What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-15 compared with 2022-03-10 · 324 added, 254 removed, 1042 unchanged (36% of the section changed)

2 unchanged sentences

Management’s Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Reports of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets at December 31, 2022 and 2021

15 unchanged sentences

Salah Gamoudi

Senior Vice President, Chief Financial Officer and Chief Accounting Officer

Executive Vice President, Chief Financial Officer and Chief Accounting Officer

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

1 unchanged sentence

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, 2021 and 2020, the related consolidated statements of operations, changes in stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

We have audited the accompanying consolidated balance sheet of SandRidge Energy, Inc.

and subsidiaries (the “Company”) as of December 31, 2022, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year then ended and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022, and the consolidated results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2023, expressed an unqualified opinion on the Company’s internal control over financial reporting.

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.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the 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.

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— Refer to Notes 1 and 8 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.

The development of the Company’s oil and natural gas reserve quantities requires management to make significant estimates and assumptions related to rates of production.

The Company engages independent petroleum engineers to estimate oil and natural gas reserves using estimates, assumptions, and engineering data.

Changes in these assumptions could materially affect the Company’s estimated reserve quantities and the amount of depletion.

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 December 31, 2021.

Depreciation and depletion- oil and natural gas expense was $9.4 million for the year ended December 31, 2021.

Given the significant judgments made by management, performing audit procedures to evaluate the Company’s oil and natural gas reserve quantities 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 reserve quantities included the following, among others:

• We tested the operating effectiveness of controls over the Company’s estimation of oil and natural gas reserve quantities.

• We evaluated the reasonableness of management’s estimated reserve quantities by performing the following:

– Evaluating the experience, qualifications and objectivity of the Company’s independent reserve engineers including the methodologies used to estimate oil and natural gas reserve quantities.

– For a sample of proved developed wells, we evaluated the wells 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

We conducted our audit 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 consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated 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 consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which those relate.

The Impact of Proved Oil and Natural Gas Reserves on Depletion—Oil and Natural Gas and Forecasts of Taxable Income for the Assessment of the Realizability of Deferred Tax Assets

As described in Note 1, the Company follows the full cost method of accounting, pursuant to which oil and natural gas properties are amortized using the unit-of-production method over total proved reserves.

For the year ended December 31, 2022, the Company recorded depletion related to its proved oil and natural gas properties of approximately $7.6 million.

The Company engages an independent reservoir engineering firm, to serve as a management specialist and to estimate substantially all its proved oil and natural gas reserves.

To estimate the volume of proved oil and natural gas reserves and associated future net cash flows, management and their specialist make significant estimates and assumptions including forecasting the production decline rate of producing properties.

The estimation of proved oil and natural gas reserves is impacted by management’s judgments and estimates regarding the financial performance of wells associated with proved reserves to determine if wells are expected, with reasonable certainty, to be economical under the appropriate pricing assumptions required.

Changes in significant assumptions or engineering data could have a significant impact on the amount of depletion for the Company’s proved oil and natural gas properties and conclusions about realization of deferred tax assets.

The impact of proved oil and natural gas reserves on forecasts of taxable income for the assessment of the realizability of deferred tax assets is further described below under Accounting for Income Taxes - Valuation Allowance on Deferred Tax Assets.

We identified the impact of proved oil and natural gas reserves on depletion and assessment of realizability of deferred tax assets as a critical audit matter due to use of significant judgment by management, including the use of specialist, when developing the estimates of proved oil and natural gas reserves.

This in turn led to a high degree of auditor judgment, subjectivity, and increased extent of effort in performing procedures and evaluating audit evidence related to the significant assumptions used in developing those estimates of proved oil and natural gas reserves.

The primary procedures we performed to address this critical audit matter included:

• Testing the operating effectiveness of controls over the Company’s estimation of oil and natural gas reserve quantities.

• Evaluating the knowledge, skill, and ability of the Company's third-party reservoir engineering specialist and their relationship to the Company, performing inquiries of those reservoir engineers regarding the process followed and judgments made to estimate the proved reserve volumes and reading the reserve report prepared by the reservoir engineering specialist.

