SANDRIDGE ENERGY INC 10-Q

ITEM 1. Financial Statements SANDRIDGE ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) September 30, 2023 December 31, 2022 ASSETS Current assets Cash and cash equivalents $ 230,706 $ 255,722 Restricted cash - other 1,537 1,746 Accounts receivable, net 25,657 34,735 Derivative contracts — 4,429 Prepaid expenses 926 523 Other current assets 1,479 7,747 Total current assets 260,305 304,902 Oil and natural gas properties, using full cost method of accounting Proved 1,538,863 1,507,690 Unproved 11,189 11,516 Less: accumulated depreciation, depletion and impairment ( 1,388,781 ) ( 1,380,574 ) 161,271 138,632 Other property, plant and equipment, net 87,824 92,244 Other assets 3,172 190 Deferred tax assets 64,529 64,529 Total assets $ 577,101 $ 600,497 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable and accrued expenses $ 38,937 $ 46,335 Asset retirement obligation 15,574 16,074 Other current liabilities 659 870 Total current liabilities 55,170 63,279 Asset retirement obligation 50,382 47,635 Other long-term obligations 2,032 1,661 Total liabilities 107,584 112,575 Commitments and contingencies (Note 7) Shareholders’ Equity Common stock, $ 0.001 par value; 250,000 shares authorized; 37,091 issued and outstanding at September 30, 2023 and 36,868 issued and outstanding at December 31, 2022 37 37 Additional paid-in capital 1,074,219 1,151,689 Accumulated deficit ( 604,739 ) ( 663,804 ) Total shareholders’ equity 469,517 487,922 Total liabilities and shareholders’ equity $ 577,101 $ 600,497 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, 2023 2022 2023 2022 Revenues Oil, natural gas and NGL $ 38,149 $ 70,899 $ 114,715 $ 198,146 Total revenues 38,149 70,899 114,715 198,146 Expenses Lease operating expenses 11,450 9,693 31,946 30,067 Production, ad valorem, and other taxes 2,031 4,768 8,522 13,677 Depreciation and depletion — oil and natural gas 4,217 3,091 11,415 8,318 Depreciation and amortization — other 1,637 1,582 4,870 4,720 General and administrative 2,619 2,382 8,004 7,083 Restructuring expenses 42 76 343 718 Employee termination benefits — — 19 — Gain on derivative contracts — ( 4,258 ) ( 1,447 ) ( 3,194 ) Other operating (income) expense ( 31 ) ( 25 ) ( 152 ) ( 140 ) Total expenses 21,965 17,309 63,520 61,249 Income from operations 16,184 53,590 51,195 136,897 Other income (expense) Interest income (expense), net 2,455 ( 12 ) 7,782 ( 191 ) Other income, net 31 147 88 235 Total other income (expense) 2,486 135 7,870 44 Income before income taxes 18,670 53,725 59,065 136,941 Income tax (benefit) expense — — — — Net income $ 18,670 $ 53,725 $ 59,065 $ 136,941 Net income per share Basic $ 0.51 $ 1.46 $ 1.60 $ 3.73 Diluted $ 0.50 $ 1.45 $ 1.59 $ 3.69 Weighted average number of common shares outstanding Basic 36,969 36,797 36,906 36,710 Diluted 37,161 37,150 37,123 37,121 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 SHAREHOLDERS’ EQUITY (Unaudited) (In thousands) Common Stock Warrants Additional Paid-In Capital Accumulated Deficit Total Shares Amount Shares Amount Nine Months Ended September 30, 2023 Balance at January 1, 2023 36,868 $ 37 — $ — $ 1,151,689 $ ( 663,804 ) $ 487,922 Issuance of stock awards, net of cancellations 34 — — — — — — Tax withholdings paid in exchange for shares withheld on employee vested stock awards — — — — ( 211 ) — ( 211 ) Stock-based compensation — — — — 396 — 396 Net income — — — — — 23,758 23,758 Balance at March 31, 2023 36,902 $ 37 — $ — $ 1,151,874 $ ( 640,046 ) $ 511,865 Issuance of stock awards, net of cancellations 64 — — — — — — Stock-based compensation — — — — 576 — 576 Dividends to shareholders — — — — ( 74,380 ) — ( 74,380 ) Net income — — — — — 16,637 16,637 Balance at June 30, 2023 36,966 $ 37 — $ — $ 1,078,070 $ ( 623,409 ) $ 454,698 Issuance of stock awards, net of cancellations 125 — — — — — — Tax withholdings paid in exchange for shares withheld on employee vested stock awards — — — — ( 718 ) — ( 718 ) Stock-based compensation — — — — 544 — 544 Dividends to shareholders — — — — ( 3,677 ) — ( 3,677 ) Net income — — — — — 18,670 18,670 Balance at September 30, 2023 37,091 $ 37 — $ — $ 1,074,219 $ ( 604,739 ) $ 469,517 Nine Months Ended September 30, 2022 Balance at January 1, 2022 36,675 $ 37 6,981 $ 88,520 $ 1,062,737 $ ( 905,972 ) $ 245,322 Issuance of stock awards, net of cancellations 51 — — — — — — Tax withholdings paid in exchange for shares withheld on employee vested stock awards — — — — ( 235 ) — ( 235 ) Stock-based compensation — — — — 384 — 384 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 — — — — — — Tax withholdings paid in exchange for shares withheld on employee vested stock awards — — — — ( 942 ) — ( 942 ) Stock-based compensation — — — — 384 — 384 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 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, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 59,065 $ 136,941 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, depletion, and