SANDRIDGE ENERGY INC 10-Q

ITEM 1. Financial Statements SANDRIDGE ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) September 30, 2022 December 31, 2021 ASSETS Current assets Cash and cash equivalents $ 238,859 $ 137,260 Restricted cash - other 1,744 2,264 Accounts receivable, net 31,075 21,505 Derivative contracts 4,040 — Prepaid expenses 1,346 626 Other current assets 1,582 80 Total current assets 278,646 161,735 Oil and natural gas properties, using full cost method of accounting Proved 1,493,956 1,454,016 Unproved 11,553 12,255 Less: accumulated depreciation, depletion and impairment ( 1,377,639 ) ( 1,373,217 ) 127,870 93,054 Other property, plant and equipment, net 93,691 97,791 Other assets 230 332 Total assets $ 500,437 $ 352,912 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued expenses $ 54,077 $ 45,779 Derivative contracts — 21 Asset retirement obligation 17,142 17,606 Other current liabilities 841 627 Total current liabilities 72,060 64,033 Asset retirement obligation 44,321 41,762 Other long-term obligations 1,757 1,795 Total liabilities 118,138 107,590 Commitments and contingencies (Note 7) Stockholders’ Equity Common stock, $ 0.001 par value; 250,000 shares authorized; 36,865 issued and outstanding at September 30, 2022 and 36,675 issued and outstanding at December 31, 2021 37 37 Warrants 88,518 88,520 Additional paid-in capital 1,062,775 1,062,737 Accumulated deficit ( 769,031 ) ( 905,972 ) Total stockholders’ equity 382,299 245,322 Total liabilities and stockholders’ equity $ 500,437 $ 352,912 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited) (In thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenues Oil, natural gas and NGL $ 70,899 $ 46,584 $ 198,146 $ 114,403 Total revenues 70,899 46,584 198,146 114,403 Expenses Lease operating expenses 9,693 9,080 30,067 26,266 Production, ad valorem, and other taxes 4,768 2,219 13,677 6,929 Depreciation and depletion — oil and natural gas 3,091 2,092 8,318 6,790 Depreciation and amortization — other 1,582 1,513 4,720 4,482 General and administrative 2,382 2,229 7,083 6,841 Restructuring expenses 76 ( 1,696 ) 718 614 Employee termination benefits — — — 49 (Gain) loss on derivative contracts ( 4,258 ) 4,129 ( 3,194 ) 4,129 (Gain) loss on sale of assets — 761 — ( 18,952 ) Other operating income ( 25 ) ( 202 ) ( 140 ) ( 315 ) Total expenses 17,309 20,125 61,249 36,833 Income from operations 53,590 26,459 136,897 77,570 Other income (expense) Interest expense, net ( 12 ) ( 256 ) ( 191 ) ( 387 ) Other income, net 147 2,396 235 2,711 Total other income 135 2,140 44 2,324 Income before income taxes 53,725 28,599 136,941 79,894 Income tax (benefit) expense — — — — Net income $ 53,725 $ 28,599 $ 136,941 $ 79,894 Net Income per share Basic $ 1.46 $ 0.78 $ 3.73 $ 2.20 Diluted $ 1.45 $ 0.77 $ 3.69 $ 2.15 Weighted average number of common shares outstanding Basic 36,797 36,577 36,710 36,318 Diluted 37,150 36,996 37,121 37,200 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS 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, 2022 Balance at December 31, 2021 36,675 $ 37 6,981 $ 88,520 $ 1,062,737 $ ( 905,972 ) $ 245,322 Issuance of stock awards, net of cancellations 51 — — — — — — Stock-based compensation — — — — 384 — 384 Tax withholdings paid in exchange for shares withheld on employee vested stock awards — — — — ( 235 ) — ( 235 ) Net income — — — — — 34,724 34,724 Balance at March 31, 2022 36,726 $ 37 6,981 $ 88,520 $ 1,062,886 $ ( 871,248 ) $ 280,195 Issuance of stock awards, net of cancellations 16 — — — — — — Stock-based compensation — — — — 440 — 440 Net income — — — — — 48,492 48,492 Balance at June 30, 2022 36,742 $ 37 6,981 $ 88,520 $ 1,063,326 $ ( 822,756 ) $ 329,127 Issuance of stock awards, net of cancellations 123 — — — — — — Stock-based compensation — — — — 384 — 384 Tax withholdings paid in exchange for shares withheld on employee vested stock awards — — — — ( 942 ) — ( 942 ) Warrants exercised — — — ( 2 ) 7 — 5 Net income — — — — — 53,725 53,725 Balance at September 30, 2022 36,865 $ 37 6,981 $ 88,518 $ 1,062,775 $ ( 769,031 ) $ 382,299 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 — — — — Tax withholdings paid in exchange for shares withheld on employee 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 Tax withholdings paid in exchange for shares withheld on employee 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 Issuance of stock awards, net of cancellations 114 — — — — — — Stock-based compensation — — — — 236 — 236 Tax withholdings paid in exchange for shares withheld on employee 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 