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Delaware | 1311 | 20-8084793 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
Proposed Maximum | Proposed Maximum | |||||||||||
Title of Each Class | Amount to | Offering Price | Aggregate Offering | Amount of | ||||||||
of Securities to be Registered | be Registered | per Share(2) | Price(2) | Registration Fee | ||||||||
Common Stock, par value $0.001 | 7,930,369(1) | $30.98 | $245,682,832 | $9,656 | ||||||||
(1) | Includes 1,180,107 shares of common stock currently outstanding and 6,750,262 shares of common stock issuable upon the conversion of our 7.75% convertible preferred stock. | |
(2) | Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act 1933. The price per share and aggregate offering prices for the shares registered hereby are calculated on the basis of $30.98, which is the average of the high and low prices reported on the New York Stock Exchange on January 24, 2008. |
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The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. |
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• | Grow Through Exploration and Aggressive Drilling and Development of Existing Acreage. We expect to generate long-term reserve and production growth by exploring and aggressively drilling and developing our large acreage position. Our primary exploration and development focus will be in the WTO, where we have identified over 2,600 potential drilling locations and had 30 rigs operating as of September 30, 2007. | |
• | Apply Technological Improvements to Our Exploration and Development Program. We intend to enhance our drilling success rate and completion efficiency with improved3-D seismic acquisition and interpretation technologies, together with advanced drilling, completion and production methods that historically have not been widely used in the under-explored WTO. |
• | Seek Opportunistic Acquisitions in Our Core Geographic Area. Since January 2006, through acquisitions and leasing activities, we have nearly tripled our net acreage position in the WTO. We intend to continue to seek other opportunities to optimize and enhance our exploratory acreage position in the WTO and other strategic areas. |
• | Reduce Costs, Enhance Returns and Maintain Operating Flexibility by Controlling Drilling Rigs and Midstream Assets. Our rig fleet enables us to aggressively develop our own acreage while maintaining the flexibility of a third-party contract drilling business. By controlling our fleet of drilling rigs and gathering and treating assets, we believe we will be able to better control overall costs and maintain a high degree of operational flexibility. | |
• | Capture and Utilize CO2 for Tertiary Oil Recovery. We intend to capitalize on our access to CO2 reserves and CO2 flooding expertise to pursue enhanced oil recovery in mature oil fields in West Texas. By utilizing this CO2 in our own tertiary recovery projects, we expect to recover additional oil that would have otherwise been abandoned following traditional waterfloods. |
• | Large Asset Base with Substantial Drilling Inventory. Our producing properties are characterized by long-lived predominantly natural gas reserves with established production profiles. Our estimated proved reserves of 1,174.0 Bcfe as of June 30, 2007 had a proved reserves to production ratio of approximately 19 years. Our core area of operations in the WTO has expanded to 581,961 gross (480,721 net) acres as of June 30, 2007. We have identified over 2,600 potential drilling locations in |
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the WTO and believe that we will be able to expand the number of drilling locations in the remainder of the WTO through exploratory drilling and our use of3-D seismic technology. |
• | Geographically Concentrated Exploration and Development Operations. We intend to focus our drilling and development operations in the near term on the WTO to fully exploit this unique geological region. This geographic concentration allows us to establish economies of scale in both drilling and production operations to achieve lower production costs and generate increased cash flows from our producing properties. We believe our concentrated acreage position will enable us to organically grow our reserves and production for the next several years. | |
• | Experienced Management Team Focused on Delivering Long-term Stockholder Value. During 2006, we significantly expanded our management team when Tom L. Ward, co-founder and former president of Chesapeake, purchased a significant interest in us and became our Chairman and Chief Executive Officer. We also hired a new chief financial officer, three additional executive vice presidents and other additional senior executives. Our management team, board of directors and employees owned over 35% of our capital stock on a fully-diluted basis as of November 30, 2007, which we believe aligns their objectives with those of our stockholders. | |
• | High Degree of Operational Control. We operate over 95% of our production in the WTO, East Texas and the Gulf Coast area, which permits us to manage our operating costs and better control capital expenditures and the timing of development and exploitation activities. | |
• | Large Modern Fleet of Drilling Rigs. By controlling a large, modern and more efficient drilling fleet, we can develop our existing reserves and explore for new reserves on a more economic basis. |
Number of | ||||||||||||||||||||||||||||
Estimated | Identified | |||||||||||||||||||||||||||
Net Proved | Daily | Proved | Potential | |||||||||||||||||||||||||
Reserves | PV-10 (in | Production | Reserves/ | Gross | Net | Drilling | ||||||||||||||||||||||
Area | (Bcfe)(1) | millions)(1)(2) | (Mmcfe/d)(3) | Production(1) | Acreage | Acreage | Locations(1) | |||||||||||||||||||||
WTO | 648.3 | $ | 1,190.9 | 69.1 | 25.7 | (4) | 581,961 | 480,721 | 2,658 | |||||||||||||||||||
East Texas | 156.3 | 310.2 | 26.3 | 16.3 | 48,606 | 32,557 | 566 | |||||||||||||||||||||
Gulf Coast | 104.5 | 410.7 | 44.2 | 6.6 | 53,464 | 34,765 | 51 | |||||||||||||||||||||
Other(5) | 265.9 | 646.9 | 37.1 | 19.5 | 428,200 | 214,989 | 1,298 | (6) | ||||||||||||||||||||
Total | 1,174.0 | $ | 2,558.8 | 176.7 | 18.2 | 1,112,231 | 763,032 | 4,573 | ||||||||||||||||||||
(1) | Estimated net proved reserves, PV-10 and identified potential drilling locations are as of June 30, 2007. | |
(2) | PV-10 generally differs from Standardized Measure of Discounted Net Cash Flows, or Standardized Measure, which is measured only at fiscal year end, because it does not include the effects of income taxes on future net revenues. For a reconciliation ofPV-10 to Standardized Measure as of December 31, 2006, see “Summary Historical Operating and Reserve Data.” Our Standardized Measure was $1,440.2 million at December 31, 2006. | |
(3) | Represents average daily net production for the third quarter 2007. |
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(4) | Our proved reserves to production ratio in the WTO is significantly higher than our other areas of operation because of the high volume of our proved undeveloped reserves in this area. We expect this ratio to decrease as our production in the WTO increases. | |
(5) | Includes our properties located offshore in the Gulf of Mexico, the Piceance Basin of Colorado, Other West Texas areas, including our tertiary oil recovery projects, and the Arkoma and Anadarko Basins and other non-strategic areas. | |
(6) | Includes 828 identified potential drilling locations in the Piceance Basin. |
• | South Sabino Prospect Area. The South Sabino prospect area is located approximately twelve miles east of the Piñon Field. We have drilled two wells that appear to be on trend with the Piñon Field and are structurally higher against one of several thrust faults that make up the WTO. We began the first phase of our3-D seismic program in this area in 2007. | |
• | Big Canyon Prospect Area. Located approximately 20 miles east of the Piñon Field along the WTO, this prospect area represents potential opportunities for future development. |
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2007 | ||||||||||||||||||||||||||||||
Estimated | Total Gross | Capital | 2006 | |||||||||||||||||||||||||||
Estimated Net | Gross PUD | Gross PUD | Drilling | Gross 2007 | Expenditures | Year | Rigs | |||||||||||||||||||||||
PUD Reserves | Reserves | Drilling | Locations | Drilling | Budget | End Rigs | Working at 3Q | |||||||||||||||||||||||
(Bcfe)(1) | (Bcfe)(1) | Locations(1) | (1) | Locations | (in millions)(2) | Working | 2007 End | |||||||||||||||||||||||
431.1 | 675.2 | 406 | 2,658 | 207 | $ | 537 | 9 | 30 | ||||||||||||||||||||||
(1) | As of June 30, 2007. | |
(2) | Excludes capital expenditures related to land and seismic acquisitions. |
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Repayment of outstanding balance on senior credit facility | $ | 515.9 | ||
Repayment of note payable and accrued interest incurred in connection with recent acquisition | 49.1 | |||
Excess cash to fund future capital expenditures | 230.3 | |||
Total | $ | 795.3 | ||
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• | natural gas and oil prices are volatile, and a decline in natural gas and oil prices can significantly affect our financial results and impede our growth; | |
• | our estimated reserves are based on many assumptions that may turn out to be inaccurate, and any significant inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves; | |
• | unless we replace our natural gas and oil reserves, our reserves and production will decline, which would adversely affect our business, financial condition and results of operations; | |
• | our potential drilling location inventories are scheduled out over several years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling; | |
• | the development of the proved undeveloped reserves in the WTO may take longer and may require higher levels of capital expenditures than we currently anticipate; | |
• | a significant portion of our operations are located in the WTO, making us vulnerable to risks associated with operating in one major geographic area; | |
• | we have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our business; and | |
• | certain stockholders’ shares are restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to drop significantly. |
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Common stock offered by the selling stockholders(1) | 7,930,369 shares | |
Common stock outstanding(2) | 141,845,661 shares | |
Common Stock to be outstanding assuming the conversion of our convertible preferred stock | 164,121,472 shares | |
Dividend policy | We do not anticipate that we will pay cash dividends in the foreseeable future. | |
Use of Proceeds | We will not receive any proceeds from the sale of the shares of common stock by the selling stockholders. | |
New York Stock Exchange Symbol | “SD” |
(1) | See “Selling Stockholders” for information on the selling stockholders. |
(2) | As of November 30, 2007. The shares exclude 22,275,871 shares issuable upon conversion of our convertible preferred stock and the exercise of all warrants for convertible preferred stock. |
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Historical | Pro Forma | |||||||||||||||||||||||||||
Nine Months | ||||||||||||||||||||||||||||
Nine Months Ended | Ended | Year Ended | ||||||||||||||||||||||||||
Years Ended December 31, | September 30, | September 30, | December 31, | |||||||||||||||||||||||||
2004(1) | 2005 | 2006 | 2006 | 2007 | 2006 | 2006 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||
Revenues | $ | 175,995 | $ | 287,693 | $ | 388,242 | $ | 263,177 | $ | 461,775 | $ | 439,557 | $ | 565,256 | ||||||||||||||
Expenses: | ||||||||||||||||||||||||||||
Production | 10,230 | 16,195 | 35,149 | 21,625 | 77,707 | 64,009 | 84,895 | |||||||||||||||||||||
Production taxes | 2,497 | 3,158 | 4,654 | 2,579 | 12,328 | 2,579 | 9,770 | |||||||||||||||||||||
Drilling and services | 26,442 | 52,122 | 98,436 | 72,670 | 30,935 | 56,556 | 77,453 | |||||||||||||||||||||
Midstream and marketing | 96,180 | 141,372 | 115,076 | 85,525 | 61,191 | 44,307 | 66,848 | |||||||||||||||||||||
Depreciation, depletion and amortization — natural gas and crude oil | 4,909 | 9,313 | 26,321 | 13,932 | 115,876 | 174,101 | 217,013 | |||||||||||||||||||||
Depreciation, depletion and amortization — other | 7,765 | 14,893 | 29,305 | 22,106 | 36,545 | 22,106 | 29,701 | |||||||||||||||||||||
General and administrative | 6,554 | 11,908 | 55,634 | 32,024 | 45,781 | 38,126 | 67,629 | |||||||||||||||||||||
Loss (gain) on derivative contracts | 878 | 4,132 | (12,291 | ) | (16,176 | ) | (55,228 | ) | (107,039 | ) | (111,998 | ) | ||||||||||||||||
Loss (gain) on sale of assets | (210 | ) | 547 | (1,023 | ) | (849 | ) | (1,704 | ) | (851 | ) | (1,023 | ) | |||||||||||||||
Total expenses | 155,245 | 253,640 | 351,261 | 233,436 | 323,431 | 293,894 | 440,288 | |||||||||||||||||||||
Income from operations | 20,750 | 34,053 | 36,981 | 29,741 | 138,344 | 145,663 | 124,968 | |||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||
Interest income | 56 | 206 | 1,109 | 448 | 4,201 | 5,236 | 5,984 | |||||||||||||||||||||
Interest expense | (1,678 | ) | (5,277 | ) | (16,904 | ) | (4,090 | ) | (88,630 | ) | (59,774 | ) | (74,056 | ) | ||||||||||||||
Minority interest | (262 | ) | (737 | ) | (296 | ) | (281 | ) | (321 | ) | (170 | ) | (185 | ) | ||||||||||||||
Income (loss) from equity investments | (36 | ) | (384 | ) | 967 | 40 | 3,399 | 40 | 967 | |||||||||||||||||||
Total other income (expense) | (1,920 | ) | (6,192 | ) | (15,124 | ) | (3,883 | ) | (81,351 | ) | (54,668 | ) | (67,290 | ) | ||||||||||||||
Income before income taxes | 18,830 | 27,861 | 21,857 | 25,858 | 56,993 | 90,995 | 57,678 | |||||||||||||||||||||
Income tax expense | 6,433 | 9,968 | 6,236 | 6,931 | 21,002 | 33,668 | 21,341 | |||||||||||||||||||||
Income from continuing operations | 12,397 | 17,893 | 15,621 | 18,927 | 35,991 | 57,327 | 36,337 | |||||||||||||||||||||
Income from discontinued operations, net of tax | 451 | 229 | — | — | — | — | — | |||||||||||||||||||||
Extraordinary gain | 12,544 | — | — | — | — | — | — | |||||||||||||||||||||
Net income | 25,392 | 18,122 | 15,621 | 18,927 | 35,991 | 57,327 | 36,337 | |||||||||||||||||||||
Preferred stock dividends and accretion | — | — | 3,967 | — | 30,573 | 27,155 | 40,174 | |||||||||||||||||||||
Income (loss) available (applicable) to common stockholders | $ | 25,392 | $ | 18,122 | $ | 11,654 | $ | 18,927 | $ | 5,418 | $ | 30,172 | $ | (3,837 | ) | |||||||||||||
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Historical | Pro Forma | |||||||||||||||||||||||||||
Nine Months | ||||||||||||||||||||||||||||
Nine Months Ended | Ended | Year Ended | ||||||||||||||||||||||||||
Years Ended December 31, | September 30, | September 30, | December 31, | |||||||||||||||||||||||||
2004(1) | 2005 | 2006 | 2006 | 2007 | 2006 | 2006 | ||||||||||||||||||||||
(In thousands except per share data) | ||||||||||||||||||||||||||||
Earnings Per Share Information: | ||||||||||||||||||||||||||||
Basic | ||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.22 | $ | 0.31 | $ | 0.21 | $ | 0.26 | $ | 0.35 | $ | 0.47 | $ | 0.30 | ||||||||||||||
Income from discontinued operations, net of income tax | 0.01 | 0.01 | — | — | — | — | — | |||||||||||||||||||||
Extraordinary gain on acquisition | 0.22 | — | — | — | — | — | — | |||||||||||||||||||||
Preferred stock dividends | — | — | (0.05 | ) | — | (0.30 | ) | (0.22 | ) | (0.33 | ) | |||||||||||||||||
Income (loss) per share available (applicable) to common stockholders | $ | 0.45 | $ | 0.32 | $ | 0.16 | $ | 0.26 | $ | 0.05 | $ | 0.25 | $ | (0.03 | ) | |||||||||||||
Weighted average number of shares outstanding(2): | 56,312 | 56,559 | 73,727 | 71,692 | 102,562 | 122,429 | 122,426 | |||||||||||||||||||||
Diluted | ||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.22 | $ | 0.31 | $ | 0.21 | $ | 0.26 | $ | 0.35 | $ | 0.47 | $ | 0.30 | ||||||||||||||
Income from discontinued operations, net of income tax | 0.01 | 0.01 | — | — | — | — | — | |||||||||||||||||||||
Extraordinary gain on acquisition | 0.22 | — | — | — | — | — | — | |||||||||||||||||||||
Preferred stock dividends | — | — | (0.05 | ) | — | (0.30 | ) | (0.22 | ) | (0.33 | ) | |||||||||||||||||
Income (loss) per share available (applicable) to common stockholders | $ | 0.45 | $ | 0.32 | $ | 0.16 | $ | 0.26 | $ | 0.05 | $ | 0.25 | $ | (0.03 | ) | |||||||||||||
Weighted average number of outstanding shares(2): | 56,312 | 56,737 | 74,664 | 72,633 | 103,778 | 123,370 | 123,363 |
(1) | We recognized an extraordinary gain from the recognition of the excess of fair value over acquisition cost of $12.5 million related to an acquisition we made in 2004. | |
(2) | The number of shares has been adjusted to reflect a281.552-to-1 stock split in December 2005. |
Historical | ||||||||||||
At December 31, | At September 30, | |||||||||||
2005 | 2006 | 2007 | ||||||||||
(In thousands) | ||||||||||||
Balance Sheet Data: | ||||||||||||
Cash and cash equivalents | $ | 45,731 | $ | 38,948 | $ | 32,013 | ||||||
Property, plant and equipment, net | $ | 337,881 | $ | 2,134,718 | $ | 2,889,495 | ||||||
Total assets | $ | 458,683 | $ | 2,388,384 | $ | 3,170,456 | ||||||
Long-term debt | $ | 43,133 | $ | 1,066,831 | $ | 1,451,504 | ||||||
Redeemable convertible preferred stock | $ | — | $ | 439,643 | $ | 450,356 | ||||||
Total stockholders’ equity | $ | 289,002 | $ | 649,818 | $ | 965,123 | ||||||
Total liabilities and stockholders’ equity | $ | 458,683 | $ | 2,388,384 | $ | 3,170,456 |
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At December 31, | At December 31, | At June 30, | ||||||||||
2005 | 2006 | 2007 | ||||||||||
Estimated Proved Reserves(1) | ||||||||||||
Natural Gas (Bcf)(2) | 237.4 | 850.7 | 967.6 | |||||||||
Oil (MmBbls) | 10.4 | 25.2 | 34.4 | |||||||||
Total (Bcfe) | 300.0 | 1,001.8 | 1,174.0 | |||||||||
PV-10 (in millions) | $ | 733.3 | (3) | $ | 1,734.3 | (3) | $ | 2,558.8 | (3) | |||
Standardized Measure of Discounted Net Cash Flows (in millions)(4) | $ | 499.2 | $ | 1,440.2 | n/a | (5) |
(1) | Our estimated proved reserves and the future net revenues,PV-10, and Standardized Measure of Discounted Net Cash Flows were determined using end of the period prices for natural gas and oil that we realized as of December 31, 2005, December 31, 2006 and June 30, 2007, which were $8.40 per Mcf of natural gas and $54.04 per barrel of oil at December 31, 2005, $5.64 per Mcf of natural gas and $57.75 per barrel of oil at December 31, 2006 and $6.70 per Mcf of natural gas and $63.78 per barrel of oil at June 30, 2007. | |
(2) | Given the nature of our natural gas reserves, a significant amount of our production, primarily in the WTO, contains natural gas high in CO2 content. These figures are net of volumes of CO2 in excess of pipeline quality specifications. | |
(3) | PV-10 is a non-GAAP financial measure and represents the present value of estimated future cash inflows from proved natural gas and oil reserves, less future development and production costs, discounted at 10% per annum to reflect timing of future cash flows and using pricing assumptions in effect at the end of the period.PV-10 differs from Standardized Measure of Discounted Net Cash Flows because it does not include the effects of income taxes and other items on future net revenues. NeitherPV-10 nor Standardized Measure represent an estimate of fair market value of our natural gas and oil properties.PV-10 is used by the industry and by our management as an arbitrary reserve asset value measure to compare against past reserve bases and the reserve bases of other business entities that are not dependent on the taxpaying status of the entity. | |
The following table provides a reconciliation of our Standardized Measure toPV-10: |
At December 31, | At December 31, | |||||||
2005 | 2006 | |||||||
(In millions) | ||||||||
Standardized Measure of Discounted Net Cash Flows | $ | 499.2 | $ | 1,440.2 | ||||
Present value of future income tax and other discounted at 10% | 234.1 | 294.1 | ||||||
PV-10 | $ | 733.3 | $ | 1,734.3 | ||||
(4) | The Standardized Measure of Discounted Net Cash Flows represents the present value of estimated future cash inflows from proved natural gas and oil reserves, less future development and production costs, and income tax expenses, discounted at 10% per annum to reflect timing of future cash flows and using the same pricing assumptions as were used to calculatePV-10. Standardized Measure differs fromPV-10 because Standardized Measure includes the effect of future income taxes and other items. | |
(5) | Standardized Measure of Discounted Net Cash Flows is only calculated at fiscal year end under applicable accounting rules. |
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Nine Months | ||||||||||||||||||||
Ended | ||||||||||||||||||||
Year Ended December 31, | September 30, | |||||||||||||||||||
2004 | 2005 | 2006 | 2006 | 2007 | ||||||||||||||||
Production Data: | ||||||||||||||||||||
Natural Gas (Mmcf) | 6,708 | 6,873 | 13,410 | 6,856 | 35,148 | |||||||||||||||
Oil (MBbls) | 37 | 72 | 322 | 70 | 1,441 | |||||||||||||||
Combined Equivalent Volumes (Mmcfe) | 6,930 | 7,305 | 15,342 | 7,275 | 43,793 | |||||||||||||||
Average Daily Combined Equivalent Volumes (Mmcfe/d) | 18.9 | 20.0 | 42.0 | 27 | 160 |
Nine Months | ||||||||||||||||||||
Ended | ||||||||||||||||||||
Year Ended December 31, | September 30, | |||||||||||||||||||
2004 | 2005 | 2006 | 2006 | 2007 | ||||||||||||||||
Average Prices(1): | ||||||||||||||||||||
Natural Gas (per Mcf) | $ | 4.43 | $ | 6.54 | $ | 6.19 | $ | 6.14 | $ | 6.56 | ||||||||||
Oil (per Bbl) | $ | 34.03 | $ | 48.19 | $ | 56.61 | $ | 61.89 | $ | 61.67 | ||||||||||
Combined Equivalent (per Mcfe) | $ | 4.47 | $ | 6.63 | $ | 6.60 | $ | 6.38 | $ | 7.30 |
(1) | Reported prices represent actual prices for the periods presented and do not give effect to hedging transactions. |
Nine Months | ||||||||||||||||||||
Ended | ||||||||||||||||||||
Year Ended December 31, | September 30, | |||||||||||||||||||
2004 | 2005 | 2006 | 2006 | 2007 | ||||||||||||||||
Expenses per Mcfe: | ||||||||||||||||||||
Lease operating expenses: | ||||||||||||||||||||
Transportation | $ | 0.14 | $ | 0.16 | $ | 0.22 | $ | 0.14 | $ | 0.15 | ||||||||||
Processing and gathering(1) | 0.39 | 0.42 | 0.37 | 0.33 | 0.30 | |||||||||||||||
Other lease operating expenses | 0.94 | 1.64 | 1.70 | 2.50 | 1.32 | |||||||||||||||
Total lease operating expenses | $ | 1.48 | $ | 2.22 | $ | 2.29 | $ | 2.97 | $ | 1.77 | ||||||||||
Production taxes | $ | 0.36 | $ | 0.43 | $ | 0.30 | $ | .35 | $ | .28 |
(1) | Includes costs attributable to gas treatment to remove CO2 and other impurities from our high CO2 natural gas. |
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• | the domestic and foreign supply of natural gas and oil; | |
• | the price of foreign imports; | |
• | worldwide economic conditions; | |
• | political and economic conditions in oil producing countries, including the Middle East and South America; | |
• | the ability of members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls; | |
• | the level of consumer product demand; | |
• | weather conditions; | |
• | technological advances affecting energy consumption; | |
• | availability of pipeline infrastructure, treating, transportation and refining capacity; | |
• | domestic and foreign governmental regulations and taxes; and | |
• | the price and availability of alternative fuels. |
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• | actual prices we receive for natural gas and oil; | |
• | actual cost of development and production expenditures; | |
• | the amount and timing of actual production; | |
• | supply of and demand for natural gas and oil; and | |
• | changes in governmental regulations or taxation. |
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• | unusual or unexpected geological formations and miscalculations; | |
• | pressures; | |
• | fires; | |
• | blowouts; | |
• | loss of drilling fluid circulation; | |
• | title problems; | |
• | facility or equipment malfunctions; | |
• | unexpected operational events; | |
• | shortages of skilled personnel; | |
• | shortages or delivery delays of equipment and services; | |
• | compliance with environmental and other regulatory requirements; and | |
• | adverse weather conditions. |
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• | our proved reserves; | |
• | the level of natural gas and oil we are able to produce from existing wells; | |
• | the prices at which natural gas and oil are sold; and | |
• | our ability to acquire, locate and produce new reserves. |
• | make us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; | |
• | require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flows to fund working capital, capital expenditures, acquisitions and other general corporate purposes; | |
• | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; | |
• | place us at a competitive disadvantage compared to our competitors that are less leveraged and, therefore, may be able to take advantage of opportunities that our leverage prevents us from pursuing; and | |
• | limit our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other purposes. |
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• | production is less than expected; | |
• | the counter-party to the derivative instrument defaults on its contract obligations; or | |
• | there is a change in the expected differential between the underlying price in the derivative instrument and actual prices received. |
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• | actual or anticipated variations in our reserve estimates and quarterly operating results; | |
• | liquidity and the registration of our common stock for public resale; | |
• | sales of our common stock by our stockholders; | |
• | changes in natural gas and oil prices; | |
• | changes in our cash flows from operations or earnings estimates; | |
• | publication of research reports about us or the exploration and production industry generally; | |
• | increases in market interest rates which may increase our cost of capital; | |
• | changes in applicable laws or regulations, court rulings and enforcement and legal actions; | |
• | changes in market valuations of similar companies; | |
• | adverse market reaction to any increased indebtedness we incur in the future; | |
• | additions or departures of key management personnel; | |
• | actions by our stockholders; | |
• | speculation in the press or investment community regarding our business; | |
• | large volume of sellers of our common stock pursuant to our resale registration statement with a relatively small volume of purchasers; | |
• | general market and economic conditions; and | |
• | domestic and international economic, legal and regulatory factors unrelated to our performance. |
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• | a classified board of directors, so that only approximately one-third of our directors are elected each year; | |
• | limitations on the removal of directors; | |
• | the prohibition of stockholder action by written consent; | |
• | and limitations on the ability of our stockholders to call special meetings and establish advance notice provisions for stockholder proposals and nominations for elections to the board of directors to be acted upon at meetings of stockholders. |
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• | the volatility of natural gas and oil prices; | |
• | discovery, estimation, development and replacement of natural gas and oil reserves; | |
• | cash flow and liquidity; | |
• | financial position; | |
• | business strategy; | |
• | amount, nature and timing of capital expenditures, including future development costs; | |
• | availability and terms of capital; | |
• | timing and amount of future production of natural gas and oil; | |
• | availability of drilling and production equipment; | |
• | timing of drilling rig fabrication and delivery; | |
• | customer contracting of drilling rigs; | |
• | availability of oil field labor; | |
• | availability and regulation of CO2; | |
• | operating costs and other expenses; | |
• | prospect development and property acquisitions; | |
• | availability of pipeline infrastructure to transport natural gas production; | |
• | marketing of natural gas and oil; | |
• | competition in the natural gas and oil industry; | |
• | governmental regulation and taxation of the natural gas and oil industry; and | |
• | developments in oil-producing and natural gas-producing countries. |
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• | Our acquisition in March 2006 from a former director and former executive officer of additional equity interests in PetroSource to increase our ownership percentage from 86.5% to 99% in exchange for the extinguishment of subordinated debt of approximately $1.0 million and a $4.5 million cash payment for a total consideration of approximately $5.5 million. | |
• | Our acquisition in May 2006 of working interests in WTO leases for cash consideration of $40.9 million. | |
• | Our acquisition in May 2006 of working interests in leases in WTO for $4.7 million of common stock at $18.50 per share and cash of $8.2 million for a total consideration of $12.9 million. | |
• | Our acquisition in June 2006 from a former director and former executive officer of additional working interests in WTO leases in which we already held interests in exchange for cash consideration of $9.0 million. | |
• | Our acquisition in June 2006 of the remaining 1% equity interest in PetroSource in exchange for common stock of $0.5 million at $17.25 per share. |
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NEG | ||||||||||||||||
Historical | SandRidge | |||||||||||||||
SandRidge | (January 1, 2006 | Energy | ||||||||||||||
Energy | through | Pro Forma | Pro Forma | |||||||||||||
Historical | November 21, 2006) | Adjustments | Combined | |||||||||||||
(In thousands except per share data) | ||||||||||||||||