amortization 16,285 13,038 Gain on derivative contracts ( 1,447 ) ( 3,194 ) Realized settlement gains (losses) on derivative contracts 5,876 ( 867 ) Stock-based compensation 1,422 1,131 Other 118 115 Changes in operating assets and liabilities 8,040 ( 12,534 ) Net cash provided by operating activities 89,359 134,630 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures for property, plant and equipment ( 25,681 ) ( 31,129 ) Acquisition of assets ( 11,232 ) ( 1,431 ) Purchase of other property and equipment ( 29 ) ( 49 ) Proceeds from sale of assets 1,411 448 Net cash used in investing activities ( 35,531 ) ( 32,161 ) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid to shareholders ( 77,804 ) — Reduction of financing lease liability ( 414 ) ( 295 ) Proceeds from exercise of stock options 94 77 Proceeds from exercise of warrants — 5 Tax withholdings paid in exchange for shares withheld on employee vested stock awards ( 929 ) ( 1,177 ) Net cash used in financing activities ( 79,053 ) ( 1,390 ) NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS and RESTRICTED CASH ( 25,225 ) 101,079 CASH, CASH EQUIVALENTS and RESTRICTED CASH, beginning of year 257,468 139,524 CASH, CASH EQUIVALENTS and RESTRICTED CASH, end of period $ 232,243 $ 240,603 Supplemental Disclosure of Cash Flow Information Cash paid for interest, net of amounts capitalized $ ( 75 ) $ ( 198 ) Supplemental Disclosure of Noncash Investing and Financing Activities Capital expenditures for property, plant and equipment in accounts payables and accrued expenses $ 888 $ 8,153 Right-of-use assets obtained in exchange for financing lease obligations $ 443 $ 538 Inventory material transfers to oil and natural gas properties $ 1,246 $ — Asset retirement obligation capitalized $ 12 $ — Asset retirement obligation removed due to divestiture $ ( 137 ) $ — Dividend payable $ 253 $ — 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 condensed 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 2022 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 Company’s 2022 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 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. 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, accounts payable and accrued expenses and other current liabilities included in the unaudited condensed consolidated balance sheets approximated fair value at September 30, 2023 and December 31, 2022. 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 classified in Level 2 of the hierarchy as of December 31, 2022 and none as of September 30, 2023. 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 There were no open commodity derivative contracts as of September 30, 2023. As of December 31, 2022 the following table summarizes the Company’s assets measured at fair value on a recurring basis by the fair value hierarchy (in thousands): December 31, 2022 Fair Value Measurements Netting Assets at Fair Value Level 1 Level 2 Level 3 Assets Commodity derivative contracts $ — $ 4,429 $ — $ — $ 4,429 Total $ — $ 4,429 $ — $ — $ 4,429 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. There were no open commodity derivative contracts as of September 30, 2023. Historically, 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 on a mark-to-market valuation basis quarterly. 9 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) The following table summarizes derivative activity for the three and nine-month periods ended September 30, 2023 and 2022 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Gain on derivative contracts $ — $ ( 4,258 ) $ ( 1,447 ) $ ( 3,194 ) Realized settlement gains (losses) on derivative contracts $ — $ 218 $ 5,876 $ ( 867 ) M aster Netting Agreements and the Right of Offset. As applicable, the Company historically 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 was limited to the net amounts due from its counterparties. There were no open commodity derivatives contracts as of September 30, 2023. As of December 31, 2022, the Company’s open commodity derivative contracts were held with one counterparty. There were no open derivative positions as of September 30, 2023. 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 position as of December 31, 2022 (in thousands): Gross Amounts Gross Amounts Offset Amounts Net of Offset Financial Collateral Net Amount Assets Derivative contracts - current $ 4,429 $ — $ 4,429 $ — $ 4,429 Total $ 4,429 $ — $ 4,429 $ — $ 4,429 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 the earnings of the relevant period. 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 December 31, 2022 Natural Gas Current assets - Derivative Contracts $ 4,429 Total net derivative contracts $ 4,429 See Note 2 for additional discussion of the fair value measurement of the Company’s derivative contracts. 