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, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 136,941 $ 79,894 Adjustments to reconcile net income to net cash provided by operating activities Provision for doubtful accounts — ( 2,329 ) Depreciation, depletion, and amortization 13,038 11,272 Debt issuance costs amortization — 57 Write off of debt issuance costs — 174 (Gain) loss on derivative contracts ( 3,194 ) 4,129 Realized settlement losses on derivative contracts ( 867 ) — Gain on sale of assets — ( 18,952 ) Stock-based compensation 1,131 1,036 Other 115 107 Changes in operating assets and liabilities ( 12,534 ) ( 9,073 ) Net cash provided by operating activities 134,630 66,315 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures for property, plant and equipment ( 31,129 ) ( 8,615 ) Acquisition of assets ( 1,431 ) ( 3,545 ) Purchase of other property and equipment ( 49 ) ( 59 ) Proceeds from sale of assets 448 38,086 Net cash (used in) provided by investing activities ( 32,161 ) 25,867 CASH FLOWS FROM FINANCING ACTIVITIES Repayments of borrowings — ( 20,000 ) Reduction of financing lease liability ( 295 ) ( 493 ) Debt issuance costs — ( 75 ) Proceeds from exercise of stock options 77 21 Proceeds from exercise of warrants 5 — Tax withholdings paid in exchange for shares withheld on employee vested stock awards ( 1,177 ) ( 899 ) Net cash used in financing activities ( 1,390 ) ( 21,446 ) NET INCREASE IN CASH, CASH EQUIVALENTS and RESTRICTED CASH 101,079 70,736 CASH, CASH EQUIVALENTS and RESTRICTED CASH, beginning of year 139,524 28,266 CASH, CASH EQUIVALENTS and RESTRICTED CASH, end of period $ 240,603 $ 99,002 Supplemental Disclosure of Cash Flow Information Cash paid for interest, net of amounts capitalized $ ( 198 ) $ ( 168 ) Supplemental Disclosure of Noncash Investing and Financing Activities Purchase of Plant, Property and Equipment in accounts payables and accrued expenses $ 8,153 $ 2,169 Right-of-use assets obtained in exchange for financing lease obligations $ 538 $ 960 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 Mid-Continent region (“Mid-Con”). 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 2021 Form 10-K and 10-K/A. 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 Company’s 2021 Form 10-K and 10-K/A, 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 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. 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, 2022 and December 31, 2021. 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). 8 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 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 and liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. The Company had assets and liabilities classified in Level 2 of the hierarchy as of September 30, 2022 and December 31, 2021, respectively, as described below. Level 2 Fair Value Measurements Commodity Derivative Contracts. As applicable, the fair values of the Company’s oil, natural gas and NGL fixed price swaps are based upon inputs that are either readily available in the public market, such as oil, natural gas and NGL futures prices, volatility factors and discount rates, or can be corroborated from active markets. As applicable, if the Company has a commodity derivative contract in place, the 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 As of September 30, 2022 and December 31, 2021 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): September 30, 2022 Fair Value Measurements Netting (1) Assets at Fair Value Level 1 Level 2 Level 3 Assets Commodity derivative contracts $ — $ 4,040 $ — $ — $ 4,040 Total $ — $ 4,040 $ — $ — $ 4,040 December 31, 2021 Fair Value Measurements Netting (1) Liabilities at Fair Value Level 1 Level 2 Level 3 Liabilities Commodity derivative contracts $ — $ 200 $ — $ 179 $ 21 Total $ — $ 200 $ — $ 179 $ 21 ____________________ (1) Represents the effect of netting assets and liabilities for counterparties with which the right of offset exists. 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, natural gas and NGL. On occasion, the Company has attempted to manage this risk on a portion of its forecasted oil, natural gas or NGL production sales through the use of commodity derivative contracts. 9 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) The Company has not designated any of its derivative contracts as hedges for accounting purposes. As applicable, if the Company has open derivative contracts, the Company has recorded such contracts at fair value with changes in derivative contract fair values recognized as a gain or loss on derivative contracts in the condensed consolidated income statements. 