Looking up
An improved balance sheet and strong hedging has helped SandRidge continue its planned drilling activity despite stalling oil prices.
An improved balance sheet and strong hedging activity has helped Oklahoma City-based SandRidge Energy Inc. continue its planned drilling activity despite stalling oil prices, CEO James Bennett said Thursday following the company’s annual shareholders meeting.
“We’re seeing very good rates of return even at today’s commodity prices.” he said.
After shedding $3.7 billion in debt though bankruptcy reorganization, SandRidge has more than $100 million in cash and about $450 million on its fully undrawn credit line.
SandRidge executives have locked in more than 80 percent of the company’s 2017 production at an average price of more than $52 a barrel, and some of the 2018 production is hedged at about $55 a barrel.
“Our strong liquidity position and strong hedge give us some cushion against some of these fluctuations in commodity prices,” Bennett said.
SandRidge historically has focused its drilling on northwest Oklahoma’s Mississippi Lime formation, but the company now is concentrating on lower-cost production in Oklahoma’s northwest STACK play and in Colorado’s Niobrara basin.
Bennett said the company eventually will return to the Mississippi Lime, but that for now it is using the proceeds from ongoing production in the area to fund its other drilling projects. Existing Mississippi Lime wells are expected to generate about $16 million in cash flow this year, he said.
“We’ll take that liquidity and reinvest it in the STACK and the Northpark Basin,” he said.
About 75 percent of SandRidge’s Mississippian acreage is held by production, meaning the company is in no hurry to drill new wells in the area.
Watching and planning
Despite the expected cash flow and hedging activity, SandRidge executives still are closely watching oil prices and are reevaluating drilling plans, Bennett said.
“We look at whether we should adjust spending, drilling and our capital program,” he said. “If we see a prolonged downturn and can’t generate a 20 percent rate of return, we will deploy less capital or no capital.”
So far, however, executives have not scaled back any drilling plans, Bennett said.
Thursday marked SandRidge’s first shareholder meeting since the company canceled its common stock and issued new shares to its former lenders as part of the bankruptcy reorganization.
During Thursday’s meeting, the new shareholders approved the company’s directors and accounting firm, but rejected the company’s compensation plan for executives.
A final count was not released Thursday, but it has announced that in the nonbinding vote, a majority of shareholders did not approve the plan.
Bennett said the current compensation plan is bigger than normal because of the reorganization.
“We changed the compensation program to be more cash-weighted during restructuring,” he said. “When we emerged in October, a large group of employees were given emergent stock grants. So if you put those together, it looks like high compensation in one year, but it’s fact- and circumstance-specific related to the restructuring.
“Going forward, we have a normal compensation program heavily weighted toward long-term incentives in stock.”