10 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 4. Property, Plant and Equipment Property, plant and equipment consists of the following (in thousands): September 30, 2023 December 31, 2022 Oil and natural gas properties Proved $ 1,538,863 $ 1,507,690 Unproved 11,189 11,516 Total oil and natural gas properties 1,550,052 1,519,206 Less: accumulated depreciation, depletion and impairment ( 1,388,781 ) ( 1,380,574 ) Net oil and natural gas properties 161,271 138,632 Land 200 200 Electrical infrastructure 121,819 121,819 Other non-oil and natural gas equipment 1,656 1,644 Building and structures 3,603 3,603 Financing leases 1,307 1,468 Total 128,585 128,734 Less: accumulated depreciation and amortization ( 40,761 ) ( 36,490 ) Other property, plant and equipment, net 87,824 92,244 Total property, plant and equipment, net $ 249,095 $ 230,876 5. Acquisitions On July 11, 2023, the Company closed an acquisition that increased its ownership interest in twenty-six producing wells operated by the Company within the Northwest Stack play for $ 10.6 million, after customary post-closing adjustments, with an effective date of April 1, 2023. The Company used its cash on hand to fund the acquisition. 6. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following (in thousands): September 30, 2023 December 31, 2022 Accounts payable and other accrued expenses $ 12,567 $ 17,989 Production payable 21,899 22,290 Payroll and benefits 3,246 3,471 Taxes payable 1,225 2,585 Total accounts payable and accrued expenses $ 38,937 $ 46,335 7. Commitments and Contingencies Included below is a discussion of the Company's various future commitments and contingencies as of September 30, 2023. 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. The commitments and contingencies under these arrangements are not recorded in the accompanying consolidated balance sheets. 11 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Legal Proceedings. As previously disclosed, on May 16, 2016, the Company and certain of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Bankruptcy Court confirmed the joint plan of organization (the “Plan”) of the Debtors on September 9, 2016, and the Debtors subsequently emerged from bankruptcy on October 4, 2016. Pursuant to the Plan, claims against the Company were discharged without recovery in each of the following consolidated cases (the “Cases”): • In re SandRidge Energy, Inc. Securities Litigation, Case No. 5:12-cv-01341-LRW, USDC, Western District of Oklahoma (“In re SandRidge Energy, Inc. Securities Litigation”); and • Ivan Nibur, Lawrence Ross, Jase Luna, Matthew Willenbucher, and the Duane & Virginia Lanier Trust v. SandRidge Mississippian Trust I, et al., Case No. 5:15-cv-00634-SLP, USDC, Western District of Oklahoma (“Lanier Trust”) Both cases were settled with all defendants except the SandRidge Mississippian Trust I (“the Trust”), which is being sued by a class of purchasers of units under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, based on allegations that the Trust, made misrepresentations or omissions concerning various topics including the performance of wells operated by the Company. The Company is contractually obligated to indemnify the Trust for losses, claims, damages, liabilities and expenses, including reasonable costs of investigation and attorney’s fees and expenses, which it is required to advance. Such indemnification is not covered by insurance. Considering the status of the Lanier Trust matter, and the facts, circumstances and legal theories relating thereto, the Company is not able to determine the likelihood of an outcome or provide an estimate of any reasonably possible loss or range of possible loss related thereto. However, such losses, if incurred, could be material. The Company has not established any liabilities relating to the Lanier Trust matter and believes that the plaintiffs’ claims are without merit. Separately, the Company had received a demand by two of the settling individual defendants to fund a proposed settlement of $ 17 million with those defendants. The Company refused and filed an action in Oklahoma state court seeking a declaratory judgment that the defendants were not entitled to indemnification. The insurance carriers funded the settlement of $ 17 million and filed a counterclaim, which seeks reimbursement of the $ 17 million settlement, with each carrier to receive their funded portion of the $ 17 million. The Company disputes any liability, as it believes it has meritorious defenses. Considering the status of this matter, and the facts, circumstances and legal theories thereto, the Company is not able to determine the likelihood of an outcome. The Company has not established any liabilities relating to this matter. In addition to the matters described above, the Company is involved in various lawsuits, claims and proceedings, which are being handled and defended by the Company in the ordinary course of business. 