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, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Gain) loss on derivative contracts $ ( 4,258 ) $ 4,129 $ ( 3,194 ) $ 4,129 Realized settlement gains (losses) on derivative contracts $ 218 $ — $ ( 867 ) $ — M aster Netting Agreements and the Right of Offset. As applicable, the Company has had 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) the Company’s net derivative asset and liability positions as of September 30, 2022 and December 31, 2021 (in thousands): September 30, 2022 Gross Amounts Gross Amounts Offset Amounts Net of Offset Financial Collateral Net Amount Assets Derivative contracts - current $ 4,040 $ — $ 4,040 $ — $ 4,040 Total $ 4,040 $ — $ 4,040 $ — $ 4,040 December 31, 2021 Gross Amounts Gross Amounts Offset Amounts Net of Offset Financial Collateral Net Amount Liabilities Derivative contracts - current $ 200 $ 179 $ 21 $ — $ 21 Total $ 200 $ 179 $ 21 $ — $ 21 As of September 30, 2022, the Company's open derivative contracts consisted of natural gas 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 Natural Gas Price Swaps: October 2022 - March 2023 2,088,000 MMBtu $ 8.39 10 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 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 on a net basis with the same counterparty (in thousands): Type of Contract Balance Sheet Classification September 30, 2022 Derivative assets Natural Gas Current assets - Derivative Contracts $ 4,040 Total net derivative contracts $ 4,040 Type of Contract Balance Sheet Classification December 31, 2021 Natural Gas and NGL price swaps Current liabilities - Derivative Contracts $ 21 Total net derivative contracts $ 21 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, 2022 December 31, 2021 Oil and natural gas properties Proved $ 1,493,956 $ 1,454,016 Unproved 11,553 12,255 Total oil and natural gas properties 1,505,509 1,466,271 Less: accumulated depreciation, depletion and impairment ( 1,377,639 ) ( 1,373,217 ) Net oil and natural gas properties 127,870 93,054 Land 200 200 Electrical infrastructure 121,819 121,819 Other non-oil and natural gas equipment 1,638 1,575 Building and structures 3,603 3,603 Financing leases 1,497 1,384 Total 128,757 128,581 Less: accumulated depreciation and amortization ( 35,066 ) ( 30,790 ) Other property, plant and equipment, net 93,691 97,791 Total property, plant and equipment, net $ 221,561 $ 190,845 11 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 5. 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). 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"), in Colorado, for a gross purchase price of $ 47 million. The sale closed for net proceeds of $ 38.9 million in cash, net of $ 8.1 million in closing adjustments, primarily for production revenue received prior to closing. 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. During the three months ended September 30, 2021 we recognized additional closing adjustments of $ 0.8 million, which reduced the gain on the sale of assets to $ 18.9 million. The $ 18.9 million gain represents net proceeds of $ 38.9 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. 6. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following (in thousands): September 30, 2022 December 31, 2021 Accounts payable and other accrued expenses $ 20,731 $ 13,727 Production payable 25,845 23,974 Payroll and benefits 2,961 3,942 Taxes payable 4,306 3,902 Drilling advances 234 234 Total accounts payable and accrued expenses $ 54,077 $ 45,779 7. 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 2021 Form 10-K and 10-K/A, there are certain ongoing Cases (as that term is defined in the Company's 2021 Form 10-K and 10-K/A). 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, the Company remains a nominal defendant as the Cases await final 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. 12 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 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. 8. 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 trailing three-year cumulative negative earnings position, the Company continued to maintain a full valuation allowance against its net deferred tax asset at September 30, 2022 and December 31, 2021. 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, 2022 and 2021. 