3,603 3,603 Financing leases 1,128 1,051 Total 128,352 128,236 Less: accumulated depreciation and amortization ( 29,401 ) ( 25,118 ) Other property, plant and equipment, net 98,951 103,118 Total property, plant and equipment, net $ 183,705 $ 209,340 See Note 5 for discussion of impairment of property, plant and equipment. 11 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 5. 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 midstream and other assets were determined in accordance with the policies discussed in Note 1, as applicable. Calculation of the full cost ceiling test is based on, among other factors, average prices for the trailing twelve-month period determined by reference to the first-day-of-the-month index prices ("SEC Prices") as adjusted for price differentials and other contractual arrangements. The SEC Prices utilized in the calculation of proved reserves included in the full cost ceiling test at September 30, 2021 were $ 57.69 per barrel of oil and $ 2.94 per Mcf of natural gas, before price differential adjustments. In the three and nine - month periods ended September 30, 2021, we did no t record a full cost ceiling limitation impairment charge. In the three-month period ended September 30, 2020, the Company recorded a total impairment charge of $ 44.0 million, which related to the full cost ceiling limitation impairment charge. The Company recorded a total impairment charge of $ 253.8 million for the nine-month period ended September 30, 2020, which included a full cost ceiling limitation impairment charge of $ 215.8 million, and an impairment charge of $ 38.0 million to write down the value of the Company's office headquarters. The June 30, 2020, asset impairment charge of $ 38.0 million 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. Prior to the sale of the corporate headquarters building, the Company was required to report the building at its carrying amount, as a result 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. 6. Acquisitions and Divestitures Overriding Royalty Interest Assets On April 22, 2021, the Company acquired all of the overriding royalty interest assets of SandRidge Mississippian Trust I (the “Trust”). The gross purchase price was $ 4.9 million (net $ 3.6 million, given our 26.9 % ownership of the Trust). On September 10, 2020, the Company acquired all of the overriding royalty interest assets of SandRidge Mississippian Trust II. The gross purchase price was $ 5.3 million (net $ 3.3 million, given our 37.6 % ownership of the Trust). North Park Basin Sale On February 5, 2021, the Company sold all of its oil and natural gas properties and related assets of the North Park Basin (“NPB” or “North Park”), in Colorado, for a purchase price of $ 47 million. The sale closed for net proceeds of $ 39.7 million in cash, which amounts to the purchase price of $ 47 million net of effective date to close date adjustments. Consequently, the Company allocated a portion of the full cost pool net book value, using the income approach, to the divested oil and gas properties and recognized a reduction of full cost pool assets of $ 22.0 million and a reduction of $ 4.6 million to its non-full cost pool assets. As the sale significantly altered the relationship between capitalized costs and proved reserves, the Company recognized a $ 19.7 million gain related to the assets sold. The gain represents net proceeds of $ 39.7 million coupled with the release of revenues in suspense of $ 0.5 million and the relief of asset retirement obligations of $ 6.1 million offset by the reduction of $ 26.6 million in oil and gas properties related to NPB. The Company recorded a decrease to the sales price of $ 0.8 million as a result of post-closing adjustments made during the three months ended September 30, 2021. As a result, (Gain) loss on sale of assets decreased to $ 18.9 million for the nine months ended September 30, 2021. For the nine-months ended September 30, 2021, NPB represented $ 3.2 million, or 2.8 % of the Company's $ 114.4 million total consolidated Revenues, NPB represented $ 0.9 million, or 3.5 % of the Company's $ 26.3 million consolidated Lease 12 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) operating expense and NPB represented 0.1 MMBoe, or 1.3 % of the Company's consolidated total production volumes of 5.1 MMBoe. For the three-months ended September 30, 2020, NPB represented $ 7.1 million, or 25.6 % of the Company's $ 27.7 million total consolidated Revenues, NPB represented $ 1.3 million or 16.4 % of the Company's $ 8.1 million consolidated Lease operating expense, it represented $ 0.5 million, or 19.9 % of the Company's $ 2.3 million consolidated Production, ad valorem and other taxes and NPB represented 0.2 MMBoe, or 9.9 % of the Company's consolidated total production volumes of 2.0 MMBoe. For the nine-months ended September 30, 2020, NPB represented $ 24.5 million, or 28.9 % of the Company's $ 84.7 million total consolidated Revenues, NPB represented $ 7.1 million or 21.9 % of the Company's $ 32.4 million consolidated Lease operating expense, it represented $ 1.5 million, or 20.9 % of the Company's $ 7.4 million consolidated Production, ad valorem and other taxes and NPB represented 0.8 MMBoe, or 11.1 % of the Company's consolidated total production volumes of 6.8 MMBoe. 7. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following (in thousands): September 30, 2021 December 31, 2020 Accounts payable and other accrued expenses $ 15,907 $ 23,017 Production payable 22,476 15,367 Payroll and benefits 2,765 5,640 Taxes payable 5,396 6,864 Drilling advances 234 477 Accrued interest — 61 Total accounts payable and accrued expenses $ 46,778 $ 51,426 8. Long-Term Debt Credit Facility. On November 30, 2020 the Company entered into the New Credit Facility of $ 30.0 million with a related party and affiliate of Icahn Enterprises, as Lender and Icahn Agency Services LLC, as administrative agent. As of September 30, 2021 the Company did no t have an outstanding balance and as of December 31, 2020, the Company had a $ 20.0 million term loan outstanding under the New Credit Facility. The New Credit Facility consisted of a $ 10.0 million revolving loan facility and a $ 20 million term loan facility. On September 2, 2021, the Company repaid its $ 20.0 million, term loan in full and terminated all commitments and obligations under the New Credit Facility. The Company’s payment to the Lender under the Credit Agreement satisfied all of the Company’s remaining term debt and revolving debt obligations. The Company did not incur any early termination penalties as a result of the repayment of indebtedness or termination of the Credit Agreement. During the three and nine-months ended September 30, 2021, the weighted average interest rate paid for borrowings outstanding under the New Credit Facility was approximately 2.60 % and 2.61 %, respectively. During the three and nine-months ended September 30, 2021, the Company paid the Lender, a related party, $ 0.1 million and $ 0.4 million, respectively of interest expense which is included on the Interest expense, net line item on the Condensed Consolidated Statement of Operations. 13 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 9. Commitments and Contingencies Legal Proceedings. The Company is subject to various legal proceedings and claims arising in the ordinary course of its business. The Company has provided accruals where necessary for contingent liabilities, based on ASC 450, Contingencies , when it has determined that a liability is probable and reasonably estimable. The Company continuously assesses the potential liability related to the Company's pending litigation and revises its estimates when additional information becomes available. Additionally, the Company currently expenses all legal costs as they are incurred. As previously disclosed in the Company's 2020 Form 10-K, there are certain ongoing Cases (as that term is defined in the Company's 2020 Form 10-K). 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 because of a technical connection with the Cases, and is necessary for the court to decide all issues and make a proper judgement. 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. Accordingly, the Company has not established or accrued any liabilities relating to the Cases and believes that the plaintiffs' claims are without merit. However, considering the exhaustion of insurance coverage available to the Company, such losses, if incurred, could be material. The Company intends to continue to vigorously defend against the Cases in its capacity as a nominal defendant. 14 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 10. Income Taxes For each interim reporting period, the Company estimates the effective tax rate expected for the full fiscal year and uses that estimated rate in providing for income taxes on a current year-to-date basis. 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 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 a full valuation allowance against its net deferred tax asset at September 30, 2021 and December 31, 2020. As a result, the Company had no federal or state income tax expense or benefit for the three and nine-month periods ended September 30, 2021 and recorded an insignificant income tax benefit for the year ended December 21, 2020. The benefit is related to previously sequestered alternative minimum tax ("AMT") refund amounts released to the Company during 2020. The Company has no remaining AMT credits to be refunded. 