Revenues | $ | 388,242 | $ | 253,832 | $ | (76,818 | )(a)(b) | $ | 565,256 | |||||||
Expenses: | ||||||||||||||||
Production | 35,149 | 50,527 | (781 | )(a)(b) | 84,895 | |||||||||||
Production taxes | 4,654 | 5,116 | — | 9,770 | ||||||||||||
Drilling and services | 98,436 | — | (20,983 | )(a) | 77,453 | |||||||||||
Midstream and marketing | 115,076 | — | (48,228 | )(a) | 66,848 | |||||||||||
Depreciation, depletion and amortization — natural gas and crude oil | 25,723 | 91,611 | 99,081 | (a)(c) | 216,415 | |||||||||||
Depreciation, depletion and amortization — other | 29,903 | 396 | — | 30,299 | ||||||||||||
General and administrative cost | 55,634 | 16,566 | (4,571 | )(a) | 67,629 | |||||||||||
Gain on derivative contracts | (12,291 | ) | (99,707 | ) | — | (111,998 | ) | |||||||||
Gain on sale of assets | (1,023 | ) | — | — | (1,023 | ) | ||||||||||
Income from operations | 36,981 | 189,323 | (101,336 | ) | 124,968 | |||||||||||
Interest income | 1,109 | 4,875 | — | 5,984 | ||||||||||||
Interest expense | (16,904 | ) | (10,411 | ) | (46,741 | )(d) | (74,056 | ) | ||||||||
Minority interest | (296 | ) | — | 111 | (e) | (185 | ) | |||||||||
Income from equity investments | 967 | — | — | 967 | ||||||||||||
Income before income tax provision | 21,857 | 183,787 | (147,966 | ) | 57,678 | |||||||||||
Income tax provision | 6,236 | 2,143 | 12,962 | (f) | 21,341 | |||||||||||
Income from continuing operations | 15,621 | 181,644 | (160,928 | ) | 36,337 | |||||||||||
Preferred dividends and accretion | 3,967 | — | 36,207 | (g) | 40,174 | |||||||||||
Income (loss) available (applicable) to common stockholders | $ | 11,654 | $ | 181,644 | $ | (197,135 | ) | $ | (3,837 | ) | ||||||
Earnings per share available (applicable) to common stockholders: | ||||||||||||||||
Basic | $ | 0.16 | $ | (0.03 | ) | |||||||||||
Diluted | $ | 0.16 | $ | (0.03 | ) | |||||||||||
Number of shares used in calculating earnings per share: | ||||||||||||||||
Basic | 73,727 | 48,699 | (h)(i) | 122,426 | ||||||||||||
Diluted | 74,664 | 48,699 | (h)(i) | 123,363 |
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NEG | ||||||||||||||||
Historical | ||||||||||||||||
(January 1, | SandRidge | |||||||||||||||
SandRidge | 2006 through | Energy | ||||||||||||||
Energy | September 30, | Pro Forma | Pro Forma | |||||||||||||
Historical | 2006) | Adjustments | Combined | |||||||||||||
Revenues | $ | 263,177 | $ | 239,613 | $ | (63,233 | )(a)(b) | $ | 439,557 | |||||||
Expenses | ||||||||||||||||
Production | 21,625 | 38,332 | (94 | )(a)(b) | 59,863 | |||||||||||
Production taxes | 2,579 | 4,162 | — | 6,725 | ||||||||||||
Drilling and services | 72,670 | — | (16,114 | )(a) | 56,556 | |||||||||||
Midstream and marketing | 85,525 | — | (41,218 | )(a) | 44,307 | |||||||||||
Depreciation, depletion and amortization — natural gas and crude oil | 13,932 | 76,189 | 83,649 | (a)(c) | 173,770 | |||||||||||
Depreciation, depletion and amortization — other | 22,106 | 331 | — | 22,437 | ||||||||||||
General and administrative | 32,024 | 10,281 | (4,179 | )(a) | 38,126 | |||||||||||
Gain on derivative contracts | (16,176 | ) | (90,863 | ) | — | (107,039 | ) | |||||||||
Gain on sale of assets | (849 | ) | (2 | ) | — | (851 | ) | |||||||||
Income from operations | 29,741 | 201,199 | (85,277 | ) | 145,663 | |||||||||||
Interest income | 448 | 4,788 | — | 5,236 | ||||||||||||
Interest expense | (4,090 | ) | (16,738 | ) | (38,946 | )(d) | (59,774 | ) | ||||||||
Minority interest | (281 | ) | — | 111 | (e) | (170 | ) | |||||||||
Income from equity investments | 40 | — | — | 40 | ||||||||||||
Income before income tax provision | 25,858 | 189,249 | (124,112 | ) | 90,995 | |||||||||||
Income tax provision | 6,931 | 2,143 | 24,594 | (f) | 33,668 | |||||||||||
Income from continuing operations | 18,927 | 187,106 | (148,706 | ) | 57,327 | |||||||||||
Preferred dividend and accretion | — | — | 27,155 | (g) | 27,155 | |||||||||||
Income available to common stockholders | $ | 18,927 | $ | 187,106 | $ | (175,861 | ) | $ | 30,172 | |||||||
Earnings per share available to common stockholders: | ||||||||||||||||
Basic | $ | 0.26 | $ | 0.25 | ||||||||||||
Diluted | $ | 0.26 | $ | 0.25 | ||||||||||||
Number of shares used in calculating earnings per share: | ||||||||||||||||
Basic | 71,692 | 50,737 | (h)(i) | 122,429 | ||||||||||||
Diluted | 72,633 | 50,737 | (h)(i) | 123,370 |
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NEG acquisition and related financing arrangements | 18,174 | |||
Other 2006 acquisitions | 279 | |||
18,453 | ||||
Less: weighted shares included in historical results | (2,134 | ) | ||
16,319 | ||||
NEG acquisition and related financing arrangements | 18,174 | |||
Other 2006 acquisitions | 279 | |||
18,453 | ||||
Less: weighted shares included in historical results | (96 | ) | ||
18,357 | ||||
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Years Ended December 31, | Nine Months Ended September 30, | |||||||||||||||||||||||||||
2002 | 2003(1) | 2004(2) | 2005 | 2006 | 2006 | 2007 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||
Revenues | $ | 59,247 | $ | 155,337 | $ | 175,995 | $ | 287,693 | $ | 388,242 | $ | 263,177 | $ | 461,775 | ||||||||||||||
Expenses: | ||||||||||||||||||||||||||||
Production | 7,949 | 7,980 | 10,230 | 16,195 | 35,149 | 21,625 | 77,707 | |||||||||||||||||||||
Production taxes | 661 | 2,099 | 2,497 | 3,158 | 4,654 | 2,579 | 12,328 | |||||||||||||||||||||
Drilling and services | 8,858 | 13,847 | 26,442 | 52,122 | 98,436 | 72,670 | 30,935 | |||||||||||||||||||||
Midstream marketing | 23,689 | 94,620 | 96,180 | 141,372 | 115,076 | 85,525 | 61,191 | |||||||||||||||||||||
Depreciation, depletion and amortization — natural gas and crude oil | 3,142 | 3,298 | 4,909 | 9,313 | 26,321 | 13,932 | 115,876 | |||||||||||||||||||||
Depreciation, depletion and amortization — other | 2,431 | 5,284 | 7,765 | 14,893 | 29,305 | 22,106 | 36,545 | |||||||||||||||||||||
General and administrative | 4,355 | 3,705 | 6,554 | 11,908 | 55,634 | 32,024 | 45,781 | |||||||||||||||||||||
Loss (gain) on derivative contracts | 3,193 | 3,450 | 878 | 4,132 | (12,291 | ) | (16,176 | ) | (55,228 | ) | ||||||||||||||||||
Loss (gain) on sale of assets | — | (1,284 | ) | (210 | ) | 547 | (1,023 | ) | (849 | ) | (1,704 | ) | ||||||||||||||||
Total operating expenses | 54,278 | 132,999 | 155,245 | 253,640 | 351,261 | 233,436 | 323,431 | |||||||||||||||||||||
Income from operations | 4,969 | 22,338 | 20,750 | 34,053 | 36,981 | 29,741 | 138,344 | |||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||
Interest income | 84 | 103 | 56 | 206 | 1,109 | 448 | 4,201 | |||||||||||||||||||||
Interest expense | (1,000 | ) | (1,208 | ) | (1,678 | ) | (5,277 | ) | (16,904 | ) | (4,090 | ) | (88,630 | ) | ||||||||||||||
Minority interest | (673 | ) | (96 | ) | (262 | ) | (737 | ) | (296 | ) | (281 | ) | (321 | ) | ||||||||||||||
Income (loss) from equity investments | 304 | 1,056 | (36 | ) | (384 | ) | 967 | 40 | 3,399 | |||||||||||||||||||
Total other income (expense) | (1,285 | ) | (145 | ) | (1,920 | ) | (6,192 | ) | (15,124 | ) | 3,883 | 81,351 | ||||||||||||||||
Income before income taxes | 3,684 | 22,193 | 18,830 | 27,861 | 21,857 | 25,858 | 56,993 | |||||||||||||||||||||
Income tax expense | 1,334 | 7,585 | 6,433 | 9,968 | 6,236 | 6,931 | 21,002 | |||||||||||||||||||||
Income from continuing operations | 2,350 | 14,608 | 12,397 | 17,893 | 15,621 | 18,927 | 35,991 | |||||||||||||||||||||
Income (loss) from discontinued operations, net of tax | 1,105 | (85 | ) | 451 | 229 | — | — | — | ||||||||||||||||||||
Cumulative effect of accounting change | — | (1,636 | ) | — | — | — | — | — | ||||||||||||||||||||
Extraordinary gain | — | — | 12,544 | — | — | — | — | |||||||||||||||||||||
Net income | 3,455 | 12,887 | 25,392 | 18,122 | 15,621 | 18,927 | 35,991 | |||||||||||||||||||||
Preferred stock dividends and accretion | — | — | — | — | 3,967 | — | 30,573 | |||||||||||||||||||||
Income (loss) available (applicable) to common stockholders | $ | 3,455 | $ | 12,887 | $ | 25,392 | $ | 18,122 | $ | 11,654 | $ | 18,927 | $ | 5,418 | ||||||||||||||
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Historical | ||||||||||||||||||||||||||||
Years Ended December 31, | Nine Months Ended September 30, | |||||||||||||||||||||||||||
2002 | 2003(1) | 2004(2) | 2005 | 2006 | 2006 | 2007 | ||||||||||||||||||||||
(In thousands except per share data) | ||||||||||||||||||||||||||||
Earnings Per Share Information: | ||||||||||||||||||||||||||||
Basic | ||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.04 | $ | 0.26 | $ | 0.22 | $ | 0.31 | $ | 0.21 | $ | 0.26 | $ | 0.35 | ||||||||||||||
Income (loss) from discontinued operations, net of income tax | 0.02 | — | 0.01 | 0.01 | — | — | — | |||||||||||||||||||||
Extraordinary gain on acquisition | — | — | 0.22 | — | — | — | — | |||||||||||||||||||||
Cumulative effect of change in accounting principle, net of income tax | — | (0.03 | ) | — | — | — | — | — | ||||||||||||||||||||
Preferred stock dividends | — | — | — | — | (0.05 | ) | — | (0.30 | ) | |||||||||||||||||||
�� | ||||||||||||||||||||||||||||
Income per share available to common stockholders | $ | 0.06 | $ | 0.23 | $ | 0.45 | $ | 0.32 | $ | 0.16 | $ | 0.26 | $ | 0.05 | ||||||||||||||
Weighted average number of shares outstanding(3): | 56,312 | 56,312 | 56,312 | 56,559 | 73,727 | 71,692 | 102,562 | |||||||||||||||||||||
Diluted | ||||||||||||||||||||||||||||
Income from continuing operations | $ | 0.04 | $ | 0.26 | $ | 0.22 | $ | 0.31 | $ | 0.21 | $ | 0.26 | $ | 0.35 | ||||||||||||||
Income (loss) from discontinued operations, net of income tax | 0.02 | — | 0.01 | 0.01 | — | — | — | |||||||||||||||||||||
Extraordinary gain on acquisition | — | — | 0.22 | — | — | — | — | |||||||||||||||||||||
Cumulative effect of change in accounting principle, net of income tax | — | (0.03 | ) | — | — | — | — | — | ||||||||||||||||||||
Preferred stock dividends | — | — | — | — | (0.05 | ) | — | (0.30 | ) | |||||||||||||||||||
Income per share available to common stockholders | $ | 0.06 | $ | 0.23 | $ | 0.45 | $ | 0.32 | $ | 0.16 | $ | 0.26 | $ | 0.05 | ||||||||||||||
Weighted average number of shares outstanding(3): | 56,312 | 56,312 | 56,312 | 56,737 | 74,664 | 72,633 | 103,778 |
(1) | We adopted the provisions of SFAS 143 “Accounting for Retirement Obligations,” resulting in a cumulative effect of change in accounting principal of $1.6 million. | |
(2) | We recognized an extraordinary gain from the recognition of the excess of fair value over acquisition cost of $12.5 million related to an acquisition we made in 2004. | |
(3) | The number of shares has been adjusted to reflect a 281.562-to-1 stock split in December 2005. |
As of December 31, | As of September 30, | |||||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | 2006 | 2007 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 1,876 | $ | 176 | $ | 12,973 | $ | 45,731 | $ | 38,948 | $ | 10,718 | $ | 32,013 | ||||||||||||||
Property, plant and equipment, net | $ | 43,839 | $ | 70,289 | $ | 114,818 | $ | 337,881 | $ | 2,134,718 | $ | 517,465 | $ | 2,889,495 | ||||||||||||||
Total assets | $ | 88,247 | $ | 127,744 | $ | 197,017 | $ | 458,683 | $ | 2,388,384 | $ | 607,717 | $ | 3,170,456 | ||||||||||||||
Long-term debt | $ | 20,549 | $ | 24,740 | $ | 59,340 | $ | 43,133 | $ | 1,066,831 | $ | 160,913 | $ | 1,451,504 | ||||||||||||||
Redeemable convertible preferred stock | $ | — | $ | — | $ | — | $ | — | $ | 439,643 | $ | — | $ | 450,356 | ||||||||||||||
Total stockholders’ equity | $ | 22,106 | $ | 33,940 | $ | 59,330 | $ | 289,002 | $ | 649,818 | $ | 311,849 | $ | 965,123 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 88,247 | $ | 127,744 | $ | 197,017 | $ | 458,683 | $ | 2,388,384 | $ | 607,717 | $ | 3,170,456 |
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OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Nine Months Ended | ||||||||||||||||||||
Year Ended December 31, | September 30, | |||||||||||||||||||
2004 | 2005 | 2006 | 2006 | 2007 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Segment revenue: | ||||||||||||||||||||
Exploration and production | $ | 37,564 | $ | 54,051 | $ | 106,413 | $ | 50,350 | $ | 320,410 | ||||||||||
Drilling and oil field services | 39,211 | 80,151 | 138,657 | 106,255 | 56,999 | |||||||||||||||
Midstream gas services | 99,044 | 147,499 | 122,892 | 91,214 | 71,131 | |||||||||||||||
Other | 176 | 5,992 | 20,280 | 15,358 | 13,235 | |||||||||||||||
Total revenues | 175,995 | 287,693 | 388,242 | 263,177 | 461,775 |
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Nine Months Ended | ||||||||||||||||||||
Year Ended December 31, | September 30, | |||||||||||||||||||
2004 | 2005 | 2006 | 2006 | 2007 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Segment operating income: | ||||||||||||||||||||
Exploration and production | 14,000 | 14,886 | 17,069 | 8,203 | 138,306 | |||||||||||||||
Drilling and oil field services | 4,206 | 18,295 | 32,946 | 27,178 | 14,252 | |||||||||||||||
Midstream gas services | 2,636 | 4,096 | 3,528 | 3,138 | 5,958 | |||||||||||||||
Other | (92 | ) | (3,224 | ) | (16,562 | ) | (8,778 | ) | (20,172 | ) | ||||||||||
Total operating income | 20,750 | 34,053 | 36,981 | 29,741 | 138,344 | |||||||||||||||
Interest income | 56 | 206 | 1,109 | 448 | 4,201 | |||||||||||||||
Interest expense | (1,678 | ) | (5,277 | ) | (16,904 | ) | (4,090 | ) | (88,630 | ) | ||||||||||
Other income (expense) | (298 | ) | (1,121 | ) | 671 | (241 | ) | 3,078 | ||||||||||||
Income before income taxes | $ | 18,830 | $ | 27,861 | $ | 21,857 | $ | 25,858 | $ | 56,993 | ||||||||||
Nine Months Ended | ||||||||||||||||||||
Year Ended December 31, | September 30, | |||||||||||||||||||
2004 | 2005 | 2006 | 2006 | 2007 | ||||||||||||||||
Production data: | ||||||||||||||||||||
Gas (Mmcf) | 6,708 | 6,873 | 13,410 | 6,856 | 35,148 | |||||||||||||||
Oil (MBbls) | 37 | 72 | 322 | 70 | 1,441 | |||||||||||||||
Combined equivalent volumes (Mmcfe) | 6,930 | 7,305 | 15,342 | 7,275 | 43,793 | |||||||||||||||
Daily combined equivalent volumes (Mmcfe/d) | 18.9 | 20.0 | 42.0 | 26.6 | 160.4 | |||||||||||||||
Average prices(1): | ||||||||||||||||||||
Natural gas (per Mcf) | $ | 4.43 | $ | 6.54 | $ | 6.19 | $ | 6.14 | $ | 6.56 | ||||||||||
Oil (per Bbl) | $ | 34.03 | $ | 48.19 | $ | 56.61 | $ | 61.89 | $ | 61.67 | ||||||||||
Combined equivalent (per Mcfe) | $ | 4.47 | $ | 6.63 | $ | 6.60 | $ | 6.38 | $ | 7.30 | ||||||||||
Drilling and oil field services: | ||||||||||||||||||||
Number of operational drilling rigs owned at end of period | 10 | 19 | 25 | 23.0 | 27.0 | (3) | ||||||||||||||
Average number of operational drilling rigs owned during the period | 8.0 | 14.3 | 21.9 | 21.0 | 26.0 | (3) | ||||||||||||||
Average total revenue per rig per day(2) | $ | 9,128 | $ | 11,503 | $ | 17,034 | $ | 17,089 | $ | 17,302 |
(1) | Reported prices represent actual average prices for the periods presented and do not give effect to hedging transactions. | |
(2) | Does not include revenues for related rental equipment. | |
(3) | Does not include five rigs being retrofitted as of September 30, 2007. |
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• | there is a significant delay between the initial capital expenditures for infrastructure and CO2 injections and the resulting production increases, if any, as tertiary oil recovery operations require the construction of facilities before CO2 flooding can commence. After the infrastructure is in place and injections begin, it usually takes an additional 18 months before the field responds (i.e. oil production increases) to the injection of CO2; | |
• | it is anticipated that PetroSource will not be profitable for the first several years after this offering closes. The anticipated lack of profitability in the initial years is due largely to the significant outlay of capital investment in the CO2 flood projects and the lag of revenues associated with such expenditures. Thereafter, we will recognize profits only if the tertiary oil recovery efforts are successful; and | |
• | our tertiary oil recovery projects are more expensive to operate than conventional oil fields because of the additional cost of injecting and recycling the CO2 (primarily due to the cost of CO2 and the significant energy requirements to re-compress the CO2 back into a liquid state for re-injection purposes). If commodity and energy prices increase, our operating expenses in these fields will also increase because we use natural gas to compress the CO2. |
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Nine Months Ended September 30, | ||||||||||||||||
2006 | 2007 | $ Change | % Change | |||||||||||||
(In thousands) | ||||||||||||||||
Revenue: | ||||||||||||||||
Natural gas and crude oil | $ | 46,419 | $ | 319,556 | $ | 273,137 | 588.4 | % | ||||||||
Drilling and services | 105,713 | 56,928 | (48,785 | ) | (46.1 | )% | ||||||||||
Midstream and marketing | 91,218 | 71,131 | (20,087 | ) | (22.0 | )% | ||||||||||
Other | 19,827 | 14,160 | (5,667 | ) | (28.6 | )% | ||||||||||
Total revenues | $ | 263,177 | $ | 461,775 | $ | 198,598 | 75.5 | % | ||||||||
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Nine Months Ended | ||||||||||||||||
September 30, | ||||||||||||||||
2006 | 2007 | $ Change | % Change | |||||||||||||
(In thousands) | ||||||||||||||||
Operating costs and expenses: | ||||||||||||||||
Production | $ | 21,625 | $ | 77,707 | $ | 56,082 | 259.3 | % | ||||||||
Production taxes | 2,579 | 12,328 | 9,749 | 378.0 | % | |||||||||||
Drilling and services | 72,670 | 30,935 | (41,735 | ) | (57.4 | )% | ||||||||||
Midstream and marketing | 85,525 | 61,191 | (24,334 | ) | (28.5 | )% | ||||||||||
Depreciation, depletion, and amortization — natural gas and crude oil | 13,932 | 115,876 | 101,944 | 731.7 | % | |||||||||||
Depreciation, depletion and amortization — other | 22,106 | 36,545 | 14,439 | 65.3 | % | |||||||||||
General and administrative | 32,024 | 45,781 | 13,757 | 43.0 | % | |||||||||||
Gain on derivative instruments | (16,176 | ) | (55,228 | ) | (39,052 | ) | (241.4 | )% | ||||||||
Gain on sale of assets | (849 | ) | (1,704 | ) | (855 | ) | (100.7 | )% | ||||||||
Total operating costs and expenses | $ | 233,436 | $ | 323,431 | $ | 89,995 | 38.6 | % | ||||||||
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Nine Months Ended | ||||||||||||||||
September 30, | ||||||||||||||||
2006 | 2007 | $ Change | % Change | |||||||||||||
(In thousands) | ||||||||||||||||
Other income (expense): | ||||||||||||||||
Interest income | $ | 448 | $ | 4,201 | $ | 3,753 | 837.7 | % | ||||||||
Interest expense | (4,090 | ) | (88,630 | ) | (84,540 | ) | (2067.0 | )% | ||||||||
Minority interest | (281 | ) | (321 | ) | (40 | ) | (14.2 | )% | ||||||||
Income (loss) from equity investments | 40 | 3,399 | 3,359 | 8397.5 | % | |||||||||||
Total other expense | (3,883 | ) | (81,351 | ) | (77,468 | ) | (1995.1 | )% | ||||||||
Income before income taxes | 25,858 | 56,993 | 31,135 | 120.4 | % | |||||||||||
Income tax expense | 6,931 | 21,002 | 14,071 | 203.0 | % | |||||||||||
Net income | $ | 18,927 | $ | 35,991 | $ | 17,064 | 90.2 | % | ||||||||
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Year Ended December 31, | ||||||||||||||||
2005 | 2006 | $ Change | % Change | |||||||||||||
(In thousands) | ||||||||||||||||
Revenue: | ||||||||||||||||
Natural gas and crude oil | $ | 49,987 | $ | 101,252 | $ | 51,265 | 102.6 | % | ||||||||
Drilling and services | 80,343 | 139,049 | 58,706 | 73.1 | % | |||||||||||
Midstream and marketing | 147,133 | 122,896 | (24,237 | ) | (16.5 | )% | ||||||||||
Other | 10,230 | 25,045 | 14,815 | 144.8 | % | |||||||||||
Total revenues | $ | 287,693 | $ | 388,242 | $ | 100,549 | 35.0 | % | ||||||||
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Year Ended December 31, | ||||||||||||||||
2005 | 2006 | $ Change | % Change | |||||||||||||
(In thousands) | ||||||||||||||||
Operating costs and expenses: | ||||||||||||||||
Production | $ | 16,195 | $ | 35,149 | $ | 18,954 | 117.0 | % | ||||||||
Production taxes | 3,158 | 4,654 | 1,496 | 47.4 | % | |||||||||||
Drilling and services | 52,122 | 98,436 | 46,314 | 88.9 | % | |||||||||||
Midstream and marketing | 141,372 | 115,076 | (26,296 | ) | (18.6 | )% | ||||||||||
Depreciation, depletion and amortization-natural gas and oil | 9,313 | 26,321 | 17,008 | 182.6 | % | |||||||||||
Depreciation, depletion and amortization-other | 14,893 | 29,305 | 14,412 | 96.8 | % | |||||||||||
General and administrative | 11,908 | 55,634 | 43,726 | 367.2 | % | |||||||||||
Loss (gain) on derivative instruments | 4,132 | (12,291 | ) | (16,423 | ) | (397.5 | )% | |||||||||
Loss (gain) on sale of assets | 547 | (1,023 | ) | (1,570 | ) | (287.0 | )% | |||||||||
Total operating costs and expenses | $ | 253,640 | $ | 351,261 | $ | 97,621 | 38.5 | % | ||||||||
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Year Ended December 31, | ||||||||||||||||
2005 | 2006 | $ Change | % Change | |||||||||||||
(In thousands) | ||||||||||||||||
Other income (expense): | ||||||||||||||||
Interest income | $ | 206 | $ | 1,109 | $ | 903 | 438.3 | % | ||||||||
Interest expense | (5,277 | ) | (16,904 | ) | (11,627 | ) | (220.3 | )% | ||||||||
Minority interest | (737 | ) | (296 | ) | 441 | 59.8 | % | |||||||||
Income (loss) from equity investments | (384 | ) | 967 | 1,351 | 351.8 | % | ||||||||||
Total other expense | (6,192 | ) | (15,124 | ) | (8,932 | ) | (144.3 | )% | ||||||||
Income before income taxes | 27,861 | 21,857 | (6,004 | ) | (21.5 | )% | ||||||||||
Income tax expense | 9,968 | 6,236 | (3,732 | ) | (37.4 | )% | ||||||||||
Income from discontinued operations, net of tax | 229 | — | (229 | ) | (100.0 | )% | ||||||||||
Net income | $ | 18,122 | $ | 15,621 | $ | (2,501 | ) | (13.8 | )% | |||||||
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Year Ended December 31, | ||||||||||||||||
2004 | 2005 | $ Change | % Change | |||||||||||||
(In thousands) | ||||||||||||||||
Revenue: | ||||||||||||||||
Natural gas and crude oil | $ | 33,685 | $ | 49,987 | $ | 16,302 | 48.4 | % | ||||||||
Drilling and services | 39,417 | 80,343 | 40,926 | 103.8 | % | |||||||||||
Midstream and marketing | 98,906 | 147,133 | 48,227 | 48.8 | % | |||||||||||
Other | 3,987 | 10,230 | 6,243 | 156.6 | % | |||||||||||
Total revenues | $ | 175,995 | $ | 287,693 | $ | 111,698 | 63.5 | % | ||||||||
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Year Ended December 31, | ||||||||||||||||
2004 | 2005 | $ Change | % Change | |||||||||||||
(In thousands) | ||||||||||||||||
Operating costs and expenses: | ||||||||||||||||
Production | $ | 10,230 | $ | 16,195 | $ | 5,965 | 58.3 | % | ||||||||
Production taxes | 2,497 | 3,158 | 661 | 26.5 | % | |||||||||||
Drilling and services | 26,442 | 52,122 | 25,680 | 97.1 | % | |||||||||||
Midstream and marketing | 96,180 | 141,372 | 45,192 | 47.0 | % | |||||||||||
Depreciation, depletion and amortization-natural gas and oil | 4,909 | 9,313 | 4,404 | 89.7 | % | |||||||||||
Depreciation, depletion and amortization-other | 7,765 | 14,893 | 7,128 | 91.8 | % | |||||||||||
General and administrative | 6,554 | 11,908 | 5,354 | 81.7 | % | |||||||||||
Loss on derivative instruments | 878 | 4,132 | 3,254 | 370.6 | % | |||||||||||
Loss (gain) on sale of assets | (210 | ) | 547 | 757 | 360.5 | % | ||||||||||
Total operating costs and expenses | $ | 155,245 | $ | 253,640 | $ | 98,395 | 63.4 | % | ||||||||
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Year Ended | ||||||||||||||||
December 31, | ||||||||||||||||
2004 | 2005 | $ Change | % Change | |||||||||||||
(In thousands) | ||||||||||||||||
Other income (expense): | ||||||||||||||||
Interest income | $ | 56 | $ | 206 | $ | 150 | 267.9 | % | ||||||||
Interest expense | (1,678 | ) | (5,277 | ) | (3,599 | ) | (214.5 | )% | ||||||||
Minority interest | (262 | ) | (737 | ) | (475 | ) | (181.3 | )% | ||||||||
Loss from equity investments | (36 | ) | (384 | ) | (348 | ) | (966.7 | )% | ||||||||
Total other expense | (1,920 | ) | (6,192 | ) | (4,272 | ) | (222.5 | )% | ||||||||
Income before income taxes | 18,830 | 27,861 | 9,031 | 48.0 | % | |||||||||||
Income tax expense | 6,433 | 9,968 | 3,535 | 55.0 | % | |||||||||||
Income from discontinued operations, net of tax | 451 | 229 | (222 | ) | (49.2 | )% | ||||||||||
Extraordinary gain | 12,544 | — | (12,544 | ) | (100.0 | )% | ||||||||||
Net income | $ | 25,392 | $ | 18,122 | $ | (7,270 | ) | (28.6 | )% | |||||||
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Nine Months Ended | ||||||||||||||||||||
Year Ended December 31, | September 30, | |||||||||||||||||||
2004 | 2005 | 2006 | 2006 | 2007 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Cash Flows from Continuing Operations: | ||||||||||||||||||||
Cash flows provided by operating activities | $ | 38,458 | $ | 63,297 | $ | 67,349 | $ | 67,500 | $ | 239,556 | ||||||||||
Cash flows used in investing activities | (59,408 | ) | (155,826 | ) | (1,340,567 | ) | (223,256 | ) | (897,341 | ) | ||||||||||
Cash flows provided by financing activities | 34,700 | 126,413 | 1,266,435 | 120,743 | 650,850 | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | $ | 13,750 | $ | 33,884 | $ | (6,783 | ) | $ | (35,013 | ) | $ | (6,935 | ) | |||||||
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• | failure to pay any principal when due or any interest, fees or other amount within certain grace periods; | |
• | failure to perform or otherwise comply with the covenants in the credit agreement or other loan documents, subject, in certain instances, to certain grace periods; | |
• | bankruptcy or insolvency events involving us or our subsidiaries; | |
• | a change of control (as defined in the senior credit facility). |
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Remainder | Payments Due by Year | |||||||||||||||||||||||||||
of 2007 | 2008 | 2009 | 2010 | 2011 | After 2011 | Total | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Long-term debt | $ | 3,629 | $ | 14,450 | $ | 15,664 | $ | 11,541 | $ | 406,220 | $ | 1,000,000 | $ | 1,451,504 | ||||||||||||||
Interest on term loan(1) | 35,502 | 85,944 | 85,944 | 85,944 | 85,944 | 249,436 | 628,714 | |||||||||||||||||||||
Firm transportation(2) | 237 | 949 | 949 | 949 | 949 | 4,592 | 8,625 | |||||||||||||||||||||
Operating leases | 1,209 | 4,525 | 2,707 | 110 | 46 | — | 8,597 | |||||||||||||||||||||
Third party drilling rig commitments(3) | 5,946 | 8,325 | — | — | — | — | 14,271 | |||||||||||||||||||||
Dispute settlement payments(4) | — | 5,000 | 5,000 | 5,000 | 5,000 | — | 20,000 | |||||||||||||||||||||
Asset retirement obligations | — | 846 | 150 | 199 | 8,582 | 47,731 | 57,508 | |||||||||||||||||||||
Total | $ | 46,523 | $ | 120,039 | $ | 110,414 | $ | 103,743 | $ | 506,741 | $ | 1,301,759 | $ | 2,189,219 | ||||||||||||||
(1) | Based on interest rates as of November 14, 2007. | |
(2) | We entered into a firm transportation agreement with Questar Pipeline Company giving us guaranteed capacity on their pipeline for 10 MmBtu per day at an estimated charge of $0.9 million per year, with a total commitment of $9.1 million. In December 2006 we assigned our rights and obligations to a third party. | |
(3) | Drilling contracts with third party drilling rig operators at specified day rates. All of our drilling rig contracts contain operator performance conditions that allow for pricing adjustments or early termination for operator nonperformance. Subsequent to September 30, 2007, the Company signed short-term contracts (approximately 100 days) for two additional rigs for total commitments of approximately $3.8 million. | |
(4) | In January 2007, we settled a royalty interest dispute and agreed to pay five installments of $5 million each, plus interest commencing April 1, 2007. The remaining installments are due on July 1 of each year commencing July 1, 2008. |
Remainder of 2007 | $ | 800 | ||
2008 | 3,200 | |||
2009 | 3,200 | |||
2010 | 5,000 | |||
Thereafter | 4,000 | |||
$ | 16,200 | |||
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Period | Commodity | Notional | Fix Price | |||||||||
Fixed price swap | ||||||||||||
November 2007 - March 2008 | Natural gas | 1,520,000 MmBtu | $ | 8.51 | ||||||||
November 2007 - June 2008 | Natural gas | 4,860,000 MmBtu | $ | 8.05 | ||||||||
November 2007 - June 2008 | Natural gas | 9,720,000 MmBtu | $ | 8.20 | ||||||||
January 2008 | Natural gas | 310,000 MmBtu | $ | 8.24 | ||||||||
January 2008 - June 2008 | Natural gas | 3,640,000 MmBtu | $ | 7.99 | ||||||||
January 2008 - June 2008 | Natural gas | 3,640,000 MmBtu | $ | 7.99 | ||||||||
January 2008 - December 2008 | Natural gas | 3,660,000 MmBtu | $ | 8.23 | ||||||||
January 2008 - December 2008 | Natural gas | 3,660,000 MmBtu | $ | 8.48 | ||||||||
January 2008 - December 2008 | Natural gas | 3,660,000 MmBtu | $ | 9.00 | ||||||||
April 2008 - June 2008 | Natural gas | 910,000 MmBtu | $ | 7.17 | ||||||||
May 2008 - August 2008 | Natural gas | 2,460,000 MmBtu | $ | 8.38 | ||||||||
July 2008 | Natural gas | 310,000 MmBtu | $ | 8.00 | ||||||||
July 2008 | Natural gas | 310,000 MmBtu | $ | 8.02 | ||||||||
July 2008 - September 2008 | Natural gas | 920,000 MmBtu | $ | 7.43 | ||||||||
July 2008 - September 2008 | Natural gas | 920,000 MmBtu | $ | 7.49 | ||||||||
July 2008 - September 2008 | Natural gas | 920,000 MmBtu | $ | 8.06 | ||||||||
July 2008 - September 2008 | Natural gas | 920,000 MmBtu | $ | 8.07 | ||||||||
July 2008 - September 2008 | Natural gas | 920,000 MmBtu | $ | 8.23 | ||||||||
July 2008 - September 2008 | Natural gas | 920,000 MmBtu | $ | 8.36 | ||||||||
July 2008 - December 2008 | Natural gas | 1,840,000 MmBtu | $ | 8.31 | ||||||||
July 2008 - December 2008 | Natural gas | 1,840,000 MmBtu | $ | 8.35 | ||||||||
August 2008 | Natural gas | 310,000 MmBtu | $ | 8.00 | ||||||||
August 2008 | Natural gas | 310,000 MmBtu | $ | 8.07 | ||||||||
September 2008 | Natural gas | 300,000 MmBtu | $ | 8.05 | ||||||||
September 2008 | Natural gas | 300,000 MmBtu | $ | 8.10 | ||||||||
October 2008 - December 2008 | Natural gas | 920,000 MmBtu | $ | 7.96 | ||||||||
October 2008 - December 2008 | Natural gas | 1,840,000 MmBtu | $ | 8.00 | ||||||||
October 2008 - December 2008 | Natural gas | 920,000 MmBtu | $ | 8.07 | ||||||||
October 2008 - December 2008 | Natural gas | 920,000 MmBtu | $ | 8.11 | ||||||||