• Evaluating significant assumptions used by management and its specialist in developing the estimates of proved oil and natural gas reserves, including pricing differentials, future operations costs, future production rates and capital expenditures.

The procedures performed included tests of the data inputs used by specialist for completeness and accuracy and an evaluation of the specialist’s findings.

The procedures performed included:

• Testing the data inputs used by specialist for completeness and accuracy;

• Testing the specialist’s findings for mathematical accuracy;

• Performing analytical procedures on pricing, reserve quantities and cost estimates developed by management and its specialist.

Those procedures entailed comparisons of:

◾ prices to historical benchmark prices, adjusted for pricing differentials,

◾ production forecasts to recent historical actual production,

◾ projections of lease operating costs to recent historical costs incurred for a group of properties, and

◾ projected production taxes to recent historical taxes incurred and to statutory tax rates.

• Evaluating the accuracy of revenue and working interest percentages used in the reserve report by comparing a sample of such interests to the land records.

• Performing retrospective review of historical estimates of proved oil and natural gas reserves to identify potential management bias in estimates.

Testing the accuracy of the Company’s depletion calculation that included these proved reserves.

Accounting for Income Taxes – Valuation Allowance on Deferred Tax Assets

As described in Notes 1 and 13, deferred income taxes are recorded for temporary differences between the financial statement and income tax basis of assets and liabilities.

Deferred tax assets are recognized for temporary differences that will be deductible in future years’ tax returns and for operating loss and tax credit carryforwards.

Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all the deferred tax assets will not be realized.

Deferred tax liabilities are recognized for temporary differences that will be taxable in future years’ tax returns.

The Company has had a full valuation allowance against its deferred tax assets until December 31, 2022, when management concluded that it is more likely than not that a portion of the deferred tax assets will be realized, resulting in a deferred tax asset of $64.5 million and a deferred tax benefit of $64.5 million.

We identified the Company’s estimate of the portion of deferred tax assets that is more likely than not to be realized as a critical audit matter.

Specifically, the Company’s evaluation of positive and negative evidence and estimates of future taxable income to determine the amount of valuation allowance for release involved significant management judgments.

This in turn led to a high degree of auditor judgment, subjectivity, and increased extent of effort in performing procedures and evaluating audit evidence related to the weighing of positive and negative evidence and the significant assumptions used in developing estimates of future taxable income.

The primary procedures we performed to address this critical audit matter included:

• Testing the operating effectiveness of controls over management’s determination of whether it is more likely than not that the deferred tax assets will be realized and development of estimates of future taxable income.

• With the assistance of internal income tax specialists:

• Evaluating management's assessment and weighing of the positive and negative evidence utilized to conclude that a portion of a valuation allowance should be released;

• Assessing reasonableness of management’s conclusion about tax benefits that are more likely than not to be realized after considering forecasted book/tax differences and utilization of net operating losses.

• Testing the reasonableness of the key assumptions and data in the taxable income forecast by:

• Comparing forecasts of oil and natural gas production, pricing differentials, operating costs, production taxes, and ownership interests to the data inputs in Company’s aforementioned proved oil and natural gas reserves;

• Evaluating reasonableness of forecasted commodity pricing;

• Comparing other projected operating costs and interest income to historical costs incurred or income earned;

• Assessing reasonableness of the forecast period used by management in its estimate of taxable income.

/s/ MOSS ADAMS LLP

Houston, Texas

4 unchanged sentences

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of SandRidge Energy, Inc.

and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have audited SandRidge Energy, Inc.

and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated March 10, 2022 expressed an unqualified opinion on those financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of SandRidge Energy, Inc.

and subsidiaries as of December 31, 2022, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for year then ended, and the related notes (collectively referred to as the “consolidated financial statements”) and our report dated March 15, 2023 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

3 unchanged sentences

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

6 unchanged sentences

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ MOSS ADAMS LLP

Houston, Texas

March 15, 2023

We have served as the Company's auditor since 2022.

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 consolidated balance sheet of SandRidge Energy, Inc.

and subsidiaries (the "Company") as of December 31, 2021, the related consolidated statements of operations, changes in stockholders' equity, and cash flows, for each of the two years in the period ended December 31, 2021, 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, 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.