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 September 30, 2021, the Company had approximately $ 1.6 billion of federal NOL carryforwards, net of NOLs expected to expire unused due to the 2016 IRC Section 382 limitation. Of the $ 1.6 billion of federal NOL carryforwards, $ 0.8 billion expire during the years 2025 through 2037, while $ 0.8 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 September 30, 2021 and December 31, 2020. The Company’s only taxing jurisdiction is the United States (federal and state). The Company’s tax years 2017 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 are generally from three to five years . 11. Equity Common Stock, Performance Share Units, and Stock Options . At September 30, 2021, the Company had approximately 250.0 million shares of common stock authorized, 36.7 million shares of common stock, par value $ 0.001 per share, issued and outstanding. Further, at September 30, 2021, the Company had approximately 0.1 million shares of unvested restricted stock awards, 0.4 million shares of unvested restricted stock units, 0.3 million stock options outstanding, and an immaterial number of unvested performance share units. Warrants . The Company has issued approximately 4.9 million Series A warrants and 2.1 million Series B warrants that are exercisable until October 4, 2022 for one share of common stock per warrant at initial prices of $ 41.34 and $ 42.03 per share, respectively, subject to adjustments pursuant to the terms of the warrants, to certain holders of general unsecured claims as defined in the Plan. The warrants contain customary anti-dilution adjustments in the event of any stock split, reverse stock split, reclassification, stock dividend or other distributions. 15 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Share Repurchase Program. In August 2021, the Company's Board of Directors (the “Board”) approved the initiation of a share repurchase program (the "Program") authorizing the Company to purchase up to an aggregate of $ 25.0 million of the Company’s common stock beginning as early as August 16, 2021. The Program is in accordance with Rule 10b-18 of the Exchange Act. Subject to applicable rules and regulations, repurchases under the Program can be made from time to time in open markets at the Company's discretion and in compliance with safe harbor provisions, or in privately negotiated transactions. The Program does not require any specific number of shares to be acquired, and can be modified or discontinued by the Board at any time. The Company did not repurchase any common stock under the Program during the third quarter ended September 30, 2021. 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 (the “Tax Benefits Preservation Plan”). The Company adopted the Tax Benefits Preservation Plan, as amended on March 16, 2021, in order to protect shareholder value against a possible limitation on the Company’s ability to use its tax NOLs and certain other tax benefits to reduce potential future U.S. federal income tax obligations. The NOLs are a valuable 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, 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 (as defined herein), 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. 16 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) The Tax Benefits Preservation Plan was approved at the 2021 annual meeting of stockholders on May 25, 2021. In the event that any person or group (other than certain exempt persons) becomes an Acquiring Person, 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: • 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. 12. Revenues The following table disaggregates the Company’s revenue by source for the three and nine-month periods ended September 30, 2021 and 2020: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In thousands) Oil $ 15,198 $ 17,071 $ 45,412 $ 57,279 NGL 14,863 4,983 34,344 12,508 Natural gas 16,523 5,493 34,647 14,347 Other — 129 — 526 Total revenues $ 46,584 $ 27,676 $ 114,403 $ 84,660 Oil, natural gas and NGL revenues. A majority of the Company’s revenues come from the sale of oil, natural gas and NGLs and 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 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 tax 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 September 30, 2021, and December 31, 2020, the 17 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Company had revenues receivable of $ 19.0 million and $ 12.8 million, respectively, and did no t record any bad debt expense on revenues receivable during the three and nine-month periods ended September 30, 2021 and 2020. 