October 2008 - December 2008 | Natural gas | 920,000 MmBtu | $ | 8.16 | ||||||||
October 2008 - December 2008 | Natural gas | 920,000 MmBtu | $ | 8.32 | ||||||||
October 2008 - December 2008 | Natural gas | 920,000 MmBtu | $ | 8.83 | ||||||||
January 2009 - March 2009 | Natural gas | 900,000 MmBtu | $ | 8.56 | ||||||||
January 2009 - March 2009 | Natural gas | 900,000 MmBtu | $ | 8.60 | ||||||||
January 2009 - March 2009 | Natural gas | 900,000 MmBtu | $ | 8.65 | ||||||||
January 2009 - March 2009 | Natural gas | 900,000 MmBtu | $ | 8.91 | ||||||||
Collars | ||||||||||||
January 2008 - June 2008 | Crude oil | 42,000 Bbls | $ | 50.00 - $83.35 | ||||||||
July 2008 - December 2008 | Crude oil | 54,000 Bbls | $ | 50.00 - $82.60 |
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Period | Commodity | Notional | Fix Price | |||||||||
Waha basis swap | ||||||||||||
January 2008 - December 2008 | Natural gas | 10,980,000 MmBtu | $ | (0.57 | ) | |||||||
January 2008 - December 2008 | Natural gas | 7,320,000 MmBtu | $ | (0.585 | ) | |||||||
January 2008 - December 2008 | Natural gas | 7,320,000 MmBtu | $ | (0.59 | ) | |||||||
January 2008 - December 2008 | Natural gas | 3,660,000 MmBtu | $ | (0.595 | ) | |||||||
January 2008 - December 2008 | Natural gas | 3,660,000 MmBtu | $ | (0.625 | ) | |||||||
January 2008 - December 2008 | Natural gas | 7,320,000 MmBtu | $ | (0.635 | ) | |||||||
January 2008 - December 2008 | Natural gas | 7,320,000 MmBtu | $ | (0.6525 | ) | |||||||
May 2008 - August 2008 | Natural gas | 2,460,000 MmBtu | $ | (0.45 | ) | |||||||
June 2008 - August 2008 | Natural gas | 920,000 MmBtu | $ | (0.4808 | ) | |||||||
September 2008 - December 2008 | Natural gas | 2,440,000 MmBtu | $ | (0.7930 | ) | |||||||
January 2009 - December 2009 | Natural gas | 3,650,000 MmBtu | $ | (0.47 | ) | |||||||
January 2009 - December 2009 | Natural gas | 3,650,000 MmBtu | $ | (0.49 | ) | |||||||
January 2009 - December 2009 | Natural gas | 3,650,000 MmBtu | $ | (0.4975 | ) |
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• | NEG acquired the remaining 50% membership interest in NEG Holding LLC that NEG did not already own by exercising an option it had to redeem this interest from NEGI for fair value; and | |
• | NEG distributed to its former parent, a subsidiary of AREP, all of its investment in National Energy Group, Inc. (“NEGI”), consisting of 50.1% of the outstanding shares of NEGI capital stock and $148 million of outstanding 103/4% senior notes due from NEGI. |
• | Grow Through Exploration and Aggressive Drilling and Development of Existing Acreage. We expect to generate long-term reserve and production growth by exploring and aggressively drilling and developing our large acreage position. Our primary exploration and development focus will be in the WTO, where we have identified over 2,600 potential drilling locations and had 30 rigs operating as of September 30, 2007. We have also identified 566 potential drilling locations in the Cotton Valley Trend in East Texas and had six rigs running in this region at the end of 2007. | |
• | Apply Technological Improvements to Our Exploration and Development Program. We intend to enhance our drilling success rate and completion efficiency with improved3-D seismic acquisition and interpretation technology and applying advanced drilling, completion and production methods in the exploration and development of our large acreage position in the WTO. We believe that this area is under-explored with modern technology and that the application of this technology has the potential to result in a higher overall drilling success rate and higher initial production rates and ultimate well recoveries, thereby improving overall economics. | |
• | Seek Opportunistic Acquisitions in Our Core Geographic Area. Since January 2006, through acquisitions and leasing activities, we have nearly tripled our net acreage position in the WTO. We intend to continue to seek other opportunities to optimize and enhance our exploratory acreage position in the WTO and other strategic areas. | |
• | Reduce Costs, Enhance Returns and Maintain Operating Flexibility by Controlling Drilling Rigs and Midstream Assets. Our rig fleet enables us to aggressively develop our own acreage while maintaining the flexibility of a third-party contract drilling business. We plan to capitalize on opportunities to utilize our rigs primarily in the WTO, where we had 30 of our rigs drilling our own wells as of June 30, 2007. |
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By controlling our fleet of drilling rigs and gathering and treating assets, we believe we will be able to better control overall costs and maintain a high degree of operational flexibility. |
• | Capture and Utilize CO2 for Tertiary Oil Recovery. We intend to capitalize on our access to CO2 reserves and CO2 flooding expertise to pursue enhanced oil recovery in mature oil fields in West Texas. By utilizing this CO2 in our own tertiary recovery projects, we expect to recover additional oil that would have otherwise been abandoned following traditional waterfloods. |
• | Large Asset Base with Substantial Drilling Inventory. Our producing properties are characterized by long-lived predominantly natural gas reserves with established production profiles. Our estimated proved reserves of 1,174.0 Bcfe as of June 30, 2007 had a proved reserves to production ratio of approximately 19 years. Our core area of operations in the WTO has expanded to 581,961 gross (480,721 net) acres as of September 30, 2007. We have identified over 2,600 potential drilling locations in the WTO and believe that we will be able to expand the number of drilling locations in the remainder of the WTO through exploratory drilling and our use of3-D seismic technology. | |
• | Geographically Concentrated Exploration and Development Operations. We intend to focus our drilling and development operations in the near term on the WTO to fully exploit this unique geological area. The WTO was created by the collision of the ancestral North and South American continents, which fractured and thrust the reservoir rock to come to rest in repeating layers. We believe the geological environment of the WTO and the height of the prospective pay zones create opportunities for significant conventional accumulations of natural gas and oil. To a lesser extent, we will also focus on the highly prolific Cotton Valley Trend in East Texas. This geographic concentration allows us to establish economies of scale in both drilling and production operations to achieve lower production costs and generate increased cash flows from our producing properties. We believe our concentrated acreage position will enable us to organically grow our reserves and production for the next several years. | |
• | Experienced Management Team Focused on Delivering Long-term Stockholder Value. During 2006, we significantly expanded our management team when Tom L. Ward, co-founder and former president of Chesapeake, purchased a significant interest in us and became our Chairman and Chief Executive Officer. We also hired a new chief financial officer and three additional executive vice presidents. Our nine executive officers and 27 senior executives average over 23 years of experience working in or servicing the natural gas and oil industry. Our management team, board of directors and employees owned over 35% of our capital stock on a fully-diluted basis as of November 30, 2007, which we believe aligns their objectives with those of our stockholders. | |
• | High Degree of Operational Control. We operate over 95% of our production in the WTO, East Texas and the Gulf Coast area, which permits us to manage our operating costs and better control capital expenditures and the timing of development and exploitation activities. | |
• | Large Modern Fleet of Drilling Rigs. We own a fleet of 32 drilling rigs, three of which are currently being retrofitted. In addition, we are a party to a joint venture that owns an additional twelve rigs, eleven of which are currently operating. By controlling a large, modern and more efficient drilling fleet, we can develop our existing reserves and explore for new reserves on a more economic basis. |
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Estimated | Number of | |||||||||||||||||||||||||||
Net | Identified | |||||||||||||||||||||||||||
Proved | Daily | Proved | Potential | |||||||||||||||||||||||||
Reserves | PV-10 (in | Production | Reserves/ | Gross | Net | Drilling | ||||||||||||||||||||||
(Bcfe)(1) | millions)(1)(2) | (Mmcfe/d)(3) | Production(1) | Acreage | Acreage | Locations(1) | ||||||||||||||||||||||
Area | ||||||||||||||||||||||||||||
WTO | 648.3 | $ | 1,190.9 | 69.1 | 25.7 | (4) | 581,961 | 480,721 | 2,658 | |||||||||||||||||||
East Texas | 156.3 | 310.2 | 26.3 | 16.3 | 48,606 | 32,557 | 566 | |||||||||||||||||||||
Gulf Coast | 105.7 | 416.4 | 44.2 | 6.6 | 53,464 | 34,765 | 51 | |||||||||||||||||||||
Other: | ||||||||||||||||||||||||||||
Gulf of Mexico | 57.3 | 176.7 | 17.2 | 9.1 | 73,614 | 36,770 | 82 | |||||||||||||||||||||
Other West Texas | 27.0 | 111.2 | 7.8 | 9.5 | 23,059 | 22,140 | 68 | |||||||||||||||||||||
PetroSource | 120.8 | 243.8 | 1.5 | 220.6 | 9,064 | 8,195 | 47 | |||||||||||||||||||||
Piceance Basin | 10.5 | 11.8 | 0.9 | 32.0 | 40,334 | 15,686 | 828 | |||||||||||||||||||||
Other | 48.1 | 110.5 | 9.7 | 13.6 | 282,129 | 132,198 | 273 | |||||||||||||||||||||
Total | 1,174.0 | $ | 2,558.8 | 176.7 | 18.2 | 1,112,231 | �� | 763,032 | 4,573 | |||||||||||||||||||
(1) | Estimated net proved reserves, PV-10 and identified potential drilling locations are as of June 30, 2007. | |
(2) | PV-10 generally differs from Standardized Measure of Discounted Net Cash Flows, or Standardized Measure, which is measured only at fiscal year end, because it does not include the effects of income taxes on future net revenues. For a reconciliation ofPV-10 to Standardized Measure as of December 31, 2006, see “Summary Historical Operating and Reserve Data.” Our Standardized Measure was $1,440.2 million at December 31, 2006. | |
(3) | Represents average daily net production for the third quarter 2007. | |
(4) | Our proved reserves to production ratio in the WTO is significantly higher than our other areas of operation because of the high volume of our proved undeveloped reserves in this area. We expect this ratio to decrease as our production in the WTO increases. |
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• | South Sabino Prospect Area. The South Sabino prospect area is located approximately twelve miles east of the Piñon Field. We have drilled two wells which have encountered the Caballos chert and hydrocarbons in zones less than 7,000 feet deep. Those wells were selected using2-D seismic and limited subsurface well control. The wells appear to be on trend with the Piñon Field and are structurally higher against one of several thrust faults that make up the WTO. We began the first phase of our3-D seismic program in this area in 2007. | |
• | Big Canyon Prospect Area. Located approximately 20 miles east of the Piñon Field along the WTO, this prospect area represents potential opportunities for future development. The key well, Big Canyon Ranch106-1, was drilled by a third party to a depth of 24,075 feet and was abandoned in December 1993 after testing gas from the Tesnus sands and Caballos chert. |
Estimated | Estimated | 2007 Capital | Rigs | |||||||||||||||||||||||||||
Net PUD | Gross PUD | Gross PUD | Total Gross | Gross 2007 | Expenditures | 2006 Year | Working | |||||||||||||||||||||||
Reserves | Reserves | Drilling | Drilling | Drilling | Budget | End Rigs | at 3Q | |||||||||||||||||||||||
(Bcfe)(1) | (Bcfe)(1) | Locations(1) | Locations(1) | Locations | (in millions)(2) | Working | 2007 End | |||||||||||||||||||||||
431.1 | 675.2 | 406 | 2,658 | 207 | $ | 537 | 9 | 30 | ||||||||||||||||||||||
(1) | As of June 30, 2007. | |
(2) | Excludes capital expenditures related to land and seismic acquisitions. |
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At December 31, | At December 31, | At June 30, | ||||||||||
2005 | 2006 | 2007 | ||||||||||
Estimated Proved Reserves(1) | ||||||||||||
Natural Gas (Bcf)(2) | 237.4 | 850.7 | 967.6 | |||||||||
Oil (MmBbls) | 10.4 | 25.2 | 34.4 | |||||||||
Total (Bcfe) | 300.0 | 1,001.8 | 1,174.0 | |||||||||
PV-10 (in millions) | $ | 733.3 | (3) | $ | 1,734.3 | (3) | $ | 2,558.8 | (3) | |||
Standardized Measure of Discounted Net Cash Flows (in millions)(4) | $ | 499.2 | $ | 1,440.2 | n/a | (5) |
(1) | Our estimated proved reserves and the future net revenues,PV-10, and Standardized Measure of Discounted Net Cash Flows were determined using end of the period prices for natural gas and oil that we realized as of December 31, 2005, December 31, 2006 and June 30, 2007, which were $8.40 per Mcf of natural gas and $54.04 per barrel of oil at December 31, 2005, $5.64 per Mcf of natural gas and $57.75 per barrel of oil at December 31, 2006, and $6.70 per Mcf of natural gas and $63.78 per barrel of oil at June 30, 2007. | |
(2) | Given the nature of our natural gas reserves, a significant amount of our production, primarily in the WTO, contains natural gas high in CO2 content. These figures are net of volumes of CO2 in excess of pipeline quality specifications. | |
(3) | PV-10 is a non-GAAP financial measure and represents the present value of estimated future cash inflows from proved natural gas and oil reserves, less future development and production costs, discounted at 10% per annum to reflect timing of future cash flows and using pricing assumptions in effect at the end of the period.PV-10 differs from Standardized Measure of Discounted Net Cash Flows because it does not include the effects of income taxes and other items on future net revenues. NeitherPV-10 nor Standardized Measure represent an estimate of fair market value of our natural gas and oil properties.PV-10 is used by the industry and by our management as an arbitrary reserve asset value measure to compare against past |
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reserve bases and the reserve bases of other business entities that are not dependent on the taxpaying status of the entity. The following tables provide a reconciliation of our Standardized Measure toPV-10: |
At December 31, | ||||||||
2005 | 2006 | |||||||
(In millions) | ||||||||
Standardized Measure of Discounted Net Cash Flows | $ | 499.2 | $ | 1,440.2 | ||||
Present value of future income tax and other discounted at 10% | 234.1 | 294.1 | ||||||
PV-10 | $ | 733.3 | $ | 1,734.3 | ||||
(4) | The Standardized Measure of Discounted Net Cash Flows represents the present value of estimated future cash inflows from proved natural gas and oil reserves, less future development and production costs, and income tax expenses, discounted at 10% per annum to reflect timing of future cash flows and using the same pricing assumptions as were used to calculatePV-10. Standardized Measure differs fromPV-10 because Standardized Measure includes the effect of future income taxes and other items. | |
(5) | Standardized Measure of Discounted Net Cash Flows is only calculated at fiscal year end under applicable accounting rules. |
• | oil that may become available from known reservoirs but is classified separately as indicated additional reserves; | |
• | crude oil, natural gas, and natural gas liquids, the recovery of which is subject to reasonable doubt because of uncertainty as to geology, reservoir characteristics, or economic factors; | |
• | crude oil, natural gas, and natural gas liquids, that may occur in undrilled prospects; and | |
• | crude oil, natural gas, and natural gas liquids, that may be recovered from oil shales, coal, gilsonite and other such sources. |
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Nine Months Ended | ||||||||||||||||||||
Year Ended December 31, | September 30, | |||||||||||||||||||
2004 | 2005 | 2006 | 2006 | 2007 | ||||||||||||||||
Production Data: | ||||||||||||||||||||
Natural Gas (Mmcf) | 6,708 | 6,873 | 13,410 | 6,856 | 35,148 | |||||||||||||||
Oil (MBbls) | 37 | 72 | 322 | 70 | 1,441 | |||||||||||||||
Combined Equivalent Volumes (Mmcfe) | 6,930 | 7,305 | 15,342 | 7,275 | 43,793 | |||||||||||||||
Average Daily Combined Equivalent Volumes (Mmcfe/d) | 18.9 | 20.0 | 42.0 | 27 | 160 |
Nine Months Ended | ||||||||||||||||||||
Year Ended December 31, | September 30, | |||||||||||||||||||
2004 | 2005 | 2006 | 2006 | 2007 | ||||||||||||||||
Average Prices(1): | ||||||||||||||||||||
Natural Gas (per Mcf) | $ | 4.43 | $ | 6.54 | $ | 6.19 | $ | 6.14 | $ | 6.56 | ||||||||||
Oil (per Bbl) | $ | 34.03 | $ | 48.19 | $ | 56.61 | $ | 61.89 | $ | 61.67 | ||||||||||
Combined Equivalent (per Mcfe) | $ | 4.47 | $ | 6.63 | $ | 6.60 | $ | 6.38 | $ | 7.30 |
(1) | Reported prices represent actual prices for the periods presented and do not give effect to hedging transactions. |
Nine Months | ||||||||||||||||||||
Ended | ||||||||||||||||||||
Year Ended December 31, | September 30, | |||||||||||||||||||
2004 | 2005 | 2006 | 2006 | 2007 | ||||||||||||||||
Expenses per Mcfe: | ||||||||||||||||||||
Lease operating expenses: | ||||||||||||||||||||
Transportation | $ | 0.14 | $ | 0.16 | $ | 0.22 | $ | 0.14 | $ | 0.15 | ||||||||||
Processing and gathering(1) | 0.39 | 0.42 | 0.37 | 0.33 | 0.30 | |||||||||||||||
Other lease operating expenses | 0.94 | 1.64 | 1.70 | 2.50 | 1.32 | |||||||||||||||
Total lease operating expenses | $ | 1.48 | $ | 2.22 | $ | 2.29 | $ | 2.97 | $ | 1.77 | ||||||||||
Production taxes | $ | 0.36 | $ | 0.43 | $ | 0.30 | $ | 0.35 | $ | 0.28 |
(1) | Includes costs attributable to gas treatment to remove CO2 and other impurities from our high CO2 natural gas. |
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Area | Gross | Net | ||||||
WTO | 409 | 344 | ||||||
East Texas | 163 | 150 | ||||||
Gulf Coast | 198 | 120 | ||||||
Other: | ||||||||
Gulf of Mexico | 66 | 42 | ||||||
Other West Texas | 265 | 257 | ||||||
PetroSource | 9 | 7 | ||||||
Piceance Basin | 45 | 16 | ||||||
Other | 368 | 145 | ||||||
Total | 1,523 | 1,081 | ||||||
Developed | Undeveloped | |||||||||||||||
Acreage(1) | Acreage(2) | |||||||||||||||
Area | Gross(3) | Net(4) | Gross(3) | Net(4) | ||||||||||||
WTO | 11,741 | 8,854 | 570,220 | 471,867 | ||||||||||||
East Texas | 29,084 | 25,817 | 19,522 | 6,740 | ||||||||||||
Gulf Coast | 39,438 | 24,678 | 14,026 | 10,087 | ||||||||||||
Other: | ||||||||||||||||
Gulf of Mexico | 73,614 | 36,770 | — | — | ||||||||||||
Other West Texas | 13,680 | 13,544 | 9,379 | 8,598 | ||||||||||||
PetroSource | 9,064 | 8,195 | — | — | ||||||||||||
Piceance Basin | 1,800 | 451 | 38,534 | 15,234 | ||||||||||||
Other | 84,258 | 41,770 | 197,871 | 90,428 | ||||||||||||
Total | 262,679 | 160,079 | 849,552 | 602,953 | ||||||||||||
(1) | Developed acres are acres spaced or assigned to productive wells. | |
(2) | Undeveloped acres are acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil or natural gas, regardless of whether such acreage contains proved reserves. | |
(3) | A gross acre is an acre in which a working interest is owned. The number of gross acres is the total number of acres in which a working interest is owned. | |
(4) | A net acre is deemed to exist when the sum of the fractional ownership working interests in gross acres equals one. The number of net acres is the sum of the fractional working interests owned in gross acres expressed as whole numbers and fractions thereof. |
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Acres Expiring | ||||||||
Twelve Months Ending | Gross | Net | ||||||
December 31, 2007 | — | — | ||||||
December 31, 2008 | 46,068 | 35,074 | ||||||
December 31, 2009 | 165,302 | 134,500 | ||||||
December 31, 2010 and later | 564,843 | 395,187 | ||||||
Other(1) | 336,018 | 198,301 | ||||||
Total | 1,112,231 | 763,062 | ||||||
(1) | Leases remaining in effect until the cessation of development efforts or cessation of production on the developed portion of the particular lease. |
Year Ended | Nine Months Ended | |||||||||||||||
December 31, | September 30, | |||||||||||||||
2006 | 2007 | |||||||||||||||
Gross | Net | Gross | Net | |||||||||||||
Development: | ||||||||||||||||
Productive | 82 | 50.8 | 181 | 130.8 | ||||||||||||
Dry | 5 | 2.5 | 3 | 2.3 | ||||||||||||
Exploratory: | ||||||||||||||||
Productive | 19 | 13.0 | 2 | 1.5 | ||||||||||||
Dry | 6 | 5.0 | 3 | 2.5 | ||||||||||||
Total: | ||||||||||||||||
Productive | 101 | 63.8 | 183 | 132.3 | ||||||||||||
Dry | 11 | 7.5 | 6 | 4.8 |
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As of December 31, 2006 | As of September 30, 2007 | |||||||||||||||
Area | Owned(1) | Third Party | Owned(1) | Third Party | ||||||||||||
WTO | 9 | — | 26 | 4 | ||||||||||||
East Texas | — | 2 | — | 6 | ||||||||||||
Gulf Coast | — | 1 | — | — | ||||||||||||
Other | 1 | — | 2 | — | ||||||||||||
Total | 10 | 3 | 28 | 10 | ||||||||||||
(1) | Includes both rigs owned by Lariat, our wholly owned subsidiary, and by Larclay, a joint venture. |
Gas Purchasers | % | |||
ANP Funding I, LLC | 26.4% | |||
Magnus Energy Marketing, Ltd. | 17.8% | |||
Atmos Energy Corporation | 13.9% | |||
El Paso Industrial Energy, LP | 10.4% | |||
Southern Union Gas Services, Ltd. | 10.1% |
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Year Ended | Nine Months Ended | |||||||||||||||||||
December 31, | September 30, | |||||||||||||||||||
2004 | 2005 | 2006 | 2006 | 2007 | ||||||||||||||||
Number of operational rigs owned at end of period | 10 | 19 | 25 | 23 | 27 | (3) | ||||||||||||||
Average number of operational rigs owned during the period | 8 | 14.3 | 21.9 | 21.0 | 26 | (3) | ||||||||||||||
Average number of rigs utilized | 8 | 14.3 | 21.9 | 21.0 | 23.7 | |||||||||||||||
Utilization rate | 100 | % | 100 | % | 100 | % | 100 | % | 91 | % | ||||||||||
Average drilling revenue per day(1)(2) | $ | 73,023 | $ | 164,495 | $ | 373,051 | $ | 358,867 | $ | 409,541 | ||||||||||
Average drilling revenue per rig per day(2) | $ | 9,128 | $ | 11,503 | $ | 17,034 | $ | 17,089 | $ | 17,302 | ||||||||||
Total footage drilled (feet in thousands) | 635,684 | 1,749,700 | 2,124,079 | 1,746,763 | 1,440,247 | |||||||||||||||
Number of wells drilled | 159 | 249 | 379 | 295 | 204 |
(1) | Represents the total revenues from our contract drilling operations divided by the total number of days our drilling rigs were used during the period. | |
(2) | Does not include revenues for related rental equipment. | |
(3) | Does not include five rigs being retrofitted as of June 30, 2007. |
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Operating for | Operating for | |||||||||||||||
Owned | Operational | SandRidge | Third Parties | |||||||||||||
Lariat | 32 | (1) | 27 | 21 | 3 | |||||||||||
Larclay | 12 | (2) | 11 | 7 | 4 | |||||||||||
Total | 44 | 38 | 28 | 7 | ||||||||||||
(1) | Includes five rigs that were being retrofitted. | |
(2) | Includes one rig that has not been assembled. |
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Plant Capacity | Average | Third Party | ||||||||||
ROC Gas Operated Plants | (Mmcf/d) | Utilization(1) | Usage | |||||||||
Pike’s Peak(2) | 58 | 92.2 | % | less than 1.0% | ||||||||
Grey Ranch(3) | 82 | 89.0 | % | 33.4% | ||||||||
Sagebrush(4) | 50 | 21.9 | % | 17.8% |
(1) | Average utilization for nine months ended September 30, 2007. | |
(2) | A project to expand Pike’s Peak capacity to 70 Mmcf per day was completed in the fourth quarter of 2007. | |
(3) | The Grey Ranch plant is operated by Southern Union. A project to expand the plant to 92 Mmcf/d was completed during the fourth quarter of 2007. We expect the plant capacity will be further increased to 170 Mmcf/d by the third quarter of 2008. | |
(4) | Sagebrush commenced processing operations on May 1, 2007. |
CO2 Compression | Average | |||||||
PetroSource Facilities | Capacity (Mmcf/d) | Utilization(1) | ||||||
Pike’s Peak | 38 | 50.0 | % | |||||
Mitchell | 26 | 3.9 | % | |||||
Grey Ranch | 40 | 67.5 | % | |||||
Terrell | 38 | 70.3 | % |
(1) | Average utilization for nine months ended September 30, 2007. |
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• | require the acquisition of various permits before drilling commences; | |
• | require the installation of expensive pollution control equipment; | |
• | restrict the types, quantities and concentration of various substances that can be released into the environment in connection with natural gas and oil drilling production, transportation and processing activities; | |
• | suspend, limit, prohibit or require approval before construction, drilling and other activities in certain lands lying within wilderness, wetlands and other protected areas; and | |
• | require remedial measures to mitigate pollution from historical and ongoing operations, such as the closure of pits and plugging of abandoned wells. |
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• | the location of wells; | |
• | the method of drilling and casing wells; | |
• | the rates of production or “allowables;” | |
• | the surface use and restoration of properties upon which wells are drilled and other third-parties; | |
• | the plugging and abandoning of wells; and | |
• | notice to surface owners and other third-parties. |
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Name | Age | Position | ||||
Tom L. Ward | 48 | Chairman, Chief Executive Officer and President | ||||
Dirk M. Van Doren | 48 | Executive Vice President and Chief Financial Officer | ||||
Matthew K. Grubb | 44 | Executive Vice President and Chief Operating Officer | ||||
Larry K. Coshow | 49 | Executive Vice President — Land | ||||
Todd N. Tipton | 52 | Executive Vice President — Exploration | ||||
Rodney E. Johnson | 50 | Senior Vice President — Reservoir Engineering | ||||
V. Bruce Thompson | 60 | Senior Vice President — Legal and General Counsel | ||||
Thomas L. Winton | 61 | Senior Vice President — Information Technology and Chief Information Officer | ||||
Mary L. Whitson | 46 | Senior Vice President — Human Resources | ||||
Randall D. Cooley | 53 | Senior Vice President — Accounting | ||||
Kevin R. White | 50 | Senior Vice President — Business Development | ||||
Bill Gilliland | 70 | Director | ||||
Dan Jordan | 50 | Director | ||||
Roy T. Oliver, Jr. | 55 | Director | ||||
Stuart W. Ray | 63 | Director | ||||
D. Dwight Scott | 44 | Director | ||||
Jeffrey Serota | 41 | Director |
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Fees Earned | ||||||||||||
or Paid in | Stock | |||||||||||
Name | Cash | Awards | Total | |||||||||
Bill Gilliland | $ | 100,000(1 | ) | $ | 29,215 | (3) | $ | 129,215 | ||||
Dan Jordan | $ | 100,000(2 | ) | $ | 30,564 | (3) | $ | 130,564 | ||||
Roy T. Oliver, Jr. | $ | 100,000(4 | ) | $ | 29,215 | (3) | $ | 129,215 | ||||
Stuart W. Ray | $ | 12,500(5 | ) | $ | — | $ | 12,500 | |||||
D. Dwight Scott | $ | 87,500(6 | ) | $ | — | $ | 87,500 | |||||
Jeffrey Serota | $ | 87,500(7 | ) | $ | — | $ | 87,500 | |||||
N. Malone Mitchell, 3rd | $ | 75,000(8 | ) | $ | — | $ | 75,000 |
(1) | Consists of (i) $50,000 received as a retainer for one year of service as a non-employee director, and (ii) $50,000 for attending four meetings during 2007. | |
(2) | Consists of (i) $50,000 received as a retainer for one year of service as a non-employee director, and (ii) $50,000 for attending four meetings during 2007. | |
(3) | Includes the dollar amount of compensation expense we recognized for the fiscal year ended December 31, 2007 in accordance with FAS 123R. Pursuant to SEC rules and regulations, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. These amounts reflect our |
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accounting expense for these awards, and do not correspond to the actual value that will be recognized by our directors. Assumptions used in the calculation of these amounts are included in Note 18 to our audited financial statements included in this prospectus. As of December 31, 2007, the number of shares of stock held by each non-employee director was: Mr. Gilliland — 1,349,878; Mr. Jordan — 1,001,389 and Mr. Oliver — 1,001,389. | ||
(4) | Consists of (i) $50,000 received as a retainer for one year of service as a non-employee director and (ii) $50,000 for attending four meetings during 2007. | |
(5) | Consists of fees paid for attending one meeting during 2007. | |
(6) | Consists of (i) $37,500 received as a retainer prorated for length of service as a non-employee director and (ii) $50,000 for attending four meetings during 2007. | |
(7) | Consists of (i) $37,500 received as a retainer prorated for length of service as a non-employee director and (ii) $50,000 for attending four meetings during 2007. | |
(8) | Consists of (i) $50,000 received as a retainer for one year of service as a non-employee director and (ii) $25,000 for attending two meetings during 2007. |
• | us, except for: |
• | claims regarding the indemnitee’s rights under the indemnification agreement; | |
• | claims to enforce a right to indemnification under any statute or law; and counter-claims against us in a proceeding brought by us against the indemnitee; or |
• | any other person, except for claims approved by our board of directors. |
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Name | Principal Position | |
Current Officers: | ||
Tom L. Ward | Chairman, Chief Executive Officer and President | |
Dirk M. Van Doren | Executive Vice President and Chief Financial Officer | |
Matthew K. Grubb | Executive Vice President and Chief Operating Officer | |
Larry K. Coshow | Executive Vice President — Land | |
Todd N. Tipton | Executive Vice President — Exploration |
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• | approving, in advance, the compensation and employment arrangements for our executive officers; | |
• | reviewing annually all of the compensation and benefit-based plans and programs in which our executive officers participate; | |
• | administration of our Well Participation Plan; and | |
• | reviewing and recommending all changes to our stock plan to our board of directors, as appropriate, subject to stockholder approval as required. |
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• | base salaries; | |