12 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 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. In assessing the realizability of the deferred tax assets, we consider whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future income in periods in which the deferred tax assets can be utilized. In prior years, we determined that the deferred tax assets did not meet the more likely than not threshold of being utilized and thus recorded a valuation allowance. During the year ended December 31, 2022, we partially released our valuation allowance on our deferred tax assets by $ 64.5 million. We anticipate being able to utilize these deferred tax assets based on the generation of future income. A change in the estimate of future income could cause the valuation allowance to be adjusted in subsequent periods. The Company had no federal or state income tax expense or benefit for the three and nine-month periods ended September 30, 2023 and 2022. 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 and June 20, 2023, in order to protect the Company’s ability to use its tax NOLs and certain other tax benefits. As of September 30, 2023, 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 2025 through 2037, while the remaining $ 0.9 billion do not have an expiration date. In addition, the Company had approximately $ 1.1 billion of state NOL carryforwards, net of NOLs expected to expire unused due to the 2016 IRC Section 382 limitation. Of the $ 1.1 billion in state NOL carryforwards, approximately $ 203.0 million are derived from states the Company currently does not operate in. Of the remaining state NOL carryforwards, $ 650.0 million do not have an expiration date and $ 247.0 million will begin expiring in 2023 through 2037. 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, 2023 and December 31, 2022. The Company’s only taxing jurisdiction is the United States (federal and state). The Company’s tax years 2019 to present remain open for federal examination. Additionally, tax years 2005 through 2018 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 Capital Stock and Equity Awards . Our authorized capital stock consists of 300 million shares, which include 250 million shares of common stock, $ 0.001 par value per share (“common stock”) and 50 million shares of preferred stock, par value $ 0.001 per share. At September 30, 2023, the Company had 37.1 million shares of common stock issued and outstanding. Further, at September 30, 2023, the Company had 0.1 million of unvested restricted stock awards, 0.1 million shares of unvested restricted stock units, an immaterial amount of unvested performance share units, and 0.2 million unvested stock options outstanding. 13 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Warrants . During the fourth quarter of 2016, the Company issued approximately 4.9 million Series A warrants and 2.1 million Series B warrants to certain holders of general unsecured claims as defined in the 2016 bankruptcy reorganization plan. These warrants were exercisable until October 4, 2022 for one share of common stock per warrant at initial exercise prices of $ 41.34 and $ 42.03 per share, respectively, subject to adjustments pursuant to the terms of the warrants. The warrants contained customary anti-dilution adjustments in the event of any stock split, reverse stock split, reclassification, stock dividend or other distributions. Upon expiration, the entirety of the 4.9 million Series A warrants and 2.1 million Series B warrants were cancelled and the carrying value was transferred to Additional paid-in capital in the accompanying condensed consolidated balance sheets. Share Repurchase Program. In May 2023, the Company's Board of Directors (the “Board”) approved a share repurchase program (the “Program”) authorizing the Company to repurchase up to an aggregate of $ 75.0 million of the Company’s outstanding common stock with the Company’s cash on hand. The Program replaced the prior share repurchase program previously approved by the Board in August 2021. Purchases under the Program are intended to meet the requirements of Rule 10b5-1 of the Exchange Act. 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 and nine-month periods ended September 30, 2023. There were no repurchases for the nine-month period ended September 30, 2023 under the Company’s prior share repurchase program. Dividends . In May 2023, the Board approved a one-time cash dividend of $ 2.00 per share of the Company’s common stock, which was paid on June 7, 2023 to shareholders of record as of the close of business on May 24, 2023. The aggregate total payout was $ 73.8 million. Additionally, in May 2023, the Board announced plans for a regular quarterly dividend of $ 0.10 per share, subject to quarterly approval by the Board. In August 2023, the Board declared a cash dividend of $ 0.10 per share of the Company’s common stock, which was paid on August 28, 2023 to shareholders of record as of the close of business on August 14, 2023. The aggregate total payout was $ 3.7 million. In addition to the quarterly dividend payments, the Company paid $ 0.3 million in cash dividends on vested stock awards during the three and nine-month periods ended September 30, 2023. As of September 30, 2023, the Company had $ 0.3 million in dividends payable on unvested stock awards. 