Ladies and gentlemen, thank you for standing by, and welcome to the SandRidge Energy’s Third Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session.

[Operator Instructions] I would now like to hand the conference over to David Zhu, Director of Finance. Thank you. Please go ahead..

Thank you and welcome, everyone. With me today are Carl Giesler, our CEO; Salah Gamoudi, our CFO; and Grayson Pranin, our VP of Engineering and Reservoir as well as other members of management.

We would like to remind you that today’s call contains forward-looking statements and assumptions, which are subject to risks and uncertainties, and actual results may differ materially from those projected in these forward-looking statements. We may also refer to adjusted EBITDA and adjusted G&A, and other non-GAAP financial measures.

Reconciliations of these measures can be found on our website..

Thank you and good morning. Our earnings release yesterday, as well as 10-Q that we will file later today both provide substantive detail on our financial and operating performance during the third quarter. Accordingly as usual, we’ll keep our prepared remarks brief.

We’ve seen a lot of hard work over the last six months come together in this third quarter.

Starting with HSC, spite sharp personnel reductions, substantial outsourcing, numerous well adjustments in response to volatile commodity prices and other distractions the company streak without a recordable incident stands at 26 net months in counting, quite a remarkable feat.

From a debt and liquidity perspective, our financial position became considerably stronger during the quarter. We ended 3Q is less than $1 million net debt versus more than $45 million than previous quarter. And at the beginning of this week, we had approximately $16 million of cash on hand versus debt of $12 million.

This substantial deleveraging reflects not only the approximately $35 million proceeds from the sale of our headquarters building, but also the significant cost and capital efficiencies implemented our team.

From a production and financial performance perspective, the small ball and capital efficient workover program and cost curtailment initiatives that we implemented over the last six months have become evident in our results. Yesterday’s earnings release again, reaffirmed our 2020 guidance from May.

We’re increasingly confident that we should achieve and on several metrics better those targets. We held production steady this quarter with 22.3 MBoe a day compared to 23.6 MBoe a day in the prior quarter. At this point in the year, we should approach if not surpass 8.2 billion BOE high end of the 2020 guidance May.

LOE continues to fall coming in at 8.1 million or $3.94 per BOE compared to just under $9 million and just over $4 per BOE in the prior quarter. We believe our per BOE LOE compares favorably with almost all our public small-cap oil and gas peers.

Looking at the year end, we should have a good chance to be meaningfully below the $48 million low end of the 2020 LOE guidance from May. Adjusted G&A similarly continues to fall coming in at $2.3 million, or $1.11 per BOE compared to $3.7 million or $1.74 per BOE in the prior quarter.

As with LOE, we believe our per BOE adjusted G&A stacks up well against almost all our public small-cap oil and gas peers. For the year, we should be able to land safely within the $11 million to $15 million range of 2020 adjusted G&A guidance from May.

Finally, on the financial front, adjusted G&A came in at $15.4 million, rebounding approximately 75% from the prior quarter. From a corporate structure perspective, the company is becoming simpler. We closed on the acquisition of the overriding royalty interest held by SandRidge Mississippian Trust II for a net purchase price of $3.3 million.

We have one remaining affiliated in Trust at SandRidge and Mississippian Trust I left that trust has announced that for the agreement governing the trust, it will need to commence winding up this month.

Finally, from a strategic perspective, due to a building sale cost efficiencies and capital discipline, we now find ourselves in the happy position of being one of the few, if not the only small-cap publicly traded gas only to the oil and gas companies transitioning to an increasing net cash positive balance.

This position affords us the benefits of time and patients as well as wide strategic birth. We’ll continue to evaluate adding assets with a focus on those with high PDP rating that we believe we can acquire in an equity value accretive manner as whilst investing assets that no longer align with our strategic direction.

We’ll also assess returning capital to shareholders ensuring we do it in a financially prudent and economically efficient manner. We’ll now open the call to questions..

Good morning..

Good morning..

Hope everyone’s doing well there. I just had a couple of questions. The absorption of the SandRidge Trust II that you did, actually is the original trust the Mississippian I, is that still independent at this point? I haven’t really kept up with it..

It is independent in the sense that has not completed its liquidation. that trust announced this month that it will begin the process of unwinding later this month. And that announcement was made by the trustee for the trust. We own significant portion, roughly 25% of that trust.

So, but we don’t control it and we have some of the same lights during the wind down that we had with the Mississippian Trust II.

In other words, we imagine the trustee will fall through in fiduciary duty, which typically involves a marketing program, where they close it each for the override royalty interests and wells that we operate that are owned by the trust overrides are.

And then when that process is included, we won’t have the opportunity to exercise the right of first refusal and buy that, and our board made the decision to exercise that right with the wind-up of the Mississippian Trust II..

Got it.

And actually, was the timing of, I guess when either trust sort of began its plans for unwinding, was that something that you were aware of well in advance, or is that something they can kind of just do at whatever point they decided?.

The answer to the first question is we had an incline, and I’ll explain and answer to the second question is no. So, the ability for the trust to wind-up is actually fairly formulaic for the trust document and once they meet, they are failed to meet a certain level with distributions for full quarters in a row. they are required to wind down.

And so they don’t have discretion. That’s the price wind down. And so we can monitor what the distributions are and then like other analysts project what we think based on the wells and we operate, we know they have a royalty interest on what their distributable cash flow might be and have a pretty good sense of when they wind down.

But just for clarity, we have no particular in non-public insight into what their plans are. We just can be the math..

Got you. Okay. And I just also wanted to – after you pointed out that the LOE trends have been positive and you think there is still more room for that to come down going forward.

Can you just talk a little bit about what the drivers of that would be?.

Yes. I mean, the drivers have been kind of classic blank page review of how you operate, you’re producing wells. Everything from making sure we right-size our compression. So, we’re not paying for more compression that we need on a well that two years ago may have justified more compression and now it doesn’t.

It means revisiting how, what chemicals you use and how you source them. It means being very aggressive on your RFPs, particularly on trucking saltwater disposal.

It means thinking through how you staff your field operations and making sure that you have the right size personnel force, it means making sure that we’re taking full advantage of the telemetry SCADA that we used to monitor well.

it means that when we do workovers, our expense workovers, first ask if we have an extra part laying around rather than buying a new part, it’s a lot of the small details that you implement.

And to be fair, one of the things that I’m proud of for Grayson and Dean, who have really been tip of the spear implementing this as well as a teams that have led my Kane and Don, they do a really nice job of focusing on these details and that LOE reduction isn’t just based on the curtailment and the number of wells that we have.

In fact, that’s only a small part of it. It’s really; you go to say it in a sentence, focusing on details..

Great. I think that’s all I have. Thanks a lot..

Thank you..

[Operator Instructions] Ladies and gentlemen, this concludes the Q&A and today’s conference call. Thank you for your participation and at this time, you may now disconnect..