• | discretionary semi-annual cash bonus awards; and | |
• | restricted stock grants. |
• | the responsibilities of the officer; | |
• | period over which the officer has performed these responsibilities; | |
• | the scope, level of expertise and experience required for the officer’s position; | |
• | the strategic impact of the officer’s position; and | |
• | potential future contribution and demonstrated individual performance of the officer. |
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• | the successful completion of particular projects; | |
• | the attainment of productivity metrics unique to an officer’s responsibilities; | |
• | management of an officer’s budgetary responsibilities within specified parameters; | |
• | the acquisition and implementation of new technical knowledge; | |
• | the achievement of individual goals that further those of the company; and | |
• | exceptional performance of functional responsibility. |
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• | Change in Control. In certain scenarios, the potential for merger or being acquired may be in the best interests of our stockholders. As a result, we have agreed to provide severance compensation to Mr. Ward and Mr. Coshow if either employment is terminated following a change in control transaction to promote the ability of Mr. Ward and Mr. Coshow to act in the best interests of our stockholders even though their employment could be terminated as a result of the transaction. | |
• | Termination without Cause. If we terminate Mr. Ward’s or Mr. Coshow’s employment without cause, we are obligated to pay certain compensation and other benefits as described in greater detail in “— Potential Payments upon Termination or Change in Control” below. We believe these payments are appropriate because they represent the general market triggering events found in employment agreements of companies against whom we compete for executive-level talent at the time these provisions were negotiated. It is also beneficial for the Company, Mr. Ward and Mr. Coshow to have mutually agreed to severance packages that are in place prior to any termination event. This provides us with |
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Stock | All Other | |||||||||||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Awards(6) | Compensation(7) | Total | ||||||||||||||||||
Tom L. Ward | 2007 | $ | 1,067,308 | $ | 1,900,000 | $ | 2,210,137 | $ | 659,689 | $ | 5,837,134 | |||||||||||||
Chairman, Chief | 2006 | $ | 526,154 | $ | 950,000 | — | $ | 374,657 | $ | 1,850,811 | ||||||||||||||
Executive Officer and President(1) | ||||||||||||||||||||||||
Dirk M. Van Doren | 2007 | $ | 473,077 | $ | 525,000 | $ | 370,137 | $ | 69,580 | $ | 1,437,794 | |||||||||||||
Executive Vice President | 2006 | $ | 251,923 | $ | 225,000 | $ | 72,512 | $ | 7,961 | $ | 557,396 | |||||||||||||
and Chief Financial Officer(2) | ||||||||||||||||||||||||
Matthew K. Grubb | 2007 | $ | 420,192 | $ | 350,000 | $ | 192,815 | $ | 44,576 | $ | 1,007,583 | |||||||||||||
Executive Vice President | 2006 | $ | 136,250 | $ | 307,000 | $ | 34,226 | $ | 8,944 | $ | 486,420 | |||||||||||||
and Chief Operating Officer(3) | ||||||||||||||||||||||||
Larry K. Coshow | 2007 | $ | 300,000 | $ | 200,000 | $ | 132,139 | $ | 45,230 | $ | 677,369 | |||||||||||||
Executive Vice President — Land(4) | 2006 | $ | 84,231 | — | $ | 27,800 | $ | 104 | $ | 112,135 | ||||||||||||||
Todd N. Tipton | 2007 | $ | 311,539 | $ | 200,000 | $ | 189,251 | $ | 444,961 | $ | 1,145,751 | |||||||||||||
Executive Vice President — Exploration(5) | 2006 | $ | 60,000 | — | $ | 32,024 | $ | 1,538 | $ | 93,562 |
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(1) | Mr. Ward was appointed as our Chairman and Chief Executive Officer on June 8, 2006. Prior to this date, he received no compensation from us. He was also appointed as our President upon the resignation of Mr. Mitchell effective at the end of 2006. | |
(2) | Mr. Van Doren was appointed as our Executive Vice President and Chief Financial Officer on June 8, 2006 and began receiving compensation effective May 15, 2006. Prior to this date, he received no compensation from us. | |
(3) | Mr. Grubb became an employee on August 1, 2006. Prior to this date, he received no compensation from us. | |
(4) | Mr. Coshow became an employee on September 6, 2006. Prior to this date, he received no compensation from us. | |
(5) | Mr. Tipton became an employee on September 28, 2006. Prior to this date, he received no compensation from us. | |
(6) | This column includes the dollar amount of compensation expense we recognized for the fiscal year ended December 31, 2006 and 2007 in accordance with FAS 123R. Pursuant to the Securities and Exchange Commission’s rules and regulations, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. These amounts reflect our accounting expense for these awards, and do not correspond to the actual value that will be recognized by our named executive officers. Assumptions used in the calculation of these amounts are included in Note 18 to our audited financial statements for the fiscal year ended December 31, 2006 included in this prospectus. See “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table” below for a description of the material features of these awards. | |
(7) | All Other Compensation consists of the following: |
Employee | ||||||||||||||||||||||||||||||||||||||||||||||||
Company | Participation | |||||||||||||||||||||||||||||||||||||||||||||||
Club | Life | Matching | Deferred | Relocation | Retention or | Plan | ||||||||||||||||||||||||||||||||||||||||||
Membership | Accounting | Aircraft | Insurance | Contributions | Compensation | Expenses | Severance | Participation | Reimbursement | |||||||||||||||||||||||||||||||||||||||
Name | Year | Dues | Support | Use(a) | Premiums | to 401(k) Plan | Match | or Bonus | Payment | Allowance | of HSR Fees | Total | ||||||||||||||||||||||||||||||||||||
Current Officers: | ||||||||||||||||||||||||||||||||||||||||||||||||
Tom L. Ward | 2007 | $ | 5,906 | $ | 351,725 | $ | 144,039 | $ | 230 | $ | 15,500 | $ | 142,288 | — | — | — | — | $ | 659,689 | |||||||||||||||||||||||||||||
2006 | $ | 2,926 | $ | 123,960 | $ | 122,598 | $ | 173 | — | — | — | — | — | $ | 125,000 | (b) | $ | 374,657 | ||||||||||||||||||||||||||||||
Dirk M. Van Doren | 2007 | — | — | $ | 984 | $ | 230 | $ | 15,500 | $ | 52,866 | — | — | — | — | $ | 69,580 | |||||||||||||||||||||||||||||||
2006 | — | — | — | $ | 173 | $ | 7,788 | — | — | — | — | — | $ | 7,961 | ||||||||||||||||||||||||||||||||||
Matthew K. Grubb | 2007 | — | — | — | $ | 230 | $ | 15,500 | $ | 28,846 | — | — | — | — | $ | 44,576 | ||||||||||||||||||||||||||||||||
2006 | — | — | — | $ | 173 | — | — | $ | 8,771 | — | — | — | $ | 8,944 | ||||||||||||||||||||||||||||||||||
Larry K. Coshow | 2007 | — | — | — | $ | 230 | $ | 15,500 | $ | 29,500 | — | — | — | — | $ | 45,230 | ||||||||||||||||||||||||||||||||
2006 | — | — | — | $ | 104 | — | — | — | — | — | — | $ | 104 | |||||||||||||||||||||||||||||||||||
Todd N. Tipton | 2007 | — | — | — | $ | 230 | $ | 20,500 | $ | 24,231 | $ | 400,000 | — | — | — | $ | 444,961 | |||||||||||||||||||||||||||||||
2006 | — | — | — | $ | 104 | $ | 1,434 | — | — | — | — | — | $ | 1,538 |
(a) | Value based on the incremental cost calculated per hour of use by the named executive officer. | |
(b) | Fees paid by Mr. Ward in connection with obtaining regulatory approval of his purchase of common stock from Mr. Mitchell on June 8, 2006 under the Hart-Scott-Rodino Act. We agreed to reimburse such fees in connection with the approval of Mr. Ward’s initial investment in the company. |
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All Other | ||||||||
Stock Awards: | ||||||||
Number of | ||||||||
Shares of | ||||||||
Name | Grant Date | Stock or Units | ||||||
Tom L. Ward | January 10, 2007 July 11, 2007 | 300,000 325,000 | ||||||
Dirk M. Van Doren | January 10, 2007 July 11, 2007 | 40,000 60,000 | ||||||
Matthew K. Grubb | January 10, 2007 July 11, 2007 | 20,000 25,000 | ||||||
Larry K. Coshow | January 10, 2007 July 11, 2007 | 15,000 10,000 | ||||||
Todd N. Tipton | January 10, 2007 July 11, 2007 | 25,000 15,000 |
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Percentage of Total | ||||
Name | Compensation | |||
Tom L. Ward | 50.8 | % | ||
Dirk M. Van Doren | 69.4 | % | ||
Matthew K. Grubb | 76.4 | % | ||
Larry K. Coshow | 73.8 | % | ||
Todd N. Tipton | 44.6 | % |
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Stock Awards | ||||||||
Number of | Market Value | |||||||
Shares or | of Shares | |||||||
Units of | or Units of | |||||||
Stock That | Stock That | |||||||
Name | Have Not Vested | Have Not Vested(1) | ||||||
Tom L. Ward | 625,000 | (2) | $ | 22,412,500 | ||||
Dirk M. Van Doren | 107,500 | (3) | $ | 3,854,950 | ||||
Matthew K. Grubb | 45,000 | (4) | $ | 1,613,700 | ||||
Larry K. Coshow | 25,000 | (5) | $ | 896,500 | ||||
Todd N. Tipton | 40,000 | (6) | $ | 1,434,400 |
(1) | Valuation based on $35.86 per share, the last trading price on December 31, 2007. | |
(2) | Includes 300,000 shares of restricted stock granted January 10, 2007 which shall vest 25% on the 10th day of January in each of the years 2008, 2009, 2010 and 2011; and 325,000 shares of restricted stock granted July 11, 2007 which shall vest 25% on the 11th day of July in each of the years 2008, 2009, 2010 and 2011. | |
(3) | Includes 7,500 shares of restricted stock granted July 1, 2006 which shall vest in 2,500 share increments on the 1st day of July in each of the years 2008, 2009 and 2010; 40,000 shares of restricted stock granted January 10, 2007 which shall vest 25% on the 10th day of January in each of the years 2008, 2009, 2010 and 2011; and 60,000 shares of restricted stock granted July 11, 2007 which shall vest 25% on the 11th day of July in each of the years, 2008, 2009, 2010 and 2011. | |
(4) | Includes 20,000 shares of restricted stock granted January 10, 2007 which shall vest 25% on the 10th day of January in each of the years 2008, 2009, 2010 and 2011; and 25,000 shares of restricted stock granted July 11, 2007 which shall vest 25% on the 11th day of July in each of the years 2008, 2009, 2010 and 2011. | |
(5) | Includes 15,000 shares of restricted stock granted January 10, 2007 which shall vest 25% on the 10th day of January in each of the years 2008, 2009, 2010 and 2011; and 10,000 shares of restricted stock granted July 11, 2007 which shall vest 25% on the 11th day of July in each of the years 2008, 2009, 2010 and 2011. | |
(6) | Includes 25,000 shares of restricted stock granted January 10, 2007 which shall vest 25% on the 10th day of January in each of the years 2008, 2009, 2010 and 2011; and 15,000 shares of restricted stock granted July 11, 2007 which shall vest 25% on the 11th day of July in each of the years 2008, 2009, 2010 and 2011. |
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Stock Awards | ||||||||
Number of | ||||||||
Shares | Value | |||||||
Acquired on | Realized | |||||||
Name | Vesting | on Vesting | ||||||
Tom L. Ward | — | — | ||||||
Dirk M. Van Doren | 2,500 | $ | 89,650 | (1) | ||||
Matthew K. Grubb | — | — | ||||||
Larry K. Coshow | — | — | ||||||
Todd N. Tipton | — | — |
(1) | Valuation based on $35.86 per share, the last trading price on December 31, 2007. |
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Number of Shares | ||||||||
Vesting Within 12 Months | Market Value of | |||||||
of December 31, 2007 | Shares Vesting(1) | |||||||
Tom L. Ward | 156,250 | $ | 5,603,125 | |||||
Dirk M. Van Doren | 27,500 | $ | 986,150 | |||||
Matthew K. Grubb | 11,250 | $ | 403,425 | |||||
Larry K. Coshow | 6,250 | $ | 224,125 | |||||
Todd N. Tipton | 10,000 | $ | 358,600 |
(1) | Valuation based on $35.86 per share, the last trading price on December 31, 2007. |
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• | each stockholder known by us to be the beneficial owner of more than 5% of the outstanding shares of our common stock; | |
• | our current directors; | |
• | our named executive officers; and | |
• | all of our directors and executive officers as a group. |
Number of | Percentage | |||||||
Shares | of Shares | |||||||
Beneficially | Beneficially | |||||||
Owned | Owned | |||||||
Tom L. Ward | 35,702,707 | (1) | 24.7 | % | ||||
Dirk M. Van Doren | 134,009 | * | ||||||
Matthew K. Grubb | 5,000 | * | ||||||
Larry K. Coshow | 3,750 | * | ||||||
Todd N. Tipton | 6,330 | * | ||||||
Bill Gilliland | 1,349,878 | (2) | * | |||||
Dan Jordan | 1,001,389 | * | ||||||
Roy T. Oliver, Jr. | 1,001,389 | (3) | * | |||||
Stuart W. Ray | — | — | ||||||
D. Dwight Scott | — | (4) | — | |||||
Jeffrey Serota | — | (5) | — | |||||
Entities affiliated with Ares Management LLC | 13,333,333 | (6) | 9.4 | % | ||||
N. Malone Mitchell, 3rd | 17,280,214 | (7) | 12.1 | % | ||||
All directors and named executive officers as a group | 39,204,452 | (1) | 27.1 | % |
* | Less than 1%. |
(1) | Includes (a) 9,246,624 shares of common stock and 2,680,677 shares of common stock issuable upon conversion of convertible preferred stock held by TLW Properties, L.L.C. for which Mr. Ward exercises voting and dispositive power, (b) 79,000 shares held through an IRA and (c) 13,000 shares of common stock held by Mr. Ward’s minor child. Does not include 6,509,601 shares held through a family trust. |
(2) | Such shares are held by Gillco Energy, LP, for which Mr. Gilliland exercises voting and dispositive power. |
(3) | Such shares are held by Oliver Active Investments, LLC, for which Mr. Oliver exercises voting and dispositive power. |
(4) | Mr. Scott serves as a managing director of GSO Capital Partners LP, the investment manager for each of GSO Credit Opportunities Fund (Helios), L.P. (“GSO Helios”), GSO Special Situations Overseas Master Fund Ltd. (“GSO Overseas”) and GSO Special Situations Fund LP (“GSO SS” and, together with GSO Helios and GSO Overseas, the “GSO Funds”). Each of GSO Helios (286,354 shares), GSO Overseas (405,262 shares) and GSO SS (419,495 shares) are the holders of record of our common stock. As investment manager of the GSO Funds, GSO Capital Partners LP is vested with investment discretion with respect to investments held by the GSO Funds. GSO LLC (“GSO General Partner”) is the general partner of GSO Capital Partners LP, and in that capacity, directs the operations of GSO Capital Partners LP. Bennett J. Goodman (“Mr. Goodman”), J. Albert Smith III (“Mr. Smith”) and Douglas I. Ostrover |
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(“Mr. Ostrover” and together with Mr. Goodman and Mr. Smith, the “GSO Managing Members”) are the managing members of the General Partner, and in that capacity, direct the General Partner’s operations. Each of the GSO Funds, GSO Capital Partners LP, General Partner and the Managing Members (collectively, the “GSO Persons”) may be deemed a beneficial owners of our common stock. However, the foregoing should not be deemed to constitute an admission that any of the GSO Persons are the beneficial owners of any of common stock owned by the GSO Funds. Mr. Scott disclaims any beneficial ownership of the shares of our common stock owned by the GSO Funds. |
(5) | Mr. Serota is a senior partner in the Private Equity Group of Ares Management LLC (“Ares Management”), a private investment management firm that indirectly controls Ares Corporate Opportunities Fund II, L.P. (“ACOF II”), Ares SandRidge, L.P. (“Ares SandRidge”), Ares SandRidge 892 Investors, L.P. (“Ares 892 Investors”) and Ares SandRidge Co-Invest, LLC (together with Ares SandRidge and Ares 892 Investors, the “ACOF II AIVs”). Mr. Serota disclaims beneficial ownership of the shares owned by ACOF II and the ACOF II AIVs, except to the extent of any pecuniary interest therein. |
(6) | According to a Schedule 13G filed with the SEC on November 26, 2007, the shares of common stock listed in the table above are owned as follows: ACOF II — 7,376,636 shares; Ares SandRidge — 1,996,851 shares; Ares 892 Investors — 3,126,513 shares; and Ares SandRidge Co-Invest, LLC — 833,333 shares. The general partner of ACOF II and certain of the ACOF II AIVs is ACOF Management II, L.P. (“ACOF Management II”) and the general partner of ACOF Management II is ACOF Operating Manager II, L.P. (“ACOF Operating Manager II”). ACOF Operating Manager II is indirectly controlled by Ares Management, which, in turn, is indirectly controlled by Ares Partners Management Company LLC. Each of the foregoing entities (collectively, the “Ares Entities”) and the partners, members and managers thereof, other than ACOF II and the ACOF II AIVs, disclaims beneficial ownership of the shares of common stock owned by ACOF II and the ACOF II AIVs, except to the extent of any pecuniary interest therein. The address of each Ares Entity is 1999 Avenue of the Stars, Suite 1900, Los Angeles, CA 90067. |
(7) | Includes (a) 485,630 shares issuable upon conversion of convertible preferred stock and 4,548 shares of common stock held by Dalea Partners for which Mr. Mitchell exercises voting and dispositive power and (b) 5,000 shares held by Mr. Mitchell’s minor child. The address for Mr. Mitchell is 4801 Gaillardia Parkway, Suite 225, Oklahoma City, Oklahoma 73142. |
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• | common shares issued in connection with a private placement to eligible investors in December 2005 and January 2006; | |
• | common shares that may be issued upon conversion of our convertible preferred stock issued to eligible investors in November 2006; | |
• | common shares issued in connection with a private placement of common shares and warrants to purchase our convertible preferred stock to eligible institutional investors in November 2006; | |
• | common shares issued in connection with a private placement to eligible institutional investors in March 2007; and | |
• | common shares issued in March 2007 to certain holders of our convertible preferred stock pursuant to the contractual preemptive rights exercised in connection with the March 2007 private placement of common shares. |
Number | Number | |||||||||||||||||||
of Shares | of Shares | |||||||||||||||||||
Beneficially | Number | Beneficially | Percentage of Shares | |||||||||||||||||
Owned | of Shares | Owned | Beneficially Owned | |||||||||||||||||
Prior | Being | After | Prior | After | ||||||||||||||||
Name of Beneficial Owner | to Offering | Offered | Offering | to Offering | Offering | |||||||||||||||
Fund managed by Moore Capital Management, LLC(1) | 3,236,482 | (2) | 3,186,482 | (2) | 50,000 | 2.24 | % | * | ||||||||||||
UBS O’Connor LLC F/B/O O’Connor(3) | 72,856 | (4) | 72,856 | (4) | 0 | * | — | |||||||||||||
Pipes Corporate Strategies Master Limited | ||||||||||||||||||||
UBS O’Connor LLC F/B/O O’Connor(3) | 153,657 | (5) | 153,657 | (5) | 0 | * | — | |||||||||||||
Global Convertible Arbitrage Master Limited | ||||||||||||||||||||
UBS O’Connor LLC F/B/O O’Connor(3) | 16,317 | (6) | 16,317 | (6) | 0 | * | — | |||||||||||||
Global Convertible Arbitrage II Master Limited | ||||||||||||||||||||
Ospraie SandRidge Holdings LLC(7) | 750,184 | (8) | 750,184 | (8) | 0 | * | — | |||||||||||||
Ospraie Special Opportunities Master Alternative Holdings LLC(9) | 750,184 | (8) | 750,184 | (8) | 0 | * | — | |||||||||||||
LB I Group Inc.(10) | 2,185,339 | (11) | 2,185,339 | (11) | 0 | 1.52 | % | — | ||||||||||||
Credit Suisse Securities (USA) LLC(12) | 215,195 | (13) | 215,195 | (13) | 0 | * | — | |||||||||||||
John D. Arnold | 600,155 | (14) | 600,155 | (14) | 0 | * | — | |||||||||||||
Total | 7,980,369 | 7,930,369 | 50,000 | 5.39 | % | * |
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(1) | Shares held by Moore Macro Fund, LP (“MMF”). The address for MMF isc/o Moore Capital Management, LLC, 1251 Avenue of the Americas, 53rd Floor, New York, New York 10020. Moore Capital Management, LLC (“MCM”), a New York limited liability company, serves as discretionary investment manager of MMF, and in such capacity may be deemed the beneficial owner of the portfolio assets held for the account of MMF. Mr. Louis M. Bacon serves as the chairman, chief executive officer and director of MCM. As a result, Mr. Bacon may be deemed to be the indirect beneficial holder of the shares indicated. | |
(2) | Includes 2,428,149 shares of common stock issuable upon conversion of convertible preferred stock. | |
(3) | The selling stockholder is a fund which cedes investment control to UBS O’Connor LLC (the “Investment Manager”). The Investment Manager makes all the investment decisions and is a wholly owned subsidiary of UBS AG, a publicly traded entity. | |
(4) | Includes 72,856 shares of common stock issuable upon conversion of convertible preferred stock. | |
(5) | Includes 153,657 shares of common stock issuable upon conversion of convertible preferred stock. | |
(6) | Includes 16,317 shares of common stock issuable upon conversion of convertible preferred stock. | |
(7) | The Ospraie Fund L.P. (“Ospraie LP”) is the managing member of Ospraie Sandridge Holdings LLC (“Ospraie Sandridge”) and in that capacity directs its operations, including the power to direct the investment activities of Ospraie Sandridge. Ospraie Group LLC (“Ospraie Group”) is the general partner of Ospraie LP and in that capacity directs its operations. Mr. Dwight Anderson is the managing member of Ospraie Group and in that capacity directs its operations. Mr. Anderson disclaims any beneficial ownership in such securities except to the extent of any pecuniary interest therein. | |
(8) | Includes 607,029 shares of common stock issuable upon conversion of convertible preferred stock. | |
(9) | Pursuant to an investment management agreement, Ospraie Advisors, L.P., (“Ospraie Advisors”) serves as investment manager to Ospraie Special Opportunities Master Alternative Holdings LLC (“OSOMAH”). As such, Ospraie Advisors has been granted investment discretion over portfolio investments held for the account of OSOMAH. Ospraie Advisors, LLC is the general partner of Ospraie Advisors. Ospraie Management, LLC (“Ospraie Management”) is the managing member of Ospraie Advisors, LLC. Ospraie Holding I, L.P. (“Ospraie Holding”) is the managing member of Ospraie Management. Ospraie Management, Inc. (“Ospraie Inc.”) is the general partner of Ospraie Holding. Mr. Dwight Anderson is the President and controlling equity owner of Ospraie Inc. and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account of OSOMAH. Mr. Anderson disclaims any beneficial ownership in such securities except to the extent of any pecuniary interest therein. Mr. John Duryea is a portfolio manager at Ospraie Advisors and, in such capacity, may be deemed to have voting and dispositive power over the securities held for the account of OSOMAH. Mr. Duryea disclaims any beneficial ownership in such securities except to the extent of any pecuniary interest therein. Additionally, Ospraie Associates LLC (“Manager”) serves as the non-member manager to OSOMAH and in that capacity directs its operations. Ospraie Associates Holdings LLC (“Associates”) is the managing member of Manager and in that capacity directs its operations. Ospraie Group LLC (“Ospraie Group”) is the managing member of Associates and in that capacity directs its operations. Mr. Anderson is the managing member of Ospraie Group and in that capacity directs its operations. | |
(10) | LB I Group Inc. is a wholly-owned subsidiary of Lehman Brothers Inc., which is a registered broker-dealer. LB I Group Inc. has represented to us that it is not acting as an underwriter in this offering, it purchased the shares it is offering under this prospectus in the ordinary course of business, and at the time of such purchase, it had no agreements or understandings, directly or indirectly, with any person to distribute the securities. Lehman Brothers Holdings Inc., a public reporting company, is the parent company of Lehman Brothers Inc. | |
(11) | Includes 2,185,339 shares of common stock issuable upon conversion of convertible preferred stock. | |
(12) | The natural person who has voting and dispositive power for these shares is Jeffrey B. Andreski, Managing Director of Credit Suisse Securities (USA) LLC. Mr. Andreski disclaims beneficial ownership of the shares except for his pecuniary interest. Credit Suisse Securities (USA) LLC is a broker-dealer and, |
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accordingly, an underwriter. Credit Suisse Securities (USA) LLC has indicated to the issuer that it did not receive the securities as compensation for investment banking services and the securities were acquired in the ordinary course of business, and that at the time of the acquisition of securities, Credit Suisse Securities (USA) LLC had no agreements or understandings, directly or indirectly, with any party to distribute the securities. | ||
(13) | Includes 194,256 shares of common stock issuable upon conversion of convertible preferred stock. | |
(14) | Includes 485,630 shares of common stock issuable upon conversion of convertible preferred stock. |
* | Less than 1%. |
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• | directly by the selling stockholders and their successors, which includes their donees, pledgees or transferees or theirsuccessors-in-interest, or | |
• | through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, commissions or agent’s commissions from the selling stockholders or the purchasers of the common stock. These discounts, concessions or commissions may be in excess of those customary in the types of transactions involved. |
• | fixed prices; | |
• | prevailing market prices at the time of sale; | |
• | prices related to such prevailing market prices; | |
• | varying prices determined at the time of sale; or | |
• | negotiated prices. |
• | on any national securities exchange or quotation on which the common stock may be listed or quoted at the time of the sale; | |
• | in theover-the-counter market; | |
• | in transactions other than on such exchanges or services or in theover-the-counter market; | |
• | through the writing of options (including the issuance by the selling stockholders of derivative securities), whether the options or such other derivative securities are listed on an options exchange or otherwise; | |
• | through the settlement of short sales; or | |
• | through any combination of the foregoing. |
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• | engage in short sales of the common stock in the course of hedging their positions; | |
• | sell the common stock short and deliver the common stock to close out short positions; | |
• | loan or pledge the common stock to broker-dealers or other financial institutions that in turn may sell the common stock; | |
• | enter into option or other transactions with broker-dealers or other financial institutions that require the delivery to the broker-dealer or other financial institution of the common stock, which the broker-dealer or other financial institution may resell under the prospectus; or | |
• | enter into transactions in which a broker-dealer makes purchases as a principal for resale for its own account or through other types of transactions. |
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• | the acquisition of interests in our Piceance Basin acreage, West Texas undeveloped acreage and Larco from Mr. Jordan, a director and our former Vice President, Business, for 1,418,182 shares of common stock valued at $15 per share; | |
• | the acquisition of interests in PetroSource, our Piceance Basin acreage and our Missouri and Nevada projects from Gillco Energy, L.P., an entity controlled by Mr. Gilliland, a director, for 1,406,000 shares of common stock valued at $15 per share; and | |
• | the acquisition of an interest in PetroSource from Mr. McCann, our former Senior Vice President — Legal, for $135,000. |
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• | we have completed our initial public offering or an offering of similar size and price; | |
• | this shelf registration statement shall be effective; | |
• | our common stock is listed on a national exchange and the closing price exceeds 100% of the conversion price for at least 20 trading days in any 30 consecutive trading day period; and | |
• | certain other conditions, including no event of default. |
• | adopt resolutions to issue preferred stock in one or more classes or series; | |
• | fix or change the number of shares constituting any class or series of preferred stock; and | |
• | establish or change the rights of the holders of any class or series of preferred stock. |
• | general or special voting rights; | |
• | preferential liquidation or preemptive rights; | |
• | preferential cumulative or noncumulative dividend rights; |
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• | redemption or put rights; and | |
• | conversion or exchange rights. |
• | adversely affect voting or other rights evidenced by, or amounts otherwise payable with respect to, the common stock; | |
• | discourage an unsolicited proposal to acquire us; or | |
• | facilitate a particular business combination involving us. |
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• | for any breach of the director’s duty of loyalty to us or our stockholders; | |
• | for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of laws; | |
• | for unlawful payment of a dividend or unlawful stock purchase or stock redemption; and | |
• | for any transaction from which the director derived an improper personal benefit. |
• | our board of directors approved either the business combination or the transaction that resulted in the stockholders becoming an interested stockholder prior to the date the person attained the status; | |
• | upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding, for purposes of determining the number of shares outstanding, shares owned by persons who are directors and also officers and issued employee stock plans, under which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or | |