13. Employee Termination Benefits During the three-month period ended September 30, 2021, no employees received termination benefits. Certain employees received termination benefits including cash severance and accelerated share-based compensation upon separation of service from the Company as a result of the sale of North Park assets and other employee terminations during the nine-month period ended September 30, 2021 and as a result of a reduction in workforce during the three and nine-month periods ended September 30, 2020. The following tables presents a summary of employee termination benefits for the three and nine-month periods ended September 30, 2021 and 2020 (in thousands): Cash Share-Based Compensation (1) Number of Shares Total Employee Termination Benefits Three Months Ended September 30, 2021 Executive Employee Termination Benefits $ — $ — — $ — Other Employee Termination Benefits — — — — $ — $ — — $ — Three Months Ended September 30, 2020 Executive Employee Termination Benefits $ 1,005 $ 1,784 159 $ 2,789 Other Employee Termination Benefits 395 — — 395 $ 1,400 $ 1,784 159 $ 3,184 Nine Months Ended September 30, 2021 Executive Employee Termination Benefits $ — $ — — $ — Other Employee Termination Benefits 32 17 — 49 $ 32 $ 17 — $ 49 Nine Months Ended September 30, 2020 Executive Employee Termination Benefits $ 1,009 $ 1,784 159 $ 2,793 Other Employee Termination Benefits 5,598 40 4 5,638 $ 6,607 $ 1,824 163 $ 8,431 ____________________ (1) Share-based compensation recognized in connection with the accelerated vesting of restricted stock awards due to the sale of the North Park assets for the nine-month period ended September 30, 2021 and as a result of the reduction in workforce for the three and nine-month periods ended September 30, 2020. The remaining unrecognized compensation expense associated with these awards at the date of termination was recorded as employee termination benefits. The unrecognized compensation expense was calculated using the grant date fair value for restricted stock awards. One share of the Company’s common stock was issued per restricted stock award. 18 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 14. Earnings (Loss) per Share The following table summarizes the calculation of weighted average common shares outstanding used in the computation of diluted earnings (loss) per share: Earnings (Loss) Weighted Average Shares Earnings (Loss) Per Share (In thousands, except per share amounts) Three Months Ended September 30, 2021 Basic earnings per share $ 28,599 36,577 $ 0.78 Effect of dilutive securities Restricted stock units — 343 Restricted stock awards — 28 Performance share units (1) — — Warrants — — Stock options — 48 Diluted earnings share (2) $ 28,599 36,996 $ 0.77 Three Months Ended September 30, 2020 Basic loss per share $ ( 48,749 ) 35,783 $ ( 1.36 ) Effect of dilutive securities Restricted stock awards — — Performance share units — — Warrants — — Stock options — — Diluted loss per share (3) $ ( 48,749 ) 35,783 $ ( 1.36 ) Nine Months Ended September 30, 2021 Basic earnings per share $ 79,894 36,318 $ 2.20 Effect of dilutive securities Restricted stock units — 787 Restricted stock awards — 54 Performance share units (1) — — Warrants — — Stock options — 41 Diluted earnings per share (2) $ 79,894 37,200 $ 2.15 Nine Months Ended September 30, 2020 Basic loss per share $ ( 277,198 ) 35,649 $ ( 7.78 ) Effect of dilutive securities Restricted stock awards — — Performance share units — — Warrants — — Stock options — — Diluted loss per share (3) $ ( 277,198 ) 35,649 $ ( 7.78 ) ____________________ (1) The performance share unit awards are contingently issuable and are considered in the calculation of diluted earnings per share. The Company assesses the number of awards that would be issuable, if any, under the terms of the agreement if the end of the reporting period were the end of the contingency period. (2) The incremental shares of potentially dilutive restricted stock units and restricted stock awards were included for the three and nine-month periods ended September 30, 2021 as their effect was dilutive under the treasury stock method. (3) No incremental shares of potentially dilutive restricted stock awards, performance share units, warrants or stock options were included for the three and nine-month periods ended September 30, 2020, as their effect was antidilutive under the treasury stock method. 19 Tabl e of Contents