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 the Company’s common stock to shareholders of record at the close of business on July 13, 2020. On June 20, 2023, the Company entered into an amendment to the Tax Benefits Preservation Plan to extend the expiration time of the Tax Benefits Preservation Plan from July 1, 2023 to July 1, 2026. 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, as amended, between the Company and American Stock Transfer & Trust Company, LLC, as rights agent (and any successor rights agent, the “Rights Agent”). The Tax Benefits Preservation Plan will expire on the earliest of: (i) the time at which the Rights are redeemed pursuant to the Tax Benefits Preservation Plan, (ii) the time at which the Rights are exchanged pursuant to the Tax Benefits Preservation Plan, (iii) the closing of any merger or other acquisition transaction involving the Company pursuant to an agreement of the type described in Section 13(f) of the Tax Benefits Preservation Plan, at which time, the Rights are terminated, (iv) the time at which the Board determines that the NOLs are utilized in all material respects or that an ownership change under Section 382 would not adversely impact in any material respect the time period in which the Company could use the NOLs, or materially impair the amount of the NOLs that could be used by the Company in any particular time period, for applicable tax purposes and (v) the Close of Business on July 1, 2026. The Board plans to request shareholder approval for the Tax Benefits Preservation Plan at the 2024 annual meeting. The Company adopted the Tax Benefits Preservation Plan, as amended on March 16, 2021, and June 20, 2023, in order to protect shareholder value against a possible limitation on the Company’s ability to use its tax net operating losses (the “NOLs”) and certain other tax benefits to reduce potential future U.S. federal income tax obligations. The NOLs are a valuable asset to the Company, which may inure to the benefit of the Company and its shareholders. However, if the Company experiences an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), its ability to fully utilize the NOLs and certain other tax benefits will be substantially limited and the timing of the usage of the NOLs and such other benefits could be substantially delayed, which could significantly impair the value of those assets. Generally, an “ownership change” occurs if the percentage of the Company’s stock owned by one or more of its “ five -percent shareholders” (as such term is defined in Section 382 of the Code) increases by more than 50 percentage points over the lowest percentage of stock owned by such shareholder or shareholders 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. 14 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 10. Revenues The following table disaggregates the Company’s revenue by source for the three and nine-month periods ended September 30, 2023 and 2022: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 (In thousands) Oil $ 21,333 $ 23,855 $ 60,327 $ 66,238 Natural gas 7,183 31,680 27,378 79,349 NGL 9,633 15,364 27,010 52,559 Total revenues $ 38,149 $ 70,899 $ 114,715 $ 198,146 Oil, natural gas and NGL revenues. 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. 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 condensed consolidated balance sheet for revenues receivable from contracts with purchasers 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, 2023 and December 31, 2022, the Company had revenues receivable of $ 16.8 million and $ 21.8 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, 2023 and 2022, 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 . 15 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, 2023 Basic earnings per share $ 18,670 36,969 $ 0.51 Effect of dilutive securities Restricted stock units — 118 Restricted stock awards — 15 Performance share units (1) — — Stock options — 59 Diluted earnings per share (2) $ 18,670 37,161 $ 0.50 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 Nine Months Ended September 30, 2023 Basic earnings per share $ 59,065 36,906 $ 1.60 Effect of dilutive securities Restricted stock units — 161 Restricted stock awards — 8 Performance share units (1) — — Stock options — 48 Diluted earnings per share (2) $ 59,065 37,123 $ 1.59 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 ____________________ (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, 2023 and 2022 as their effect was dilutive under the treasury stock method. 16 Table of Contents SANDRIDGE ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 12. Subsequent Events On November 2, 2023, the Board declared a cash dividend of $ 0.10 per share of the Company’s common stock, payable on November 27, 2023 to shareholders of record on November 13, 2023. 17 Tabl e of Contents