• | the business combination is approved by our board of directors on or subsequent to the date the person became an interested stockholder and authorized at an annual or special meeting of the stockholders by the affirmative vote of the holders of at least 662/3% of the outstanding voting stock that is not owned by the interested stockholder. |
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• | an individual who is a citizen or resident of the United States; | |
• | a corporation or partnership (including any entity treated as a corporation or partnership for U.S. federal income tax purposes) created or organized in or under the laws of the United States, or of any political subdivision of the United States (unless, in the case of a partnership, U.S. Treasury Regulations are adopted which provide otherwise); | |
• | an estate whose income is subject to U.S. federal income taxation regardless of its source; or | |
• | a trust, if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or if it has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a United States person. |
• | U.S. state or local ornon-U.S. tax consequences; | |
• | all aspects of U.S. federal income and estate taxes or specific facts and circumstances that may be relevant to a particularnon-U.S. holder’s tax position, including, in the case of anon-U.S. holder that is an entity treated as a partnership for U.S. federal income tax purposes, the fact that the U.S. tax consequences of holding and disposing of our common stock may be affected by certain determinations made at the partner level; | |
• | the tax consequences for the stockholders, partners or beneficiaries of anon-U.S. holder; | |
• | special tax rules that may apply to particularnon-U.S. holders, such as financial institutions, insurance companies, tax-exempt organizations, U.S. expatriates, broker-dealers, and traders in securities; or | |
• | special tax rules that may apply to anon-U.S. holder that holds our common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment. |
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• | in the case of common stock held by a foreign partnership, the certification requirement will generally be applied to the partners of the partnership and the partnership will be required to provide certain information; | |
• | in the case of common stock held by a foreign trust, the certification requirement will generally be applied to the trust or the beneficial owners of the trust depending on whether the trust is a “foreign complex trust,” “foreign simple trust” or “foreign grantor trust” as defined in the U.S. Treasury Regulations; and | |
• | look-through rules will apply for tiered partnerships, foreign simple trusts and foreign grantor trusts. |
• | the gain is effectively connected with thenon-U.S. holder’s conduct of a trade or business in the United States and, if an income tax treaty applies, is attributable to a permanent establishment maintained by thenon-U.S. holder in the United States; in these cases, the gain will be taxed on a net income basis at the rates and in the manner applicable to United States persons, and if thenon-U.S. holder is a foreign corporation, the branch profits tax described above may also apply; | |
• | thenon-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition and meets other requirements; or | |
• | thenon-U.S. holder actually or constructively owns more than five percent of our common stock at any time during the shorter of the five-year period ending on the date of disposition or the period that thenon-U.S. holder held our common stock, provided that our common stock is “regularly traded on an established securities market,” within the meaning of Section 897 of the Code and applicable Treasury Regulations, during the calendar year in which the sale or other disposition occurs. |
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• | is a United States person; | |
• | derives 50% or more of its gross income in specific periods from the conduct of a trade or business in the United States; | |
• | is a “controlled foreign corporation” for U.S. federal tax purposes; or | |
• | is a foreign partnership, if at any time during its tax year: |
• | one or more of its partners are United States persons who in the aggregate hold more than 50% of the income or capital interests in the partnership; or | |
• | the foreign partnership is engaged in a U.S. trade or business, |
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SandRidge Energy, Inc. Audited Financial Statements | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
SandRidge Energy, Inc. Unaudited Financial Statements | ||||
F-44 | ||||
F-45 | ||||
F-46 | ||||
F-47 | ||||
F-48 | ||||
NEG Oil & Gas LLC Audited Financial Statements | ||||
F-62 | ||||
F-63 | ||||
F-64 | ||||
F-65 | ||||
F-66 | ||||
F-67 | ||||
NEG Oil & Gas LLC Unaudited Financial Statements | ||||
F-92 | ||||
F-93 | ||||
F-94 | ||||
F-95 | ||||
F-96 |
F-1
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As of December 31, | ||||||||
2005 | 2006 | |||||||
(Restated) | (Restated) | |||||||
(In thousands except per share amount) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 45,731 | $ | 38,948 | ||||
Restricted cash | 2,373 | — | ||||||
Accounts receivable, net: | ||||||||
Trade | 59,180 | 89,774 | ||||||
Related parties | 5,376 | 5,731 | ||||||
Inventories | 1,606 | 2,544 | ||||||
Deferred income taxes | 1,323 | 6,315 | ||||||
Other current assets | 3,244 | 31,494 | ||||||
Total current assets | 118,833 | 174,806 | ||||||
Oil and natural gas properties, using full cost method of accounting | ||||||||
Proved | 160,789 | 1,636,832 | ||||||
Unproved | 33,974 | 282,374 | ||||||
Less: accumulated depreciation and depletion | (35,029 | ) | (60,752 | ) | ||||
159,734 | 1,858,454 | |||||||
Other property, plant and equipment, net | 178,147 | 276,264 | ||||||
Goodwill | — | 26,198 | ||||||
Investments | 1,614 | 3,584 | ||||||
Restricted deposits | — | 33,189 | ||||||
Other assets | 355 | 15,889 | ||||||
Total assets | $ | 458,683 | $ | 2,388,384 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current maturities of long-term debt | $ | 12,997 | $ | 26,201 | ||||
Accounts payable and accrued expenses: | ||||||||
Trade | 95,435 | 129,799 | ||||||
Related parties | 78 | 1,834 | ||||||
Derivative contracts | 2,132 | 958 | ||||||
Total current liabilities | 110,642 | 158,792 | ||||||
Long-term debt | 30,136 | 1,040,630 | ||||||
Derivative contracts | — | 3,052 | ||||||
Other long-term obligations | — | 21,219 | ||||||
Asset retirement obligation | 6,979 | 45,216 | ||||||
Deferred income taxes | 13,747 | 24,922 | ||||||
Total liabilities | 161,504 | 1,293,831 | ||||||
Commitments and contingencies (Note 16) | ||||||||
Minority interest | 8,177 | 5,092 | ||||||
Redeemable convertible preferred stock, $0.001 par value, 2,650 shares authorized, 2,137 shares issued and outstanding at December 31, 2006 | — | 439,643 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, no par; 50,000 shares authorized; no shares issued and outstanding in 2005 and 2006 | — | — | ||||||
Common stock, $0.001 par value, 400,000 shares authorized; 74,332 issued and 72,917 outstanding at 2005 and 93,048 issued and 91,604 outstanding at 2006 | 73 | 92 | ||||||
Additional paid-in capital | 243,920 | 574,868 | ||||||
Deferred compensation | (14,885 | ) | — | |||||
Treasury stock, at cost | (17,335 | ) | (17,835 | ) | ||||
Retained earnings | 77,229 | 92,693 | ||||||
Total stockholders’ equity | 289,002 | 649,818 | ||||||
Total liabilities and stockholders’ equity | $ | 458,683 | $ | 2,388,384 | ||||
F-3
Table of Contents
Years Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||
(In thousands except per share amounts) | ||||||||||||
Revenues: | ||||||||||||
Natural gas and crude oil | $ | 33,685 | $ | 49,987 | $ | 101,252 | ||||||
Drilling and services | 39,417 | 80,343 | 139,049 | |||||||||
Midstream and marketing | 98,906 | 147,133 | 122,896 | |||||||||
Other | 3,987 | 10,230 | 25,045 | |||||||||
Total revenues | 175,995 | 287,693 | 388,242 | |||||||||
Expenses: | ||||||||||||
Production | 10,230 | 16,195 | 35,149 | |||||||||
Production taxes | 2,497 | 3,158 | 4,654 | |||||||||
Drilling and services | 26,442 | 52,122 | 98,436 | |||||||||
Midstream and marketing | 96,180 | 141,372 | 115,076 | |||||||||
Depreciation, depletion and amortization — natural gas and crude oil | 4,909 | 9,313 | 26,321 | |||||||||
Depreciation, depletion and amortization — other | 7,765 | 14,893 | 29,305 | |||||||||
General and administrative | 6,554 | 11,908 | 55,634 | |||||||||
Loss (gain) on derivative contracts | 878 | 4,132 | (12,291 | ) | ||||||||
Loss (gain) on sale of assets | (210 | ) | 547 | (1,023 | ) | |||||||
Total expenses | 155,245 | 253,640 | 351,261 | |||||||||
Income from operations | 20,750 | 34,053 | 36,981 | |||||||||
Other income (expense): | ||||||||||||
Interest income | 56 | 206 | 1,109 | |||||||||
Interest expense | (1,678 | ) | (5,277 | ) | (16,904 | ) | ||||||
Minority interest | (262 | ) | (737 | ) | (296 | ) | ||||||
Income (loss) from equity investments | (36 | ) | (384 | ) | 967 | |||||||
Total other income (expense) | (1,920 | ) | (6,192 | ) | (15,124 | ) | ||||||
Income before income tax expense | 18,830 | 27,861 | 21,857 | |||||||||
Income tax expense | 6,433 | 9,968 | 6,236 | |||||||||
Income from continuing operations | 12,397 | 17,893 | 15,621 | |||||||||
Income from discontinued operations (net of tax expense of $232 and $118 in 2004 and 2005, respectively) | 451 | 229 | — | |||||||||
Income before extraordinary gain | 12,848 | 18,122 | 15,621 | |||||||||
Extraordinary gain on Foreland acquisition | 12,544 | — | — | |||||||||
Net income | 25,392 | 18,122 | 15,621 | |||||||||
Preferred stock dividends and accretion | — | — | 3,967 | |||||||||
Income available to common stockholders | $ | 25,392 | $ | 18,122 | $ | 11,654 | ||||||
Basic and Diluted Earnings Per Share: | ||||||||||||
Income from continuing operations | $ | 0.22 | $ | 0.31 | $ | 0.21 | ||||||
Income from discontinued operations, net of income tax | 0.01 | 0.01 | — | |||||||||
Extraordinary gain on Foreland acquisition | 0.22 | — | — | |||||||||
Preferred dividends | — | — | (0.05 | ) | ||||||||
Basic and diluted income per share available to common stockholders | $ | 0.45 | $ | 0.32 | $ | 0.16 | ||||||
Weighted average number of shares outstanding: | ||||||||||||
Basic | 56,312 | 56,559 | 73,727 | |||||||||
Diluted | 56,312 | 56,737 | 74,664 | |||||||||
F-4
Table of Contents
Additional | ||||||||||||||||||||||||||||
Preferred | Common | Paid-In | Deferred | Treasury | Retained | |||||||||||||||||||||||
Stock | Stock | Capital | Compensation | Stock | Earnings | Total | ||||||||||||||||||||||
(Restated for 2004, 2005 and 2006) | ||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Balance, January 1, 2004 (previously reported) | $ | 23 | $ | 200 | $ | — | $ | — | $ | — | $ | 27,628 | $ | 27,851 | ||||||||||||||
Prior period adjustments | — | — | — | — | — | 6,090 | 6,090 | |||||||||||||||||||||
Balance, January 1, 2004 (restated) | 23 | 200 | — | — | — | 33,718 | 33,941 | |||||||||||||||||||||
Net income | — | — | — | — | — | 25,392 | 25,392 | |||||||||||||||||||||
Dividends on preferred stock | — | — | — | — | — | (2 | ) | (2 | ) | |||||||||||||||||||
Balance, December 31, 2004 | 23 | 200 | — | — | — | 59,108 | 59,331 | |||||||||||||||||||||
Exchange of preferred stock for common stock | (23 | ) | 1 | 22 | — | — | — | — | ||||||||||||||||||||
Purchase of treasury shares | — | (5 | ) | — | — | (17,335 | ) | — | (17,340 | ) | ||||||||||||||||||
Stock split (change in par value) | — | (141 | ) | 141 | — | — | — | — | ||||||||||||||||||||
Issuance of stock in acquisitions | — | 4 | 55,281 | — | — | — | 55,285 | |||||||||||||||||||||
Stock offering, net of $18.0 million in offering costs | — | 12 | 173,110 | — | — | — | 173,122 | |||||||||||||||||||||
Restricted shares | — | 2 | 15,366 | (15,366 | ) | — | — | 2 | ||||||||||||||||||||
Amortization of deferred compensation | — | — | — | 481 | — | — | 481 | |||||||||||||||||||||
Net income | — | — | — | — | — | 18,122 | 18,122 | |||||||||||||||||||||
Dividends on preferred stock | — | — | — | — | — | (1 | ) | (1 | ) | |||||||||||||||||||
Balance, December 31, 2005 | — | 73 | 243,920 | (14,885 | ) | (17,335 | ) | 77,229 | 289,002 | |||||||||||||||||||
Stock offering | — | — | 3,343 | — | — | — | 3,343 | |||||||||||||||||||||
Change in accounting principle for stock-based compensation | — | — | (14,885 | ) | 14,885 | — | — | — | ||||||||||||||||||||
Issuance of stock in acquisitions | — | 13 | 236,271 | — | — | — | 236,284 | |||||||||||||||||||||
Stock offering, net of $3.9 million in offering costs | — | 6 | 97,427 | — | — | 97,433 | ||||||||||||||||||||||
Stock-based compensation | — | — | 8,792 | — | — | — | 8,792 | |||||||||||||||||||||
Accretion on redeemable convertible preferred stock | — | — | — | — | — | (157 | ) | (157 | ) | |||||||||||||||||||
Purchase of treasury shares | — | — | — | — | (500 | ) | — | (500 | ) | |||||||||||||||||||
Net income | — | — | — | — | — | 15,621 | 15,621 | |||||||||||||||||||||
Balance, December 31, 2006 | $ | — | $ | 92 | $ | 574,868 | $ | — | $ | (17,835 | ) | $ | 92,693 | $ | 649,818 | |||||||||||||
F-5
Table of Contents
Years Ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||
(In thousands) | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income | $ | 25,392 | $ | 18,122 | $ | 15,621 | ||||||
Income from discontinued operations, net of tax | 451 | 229 | — | |||||||||
Income from continuing operations | 24,941 | 17,893 | 15,621 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Provision for doubtful accounts | 761 | 33 | 2,528 | |||||||||
Depreciation, depletion and amortization | 12,674 | 24,206 | 55,626 | |||||||||
Debt issuance cost amortization | — | — | 299 | |||||||||
Deferred income taxes | 6,433 | 9,460 | 348 | |||||||||
Extraordinary gain | (12,544 | ) | — | — | ||||||||
Unrealized loss (gain) on derivatives | (1,803 | ) | 1,296 | 1,878 | ||||||||
Loss (gain) on sale of assets | (210 | ) | 547 | (1,023 | ) | |||||||
Interest income — restricted deposits | — | — | (151 | ) | ||||||||
Loss (gain) from equity investments, net of distributions | 1,066 | 846 | (956 | ) | ||||||||
Stock-based compensation | — | 481 | 8,792 | |||||||||
Minority interests | 262 | 737 | 296 | |||||||||
Changes in operating assets and liabilities increasing (decreasing) cash: | ||||||||||||
Receivables | (6,950 | ) | (25,494 | ) | (2,648 | ) | ||||||
Inventories | (481 | ) | (46 | ) | (938 | ) | ||||||
Other current assets | (584 | ) | (1,146 | ) | (22,238 | ) | ||||||
Other assets and liabilities, net | 324 | 775 | (2,131 | ) | ||||||||
Accounts payable and accrued expenses | 14,569 | 33,709 | 12,046 | |||||||||
Net cash provided by operating activities by continuing operations | 38,458 | 63,297 | 67,349 | |||||||||
Net cash provided by operating activities by discontinued operations | 978 | 347 | — | |||||||||
Net cash provided by operating activities | 39,436 | 63,644 | 67,349 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Capital expenditures for property, plant and equipment | (57,926 | ) | (134,596 | ) | (306,541 | ) | ||||||
Proceeds from sale of assets | 1,443 | 3,327 | 19,742 | |||||||||
Contributions on equity investments | (1,976 | ) | (1,350 | ) | (3,388 | ) | ||||||
Acquisitions of assets, net of cash received of $0, $66 and $21,100 | (1,169 | ) | (21,247 | ) | (1,054,075 | ) | ||||||
Proceeds from sale of investments | 220 | 413 | 2,373 | |||||||||
Restricted deposits | — | — | (1,051 | ) | ||||||||
Restricted cash | — | (2,373 | ) | 2,373 | ||||||||
Net cash used in investing activities for continuing operations | (59,408 | ) | (155,826 | ) | (1,340,567 | ) | ||||||
Net cash used in investing activities for discontinued operations | (1,931 | ) | (1,473 | ) | — | |||||||
Net cash used in investing activities | (61,339 | ) | (157,299 | ) | (1,340,567 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds from borrowings | 41,620 | 247,460 | 1,261,910 | |||||||||
Repayments of borrowings | (6,840 | ) | (301,285 | ) | (518,870 | ) | ||||||
Dividends paid-preferred | (2 | ) | (1 | ) | — | |||||||
Minority interests contributions (distributions) | (78 | ) | 7,117 | (618 | ) | |||||||
Proceeds from issuance of common stock | — | 173,122 | 100,776 | |||||||||
Proceeds from issuance of redeemable convertible preferred stock | — | — | 439,486 | |||||||||
Purchase of treasury shares | — | — | (500 | ) | ||||||||
Debt issuance costs | — | — | (15,749 | ) | ||||||||
Net cash provided by financing activities for continuing operations | 34,700 | 126,413 | 1,266,435 | |||||||||
Net cash provided by financing activities for discontinued operations | — | — | — | |||||||||
Net cash provided by financing activities | 34,700 | 126,413 | 1,266,435 | |||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 12,797 | 32,758 | (6,783 | ) | ||||||||
CASH AND CASH EQUIVALENTS, beginning of year | 176 | 12,973 | 45,731 | |||||||||
CASH AND CASH EQUIVALENTS, end of year | $ | 12,973 | $ | 45,731 | $ | 38,948 | ||||||
Supplemental Disclosure of Cash Flow Information: | ||||||||||||
Cash paid for interest, net of amounts capitalized | $ | 2,024 | $ | 7,222 | $ | 15,079 | ||||||
Cash paid for income taxes | — | — | 1,599 | |||||||||
Supplemental Disclosure of Noncash Investing and Financing Activities: | ||||||||||||
Common stock issued in connection with acquisitions | $ | — | $ | 55,285 | $ | 236,284 | ||||||
Assumption of restricted deposits and notes payable in connection with acquisition | — | — | 313,628 | |||||||||
Assets disposed in exchange for common stock | — | 17,335 | — | |||||||||
Insurance premium financed | 1,137 | 2,133 | 5,023 | |||||||||
Accretion on redeemable convertible preferred stock | — | — | 157 |
F-6
Table of Contents
1. | Summary of Significant Accounting Policies |
F-7
Table of Contents
December 31, | December 31, | |||||||
2006 | 2006 | |||||||
(As originally | (As restated) | |||||||
presented) | ||||||||
Deferred tax assets | $ | 5,244 | $ | 6,315 | ||||
Derivative contracts — current assets | $ | 279 | $ | — | ||||
Derivative contracts — non current assets | $ | 1,736 | $ | — | ||||
Derivative contracts — current liabilities | $ | — | $ | 958 | ||||
Derivative contracts — non current liabilities | $ | — | $ | 3,052 | ||||
Deferred tax liabilities | $ | 26,020 | $ | 24,922 | ||||
Retained earnings | $ | 96,549 | $ | 92,693 | ||||
2006 | 2006 | |||||||
(As originally | (As restated) | |||||||
presented) | ||||||||
Net income | $ | 19,477 | $ | 15,621 | ||||
Income available to common stockholders | $ | 15,510 | $ | 11,654 | ||||
Basic and diluted earnings per share available to common stockholders | $ | 0.21 | $ | 0.16 | ||||
F-8
Table of Contents
December 31, | December 31, | |||||||
2005 | 2005 | |||||||
(As originally | (As restated) | |||||||
presented) | ||||||||
Property, plant and equipment, net | $ | 318,284 | $ | 337,881 | ||||
Deferred tax liabilities | $ | 6,857 | $ | 13,747 | ||||
Retained earnings | $ | 64,522 | $ | 77,229 | ||||
Year Ended December 31 | ||||||||
2004 | 2005 | |||||||
Income from continuing operations, as originally presented | $ | 8,327 | $ | 15,346 | ||||
Net income, as originally presented | $ | 21,322 | $ | 15,575 | ||||
Basic and diluted earnings per share, as originally presented | $ | 0.38 | $ | 0.28 | ||||
Income from continuing operations, as restated | $ | 12,397 | $ | 17,893 | ||||
Net income, as restated | $ | 25,392 | $ | 18,122 | ||||
Basic and diluted earnings per share, as restated | $ | 0.45 | $ | 0.32 | ||||
F-9
Table of Contents
F-10
Table of Contents
F-11
Table of Contents
F-12
Table of Contents
2004 | 2005 | 2006 | ||||||||||
Asset retirement obligation, January 1 | $ | 3,883 | $ | 4,394 | $ | 6,979 | ||||||
Liability incurred upon acquiring and drilling wells | 372 | 2,779 | 2,996 | |||||||||
NEG acquisition | — | — | 40,343 | |||||||||
Revisions in estimated cash flows | — | — | (5,700 | ) | ||||||||
Liability settled in current period | — | (512 | ) | — | ||||||||
Accretion of discount expense | 139 | 318 | 598 | |||||||||
Asset retirement obligation, December 31 | $ | 4,394 | $ | 6,979 | $ | 45,216 | ||||||
• | the 15.00% interest in Integra Energy; | |
• | the 30.38% interest in Sagebrush Pipeline; and | |
• | the 46.71% interest in Cholla Pipeline. |
F-13
Table of Contents
F-14
Table of Contents
2. | Goodwill |
2006 | ||||
Balance at January 1, 2006 | $ | — | ||
Acquisition | 26,198 | |||
Balance at December 31, 2006 | $ | 26,198 | ||
3. | Acquisitions and Dispositions |
• | The acquisition of additional equity interests in PetroSource, which increased the Company’s ownership from 22.4% to 86.5%, resulting in the consolidation of PetroSource in the Company’s financial statements; | |
• | The acquisition from an executive officer and director of the remaining 50% equity interest in the Company’s compression services subsidiary, Larco, resulting in it becoming a wholly-owned subsidiary; | |
• | The acquisition from an executive officer and director of approximately 7,400 net acres of additional leasehold interest in West Texas in properties in which the Company previously held interests; | |
• | The acquisition of approximately 2,503 net acres of additional leasehold interest in property in the Piceance Basin in which the Company previously held interests; | |
• | The acquisition from a director of additional working interests in Missouri and Nevada leases in which the Company previously held interests; | |
• | The acquisition of an additional 19.5% before pay-out interest in the Company’s subsidiary, Sagebrush Pipeline LLC; and | |
• | The acquisition of certain interests in several oil and natural gas properties in West Texas from Carl E. Gungoll Exploration, LLC and certain other parties. The purchase price was approximately $8.0 million, comprised of $5.4 million in cash, and 174,833 shares of common stock (valued at $2.6 million). |
F-15
Table of Contents
Addition to | Consideration Paid | |||||||||||||||||||||||||||
Property, | Change in | Common | Common | Cash, Net | ||||||||||||||||||||||||
Plant & | Addition to Net | Elimination of | Minority | Stock No. | Stock at | of Cash | ||||||||||||||||||||||
Acquisition Transaction | Equipment | Assets(1) | Investments | Interest | of Shares | $15/Share | Acquired | |||||||||||||||||||||
PetroSource additional interests | $ | 73,744 | $ | (37,381 | ) | $ | (3,052 | ) | $ | 3,253 | 958 | $ | 14,372 | $ | 15,686 | |||||||||||||
Piceance Basin additional interests | 17,565 | — | — | — | 1,164 | 17,456 | 109 | |||||||||||||||||||||
West Texas additional lease interests | 10,000 | — | — | — | 667 | 10,000 | — | |||||||||||||||||||||
Larco remaining interest | 5,054 | — | — | (2,446 | ) | 500 | 7,500 | — | ||||||||||||||||||||
Gungoll lease interests | 8,074 | — | — | — | 176 | 2,622 | 5,452 | |||||||||||||||||||||
Various additional lease interests | 268 | — | — | — | 17 | 268 | — | |||||||||||||||||||||
Sagebrush additional interests | 689 | — | — | (2,378 | ) | 204 | 3,067 | — | ||||||||||||||||||||
Totals | $ | 115,394 | $ | (37,381 | ) | $ | (3,052 | ) | $ | (1,571 | ) | 3,686 | $ | 55,285 | $ | 21,247 | ||||||||||||
(1) | The purchase price for additional interests in PetroSource was approximately $30.1 million, comprised of $15.7 million in cash (net of $0.1 million in cash acquired), and approximately 958,000 shares of SandRidge common stock (valued at $14.4 million). The purchase price has been allocated to accounts receivable of $4.5 million, other current assets of $0.1 million, other assets of $0.4 million, accounts payable and accrued expenses of $2.6 million, long-term debt of $37.4 million, and asset retirement obligations of $2.4 million in the accompanying consolidated balance sheet as of December 31, 2005. |
• | On March 15, 2006, the Company acquired from an executive officer and director, an additional 12.5% interest in PetroSource Energy Company, a consolidated subsidiary. The acquisition consisted of the retirement of subordinated debt of approximately $1.0 million and a $4.5 million cash payment for the ownership interest acquired for a total acquisition price of approximately $5.5 million. | |
• | On May 1, 2006, the Company purchased certain leases in developed and undeveloped properties from an oil and gas company. The purchase price was approximately $40.9 million in cash. The cash consideration was paid in July 2006. | |
• | On May 26, 2006, the Company purchased several oil and natural gas properties from an oil and gas company. The purchase price was approximately $12.9 million, comprised of $8.2 million in cash, and 251,351 shares of SandRidge Energy, Inc. common stock (valued at $4.7 million). The cash and equity consideration was paid in July 2006. |
F-16
Table of Contents
• | On June 1, 2006, the Company purchased certain producing well interest from an executive officer and director. The purchase price was approximately $9.0 million in cash. The cash consideration was paid in July 2006. | |
• | On June 7, 2006, the Company acquired subordinated debt plus accrued interest of approximately $0.1 million and the remaining 1% interest in PetroSource Energy Company, a consolidated subsidiary, from an oil and gas company. The purchase price was 27,749 shares of SandRidge Energy, Inc. common stock (valued at $0.5 million). The Company now owns 100% of PetroSource Energy Company. |
Addition to | Consideration Paid | |||||||||||||||||||||||
Property, | Change in | Retirement of | Common | |||||||||||||||||||||
Plant & | Minority | Subordinated | Stock No. of | Common | ||||||||||||||||||||
Acquisition Transaction | Equipment | Interest | Debt(1) | Shares | Stock | Cash | ||||||||||||||||||
PetroSource additional interests — March 15, 2006 | $ | 2,116 | $ | (2,370 | ) | $ | (1,003 | ) | — | $ | — | $ | 5,489 | |||||||||||
Purchased leases — May 1, 2006 | 40,960 | — | — | — | — | 40,960 | ||||||||||||||||||
Oil and natural gas properties — May 26, 2006 | 12,850 | — | — | 251 | 4,650 | 8,200 | ||||||||||||||||||
Producing well interest from an executive officer and director — June 1, 2006 | 9,000 | — | — | — | — | 9,000 | ||||||||||||||||||
PetroSource additional interest (remaining 1% interest) — June 7, 2006 | 85 | (393 | ) | — | 28 | 478 | — | |||||||||||||||||
Totals | $ | 65,011 | $ | (2,763 | ) | $ | (1,003 | ) | 279 | $ | 5,128 | $ | 63,649 | |||||||||||
(1) | Includes retirement of subordinated debt of $972,000 and accrued interest of $31,000. |
• | In July 2006, the Company sold leaseholds and lease and well equipment for $16.0 million. The book basis of the assets at the time of the sale transaction was $3.7 million. The sale was accounted for as an adjustment to the full cost pool, with no gain recognized. | |
• | In August 2006, the Company sold certain assets (Stockton Plaza, Authentix Investment and certain other assets) to the Company’s former President and Chief Operating Officer, N. Malone Mitchell, 3rd, for approximately $6.1 million in cash. These investments had been accounted for under the cost method and reflected as investments in the consolidated balance sheet as of December 31, 2005. The sale transaction resulted in a $0.8 million gain recognized in earnings by the Company in August 2006. The gain is included in loss (gain) on sale of assets in the consolidated statements of operations. | |
• | On November 21, 2006, the Company acquired all of the outstanding membership interests of NEG for approximately $990.4 million in cash, the assumption of $300 million in debt, the receipt of cash of $21.1 million, and the issuance of 12,842,000 shares of SandRidge Energy, Inc. common stock (valued at approximately $231.2 million). NEG owned core assets in the Val Verde and Permian Basins of West Texas, including overlapping or contiguous interests in the properties that the Company owns in the West Texas Overthrust. To finance the NEG acquisition, the Company entered into a new $750 million senior secured credit facility and an $850 million senior unsecured bridge loan facility. The Company also issued $550 million of redeemable convertible preferred stock and common units (consisting of |
F-17
Table of Contents
shares of common stock and a warrant to purchase convertible preferred stock upon the surrender of the common stock) in a private placement to certain eligible purchasers. |
Cash and cash equivalents | $ | 21,100 | ||
Accounts receivable | 30,840 | |||
Other current assets | 6,025 | |||
Property, plant and equipment | 1,497,874 | |||
Goodwill | 26,198 | |||
Restricted deposits | 31,987 | |||
Other assets | 270 | |||
Total assets acquired | 1,614,294 | |||
Accounts payable and other current liabilities | 46,082 | |||
Deferred income taxes | 2,189 | |||
Long-term debt | 281,641 | |||
Other long-term obligations | 1,357 | |||
Asset retirement obligation | 40,343 | |||
Net assets acquired | 1,242,682 | |||
Less: Cash and cash equivalents acquired | (21,100 | ) | ||
Net amount paid for acquisition | $ | 1,221,582 | ||
F-18
Table of Contents
Year Ended December 31, | ||||||||||||||||
2005 | 2006 | |||||||||||||||
Actual | Pro Forma | Actual | Pro Forma | |||||||||||||
Revenues | $ | 287,693 | $ | 560,235 | $ | 388,242 | $ | 565,256 | ||||||||
Income (loss) from continuing operations | 17,893 | (49,594 | ) | 19,477 | 40,133 | |||||||||||
Net income (loss) | 18,122 | (49,594 | ) | 19,477 | 40,133 | |||||||||||
Basic and diluted earnings per share available (applicable) to common stockholders: | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.31 | $ | (0.96 | ) | $ | 0.21 | $ | 0.04 | |||||||
Net income (loss) available to common stockholders | $ | 0.32 | $ | (0.96 | ) | $ | 0.21 | $ | 0.04 |
4. | Discontinued Operations |
2004 | 2005 | 2006 | ||||||||||
Revenues | $ | 1,968 | $ | 1,683 | $ | — | ||||||
Operating expenses | (1,285 | ) | (1,336 | ) | — | |||||||
Income from discontinued operations | 683 | 347 | — | |||||||||
Income tax expense | (232 | ) | (118 | ) | — | |||||||
Net income from discontinued operations | $ | 451 | $ | 229 | $ | — | ||||||
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5. | Accounts Receivable |
December 31, | ||||||||
2005 | 2006 | |||||||
Oil and gas service | $ | 12,809 | $ | 8,489 | ||||
Oil and gas sales | 29,113 | 57,458 | ||||||
Joint interest billing | 18,109 | 26,553 | ||||||