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 adopted the tax benefits preservation plan, as amended on March 16, 2021, in order to protect the Company’s ability to use its tax NOLs and certain other tax benefits. As of September 30, 2022, 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, $ 0.7 billion expire during the years 2028 through 2037, while the remaining $ 0.9 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, 2022 and December 31, 2021. The Company’s only taxing jurisdiction is the United States (federal and state). The Company’s tax years 2018 to present remain open for federal examination. Additionally, tax years 2005 through 2017 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 . 9. Equity Common Stock, Performance Share Units, and Stock Options . At September 30, 2022, the Company had approximately 250.0 million shares of common stock authorized, 36.9 million shares of common stock, par value $ 0.001 per share, issued and outstanding. Further, at September 30, 2022, the Company had an immaterial number of unvested restricted stock awards, 0.3 million shares of unvested restricted stock units, 0.2 million unvested stock options outstanding, and an immaterial number of unvested performance share units. 13 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Warrants . The Company issued approximately 4.9 million Series A warrants and 2.1 million Series B warrants that were 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 2016 bankruptcy reorganization plan. The warrants contained customary anti-dilution adjustments in the event of any stock split, reverse stock split, reclassification, stock dividend or other distributions. During the quarter ended September 30, 2022, warrant holders exercised 91 Series A warrants and 41 Series B warrants for 132 shares of common stock. 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. 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 three or nine-month periods ended September 30, 2022. 10. Revenues The following table disaggregates the Company’s revenue by source for the three and nine-month periods ended September 30, 2022 and 2021: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (In thousands) Oil $ 23,855 $ 15,198 $ 66,238 $ 45,412 NGL 15,364 14,863 52,559 34,344 Natural gas 31,680 16,523 79,349 34,647 Total revenues (1) $ 70,899 $ 46,584 $ 198,146 $ 114,403 (1) Nine months ended September 30, 2021 includes 36 days of production and related revenues for NPB, which was sold on February 5, 2021. 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 purchaser at the inlet of the processing plant or pipeline, or the delivery point for onloading to a delivery truck. As the Company’s purchaser obtains 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 purchaser, 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 condensed consolidated income statements. 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 purchaser. As of September 30, 2022 and December 31, 2021, the Company had revenues receivable of $ 25.4 million and $ 18.8 million, respectively. The Company did no t record any bad debt expense on revenues receivable nor write-offs during the three and nine-month periods ended September 30, 2022 and 2021, as the Company’s purchasers of oil, natural gas and NGL have had no issues of payment collectability or lack of credit worthiness with the Company. 14 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 11. Earnings per Share The following table summarizes the calculation of weighted average common shares outstanding used in the computation of diluted earnings per share: Earnings Weighted Average Shares Earnings Per Share (In thousands, except per share amounts) Three Months Ended September 30, 2022 Basic earnings per share $ 53,725 36,797 $ 1.46 Effect of dilutive securities Restricted stock units — 263 Restricted stock awards — 2 Performance share units (1) — — Stock options — 88 Diluted earnings per share (2) $ 53,725 37,150 $ 1.45 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) — — Stock options — 48 Diluted earnings per share (2) $ 28,599 36,996 $ 0.77 Nine Months Ended September 30, 2022 Basic earnings per share $ 136,941 36,710 $ 3.73 Effect of dilutive securities Restricted stock units — 309 Restricted stock awards — 22 Performance share units (1) — — Stock options — 80 Diluted earnings per share (2) $ 136,941 37,121 $ 3.69 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) — — Stock options — 41 Diluted earnings per share (2) $ 79,894 37,200 $ 2.15 ____________________ (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, restricted stock awards and stock options were included for the three and nine-month periods ended September 30, 2022 and 2021 as their effect was dilutive under the treasury stock method. 15 Tabl e of Contents