Other | — | 299 | ||||||
60,031 | 92,799 | |||||||
Less allowance for doubtful accounts | (851 | ) | (3,025 | ) | ||||
Total accounts receivable, net | $ | 59,180 | $ | 89,774 | ||||
Additions | ||||||||||||||||
Balance at | Charged to | Balance at | ||||||||||||||
Beginning | Costs and | End of | ||||||||||||||
Allowance for Doubtful Accounts | of Period | Expenses | Deductions(1) | Period | ||||||||||||
Year ended December 31, 2004 | $ | 602 | $ | 761 | $ | (289 | ) | $ | 1,074 | |||||||
Year ended December 31, 2005 | $ | 1,074 | $ | 33 | $ | (256 | ) | $ | 851 | |||||||
Year ended December 31, 2006 | $ | 851 | $ | 2,528 | $ | (354 | ) | $ | 3,025 |
(1) | Deductions represent the write-off/recovery of receivables. |
6. | Other Current Assets |
December 31, | ||||||||
2005 | 2006 | |||||||
Prepaid insurance | $ | 2,369 | $ | 7,604 | ||||
Prepaid drilling | 407 | 2,207 | ||||||
Materials and supplies | 83 | 6,244 | ||||||
Post closing receivable — NEG acquisition | — | 15,232 | ||||||
Other | 385 | 207 | ||||||
Total other current assets | $ | 3,244 | $ | 31,494 | ||||
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7. | Property, Plant and Equipment |
December 31, | ||||||||
2005 | 2006 | |||||||
(Restated) | ||||||||
Oil and natural gas properties: | ||||||||
Proved | $ | 160,789 | $ | 1,636,832 | ||||
Unproved | 33,974 | 282,374 | ||||||
Total oil and natural gas properties | 194,763 | 1,919,206 | ||||||
Less accumulated depreciation and depletion | (35,029 | ) | (60,752 | ) | ||||
Net oil and natural gas properties capitalized costs | 159,734 | 1,858,454 | ||||||
Land | 852 | 738 | ||||||
Non oil and gas equipment | 210,380 | 337,294 | ||||||
Buildings and structures | 4,708 | 6,564 | ||||||
Construction in progress | 267 | — | ||||||
Total | 216,207 | 344,596 | ||||||
Less accumulated depreciation, depletion and amortization | (38,060 | ) | (68,332 | ) | ||||
Net capitalized costs | 178,147 | 276,264 | ||||||
Total property, plant and equipment | $ | 337,881 | $ | 2,134,718 | ||||
Excluded | ||||||||||||||||||||
Year Cost Incurred | Costs at | |||||||||||||||||||
Prior | December 31, | |||||||||||||||||||
Years | 2004 | 2005 | 2006 | 2006 | ||||||||||||||||
Property acquisition | $ | — | $ | — | $ | — | $ | 251,839 | $ | 251,839 | ||||||||||
Exploration | — | — | — | 30,535 | 30,535 | |||||||||||||||
Development | — | — | — | — | — | |||||||||||||||
Capitalized interest | — | — | — | — | — | |||||||||||||||
Total costs incurred | $ | — | $ | — | $ | — | $ | 282,374 | $ | 282,374 | ||||||||||
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8. | Investment in Affiliated Companies |
9. | Restricted Deposits |
• | A $4.4 million escrow account for the East Breaks 109 and 110 fields set up in favor of the surety bond underwriter who provides a surety bond to the MMS. The escrow account is fully funded as of December 31, 2006. | |
• | A $7.2 million escrow account for the East Breaks 165 and 209 fields set up in favor of the surety bond underwriter who provides a surety bond to the former owners of the fields and the MMS. The escrow account is fully funded as of December 31, 2006. | |
• | A $6.6 million escrow account set up in favor of a major oil company. The Company is required to make additional deposits to the escrow account in an amount equal to 10% of the net cash flow (as defined in the escrow agreement) from the properties that were acquired from the major oil company. | |
• | A $6.2 million escrow account that was required to be set up by the bankruptcy settlement proceedings of NEG. The Company is required to make monthly deposits based on cash flows from certain wells, as defined in the agreement. | |
• | A $8.8 million escrow account required to be set up by the MMS relating to East Breaks properties. The Company is required to make quarterly deposits to the escrow account of $0.8 million. Additionally, for some of the East Break properties, the Company will be required to deposit additional funds in the East Break escrow accounts, representing the difference between the required escrow deposit under |
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the surety bond and actual escrow deposit balance at various points in time in the future. Aggregate payments to the East Breaks escrow accounts are as follows (in thousands): |
Years Ended December 31: | ||||
2007 | $ | 3,200 | ||
2008 | 3,200 | |||
2009 | 3,200 | |||
2010 and none thereafter | 1,657 |
10. | Accounts Payable and Accrued Expenses |
December 31, | December 31, | |||||||
2005 | 2006 | |||||||
Accounts payable-trade | $ | 69,937 | $ | 103,683 | ||||
Payroll and benefits | 1,091 | 10,718 | ||||||
Drilling advances | 6,286 | 5,318 | ||||||
Legal (current) | 15,643 | 5,000 | ||||||
Accrued interest | 287 | 3,850 | ||||||
Other | 2,191 | 1,230 | ||||||
Total accounts payable and accrued expenses | $ | 95,435 | $ | 129,799 | ||||
11. | Long-Term Debt |
December 31, | December 31, | |||||||
2005 | 2006 | |||||||
Senior credit facility | $ | — | $ | 140,000 | ||||
Senior bridge facility | — | 850,000 | ||||||
Other notes payable: | ||||||||
Drilling rig fleet and related oil field services equipment | 34,710 | 61,105 | ||||||
Sagebrush | 4,000 | 4,000 | ||||||
Insurance financing | 1,450 | 7,240 | ||||||
Other equipment and vehicles | 2,973 | 4,486 | ||||||
Total debt | 43,133 | 1,066,831 | ||||||
Less: Current maturities of long-term debt | 12,997 | 26,201 | ||||||
Long-term debt | $ | 30,136 | $ | 1,040,630 | ||||
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• | failure to pay any principal when due or any interest, fees or other amount within certain grace periods; | |
• | failure to perform or otherwise comply with the covenants in the credit agreement or other loan | |
• | documents, subject, in certain instances, to certain grace periods; | |
• | bankruptcy or insolvency events involving the Company or its subsidiaries; | |
• | a change of control (as defined in the senior credit facility). |
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Years Ended: | ||||
2007 | $ | 26,201 | ||
2008 | 15,818 | |||
2009 | 16,863 | |||
2010 | 11,819 | |||
2011 | 146,130 | |||
Thereafter | 850,000 | |||
Total debt | $ | 1,066,831 | ||
12. | Derivatives |
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Weighted Avg. | ||||||||
Period | Commodity | Notional | Fix Price | |||||
Fixed price swap | ||||||||
May 2007 - September 2007 | Natural gas | 3,060,000 MmBtu | $ | 7.75 | ||||
January 2008 - June 2008 | Natural gas | 3,640,000 MmBtu | $ | 7.987 | ||||
January 2008 - June 2008 | Natural gas | 3,640,000 MmBtu | $ | 7.99 | ||||
Collars | ||||||||
January 2007 - December 2007 | Crude oil | 60,000 Bbls | $ | 50.00 - $84.50 | ||||
January 2008 - June 2008 | Crude oil | 42,000 Bbls | $ | 50.00 - $83.35 | ||||
July 2008 - December 2008 | Crude oil | 54,000 Bbls | $ | 50.00 - $82.60 | ||||
Waha basis swap | ||||||||
January 2007 - December 2007 | Natural gas | 14,600,000 MmBtu | $ | (0.70 | ) | |||
January 2007 - December 2007 | Natural gas | 7,300,000 MmBtu | $ | (0.5925 | ) | |||
May 2007 - September 2007 | Natural gas | 3,060,000 MmBtu | $ | (0.65 | ) | |||
January 2008 - December 2008 | Natural gas | 7,320,000 MmBtu | $ | (0.6525 | ) | |||
January 2008 - December 2008 | Natural gas | 7,320,000 MmBtu | $ | (0.635 | ) | |||
January 2008 - December 2008 | Natural gas | 7,320,000 MmBtu | $ | (0.59 | ) |
2004 | 2005 | 2006 | ||||||||||
(Restated) | ||||||||||||
Realized loss (gain) | $ | 2,681 | $ | 2,836 | $ | (14,169 | ) | |||||
Unrealized loss (gain) | (1,803 | ) | 1,296 | 1,878 | ||||||||
Loss (gain) on derivative contracts | $ | 878 | $ | 4,132 | $ | (12,291 | ) | |||||
13. | Retirement Plan |
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14. | Income Taxes |
2005 | 2006 | |||||||
(Restated) | (Restated) | |||||||
Deferred tax assets (liabilities): | ||||||||
Current: | ||||||||
Accrued liabilities | $ | 953 | $ | 4,451 | ||||
Other | 370 | 1,864 | ||||||
Total current deferred tax assets | $ | 1,323 | $ | 6,315 | ||||
Noncurrent: | ||||||||
Property, plant and equipment | $ | (33,262 | ) | $ | (25,692 | ) | ||
Net operating loss carryforwards | 19,130 | — | ||||||
Other | 385 | 770 | ||||||
Total noncurrent deferred tax liabilities | $ | (13,747 | ) | $ | (24,922 | ) | ||
2004 | 2005 | 2006 | ||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||
Current: | ||||||||||||
Federal | $ | — | $ | 508 | $ | 3,235 | ||||||
State | — | — | 2,653 | |||||||||
— | 508 | 5,888 | ||||||||||
Deferred: | ||||||||||||
Federal | 6,433 | 9,460 | 345 | |||||||||
State | — | — | 3 | |||||||||
Total provision for income taxes | $ | 6,433 | $ | 9,460 | $ | 348 | ||||||
2004 | 2005 | 2006 | ||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||
Computed at federal statutory rates | $ | 6,412 | $ | 9,543 | $ | 7,650 | ||||||
State taxes, net of federal benefit | — | 390 | 1,724 | |||||||||
Nondeductible expenses | 21 | 35 | 84 | |||||||||
Percentage depletion deduction | — | — | (3,488 | ) | ||||||||
Change in rate | — | — | 326 | |||||||||
Other | — | — | (60 | ) | ||||||||
Total provision for income taxes | $ | 6,433 | $ | 9,968 | $ | 6,236 | ||||||
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15. | Earnings Per Share |
2004 | 2005 | 2006 | ||||||||||
Weighted average basic common shares outstanding | 56,312 | 56,559 | 73,727 | |||||||||
Effect of dilutive securities: | ||||||||||||
Restricted stock | — | 178 | 937 | |||||||||
Weighted average diluted common and potential common shares outstanding | 56,312 | 56,737 | 74,664 | |||||||||
16. | Commitments and Contingencies |
Years Ended: | ||||
2007 | $ | 2,180 | ||
2008 | 2,109 | |||
2009 | 1,337 | |||
2010 | 235 | |||
2011 | 235 | |||
Thereafter | 384 | |||
$ | 6,480 | |||
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Non-Compliance Period | ||||||
1-90 Days | 91-180 Days | 181-270 Days | 270+ Days | |||
$1.2 million plus | 1.0% per annum | 1.5% per annum | 2.0% per annum | |||
0.5% per annum ($3,300 per day) | ($6,600 per day) | ($9,900 per day) | ($13,200 per day) |
Non-Compliance Period | ||||||
1-90 Days | 91-180 Days | 181-270 Days | 270+ Days | |||
$1.6 million plus | 1.0% per annum | 1.5% per annum | 2.0% per annum | |||
0.5% per annum ($4,400 per day) | ($8,800 per day) | ($13,200 per day) | ($17,600 per day) |
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17. | Redeemable Convertible Preferred Stock |
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18. | Stockholders’ Equity |
December 31, | ||||||||
2005 | 2006 | |||||||
Shares authorized | 400,000 | 400,000 | ||||||
Shares outstanding at end of period | 72,917 | 91,604 | ||||||
Shares held in treasury | 1,415 | 1,444 |
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Weighted-Average | ||||||||
Number of | Grant Date | |||||||
Shares | Fair Value | |||||||
Unvested restricted shares outstanding at December 31, 2005 | 1,552 | $ | 15.00 | |||||
Granted | 240 | 18.49 | ||||||
Vested | (389 | ) | 17.22 | |||||
Canceled | (466 | ) | 15.00 | |||||
Unvested restricted shares outstanding at December 31, 2006 | 937 | $ | 15.88 | |||||
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19. | Related Party Transactions |
2004 | 2005 | 2006 | ||||||||||
Sales to related parties | $ | 306 | $ | 12,673 | $ | 14,102 | ||||||
Receivables from related parties for services rendered | $ | 1,116 | $ | 5,376 | $ | 5,731 | ||||||
Payables to related parties for services rendered | $ | 3,757 | $ | 78 | $ | 1,834 | ||||||
Purchases of services from related parties | $ | 9,556 | $ | 37 | $ | 4,811 | ||||||
20. | Subsequent Events |
Period | Prepayment Penalty | |||
April 1, 2011 to March 31, 2012 | 4.313 | % | ||
April 1, 2012 to March 31, 2013 | 2.156 | % | ||
April 1, 2013 and thereafter | — |
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Prepayment | ||||
Period | Penalty | |||
April 1, 2009 to March 31, 2010 | 3.00 | % | ||
April 1, 2010 to March 31, 2011 | 2.00 | % | ||
April 1, 2011 to March 31, 2012 | 1.00 | % | ||
April 1, 2012 and thereafter | — |
21. | Industry Segment Information |
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2004 | 2005 | 2006 | ||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||
Revenues: | ||||||||||||
Exploration and production | $ | 39,226 | $ | 54,425 | $ | 106,990 | ||||||
Elimination of inter-segment revenue | 1,662 | 374 | 577 | |||||||||
Exploration and production, net of inter-segment revenue | 37,564 | 54,051 | 106,413 | |||||||||
Drilling and oil field services | 59,179 | 109,766 | 211,055 | |||||||||
Elimination of inter-segment revenue | 19,968 | 29,615 | 72,398 | |||||||||
Drilling and oil field services, net of inter-segment revenue | 39,211 | 80,151 | 138,657 | |||||||||
Midstream services | 132,158 | 192,503 | 192,960 | |||||||||
Elimination of inter-segment revenue | 33,114 | 45,004 | 70,068 | |||||||||
Midstream services, net of inter-segment revenues | 99,044 | 147,499 | 122,892 | |||||||||
Other | 176 | 6,164 | 21,411 | |||||||||
Elimination of inter-segment revenue | — | 172 | 1,131 | |||||||||
Other, net of inter-segment revenue | 176 | 5,992 | 20,280 | |||||||||
Total revenues | $ | 175,995 | $ | 287,693 | $ | 388,242 | ||||||
Operating Income: | ||||||||||||
Exploration and production | $ | 14,000 | $ | 14,886 | $ | 17,069 | ||||||
Drilling and oil field services | 4,206 | 18,295 | 32,946 | |||||||||
Midstream gas services | 2,636 | 4,096 | 3,528 | |||||||||
Other | (92 | ) | (3,224 | ) | (16,562 | ) | ||||||
Total operating income | 20,750 | 34,053 | 36,981 | |||||||||
Interest expense, net | (1,622 | ) | (5,071 | ) | (15,795 | ) | ||||||
Other income (expense), net | (298 | ) | (1,121 | ) | 671 | |||||||
Income before income taxes | $ | 18,830 | $ | 27,861 | $ | 21,857 | ||||||
Identifiable Assets(1): | ||||||||||||
Exploration and production | $ | 125,745 | $ | 243,612 | $ | 2,091,459 | ||||||
Drilling and oil field services | 35,807 | 100,995 | 175,169 | |||||||||
Midstream gas services | 25,208 | 33,845 | 75,606 | |||||||||
Other | 10,258 | 80,231 | 46,150 | |||||||||
Total assets | $ | 197,018 | $ | 458,683 | $ | 2,388,384 | ||||||
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2004 | 2005 | 2006 | ||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||
Capital Expenditures: | ||||||||||||
Exploration and production | $ | 29,105 | $ | 61,227 | $ | 170,872 | ||||||
Drilling and oil field services | 22,679 | 43,730 | 89,810 | |||||||||
Midstream gas services | 2,026 | 25,904 | 16,975 | |||||||||
Other | 4,116 | 3,735 | 28,884 | |||||||||
Total capital expenditures | $ | 57,926 | $ | 134,596 | $ | 306,541 | ||||||
Depreciation, Depletion and Amortization | ||||||||||||
Exploration and production | $ | 4,911 | $ | 8,796 | $ | 28,104 | ||||||
Drilling and oil field services | 5,932 | 11,851 | 20,268 | |||||||||
Midstream gas services | 1,270 | 1,652 | 3,180 | |||||||||
Other | 561 | 1,907 | 4,074 | |||||||||
Total depreciation, depletion and amortization | $ | 12,674 | $ | 24,206 | $ | 55,626 | ||||||
(1) | Identifiable assets are those used in SandRidge’s operations in each industry segment. Corporate assets are principally cash and cash equivalents, corporate leasehold improvements, furniture and equipment. |
22. | Supplemental Information on Oil and Gas Producing Activities (Unaudited) |
December 31, | ||||||||||||
Consolidated Companies(a) | 2004 | 2005 | 2006 | |||||||||
Oil and natural gas properties: | ||||||||||||
Proved | $ | 94,758 | $ | 160,789 | $ | 1,636,832 | ||||||
Unproved | 744 | 33,974 | 282,374 | |||||||||
Total oil and natural gas properties | 95,502 | 194,763 | 1,919,206 | |||||||||
Less accumulated depreciation and depletion | (26,034 | ) | (35,029 | ) | (60,752 | ) | ||||||
Net oil and natural gas properties capitalized costs | $ | 69,468 | $ | 159,734 | $ | 1,858,454 | ||||||
(a) | Amounts relate to SandRidge and Consolidated Subsidiaries. Includes capitalized asset retirement costs and associated accumulated depreciation. |
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2004 | 2005 | 2006 | ||||||||||
Acquisitions of properties | ||||||||||||
Proved | $ | — | $ | 14,554 | $ | 1,311,029 | ||||||
Unproved | 1,631 | 21,085 | 268,839 | |||||||||
Exploration | 1,375 | 2,527 | 18,612 | |||||||||
Development | 27,357 | 60,364 | 115,153 | |||||||||
Total cost incurred | $ | 30,363 | $ | 98,530 | $ | 1,713,633 | ||||||
Consolidated | ||||
Companies(a) | ||||
For the Year Ended December 31, 2004 | ||||
Revenues | $ | 30,976 | ||
Expenses: | ||||
Production costs | 12,727 | |||
Depreciation, depletion and amortization expenses | 4,770 | |||
Total expenses | 17,497 | |||
Income before income taxes | 13,479 | |||
Provision for income taxes | 4,718 | |||
Results of operations for oil and gas producing activities | $ | 8,761 | ||
For the Year Ended December 31, 2005 | ||||
Revenues | $ | 48,405 | ||
Expenses: | ||||
Production costs | 19,352 | |||
Depreciation, depletion and amortization expenses | 8,995 | |||
Total expenses | 28,347 | |||
Income before income taxes | 20,058 | |||
Provision for income taxes | 7,020 | |||
Results of operations for oil and gas producing activities | $ | 13,038 | ||
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Consolidated | ||||
Companies(a) | ||||
For the Year Ended December 31, 2006 | ||||
Revenues | $ | 101,252 | ||
Expenses: | ||||
Production costs | 39,363 | |||
Depreciation, depletion and amortization expenses | 25,723 | |||
Total expenses | 65,086 | |||
Income before income taxes | 36,166 | |||
Provision for income taxes | 10,850 | |||
Results of operations for oil and gas producing activities | $ | 25,316 | ||
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Table of Contents
Consolidated Companies(a) | ||||||||
Crude Oil | Nat. Gas | |||||||
(MBbls) | (MMcf)(b) | |||||||
Proved developed and undeveloped reserves: | ||||||||
As of December 31, 2003 | 649 | 121,256 | ||||||
Revisions of previous estimates | 70 | (18,955 | ) | |||||
Extensions and discoveries | — | 48,859 | ||||||
Production | (37 | ) | (6,708 | ) | ||||
As of December 31, 2004 | 682 | 144,452 | ||||||
Revisions of previous estimates | 108 | 11,679 | ||||||
Acquisitions of new reserves | 9,518 | 32,022 | ||||||
Extensions and discoveries | 200 | 56,133 | ||||||
Production | (72 | ) | (6,873 | ) | ||||
As of December 31, 2005 | 10,436 | 237,413 | ||||||
Revisions of previous estimates | 1,250 | 19,139 | ||||||
Acquisitions of new reserves | 13,753 | 514,170 | ||||||
Extensions and discoveries | 58 | 93,396 | ||||||
Production | (322 | ) | (13,410 | ) | ||||
As of December 31, 2006 | 25,175 | 850,708 | ||||||
Proved developed reserves: | ||||||||
As of December 31, 2003 | 327 | 48,513 | ||||||
As of December 31, 2004 | 231 | 50,981 | ||||||
As of December 31, 2005 | 899 | 69,377 | ||||||
As of December 31, 2006 | 10,259 | 255,654 |
(a) | Amounts relate to SandRidge and Consolidated Subsidiaries. | |
(b) | Natural gas reserves are computed at 14.65 pounds per square inch absolute and 60 degrees Fahrenheit. |
• | the standardized measure includes the Company’s estimate of proved crude oil, natural gas liquids and natural gas reserves and projected future production volumes based upon year-end economic conditions; | |
• | pricing is applied based upon year-end market prices adjusted for fixed or determinable contracts that are in existence at year-end; |
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• | future development and production costs are determined based upon actual cost at year-end; | |
• | the standardized measure includes projections of future abandonment costs based upon actual costs at year-end; and | |
• | a discount factor of 10% per year is applied annually to the future net cash flows. |
Proved Oil and Gas Reserves
Consolidated | ||||
Companies(a) | ||||
(In thousands) | ||||
As of December 31, 2004 | ||||
Future cash inflows from production | $ | 843,647 | ||
Future production costs | (227,257 | ) | ||
Future development costs(b) | (77,588 | ) | ||
Future income tax expenses | (183,193 | ) | ||
Undiscounted future net cash flows | 355,609 | |||
10% annual discount | (156,647 | ) | ||
Standardized measure of discounted future net cash flows | $ | 198,962 | ||
As of December 31, 2005 | ||||
Future cash inflows from production | $ | 2,558,668 | ||
Future production costs | (653,748 | ) | ||
Future development costs(b) | (296,489 | ) | ||
Future income tax expenses | (546,867 | ) | ||
Undiscounted future net cash flows | 1,061,564 | |||
10% annual discount | (562,410 | ) | ||
Standardized measure of discounted future net cash flows | $ | 499,154 | ||
As of December 31, 2006 | ||||
Future cash inflows from production | $ | 5,901,660 | ||
Future production costs | (1,623,216 | ) | ||
Future development costs(b) | (931,947 | ) | ||
Future income tax expenses | (638,599 | ) | ||
Undiscounted future net cash flows | 2,707,898 | |||
10% annual discount | (1,267,752 | ) | ||
Standardized measure of discounted future net cash flows | $ | 1,440,146 | ||
(a) | Amounts relate to SandRidge and Consolidated Subsidiaries. | |
(b) | Includes abandonment costs. |
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Proved Oil and Gas Reserves
Consolidated | ||||
Companies (a) | ||||
Present value as of December 31, 2003 | $ | 157,299 | ||
Changes during the year: | ||||
Revenues less production and other costs | (18,249 | ) | ||
Net changes in prices, production and other costs | 5,911 | |||
Development costs incurred | 21,912 | |||
Net changes in future development costs | (16,360 | ) | ||
Extensions and discoveries | 105,603 | |||
Revisions of previous quantity estimates | (38,234 | ) | ||
Accretion of discount | 25,244 | |||
Net change in income taxes | (20,720 | ) | ||
Timing differences and other(b) | (23,444 | ) | ||
Net change for the year | 41,663 | |||
Present value as of December 31, 2004 | $ | 198,962 | ||
Changes during the year: | ||||
Revenues less production and other costs | (29,053 | ) | ||
Net changes in prices, production and other costs | 225,227 | |||
Development costs incurred | 56,368 | |||
Net changes in future development costs | (86,828 | ) | ||
Extensions and discoveries | 96,514 | |||
Revisions of previous quantity estimates | 47,501 | |||
Accretion of discount | 28,981 | |||
Net change in income taxes | (155,250 | ) | ||
Purchases of reserves in-place | 196,206 | |||
Timing differences and other(b) | (79,474 | ) | ||
Net change for the year | 300,192 | |||
F-42
Table of Contents
Consolidated | ||||
Companies (a) | ||||
Present value as of December 31, 2005 | $ | 499,154 | ||
Revenues less production and other costs | (61,889 | ) | ||
Net changes in prices, production and other costs | (294,437 | ) | ||
Development costs incurred | 75,323 | |||
Net changes in future development costs | (75,466 | ) | ||
Extensions and discoveries | 126,061 | |||
Revisions of previous quantity estimates | 54,313 | |||
Accretion of discount | 73,643 | |||
Net change in income taxes | (36,962 | ) | ||
Purchases of reserves in-place | 1,135,062 | |||
Timing differences and other(b) | (54,656 | ) | ||
Net change for the year | 940,992 | |||
Present value as of December 31, 2006 | $ | 1,440,146 | ||
(a) | Amounts relate to SandRidge and Consolidated Subsidiaries. | |
(b) | The change in timing differences and other are related to revisions in the Company’s estimated time of production and development. |
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Table of Contents
December 31, | September 30, | |||||||
2006 | 2007 | |||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 38,948 | $ | 32,013 | ||||
Accounts receivable, net: | ||||||||
Trade | 89,774 | 71,957 | ||||||
Related parties | 5,731 | 16,727 | ||||||
Derivative contracts | — | 27,903 | ||||||
Inventories | 2,544 | 4,249 | ||||||
Deferred income taxes | 6,315 | — | ||||||
Other current assets | 31,494 | 20,548 | ||||||
Total current assets | 174,806 | 173,397 | ||||||
Oil and natural gas properties, using full cost method of accounting | ||||||||
Proved | 1,636,832 | 2,388,534 | ||||||
Unproved | 282,374 | 247,757 | ||||||
Less: accumulated depreciation and depletion | (60,752 | ) | (174,552 | ) | ||||
1,858,454 | 2,461,739 | |||||||
Other property, plant and equipment, net | 276,264 | 427,756 | ||||||
Derivative contracts | — | 4,139 | ||||||
Goodwill | 26,198 | 27,076 | ||||||
Investments | 3,584 | 6,983 | ||||||
Restricted deposits | 33,189 | 39,851 | ||||||
Other assets | 15,889 | 29,515 | ||||||
Total assets | $ | 2,388,384 | $ | 3,170,456 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current maturities of long-term debt | $ | 26,201 | $ | 14,293 | ||||
Accounts payable and accrued expenses: | ||||||||
Trade | 129,799 | 181,227 | ||||||
Related parties | 1,834 | 3,182 | ||||||
Deferred income taxes | — | 6,740 | ||||||
Derivative contracts | 958 | — | ||||||
Total current liabilities | 158,792 | 205,442 | ||||||
Long-term debt | 1,040,630 | 1,437,211 | ||||||
Derivative contracts | 3,052 | — | ||||||
Other long-term obligations | 21,219 | 16,219 | ||||||
Asset retirement obligation | 45,216 | 57,508 | ||||||
Deferred income taxes | 24,922 | 32,992 | ||||||
Total liabilities | 1,293,831 | 1,749,372 | ||||||
Commitments and contingencies (Note 12) | ||||||||
Minority interest | 5,092 | 5,605 | ||||||
Redeemable convertible preferred stock, $0.001 par value, 2,650 shares authorized; 2,137 and 2,184 shares issued and outstanding at December 31, 2006 and September 30, 2007, respectively | 439,643 | 450,356 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, no par; 50,000 shares authorized; no shares issued and outstanding in 2006 and 2007 | — | — | ||||||
Common stock, $0.001 par value, 400,000 shares authorized; 93,048 issued and 91,604 outstanding at December 31, 2006 and 109,272 issued and 107,820 outstanding at September 30, 2007 | 92 | 108 | ||||||
Additional paid-in capital | 574,868 | 889,211 | ||||||
Treasury stock, at cost | (17,835 | ) | (18,496 | ) | ||||
Retained earnings | 92,693 | 94,300 | ||||||
Total stockholders’ equity | 649,818 | 965,123 | ||||||
Total liabilities and stockholders’ equity | $ | 2,388,384 | $ | 3,170,456 | ||||
F-44
Table of Contents
Nine Months Ended | ||||||||
September 30 | ||||||||
2006 | 2007 | |||||||
(Unaudited) | ||||||||
(In thousands except | ||||||||
per share amounts) | ||||||||
Revenues: | ||||||||
Natural gas and crude oil | $ | 46,419 | $ | 319,556 | ||||
Drilling and services | 105,713 | 56,928 | ||||||
Midstream and marketing | 91,218 | 71,131 | ||||||
Other | 19,827 | 14,160 | ||||||
Total revenues | 263,177 | 461,775 | ||||||
Expenses: | ||||||||
Production | 21,625 | 77,707 | ||||||
Production taxes | 2,579 | 12,328 | ||||||
Drilling and services | 72,670 | 30,935 | ||||||
Midstream and marketing | 85,525 | 61,191 | ||||||
Depreciation, depletion and amortization — natural gas and crude oil | 13,932 | 115,876 | ||||||
Depreciation, depletion and amortization — other | 22,106 | 36,545 | ||||||
General and administrative | 32,024 | 45,781 | ||||||
Gain on derivative contracts | (16,176 | ) | (55,228 | ) | ||||
Gain on sale of assets | (849 | ) | (1,704 | ) | ||||
Total expenses | 233,436 | 323,431 | ||||||
Income from operations | 29,741 | 138,344 | ||||||
Other income (expense): | ||||||||
Interest income | 448 | 4,201 | ||||||
Interest expense | (4,090 | ) | (88,630 | ) | ||||
Minority interest | (281 | ) | (321 | ) | ||||
Income from equity investments | 40 | 3,399 | ||||||
Total other income (expense) | (3,883 | ) | (81,351 | ) | ||||
Income before income tax expense | 25,858 | 56,993 | ||||||
Income tax expense | 6,931 | 21,002 | ||||||
Net income | 18,927 | 35,991 | ||||||
Preferred stock dividends and accretion | — | 30,573 | ||||||
Income available to common stockholders | $ | 18,927 | $ | 5,418 | ||||
Basic and diluted income per share available to common stockholders | $ | 0.26 | $ | 0.05 | ||||
Weighted average number of shares outstanding: | ||||||||
Basic | 71,692 | 102,562 | ||||||
Diluted | 72,633 | 103,778 | ||||||
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Additional | ||||||||||||||||||||
Common | Paid-In | Treasury | Retained | |||||||||||||||||
Stock | Capital | Stock | Earnings | Total | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
Balance, December 31, 2006 | $ | 92 | $ | 574,868 | $ | (17,835 | ) | $ | 92,693 | $ | 649,818 | |||||||||
Stock offering, net of $1.4 million in offering costs | 18 | 318,652 | — | — | 318,670 | |||||||||||||||
Conversion of common stock to redeemable convertible preferred stock | (1 | ) | (9,650 | ) | — | — | (9,651 | ) | ||||||||||||
Accretion on redeemable convertible preferred stock | — | — | — | (1,062 | ) | (1,062 | ) | |||||||||||||
Purchase of treasury stock | (1 | ) | — | (1,578 | ) | — | (1,579 | ) | ||||||||||||
Common stock issued under retirement plan | — | 379 | 917 | — | 1,296 | |||||||||||||||
Stock-based compensation | — | 4,962 | — | — | 4,962 | |||||||||||||||
Net income | — | — | — | 35,991 | 35,991 | |||||||||||||||
Redeemable convertible preferred stock dividend | — | — | — | (33,322 | ) | (33,322 | ) | |||||||||||||
Balance, September 30, 2007 | $ | 108 | $ | 889,211 | $ | (18,496 | ) | $ | 94,300 | $ | 965,123 | |||||||||
F-46
Table of Contents
Nine Months Ended | ||||||||
September 30, | ||||||||
2006 | 2007 | |||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 18,927 | $ | 35,991 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for doubtful accounts | 2,458 | — | ||||||
Depreciation, depletion and amortization | 36,038 | 152,421 | ||||||
Debt issuance cost amortization | — | 14,903 | ||||||
Deferred income taxes | 2,662 | 20,004 | ||||||
Unrealized gain on derivatives | (2,007 | ) | (36,052 | ) | ||||
Gain on sale of assets | (849 | ) | (1,704 | ) | ||||
Interest income — restricted deposits | — | (1,024 | ) | |||||
Income from equity investments, net of distributions | (28 | ) | (3,399 | ) | ||||
Stock-based compensation | 8,156 | 4,962 | ||||||
Minority interest | 281 | 321 | ||||||
Changes in operating assets and liabilities | 1,862 | 53,133 | ||||||
Net cash provided by operating activities | 67,500 | 239,556 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Capital expenditures for property, plant and equipment | (181,231 | ) | (895,160 | ) | ||||
Acquisition of assets | (63,125 | ) | (3,001 | ) | ||||
Proceeds from sale of assets | 19,742 | 6,458 | ||||||
Proceeds from sale of investment | 2,373 | — | ||||||
Contributions on equity investments | (3,388 | ) | — | |||||
Restricted deposits | — | (5,638 | ) | |||||
Restricted cash | 2,373 | — | ||||||
Net cash used in investing activities | (223,256 | ) | (897,341 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from borrowings | 295,215 | 1,262,769 | ||||||
Repayments of borrowings | (177,425 | ) | (879,592 | ) | ||||
Dividends paid — preferred | — | (24,366 | ) | |||||
Minority interest contributions (distributions) | (390 | ) | 192 | |||||
Proceeds from issuance of common stock | 3,343 | 319,966 | ||||||
Purchase of treasury shares | — | (1,579 | ) | |||||
Debt issuance costs | — | (26,540 | ) | |||||
Net cash provided by financing activities | 120,743 | 650,850 | ||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (35,013 | ) | (6,935 | ) | ||||
CASH AND CASH EQUIVALENTS, beginning of year | 45,731 | 38,948 | ||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 10,718 | $ | 32,013 | ||||
Supplemental Disclosure of Noncash Investing and Financing Activities: | ||||||||
Insurance premiums financed | $ | — | $ | 1,496 | ||||
Accretion on redeemable convertible preferred stock | $ | — | $ | 1,062 | ||||
Common stock issued in connection with acquisitions | $ | 5,128 | $ | — | ||||
Redeemable convertible preferred stock dividends, net of dividends paid | $ | — | $ | 8,956 | ||||
Property, plant and equipment addition due to settlement | $ | — | $ | 4,500 |
F-47
Table of Contents
1. | Basis of Presentation |
2. | Significant Accounting Policies |
F-48
Table of Contents
Nine Months | Nine Months | |||||||
Ended | Ended | |||||||
September 30, | September 30, | |||||||
2006 | 2006 | |||||||
(As originally | (As restated) | |||||||
presented) | ||||||||
Income tax expense | $ | 8,998 | $ | 6,931 | ||||
Net income | $ | 15,175 | $ | 18,927 | ||||
Basic earnings per share | $ | 0.21 | $ | 0.26 | ||||
Diluted earnings per share | $ | 0.21 | $ | 0.26 | ||||
3. | Acquisitions and Dispositions |
F-49
Table of Contents
4. | Property, Plant and Equipment |
December 31, | September 30, | |||||||
2006 | 2007 | |||||||
Oil and natural gas properties: | ||||||||
Proved | $ | 1,636,832 | $ | 2,388,534 | ||||
Unproved | 282,374 | 247,757 | ||||||
Total oil and natural gas properties | 1,919,206 | 2,636,291 | ||||||
Less accumulated depreciation and depletion | (60,752 | ) | (174,552 | ) | ||||
Net oil and natural gas properties capitalized costs | 1,858,454 | 2,461,739 | ||||||
Land | 738 | 1,344 | ||||||
Non oil and gas equipment | 337,294 | 491,000 | ||||||
Buildings and structures | 6,564 | 37,725 | ||||||
Total | 344,596 | 530,069 | ||||||
Less accumulated depreciation, depletion and amortization | (68,332 | ) | (102,313 | ) | ||||
Net capitalized costs | 276,264 | 427,756 | ||||||
Total property, plant and equipment | $ | 2,134,718 | $ | 2,889,495 | ||||
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Table of Contents
5. | Goodwill |
Balance at December 31, 2006 | $ | 26,198 | ||
Adjustments | 878 | |||
Balance at September 30, 2007 | $ | 27,076 | ||
6. | Asset Retirement Obligation |
Asset retirement obligation, December 31, 2006 | $ | 45,216 | ||
Liability incurred upon acquiring and drilling wells | 1,688 | |||
Revisions in estimated cash flows | 7,747 | |||
Liability settled in current period | (9 | ) | ||
Accretion of discount expense | 2,866 | |||
Asset retirement obligation, September 30, 2007 | $ | 57,508 | ||
7. | Long-Term Debt |
December 31, | September 30, | |||||||
2006 | 2007 | |||||||
Senior credit facility | $ | 140,000 | $ | 400,000 | ||||
Senior bridge facility | 850,000 | — | ||||||
Senior term loan | — | 1,000,000 | ||||||
Other notes payable: | ||||||||
Drilling rig fleet and related oil field services equipment | 61,105 | 51,261 | ||||||
Sagebrush | 4,000 | — | ||||||
Insurance financing | 7,240 | 199 | ||||||
Other equipment and vehicles | 4,486 | 44 | ||||||
Total debt | 1,066,831 | 1,451,504 | ||||||
Less: Current maturities of long-term debt | 26,201 | 14,293 | ||||||
Long-term debt | $ | 1,040,630 | $ | 1,437,211 | ||||
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F-52
Table of Contents
8. | Other Long-Term Obligations |
F-53
Table of Contents
9. | Derivatives |
Weighted Avg. | ||||||||
Period | Commodity | Notional | Fix Price | |||||
Fixed price swaps: | ||||||||
April 2007 - October 2007 | Natural gas | 4,280,000 | MmBtu | $7.02 | ||||
April 2007 - October 2007 | Natural gas | 4,280,000 | MmBtu | $7.50 | ||||
September 2007 - December 2007 | Natural gas | 1,220,000 | MmBtu | $8.88 | ||||
October 2007 - December 2007 | Natural gas | 920,000 | MmBtu | $7.60 | ||||
October 2007 - December 2007 | Natural gas | 920,000 | MmBtu | $7.82 | ||||
October 2007 - December 2007 | Natural gas | 920,000 | MmBtu | $8.00 | ||||
October 2007 - December 2007 | Natural gas | 920,000 | MmBtu | $8.04 | ||||
October 2007 - December 2007 | Natural gas | 920,000 | MmBtu | $8.77 | ||||
October 2007 - December 2007 | Natural gas | 920,000 | MmBtu | $9.04 | ||||
November 2007 - June 2008 | Natural gas | 4,860,000 | MmBtu | $8.05 | ||||
November 2007 - June 2008 | Natural gas | 9,720,000 | MmBtu | $8.20 | ||||
November 2007 - March 2008 | Natural gas | 1,520,000 | MmBtu | $8.51 | ||||
January 2008 - June 2008 | Natural gas | 3,640,000 | MmBtu | $7.99 | ||||
January 2008 - June 2008 | Natural gas | 3,640,000 | MmBtu | $7.99 | ||||
January 2008 - December 2008 | Natural gas | 3,660,000 | MmBtu | $8.23 | ||||
January 2008 - December 2008 | Natural gas | 3,660,000 | MmBtu | $8.48 | ||||
January 2008 - December 2008 | Natural gas | 3,660,000 | MmBtu | $9.00 | ||||
May 2008 - August 2008 | Natural gas | 2,460,000 | MmBtu | $8.38 | ||||
July 2008 - September 2008 | Natural gas | 920,000 | MmBtu | $8.23 | ||||
July 2008 - December 2008 | Natural gas | 1,840,000 | MmBtu | $8.31 | ||||
Collars: | ||||||||
January 2007 - December 2007 | Crude oil | 60,000 | Bbls | $50.00 - $84.50 | ||||
January 2008 - June 2008 | Crude oil | 42,000 | Bbls | $50.00 - $83.35 | ||||
July 2008 - December 2008 | Crude oil | 54,000 | Bbls | $50.00 - $82.60 | ||||
Waha basis swaps: | ||||||||
January 2007 - December 2007 | Natural gas | 7,300,000 | MmBtu | $(0.5925) | ||||
January 2007 - December 2007 | Natural gas | 14,600,000 | MmBtu | $(0.70) | ||||
April 2007 - October 2007 | Natural gas | 4,280,000 | MmBtu | $(0.530) | ||||
January 2008 - December 2008 | Natural gas | 10,980,000 | MmBtu | $(0.57) | ||||
January 2008 - December 2008 | Natural gas | 7,320,000 | MmBtu | $(0.585) | ||||
January 2008 - December 2008 | Natural gas | 7,320,000 | MmBtu | $(0.59) | ||||
January 2008 - December 2008 | Natural gas | 3,660,000 | MmBtu | $(0.595) | ||||
January 2008 - December 2008 | Natural gas | 3,660,000 | MmBtu | $(0.625) | ||||
January 2008 - December 2008 | Natural gas | 7,320,000 | MmBtu | $(0.635) | ||||
January 2008 - December 2008 | Natural gas | 7,320,000 | MmBtu | $(0.6525) | ||||
May 2008 - August 2008 | Natural gas | 2,460,000 | MmBtu | $(0.45) | ||||
January 2009 - December 2009 | Natural gas | 3,650,000 | MmBtu | $(0.47) | ||||
January 2009 - December 2009 | Natural gas | 3,650,000 | MmBtu | $(0.49) | ||||
January 2009 - December 2009 | Natural gas | 3,650,000 | MmBtu | $(0.4975) |
F-54
Table of Contents
Nine Months Ended | ||||||||
September 30, | ||||||||
2006 | 2007 | |||||||
Realized gain | $ | (14,169 | ) | $ | (19,176 | ) | ||
Unrealized loss (gain) | (2,007 | ) | (36,052 | ) | ||||
Gain on derivative contracts | $ | (16,176 | ) | $ | (55,228 | ) | ||
10. | Income Taxes |
11. | Earnings Per Share |
Nine Months Ended | ||||||||
September 30, | ||||||||
2006 | 2007 | |||||||
Weighted average basic common shares outstanding | 71,692 | 102,562 | ||||||
Effect of dilutive securities: | ||||||||
Restricted stock | 941 | 1,216 | ||||||
Weighted average diluted common and potential common shares outstanding | 72,633 | 103,778 | ||||||
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Table of Contents
12. | Commitments and Contingencies |
13. | Redeemable Convertible Preferred Stock |
F-56
Table of Contents
14. | Stockholders’ Equity |
December 31, | September 30, | |||||||
2006 | 2007 | |||||||
Shares authorized | 400,000 | 400,000 | ||||||
Shares outstanding at end of period | 91,604 | 107,820 | ||||||
Shares held in treasury | 1,444 | 1,452 |
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Table of Contents
15. | Related Party Transactions |
Nine Months Ended | ||||||||
September 30, | ||||||||
2006 | 2007 | |||||||
Sales to and reimbursements from related parties | $ | 12,070 | $ | 72,434 | ||||
Purchases of services from related parties | $ | 3,656 | $ | 42,544 | ||||
16. | Industry Segment Information |
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Table of Contents
Nine Months Ended | ||||||||
September 30, | ||||||||
2006 | 2007 | |||||||
Revenues: | ||||||||
Exploration and production | $ | 50,704 | $ | 320,984 | ||||
Elimination of inter-segment revenue | (354 | ) | (574 | ) | ||||
Exploration and production, net of inter-segment revenue | 50,350 | 320,410 | ||||||
Drilling and oilfield services | 154,295 | 188,887 | ||||||
Elimination of inter-segment revenue | (48,040 | ) | (131,888 | ) | ||||
Drilling and oilfield services, net of inter-segment revenue | 106,255 | 56,999 | ||||||
Midstream gas services | 137,329 | 189,143 | ||||||
Elimination of inter-segment revenue | (46,115 | ) | (118,012 | ) | ||||
Midstream gas services, net of inter-segment revenue | 91,214 | 71,131 | ||||||
Other | 15,578 | 19,780 | ||||||
Elimination of inter-segment revenue | (220 | ) | (6,545 | ) | ||||
Other, net of inter-segment revenue | 15,358 | 13,235 | ||||||
Total revenues | $ | 263,177 | $ | 461,775 | ||||
Operating Income: | ||||||||
Exploration and production | $ | 8,203 | $ | 138,306 | ||||
Drilling and oilfield services | 27,178 | 14,252 | ||||||
Midstream gas services | 3,138 | 5,958 | ||||||
Other | (8,778 | ) | (20,172 | ) | ||||
Total operating income | 29,741 | 138,344 | ||||||
Interest income | 448 | 4,201 | ||||||
Interest expense | (4,090 | ) | (88,630 | ) | ||||
Other income (expense) | (241 | ) | 3,078 | |||||
Income before income tax expense | $ | 25,858 | $ | 56,993 | ||||
Capital Expenditures: | ||||||||
Exploration and production | $ | 88,861 | $ | 706,550 | ||||
Drilling and oilfield services | 53,832 | 104,796 | ||||||
Midstream gas services | 25,406 | 45,427 | ||||||
Other | 13,132 | 38,387 | ||||||
Total capital expenditures | $ | 181,231 | $ | 895,160 | ||||
Depreciation, Depletion and Amortization: | ||||||||
Exploration and production | $ | 14,902 | $ | 117,329 | ||||
Drilling and oilfield services | 14,070 | 25,962 | ||||||
Midstream gas services | 2,238 | 4,182 | ||||||
Other | 4,828 | 4,948 | ||||||
Total depreciation, depletion and amortization | $ | 36,038 | $ | 152,421 | ||||
F-59
Table of Contents
December 31, | September 30, | |||||||
2006 | 2007 | |||||||
Identifiable Asset(1): | ||||||||
Exploration and production | $ | 2,091,459 | $ | 2,712,621 | ||||
Drilling and oilfield services | 175,169 | 264,272 | ||||||
Midstream gas services | 75,606 | 108,031 | ||||||
Other | 46,150 | 85,532 | ||||||
Total | $ | 2,388,384 | $ | 3,170,456 | ||||
(1) | Identifiable assets are those used in SandRidge’s operations in each industry segment. |
17. | Subsequent Events |
F-60
Table of Contents
Repayment of outstanding balance and accrued interest on senior credit facility | $ | 515.9 | ||
Repayment of note payable and accrued interest incurred in connection with recent acquisition | 49.1 | |||
Excess cash to fund future capital expenditures | 230.3 | |||
Total | $ | 795.3 | ||
F-61
Table of Contents
F-62
Table of Contents
December 31, | ||||||||
2004 | 2005 | |||||||
(In thousands) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 30,846 | $ | 102,322 | ||||
Accounts receivable, net | 36,613 | 53,378 | ||||||
Accounts receivable — affiliates | 907 | — | ||||||
Notes receivable | 489 | 10 | ||||||
Drilling prepayments | 3,460 | 3,281 | ||||||
Deferred tax assets, net | 1,943 | — | ||||||
Other | 4,993 | 9,798 | ||||||
Total current assets | 79,251 | 168,789 | ||||||
Oil and gas properties, at cost (full cost method) | 929,088 | 1,229,923 | ||||||
Accumulated depreciation, depletion and amortization | (397,870 | ) | (488,560 | ) | ||||
Net oil and gas properties | 531,218 | 741,363 | ||||||
Other property and equipment | 5,595 | 6,029 | ||||||
Accumulated depreciation | (4,593 | ) | (4,934 | ) | ||||
Net other property and equipment | 1,002 | 1,095 | ||||||
Note receivable | 3,090 | — | ||||||
Equity investment | 2,379 | — | ||||||
Restricted deposits | 23,519 | 24,267 | ||||||
Deferred tax asset, net | 592 | — | ||||||
Other assets | 1,245 | 4,842 | ||||||
Total assets | $ | 642,296 | $ | 940,356 | ||||
LIABILITIES AND MEMBER’S EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 28,914 | $ | 18,105 | ||||
Accounts payable revenue | 6,265 | 11,454 | ||||||
Accounts payable — affiliates | 2,574 | 1,660 | ||||||
Current portion of notes payable | 1,761 | 2,503 | ||||||
Current portion of note payable to affiliate | 10,429 | — | ||||||
Advance from affiliate | — | 39,800 | ||||||
Prepayments from partners | 749 | 121 | ||||||
Accrued interest | 23 | 162 | ||||||
Accrued interest — affiliates | 1,204 | 2,194 | ||||||
Income tax payable — affiliate | 3,151 | 2,749 | ||||||
Derivative financial instruments | 8,911 | 68,039 | ||||||
Total current liabilities | 63,981 | 146,787 | ||||||
Commitments and contingencies | ||||||||
Credit facility | 51,834 | 300,000 | ||||||
Notes payable, net of current maturities | 2,642 | — | ||||||
Note payable to affiliate — net of current maturities | 55,071 | — | ||||||
Gas balancing | 898 | 1,108 | ||||||
Derivative financial instruments | 7,766 | 17,893 | ||||||
Other liabilities | 250 | 250 | ||||||
Deferred income tax liability | 12,799 | — | ||||||
Asset retirement obligation | 56,524 | 41,228 | ||||||
Total liabilities | 251,765 | 507,266 | ||||||
Member’s equity | 390,531 | 433,090 | ||||||
Total liabilities and member’s equity | $ | 642,296 | $ | 940,356 | ||||
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC.,
BUT INCLUDING NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP
INTEREST IN NEG HOLDING LLC
COMBINED STATEMENTS OF OPERATIONS
For the Years Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
(In thousands) | ||||||||||||
Revenues: | ||||||||||||
Oil and gas sales — gross | $ | 100,777 | $ | 144,430 | $ | 261,398 | ||||||
Unrealized derivative losses | (2,987 | ) | (9,179 | ) | (69,254 | ) | ||||||
Oil and gas revenues — net | 97,790 | 135,251 | 192,144 | |||||||||
Plant revenues | 2,119 | 2,737 | 6,711 | |||||||||
Total revenues | 99,909 | 137,988 | 198,855 | |||||||||
Costs and expenses: | ||||||||||||
Lease operating | 11,517 | 14,912 | 27,437 | |||||||||
Transportation and gathering | 1,418 | 3,144 | 4,978 | |||||||||
Plant and field operations | 2,069 | 3,918 | 3,769 | |||||||||
Production and ad valorem taxes | 8,144 | 10,883 | 16,560 | |||||||||
Depreciation, depletion and amortization | 39,409 | 60,394 | 91,100 | |||||||||
Accretion of asset retirement obligation | 339 | 593 | 3,019 | |||||||||
General and administrative | 7,703 | 11,650 | 14,152 | |||||||||
Total costs and expenses | 70,599 | 105,494 | 161,015 | |||||||||
Operating income | 29,310 | 32,494 | 37,840 | |||||||||
Interest expense | (2,034 | ) | (3,428 | ) | (8,198 | ) | ||||||
Interest expense — affiliate | (971 | ) | (3,054 | ) | (3,047 | ) | ||||||
Interest income and other | 524 | 930 | 810 | |||||||||
Interest income from related parties | 115 | 150 | — | |||||||||
Equity in loss on investment | (102 | ) | (519 | ) | (1,118 | ) | ||||||
Severance tax refund | — | 4,468 | — | |||||||||
Commitment fee income | 125 | — | — | |||||||||
(Loss) gain on sale of assets | (8 | ) | 1,686 | 9 | ||||||||
Gain on sale of equity investment | — | — | 5,512 | |||||||||
Loss on marketable securities | (954 | ) | — | — | ||||||||
Income before income taxes | 26,005 | 32,727 | 31,808 | |||||||||
Income tax benefit (expense) | 12,615 | (260 | ) | 2,932 | ||||||||
Income before minority interest and cumulative effect of accounting change | 38,620 | 32,467 | 34,740 | |||||||||
Minority interest | (1,741 | ) | (812 | ) | — | |||||||
Income before cumulative effect of accounting change | 36,879 | 31,655 | 34,740 | |||||||||
Cumulative effect of accounting change | 1,912 | — | — | |||||||||
Net income | $ | 38,791 | $ | 31,655 | $ | 34,740 | ||||||
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For the Years Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
(In thousands) | ||||||||||||
Operating activities: | ||||||||||||
Net income | $ | 38,791 | $ | 31,655 | $ | 34,740 | ||||||
Noncash adjustments: | ||||||||||||
Deferred income tax benefit | (14,953 | ) | (144 | ) | (2,935 | ) | ||||||
Depreciation depletion and amortization | 39,409 | 60,394 | 91,100 | |||||||||
Minority interest | 1,741 | 812 | — | |||||||||
Unrealized derivative losses | 2,987 | 9,179 | 69,254 | |||||||||
(Gain) loss on sale of assets | 8 | (1,686 | ) | (9 | ) | |||||||
Accretion of asset retirement obligation | 339 | 593 | 3,019 | |||||||||
Equity in loss on investment | 102 | 519 | 1,118 | |||||||||
Gain on sale of equity investment | — | — | (5,512 | ) | ||||||||
Provision for doubtful accounts | — | 790 | 470 | |||||||||
Cumulative effect of accounting change | (1,912 | ) | — | — | ||||||||
Interest income-restricted deposits | — | — | (494 | ) | ||||||||
Amortization of note discount | — | 281 | 81 | |||||||||
Amortization of note costs | 793 | 494 | 1,148 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | 2,677 | (6,340 | ) | (13,496 | ) | |||||||
Drilling prepayments | (1,138 | ) | 249 | 179 | ||||||||
Derivative deposit | 100 | 1,700 | — | |||||||||
Other assets | 820 | (1,030 | ) | (4,883 | ) | |||||||
Note receivable | (1,832 | ) | (1,258 | ) | 3,098 | |||||||
Accounts payable and accrued liabilities | 237 | 12,014 | (8,545 | ) | ||||||||
Net cash provided by operating activities | 68,169 | 108,222 | 168,333 | |||||||||
Investing activities: | ||||||||||||
Acquisition, exploration, and development costs | (40,962 | ) | (114,974 | ) | (315,880 | ) | ||||||
Proceeds from sales of oil and gas properties | 1,436 | 4,981 | 1,329 | |||||||||
Purchases of furniture, fixtures and equipment | (227 | ) | (289 | ) | (511 | ) | ||||||
Proceeds from sale of furniture, fixtures and equipment | — | — | 12 | |||||||||
Equity investment | (1,800 | ) | (1,200 | ) | (454 | ) | ||||||
Investment in restricted deposits | — | — | (4,973 | ) | ||||||||
Proceeds from sale of equity investment | — | — | 7,227 | |||||||||
Net cash used in investing activities | (41,553 | ) | (111,482 | ) | (313,250 | ) | ||||||
Financing activities: | ||||||||||||
Debt issuance costs | (952 | ) | (440 | ) | (4,666 | ) | ||||||
Net cash contributed by member | 15,312 | 23,753 | — | |||||||||
Repurchase of membership interest | — | (4,136 | ) | — | ||||||||
Proceeds from affiliate borrowings | — | — | 161,800 | |||||||||
Repayment of affiliate borrowings | — | — | (98,357 | ) | ||||||||
Guaranteed payment to member | (18,229 | ) | (15,978 | ) | (15,978 | ) | ||||||
Priority distribution | (40,506 | ) | — | — | ||||||||
Equity Contribution | — | — | 5,326 | |||||||||
Dividend payment to member | — | — | (78,000 | ) | ||||||||
Proceeds from credit facility | 91,625 | 8,000 | 379,100 | |||||||||
Principal payments on debt | (55,514 | ) | (9,365 | ) | (1,898 | ) | ||||||
Repayment of credit facility | (1,090 | ) | — | (130,934 | ) | |||||||
Net cash provided (used) by financing activities | (9,354 | ) | 1,834 | 216,393 | ||||||||
Increase in cash and cash equivalents | 17,262 | (1,426 | ) | 71,476 | ||||||||
Cash and cash equivalents at beginning of period | 15,010 | 32,272 | 30,846 | |||||||||
Cash and cash equivalents at end of period | $ | 32,272 | $ | 30,846 | $ | 102,322 | ||||||
Supplemental cash flow information: | ||||||||||||
Cash paid for interest | $ | 1,681 | $ | 5,471 | $ | 8,483 | ||||||
Cash paid for income taxes | $ | 800 | $ | 50 | $ | — | ||||||
Distribution of member note payable | $ | 10,940 | $ | — | $ | — | ||||||
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
COMBINED STATEMENT OF CHANGES IN TOTAL MEMBER’S EQUITY
(In thousands) | ||||
Total equity — December 31, 2002 | $ | 199,842 | ||
Contribution from member — National Onshore | 116,253 | |||
Guaranteed payment to member | (18,229 | ) | ||
Payment of priority amount to member | (51,446 | ) | ||
Net income | 38,791 | |||
Total member’s equity — December 31, 2003 | 285,211 | |||
Contribution from member — National Offshore | 91,561 | |||
Contribution from member — National Onshore minority interest | 2,218 | |||
Purchase of minority membership interest | (4,136 | ) | ||
Guaranteed payment to member | (15,978 | ) | ||
Net income | 31,655 | |||
Total member’s equity — December 31, 2004 | 390,531 | |||
Contribution of Notes Payable to AREP | 89,143 | |||
Equity Contribution | 5,326 | |||
Contribution of deferred tax assets | (5,471 | ) | ||
Contribution of deferred tax liabilities | 12,799 | |||
Guaranteed payment to member | (15,978 | ) | ||
Dividend distribution | (78,000 | ) | ||
Net income | 34,740 | |||
Total member’s equity — December 31, 2005 | $ | 433,090 | ||
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2003, 2004, 2005
1. | Organization and Background |
• | A 50.01% ownership interest in National Energy Group, Inc (National Energy Group), a publicly traded oil and gas management company. National Energy Group’s principal asset consists of its 50% membership interest in NEG Holding LLC (Holding, LLC). | |
• | $148.6 million principal amount of 103/4% Senior Notes due from National Energy Group (the “103/4% Senior Notes”). | |
• | A 50% managing membership interest in Holding, LLC. | |
• | The oil and gas operations of National Onshore LP (formerly TransTexas Gas Corporation); and | |
• | The oil and gas operations of National Offshore LP (formerly Panaco, Inc.) |
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
F-68
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
F-69
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
2. | Significant Accounting Policies |
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
2003 | 2004 | 2005 | ||||||||||
Realized loss — (net cash payments) | $ | 8,309 | $ | 16,625 | $ | 51,263 | ||||||
Unrealized loss | 2,987 | 9,179 | 69,254 | |||||||||
Loss on Derivative Contracts | $ | 11,296 | $ | 25,804 | $ | 120,517 | ||||||
Type of Contract | Production Month | Volume per Month | Floor | Ceiling | ||||||||||||
No cost collars | Jan-Dec 2006 | 31,000 Bbls | $ | 41.65 | $ | 45.25 | ||||||||||
No cost collars | Jan-Dec 2006 | 16,000 Bbls | 41.75 | 45.40 | ||||||||||||
No cost collars | Jan-Dec 2006 | 570,000 MmBtu | 6.00 | 7.25 | ||||||||||||
No cost collars | Jan-Dec 2006 | 120,000 MmBtu | 6.00 | 7.28 | ||||||||||||
No cost collars | Jan-Dec 2006 | 500,000 MmBtu | 4.50 | 5.00 | ||||||||||||
No cost collars | Jan-Dec 2006 | 46,000 Bbls | 60.00 | 68.50 | ||||||||||||
(The Company participates in a second ceiling at $84.50 on the 46,000 Bbls) | ||||||||||||||||
No cost collars | Jan-Dec 2007 | 30,000 Bbls | 57.00 | 70.50 | ||||||||||||
No cost collars | Jan-Dec 2007 | 30,000 Bbls | 57.50 | 72.00 | ||||||||||||
No cost collars | Jan-Dec 2007 | 930,000 MmBtu | 8.00 | 10.23 | ||||||||||||
No cost collars | Jan-Dec 2008 | 46,000 Bbls | 55.00 | 69.00 | ||||||||||||
No cost collars | Jan-Dec 2008 | 750,000 MmBtu | 7.00 | 10.35 |
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
3. | Management Agreements |
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
4. | Contributions of National Onshore and National Offshore |
Assets contributed | ||||
Cash and cash equivalents | $ | 15,312 | ||
Accounts receivable | 11,236 | |||
Drilling prepayments | 505 | |||
Other current assets | 1,318 | |||
Oil and natural gas properties | 186,288 | |||
Other assets | 226 | |||
Total assets | 214,885 | |||
Liabilities assumed | ||||
Accounts payable | 3,761 | |||
Current maturities of long-term debt | 6,038 | |||
Accrued liabilities | 10,158 | |||
Accounts payable — other | 27 | |||
Long-term debt, net of current maturities | 4,266 | |||
Note payable to affiliate — net of current maturities | 27,500 | |||
Production payments — net of current maturities | 5,617 | |||
Other liabilities | 2,096 | |||
Income tax liability | 27,926 | |||
Asset retirement obligation | 3,381 | |||
Minority interest liability | 7,862 | |||
Total liabilities assumed | 98,632 | |||
Net assets contributed | $ | 116,253 | ||
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
Assets contributed | ||||
Cash and cash equivalents | $ | 23,753 | ||
Accounts receivable | 10,482 | |||
Drilling prepayments | 2,601 | |||
Deferred tax assets, net | 1,943 | |||
Other | 2,051 | |||
Oil and natural gas properties | 128,673 | |||
Restricted deposits | 23,519 | |||
Deferred taxes | 592 | |||
Total assets | 193,614 | |||
Liabilities assumed | ||||
Accounts payable | 11,235 | |||
Accounts payable — affiliate | 555 | |||
Current portion of note payable to affiliate | 5,429 | |||
Prepayments from partners | 652 | |||
Accrued interest — affiliates | 288 | |||
Income tax payable — affiliate | 156 | |||
Accounts payable — revenue | 716 | |||
Accounts payable — other | 10 | |||
Derivative financial instruments | 903 | |||
Note payable to affiliate — net of current maturities | 32,571 | |||
Asset retirement obligation | 49,538 | |||
Total liabilities assumed | 102,053 | |||
Net assets contributed | $ | 91,561 | ||
5. | Acquisitions |
6. | Sale of West Delta Properties |
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
7. | Investments/Note Receivable |
8. | Restricted Deposits |
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||
2006 | $ | 3,200 | ||
2007 | 6,100 | |||
2008 | 3,200 | |||
2009 | 3,200 | |||
2010 | 5,000 | |||
Thereafter | 4,000 | |||
$ | 24,700 | |||
9. | Debt |
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
F-82
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
2004 | 2005 | |||||||
Notes payable to various prior creditors of National Onshore in settlement of bankruptcy claims. The notes are generally payable over a 30 month period with a stated interest rate of 6%; however, the notes have been discounted to an effective rate of 10% | $ | 4,320 | $ | 2,503 | ||||
Note payable — asset acquisition | 83 | — | ||||||
Total | 4,403 | 2,503 | ||||||
Less Current maturities | (1,761 | ) | (2,503 | ) | ||||
$ | 2,642 | $ | — | |||||
2004 | 2005 | |||||||
In connection with the National Onshore plan of reorganization, on August 28, 2003, National Onshore entered into a note agreement with an affiliate of Mr. Icahn. The note is a term loan in the amount of $32.5 million and bears interest at a rate of 10% per annum. Interest is payable semi-annually. Annual principal payments in the amount of $5 million are due on the first through fourth anniversary dates of the note with the final principal payment of $12.5 million due on the fifth anniversary date. The note is secured by substantially all of the assets of National Onshore. On December 6, 2004, AREP purchased the note from the affiliate of Mr. Icahn and on June 30, 2005, contributed the note, excluding accrued and unpaid interest, to the Company | $ | 27,500 | $ | — | ||||
Note payable to an affiliate of Mr. Icahn arising from the bankruptcy plan of National Offshore. The note bears interest at Wall Street Journal LIBOR plus 4% (6.35% at December 31, 2004) and is payable in quarterly principal installments of $1.4 million plus interest commencing March 31, 2005. The loan was secured by substantially all of the assets of National Offshore. On December 6, 2004, the note was purchased by AREP from an affiliate of Mr. Icahn and on June 30, 2005, the note, excluding accrued and unpaid interest was contributed to the Company | 38,000 | — | ||||||
Total | 65,500 | — | ||||||
Less Current maturities | (10,429 | ) | — | |||||
$ | 55,071 | $ | — | |||||
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
10. | Income Taxes |
Year Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
Current | $ | (2,338 | ) | $ | (404 | ) | $ | (3 | ) | |||
Deferred | 14,953 | 144 | 2,935 | |||||||||
$ | 12,615 | $ | (260 | ) | $ | 2,932 | ||||||
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
December 31, 2004 | ||||||||
National | National | |||||||
Onshore | Offshore | |||||||
Deferred tax assets related to: | ||||||||
Net operating loss carryforwards | 21,434 | 14,917 | ||||||
AMT and other credit carryforwards | 1,288 | 610 | ||||||
Property, plant & equipment undeveloped properties | 64,945 | — | ||||||
Other, net | 2,217 | 8,289 | ||||||
89,884 | 23,816 | |||||||
Less valuation allowance | (49,793 | ) | — | |||||
Subtotal | 40,091 | 23,816 | ||||||
Less current portion | — | (1,943 | ) | |||||
Deferred tax assets | $ | 40,091 | $ | 21,873 | ||||
Deferred tax liabilities related to: | ||||||||
Property, plant & equipment developed properties | $ | (52,890 | ) | $ | (21,281 | ) | ||
Deferred tax liabilities | (52,890 | ) | (21,281 | ) | ||||
Net deferred tax asset/(liabilities) | $ | (12,799 | ) | $ | 592 | |||
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
Federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
Income not subject to taxation | (39.0 | )% | (31.2 | )% | (44.0 | )% | ||||||
Valuation allowance on deferred tax assets | (45.3 | )% | (3.0 | )% | — | |||||||
Other | 0.8 | % | — | (0.2 | )% | |||||||
(48.5 | )% | 0.8 | % | (9.2 | )% | |||||||
11. | Commitments and Contingencies |
12. | Asset Retirement Obligation |
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
Balance as of January 1, 2004 | $ | 6,745 | ||
Add: Accretion | 593 | |||
Drilling additions | 216 | |||
Panaco | 49,538 | |||
Less: Revisions | (251 | ) | ||
Settlements | (24 | ) | ||
Dispositions | (293 | ) | ||
Balance as of December 31, 2004 | $ | 56,524 | ||
Add: Accretion | $ | 3,019 | ||
Drilling additions | 2,067 | |||
Less: Revisions | (2,813 | ) | ||
Settlements | (431 | ) | ||
Dispositions | (17,138 | ) | ||
Balance as of December 31, 2005 | $ | 41,228 | ||
13. | Severance tax refund |
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
14. | Crude Oil and Natural Gas Producing Activities |
Year Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
Acquisition of properties | $ | — | $ | — | $ | 114,244 | ||||||
Properties contributed by member | 186,289 | 128,673 | — | |||||||||
Exploration costs | 6,950 | 62,209 | 75,357 | |||||||||
Development costs | 34,012 | 52,765 | 124,305 | |||||||||
Depletion rate per Mcfe | $ | 1.85 | $ | 2.11 | $ | 2.33 |
Year Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
Plains All American | $ | 15,667 | $ | 19,857 | $ | 41,345 | ||||||
Duke Energy | 10,572 | 33,958 | 44,850 | |||||||||
Kinder Morgan | 5,787 | 18,005 | 14,402 | |||||||||
Crosstex Energy Services, Inc. | 9,228 | 5,081 | 22,790 | |||||||||
Riata Energy, Inc. | 30,672 | 29,846 | 52,300 | |||||||||
Seminole Energy Services | 7,216 | 19,568 | 27,315 | |||||||||
Louis Dreyfus | — | — | 26,790 |
15. | Supplementary Crude Oil and Natural Gas Reserve Information (Unaudited) |
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NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
Crude Oil | Natural Gas | |||||||
(MBbl) | ( MMcf) | |||||||
December 31, 2002 | 5,209 | 122,567 | ||||||
Reserves of TransTexas contributed by member | 1,120 | 41,441 | ||||||
Sales of reserves in place | (25 | ) | (744 | ) | ||||
Extensions and discoveries | 494 | 61,638 | ||||||
Revisions of previous estimates | 2,344 | (2,729 | ) | |||||
Production | (976 | ) | (15,913 | ) | ||||
December 31, 2003 | 8,166 | 206,260 | ||||||
Reserves of Panaco contributed by member | 5,204 | 25,982 | ||||||
Sales of reserves in place | (16 | ) | (344 | ) | ||||
Extensions and discoveries | 524 | 50,226 | ||||||
Revisions of previous estimates | 204 | 9,810 | ||||||
Production | (1,484 | ) | (18,895 | ) | ||||
December 31, 2004 | 12,598 | 273,039 | ||||||
Purchase of reserves in place | 483 | 94,937 | ||||||
Sales of reserves in place | (625 | ) | (7,426 | ) | ||||
Extensions and discoveries | 743 | 79,592 | ||||||
Revisions of previous estimates | 495 | 17,015 | ||||||
Production | (1,790 | ) | (28,107 | ) | ||||
December 31, 2005 | 11,904 | 429,050 | ||||||
Proved developed reserves: | �� | |||||||
December 31, 2003 | 6,852 | 125,765 | ||||||
December 31, 2004 | 8,955 | 151,452 | ||||||
December 31, 2005 | 8,340 | 200,520 |
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NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
December 31, | ||||||||
2004 | 2005 | |||||||
Future cash inflows | $ | 2,203,900 | $ | 4,891,094 | ||||
Future production costs | (488,473 | ) | (1,029,393 | ) | ||||
Future development costs | (347,619 | ) | (527,399 | ) | ||||
Future income tax expense | (32,979 | ) | — | |||||
Future net cash flows | 1,334,829 | 3,334,302 | ||||||
10% annual discount for estimated timing of cash flows | (563,549 | ) | (1,562,242 | ) | ||||
Standardized measure of discounted future net cash flows | $ | 771,280 | $ | 1,772,060 | ||||
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
Beginning of Period | $ | 310,632 | $ | 613,752 | $ | 771,280 | ||||||
Purchases of reserves | — | — | 415,208 | |||||||||
Contribution of reserves by member | 101,804 | 75,239 | — | |||||||||
Sales of reserves in place | (2,476 | ) | (1,375 | ) | (34,820 | ) | ||||||
Sales and transfers of crude oil and natural gas produced, net of production costs | (74,186 | ) | (130,640 | ) | (205,838 | ) | ||||||
Net changes in prices and production costs | 76,655 | 16,686 | 408,909 | |||||||||
Development costs incurred during the period and changes in estimated future development costs | (76,545 | ) | (89,491 | ) | (150,639 | ) | ||||||
Extensions and discoveries, less related costs | 211,324 | 193,022 | 411,092 | |||||||||
Income taxes | — | — | 24,097 | |||||||||
Revisions of previous quantity estimates | 37,718 | 31,730 | 68,937 | |||||||||
Accretion of discount | 34,457 | 62,050 | 77,128 | |||||||||
Changes in production rates (timing) and other | (5,631 | ) | 307 | (13,294 | ) | |||||||
Net change | 303,120 | 157,528 | 1,000,780 | |||||||||
End of Period | $ | 613,752 | $ | 771,280 | $ | 1,772,060 | ||||||
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NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
COMBINED BALANCE SHEETS AS OF DECEMBER 31, 2005 AND SEPTEMBER 30, 2006
December 31, | September 30, | |||||||
2005 | 2006 | |||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 102,322 | $ | 26,362 | ||||
Accounts receivable, net | 53,378 | 53,436 | ||||||
Notes receivable | 10 | 9 | ||||||
Drilling prepayments | 3,281 | 3,755 | ||||||
Derivative financial instruments | — | 14,158 | ||||||
Other | 9,798 | 5,788 | ||||||
Total current assets | 168,789 | 103,508 | ||||||
Oil and gas properties, at cost (full cost method) | 1,229,923 | 1,409,776 | ||||||
Accumulated depreciation, depletion and amortization | (488,560 | ) | (562,635 | ) | ||||
Net oil and gas properties | 741,363 | 847,141 | ||||||
Other property and equipment | 6,029 | 6,232 | ||||||
Accumulated depreciation | (4,934 | ) | (5,173 | ) | ||||
Net other property and equipment | 1,095 | 1,059 | ||||||
Restricted deposits | 24,267 | 30,713 | ||||||
Derivative financial instruments | — | 15,787 | ||||||
Other assets | 4,842 | 8,296 | ||||||
Total assets | $ | 940,356 | $ | 1,006,504 | ||||
LIABILITIES AND MEMBER’S EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 18,105 | $ | 20,058 | ||||
Accounts payable — revenue | 11,454 | 9,759 | ||||||
Accounts payable — affiliates | 1,660 | 1,569 | ||||||
Current portion of notes payable | 2,503 | — | ||||||
Advance from affiliate | 39,800 | — | ||||||
Prepayments from partners | 121 | 823 | ||||||
Accrued interest | 162 | 61 | ||||||
Accrued interest — affiliates | 2,194 | 2,194 | ||||||
Income tax payable — affiliate | 2,749 | 2,749 | ||||||
Derivative financial instruments | 68,039 | — | ||||||
Total current liabilities | 146,787 | 37,213 | ||||||
Commitments and contingencies | ||||||||
Credit facility | 300,000 | 300,000 | ||||||
Gas balancing | 1,108 | 1,108 | ||||||
Derivative financial instruments | 17,893 | — | ||||||
Other liabilities | 250 | 250 | ||||||
Deferred income tax liability | — | 2,128 | ||||||
Asset retirement obligation | 41,228 | 47,609 | ||||||
Total liabilities | 507,266 | 388,308 | ||||||
Member’s equity | 433,090 | 618,196 | ||||||
Total liabilities and member’s equity | $ | 940,356 | $ | 1,006,504 | ||||
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BUT INCLUDING NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST
IN NEG HOLDING LLC
COMBINED STATEMENTS OF OPERATIONS
Nine Months Ended | ||||||||
September 30, | ||||||||
2005 | 2006 | |||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
Revenues: | ||||||||
Oil and gas sales — gross | $ | 193,633 | $ | 208,800 | ||||
Unrealized derivatives (losses) gains | (111,631 | ) | 115,877 | |||||
Oil and gas revenues — net | 82,002 | 324,677 | ||||||
Plant revenues | 4,707 | 5,799 | ||||||
Total revenues | 86,709 | 330,476 | ||||||
Costs and expenses: | ||||||||
Lease operating | 19,632 | 26,817 | ||||||
Transportation and gathering | 3,764 | 3,441 | ||||||
Plant and field operations | 2,644 | 3,270 | ||||||
Production and ad valorem taxes | 11,184 | 8,948 | ||||||
Depreciation, depletion and amortization | 65,756 | 74,408 | ||||||
Accretion of asset retirement obligation | 2,290 | 2,112 | ||||||
General and administrative | 10,651 | 10,281 | ||||||
Total costs and expenses | 115,921 | 129,277 | ||||||
Operating income (loss) | (29,212 | ) | 201,199 | |||||
Interest expense | (4,856 | ) | (16,738 | ) | ||||
Interest expense — affiliate | (3,047 | ) | — | |||||
Interest income and other | 185 | 4,788 | ||||||
Income (loss) before income taxes | (36,930 | ) | 189,249 | |||||
Income tax benefit (expense) | 2,932 | (2,143 | ) | |||||
Net income (loss) | $ | (33,998 | ) | $ | 187,106 | |||
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
COMBINED STATEMENTS OF CASH FLOWS
Nine Months Ended | ||||||||
September 30, | ||||||||
2005 | 2006 | |||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
Operating activities: | ||||||||
Net income (loss) | $ | (33,998 | ) | $ | 187,106 | |||
Noncash adjustments: | ||||||||
Deferred income tax expense (benefit) | (2,932 | ) | 2,128 | |||||
Depreciation, depletion and amortization | 65,756 | 74,408 | ||||||
Unrealized derivative losses (gains) | 111,631 | (115,877 | ) | |||||
Accretion of asset retirement obligation | 2,290 | 2,112 | ||||||
Amortization of note discount | 66 | 27 | ||||||
Equity in loss on investment | 917 | — | ||||||
Interest income-restricted deposits | (265 | ) | (616 | ) | ||||
Amortization of note costs | 527 | 773 | ||||||
Gain on sale of assets | (9 | ) | (2 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (9,270 | ) | (212 | ) | ||||
Drilling prepayments | (1,616 | ) | (475 | ) | ||||
Derivative deposit | (64,068 | ) | — | |||||
Other assets | 2,369 | 3,920 | ||||||
Accounts payable and accrued liabilities | (7,605 | ) | 1,013 | |||||
Net cash provided by operating activities | 63,793 | 154,305 | ||||||
Investing activities: | ||||||||
Acquisition, exploration, and development costs | (183,479 | ) | (175,619 | ) | ||||
Proceeds from sales of oil and gas properties | 679 | 37 | ||||||
Purchases of furniture, fixtures and equipment | (398 | ) | (293 | ) | ||||
Equity investment | (454 | ) | — | |||||
Investment in restricted deposits | (3,538 | ) | (5,832 | ) | ||||
Net cash used in investing activities | (187,190 | ) | (181,707 | ) | ||||
Financing activities: | ||||||||
Debt issuance costs | — | (573 | ) | |||||
Guaranteed payment to member | (7,989 | ) | (7,989 | ) | ||||
Equity contribution | — | 7,989 | ||||||
Proceeds from/repayment of affiliate borrowings | 73,443 | (39,800 | ) | |||||
Dividend payment to member | — | (2,000 | ) | |||||
Proceeds from credit facility | 59,100 | — | ||||||
Principal payments on debt | (1,554 | ) | (2,530 | ) | ||||
Deferred equity costs | — | (3,655 | ) | |||||
Net cash provided by (used in) financing activities | 123,000 | (48,558 | ) | |||||
Decrease in cash and cash equivalents | (397 | ) | (75,960 | ) | ||||
Cash and cash equivalents at beginning of period | 30,846 | 102,322 | ||||||
Cash and cash equivalents at end of period | $ | 30,449 | $ | 26,362 | ||||
Supplemental cash flow information: | ||||||||
Cash paid for interest | $ | 13,205 | $ | 16,052 | ||||
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
COMBINED STATEMENT OF CHANGES IN TOTAL MEMBER’S EQUITY
Nine Month Period Ended September 30, 2006
(2006 Amounts Unaudited)
(In thousands) | ||||
Total member’s equity — December 31, 2005 | $ | 433,090 | ||
Dividend distribution | (2,000 | ) | ||
Equity contribution | 7,989 | |||
Guaranteed payment to member | (7,989 | ) | ||
Net income | 187,106 | |||
Total member’s equity — September 30, 2006 | $ | 618,196 | ||
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
1. | Organization, Basis of Presentation and Background |
• | A 50.01% ownership interest in National Energy Group, Inc (National Energy Group), a publicly traded oil and gas management company. National Energy Group’s principal asset consists of its 50% membership interest in NEG Holding LLC (Holding, LLC); | |
• | $148.6 million principal amount of 103/4% Senior Notes due from National Energy Group (the “103/4% Senior Notes”). | |
• | A 50% managing membership interest in Holding, LLC; | |
• | The oil and gas operations of National Onshore LP; and | |
• | The oil and gas operations of National Offshore LP. |
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NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)
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AND THE 103/4% SENIOR NOTES DUE FROM NATIONAL ENERGY GROUP, INC., BUT INCLUDING
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NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)
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NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)
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NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)
2. | Management Agreements |
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NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)
3. | Derivatives |
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NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)
Nine Months Ended | ||||||||
September 30, | ||||||||
2005 | 2006 | |||||||
Realized loss — (net cash payments) | $ | (19,486 | ) | $ | (25,014 | ) | ||
Unrealized gain (loss) | (111,631 | ) | 115,877 | |||||
Gain (loss) on Derivative Contracts | $ | (131,117 | ) | $ | 90,863 | |||
Type of Contract | Production Month | Volume per Month | Floor | Ceiling | ||||||||||||
No cost collars | Oct-Dec 2006 | 31,000 BBLS | $ | 41.65 | $ | 45.25 | ||||||||||
No cost collars | Oct-Dec 2006 | 16,000 Bbls | 41.75 | 45.40 | ||||||||||||
No cost collars | Oct-Dec 2006 | 570,000 MMBTU | 6.00 | 7.25 | ||||||||||||
No cost collars | Oct-Dec 2006 | 120,000 MMBTU | 6.00 | 7.28 | ||||||||||||
No cost collars | Oct-Dec 2006 | 500,000 MMBTU | 4.50 | 5.00 | ||||||||||||
No cost collars | Oct-Dec 2006 | 46,000 Bbls | 60.00 | 68.50 | ||||||||||||
(The Company participates in a second ceiling at $84.50 on the 46,000 Bbls) | ||||||||||||||||
No cost collars | Jan-Dec 2007 | 30,000 Bbls | 57.00 | 70.50 | ||||||||||||
No cost collars | Jan-Dec 2007 | 30,000 Bbls | 57.50 | 72.00 | ||||||||||||
No cost collars | Jan-Dec 2007 | 930,000 MMBTU | 8.00 | 10.23 | ||||||||||||
No cost collars | Jan-Dec 2007 | 1,000 Bbls | 65.00 | 87.40 | (A) | |||||||||||
No cost collars | Jan-Dec 2007 | 7,000 Bbls | 65.00 | 86.00 | (A) | |||||||||||
No cost collars | Jan-Dec 2007 | 330,000 MMBTU | 9.60 | 12.10 | (A) | |||||||||||
No cost collars | Jan-Dec 2007 | 100,000 MMBTU | 9.55 | 12.60 | (A) | |||||||||||
No cost collars | Jan-Dec 2008 | 46,000 Bbls | 55.00 | 69.00 | ||||||||||||
No cost collars | Jan-Dec 2008 | 750,000 MMBTU | 7.00 | 10.35 | ||||||||||||
No cost collars | Jan-Dec 2008 | 9,000 Bbls | 65.00 | 81.25 | (A) | |||||||||||
No cost collars | Jan-Dec 2008 | 70,000 MMBTU | 8.75 | 11.90 | (A) | |||||||||||
No cost collars | Jan-Dec 2008 | 270,000 MMBTU | 8.80 | 11.45 | (A) | |||||||||||
No cost collars | Jan-Dec 2009 | 19,000 Bbls | 65.00 | 78.50 | (A) | |||||||||||
No cost collars | Jan-Dec 2009 | 26,000 Bbls | 65.00 | 77.00 | (A) | |||||||||||
No cost collars | Jan-Dec 2009 | 330,000 MMBTU | 7.90 | 10.80 | (A) | |||||||||||
No cost collars | Jan-Dec 2009 | 580,000 MMBTU | 7.90 | 11.00 | (A) |
(A) | On October 17, 2006 the Company terminated the derivative contract. See Note 12. |
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NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)
4. | Acquisitions |
5. | Sale of West Delta Properties |
6. | Investments/Note Receivable |
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NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)
7. | Restricted Deposits |
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NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)
Year Ended December 31, | ||||
Remainder of 2006 | 800 | |||
2007 | 6,100 | |||
2008 | 3,200 | |||
2009 | 3,200 | |||
2010 | 5,000 | |||
Thereafter | 4,000 | |||
$ | 22,300 | |||
8. | Debt |
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NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)
December 31, | September 30, | |||||||
2005 | 2006 | |||||||
Notes payable to various prior creditors of National Onshore in settlement of bankruptcy claims. The notes are generally payable over a 30 month period with a stated interest rate of 6%; however, the notes have been discounted to an effective rate of 10% | $ | 2,503 | $ | — | ||||
Less Current maturities | (2,503 | ) | — | |||||
$ | — | $ | — | |||||
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NATIONAL ENERGY GROUP INC.’S 50% MEMBERSHIP INTEREST IN NEG HOLDING LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)
9. | Income Taxes |
10. | Commitments and Contingencies |
Estimated Commitment as of | ||||||||||||||||||||
September 30, 2006 | ||||||||||||||||||||
Expected Drilling Location | Contract Duration | Total | 2006 | 2007 | 2008 | |||||||||||||||
Onshore West Texas | Six wells (approximately 3 months | ) | $ | 1,201 | $ | 1,201 | $ | — | $ | — | ||||||||||
Onshore East Texas | 18 months | 10,900 | 1,800 | 7,300 | 1,800 | |||||||||||||||
Onshore East Texas | 18 months | 10,900 | 1,200 | 7,300 | 2,400 | |||||||||||||||
Offshore | 6 months | 8,100 | — | 8,100 | — | |||||||||||||||
Total estimated commitments | $ | 31,101 | $ | 4,201 | $ | 22,700 | $ | 4,200 | ||||||||||||
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NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)
11. | Asset Retirement Obligation |
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NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) — (Continued)
Balance as of December 31, 2005 | $ | 41,228 | ||
Add: Accretion | 2,112 | |||
Drilling additions | — | |||
Acquired properties | 4,269 | |||
Less: Revisions | — | |||
Settlements | — | |||
Dispositions | — | |||
Balance as of September 30, 2006 | $ | 47,609 | ||
12. | Subsequent Events |
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Item 13. | Other Expenses of Issuance and Distribution |
Securities and Exchange Commission registration fee | $ | 9,656 | ||
Legal fees and expenses | 25,000 | |||
Accounting fees and expenses | — | |||
Miscellaneous | 5,000 | |||
TOTAL | $ | 39,656 | ||
Item 14. | Indemnification of Directors and Officers |
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Item 15. | Recent Sales of Unregistered Securities |
II-2
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Item 16. | Exhibits and Financial Statement Schedules |
3 | .1 | — | Certificate of Incorporation | |||
3 | .2 | — | Certificate of Designation of convertible preferred stock | |||
3 | .3 | — | Bylaws | |||
4 | .1 | — | Specimen Stock Certificate representing common stock | |||
4 | .2 | — | Resale Registration Rights Agreement, dated December 21, 2005, by and between SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Banc of America Securities, LLC | |||
4 | .3 | — | Registration Rights Agreement, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and the Purchasers party thereto | |||
4 | .4 | — | Securities Purchase Agreement, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and the Purchasers party thereto | |||
4 | .5 | — | Specimen Stock Certificate representing convertible preferred stock | |||
4 | .6 | — | Form of Warrant | |||
4 | .7 | — | Amended and Restated Shareholders Agreement, dated April 4, 2007, among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and certain shareholders | |||
4 | .8 | — | Registration Rights Agreement, dated March 20, 2007, by and among SandRidge Energy, Inc. and the several purchasers party thereto | |||
4 | .9 | — | Stock Purchase Agreement, dated February 12, 2007, by and among SandRidge Energy, Inc. and each of the investors signatory thereto | |||
4 | .10 | — | Shareholders Agreement, dated March 20, 2007, by and among SandRidge Energy, Inc. and certain common shareholders | |||
4 | .11 | — | Form of Consent to Amend the December 2005 Resale Registration Rights Agreement, dated June 13, 2006 | |||
4 | .12 | — | Form of Consent to Amend the December 2005 Resale Registration Rights Agreement, dated April 23, 2007 | |||
4 | .13 | — | Form of Consent to Amend the December 2005 Resale Registration Rights Agreement, dated October 4, 2007 | |||
4 | .14 | — | Form of Consent to Amend the November 2006 Registration Rights Agreement, dated October 4, 2007 | |||
4 | .15 | — | Form of Consent to Amend the March 2007 Registration Rights Agreement, dated October 4, 2007 | |||
5 | .1 | — | Opinion of Vinson & Elkins L.L.P. | |||
10 | .1 | — | 401(k) Plan of SandRidge Energy, Inc. | |||
10 | .2 | — | 2005 Stock Plan of SandRidge Energy, Inc. |
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10 | .3 | — | Employment Participation Plan of SandRidge Energy, Inc. | |||
10 | .4 | — | Well Participation Plan of SandRidge Energy, Inc. | |||
10 | .5 | — | Form of Indemnification Agreement | |||
10 | .6 | — | Senior Credit Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger and Book Running Manager | |||
10 | .7 | — | Senior Bridge Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Banc of America Bridge LLC, as the Initial Bridge Lender and Banc of America Securities LLC, Credit Suisse Security, Goldman, Sachs Credit Partners L.P., and Lehman Brothers, Inc. as joint lead arrangers and book runners | |||
10 | .8 | — | Credit Agreement, dated March 22, 2007 by and among SandRidge Energy, Inc. and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger | |||
10 | .9 | — | Amendment No. 1 to Senior Credit Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger and Book Running Manager | |||
10 | .10 | — | Amendment No. 2 to Senior Credit Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger and Book Running Manager | |||
10 | .11 | — | Employment Agreement of Tom L. Ward | |||
10 | .12 | — | Employment Agreement of Larry K. Coshow | |||
10 | .13 | — | Partnership Interest Purchase Agreement, dated November 21, 2005 by and among Riata Energy, Inc. and Matthew McCann | |||
10 | .14 | — | Purchase and Sale Agreement, dated December 4, 2005 by and between Gillco Energy, LP, as Seller and Riata Energy, Inc., Riata Piceance, LLC, MidContinent Resources, LLC, and ROC Gas Company, as Buyer. | |||
10 | .15 | — | Purchase and Sale Agreement, dated December 4, 2005 by and between Wallace Jordan, LLC and Daniel White Jordan, as Sellers and Riata Energy, Inc., Sierra Madera CO2 Pipeline, LLC, Riata Piceance, LLC, and ROC Gas Company, as Buyers | |||
10 | .16 | — | Purchase and Sale Agreement, dated August 29, 2006 by and among Alstate Management and Investment Company and Longfellow Ranch Partners, LP | |||
10 | .17 | — | Purchase and Sale Agreement, dated June 7, 2007 by and between Wallace Jordan, LLC and SandRidge Energy, Inc. | |||
10 | .18 | — | Office Lease Agreement, dated March 6, 2006 by and between 1601 Tower Properties, L.L.C. and Riata Energy, Inc. | |||
10 | .19 | — | First Amendment to Office Lease Agreement, dated October 19, 2006 by and between 1601 Tower Properties, L.L.C. and Riata Energy, Inc. d/b/a SandRidge Energy, Inc. | |||
10 | .20 | — | Second Amendment to Office Lease Agreement, dated January 26, 2007 by and between 1601 Tower Properties, L.L.C. and Riata Energy, Inc. d/b/a SandRidge Energy, Inc. | |||
10 | .21 | — | Letter Agreement for Acquisition of Properties, dated September 21, 2007 by and between SandRidge Energy, Inc., Longfellow Energy, LP, Dalea Partners, LP and N. Malone Mitchell, 3rd(4) | |||
21 | .1 | — | Subsidiaries of SandRidge Energy, Inc. | |||
23 | .1 | — | Consent of PricewaterhouseCoopers LLP | |||
23 | .2 | — | Consent of DeGolyer & MacNaughton | |||
23 | .3 | — | Consent of Vinson & Elkins L.L.P. (Contained in Exhibit 5.1) | |||
23 | .4 | — | Consent of Grant Thornton LLP | |||
23 | .5 | — | Consent of Netherland, Sewell & Associates, Inc. | |||
23 | .6 | — | Consent of Harper & Associates, Inc. | |||
24 | .1 | — | Power of Attorney (included on signature page) |
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Item 17. | Undertakings |
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By: | /s/ Tom L. Ward |
Title: | President, Chief Executive Officer |
Signature | Title | Date | ||||
/s/ Tom L. Ward Tom L. Ward | President, Chief Executive Officer And Chairman of the Board (Principal Executive Officer) | January 30, 2008 | ||||
/s/ Dirk M. Van Doren Dirk M. Van Doren | Chief Financial Officer and Executive Vice President (Principal Financial Officer) | January 30, 2008 | ||||
/s/ Randall D. Cooley Randall D. Cooley | Senior Vice President of Accounting (Principal Accounting Officer) | January 30, 2008 | ||||
/s/ Dan Jordan Dan Jordan | Director | January 30, 2008 | ||||
/s/ Bill Gilliland Bill Gilliland | Director | January 30, 2008 | ||||
/s/ Roy T. Oliver, Jr. Roy T. Oliver, Jr. | Director | January 30, 2008 |
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Signature | Title | Date | ||||
/s/ Stuart W. Ray Stuart W. Ray | Director | January 30, 2008 | ||||
/s/ D. Dwight Scott D. Dwight Scott | Director | January 30, 2008 | ||||
/s/ Jeff Serota Jeff Serota | Director | January 30, 2008 |
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3 | .1 | — | Certificate of Incorporation | |||
3 | .2 | — | Certificate of Designation of convertible preferred stock | |||
3 | .3 | — | Bylaws | |||
4 | .1 | — | Specimen Stock Certificate representing common stock | |||
4 | .2 | — | Resale Registration Rights Agreement, dated December 21, 2005, by and between SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Banc of America Securities, LLC | |||
4 | .3 | — | Registration Rights Agreement, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and the Purchasers party thereto | |||
4 | .4 | — | Securities Purchase Agreement, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and the Purchasers party thereto | |||
4 | .5 | — | Specimen Stock Certificate representing convertible preferred stock | |||
4 | .6 | — | Form of Warrant | |||
4 | .7 | — | Amended and Restated Shareholders Agreement, dated April 4, 2007, among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and certain shareholders | |||
4 | .8 | — | Registration Rights Agreement, dated March 20, 2007, by and among SandRidge Energy, Inc. and the several purchasers party thereto | |||
4 | .9 | — | Stock Purchase Agreement, dated February 12, 2007, by and among SandRidge Energy, Inc. and each of the investors signatory thereto | |||
4 | .10 | — | Shareholders Agreement, dated March 20, 2007, by and among SandRidge Energy, Inc. and certain common shareholders | |||
4 | .11 | — | Form of Consent to Amend the December 2005 Resale Registration Rights Agreement, dated June 13, 2006 | |||
4 | .12 | — | Form of Consent to Amend the December 2005 Resale Registration Rights Agreement, dated April 23, 2007 | |||
4 | .13 | — | Form of Consent to Amend the December 2005 Resale Registration Rights Agreement, dated October 4, 2007 | |||
4 | .14 | — | Form of Consent to Amend the November 2006 Registration Rights Agreement, dated October 4, 2007 | |||
4 | .15 | — | Form of Consent to Amend the March 2007 Registration Rights Agreement, dated October 4, 2007 | |||
5 | .1 | — | Opinion of Vinson & Elkins L.L.P. | |||
10 | .1 | — | 401(k) Plan of SandRidge Energy, Inc. | |||
10 | .2 | — | 2005 Stock Plan of SandRidge Energy, Inc. | |||
10 | .3 | — | Employment Participation Plan of SandRidge Energy, Inc. | |||
10 | .4 | — | Well Participation Plan of SandRidge Energy, Inc. | |||
10 | .5 | — | Form of Indemnification Agreement | |||
10 | .6 | — | Senior Credit Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger and Book Running Manager | |||
10 | .7 | — | Senior Bridge Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Banc of America Bridge LLC, as the Initial Bridge Lender and Banc of America Securities LLC, Credit Suisse Security, Goldman, Sachs Credit Partners L.P., and Lehman Brothers, Inc. as joint lead arrangers and book runners | |||
10 | .8 | — | Credit Agreement, dated March 22, 2007 by and among SandRidge Energy, Inc. and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger | |||
10 | .9 | — | Amendment No. 1 to Senior Credit Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger and Book Running Manager |
Table of Contents
10 | .10 | — | Amendment No. 2 to Senior Credit Facility, dated November 21, 2006, by and among SandRidge Energy, Inc. (as successor by merger to Riata Energy, Inc.) and Bank of America, N.A., as Administrative Agent and Banc of America Securities LLC as Lead Arranger and Book Running Manager | |||
10 | .11 | — | Employment Agreement of Tom L. Ward | |||
10 | .12 | — | Employment Agreement of Larry K. Coshow | |||
10 | .13 | — | Partnership Interest Purchase Agreement, dated November 21, 2005 by and among Riata Energy, Inc. and Matthew McCann | |||
10 | .14 | — | Purchase and Sale Agreement, dated December 4, 2005 by and between Gillco Energy, LP, as Seller and Riata Energy, Inc., Riata Piceance, LLC, MidContinent Resources, LLC, and ROC Gas Company, as Buyer. | |||
10 | .15 | — | Purchase and Sale Agreement, dated December 4, 2005 by and between Wallace Jordan, LLC and Daniel White Jordan, as Sellers and Riata Energy, Inc., Sierra Madera CO2 Pipeline, LLC, Riata Piceance, LLC, and ROC Gas Company, as Buyers | |||
10 | .16 | — | Purchase and Sale Agreement, dated August 29, 2006 by and among Alstate Management and Investment Company and Longfellow Ranch Partners, LP | |||
10 | .17 | — | Purchase and Sale Agreement, dated June 7, 2007 by and between Wallace Jordan, LLC and SandRidge Energy, Inc. | |||
10 | .18 | — | Office Lease Agreement, dated March 6, 2006 by and between 1601 Tower Properties, L.L.C. and Riata Energy, Inc. | |||
10 | .19 | — | First Amendment to Office Lease Agreement, dated October 19, 2006 by and between 1601 Tower Properties, L.L.C. and Riata Energy, Inc. d/b/a SandRidge Energy, Inc. | |||
10 | .20 | — | Second Amendment to Office Lease Agreement, dated January 26, 2007 by and between 1601 Tower Properties, L.L.C. and Riata Energy, Inc. d/b/a SandRidge Energy, Inc. | |||
10 | .21 | — | Letter Agreement for Acquisition of Properties, dated September 21, 2007 by and between SandRidge Energy, Inc., Longfellow Energy, LP, Dalea Partners, LP and N. Malone Mitchell, 3rd(4) | |||
21 | .1 | — | Subsidiaries of SandRidge Energy, Inc. | |||
23 | .1 | — | Consent of PricewaterhouseCoopers LLP | |||
23 | .2 | — | Consent of DeGolyer & MacNaughton | |||
23 | .3 | — | Consent of Vinson & Elkins L.L.P. (Contained in Exhibit 5.1) | |||
23 | .4 | — | Consent of Grant Thornton LLP | |||
23 | .5 | — | Consent of Netherland, Sewell & Associates, Inc. | |||
23 | .6 | — | Consent of Harper & Associates, Inc. | |||
24 | .1 | — | Power of Attorney (included on signature page) |