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Acquisitions and Divestitures | 12 Months Ended
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Dec. 31, 2012
Business Combinations [Abstract] |
Acquisitions and Divestitures | Acquisitions and Divestitures 2010 Acquisitions and Divestitures Arena Acquisition. On July 16, 2010, the Company acquired 100% of the outstanding common stock of Arena (“Arena Acquisition”). At the time of the acquisition, Arena was engaged in oil and natural gas exploration, development and production, with activities in Oklahoma, Texas, New Mexico and Kansas. In connection with the acquisition, the Company issued 4.7771 shares of its common stock and paid $4.50 in cash to Arena stockholders for each outstanding share of Arena unrestricted common stock. This resulted in the issuance of approximately 190.3 million shares of Company common stock and payment of approximately $177.9 million in cash for an aggregate estimated purchase price to stockholders of Arena equal to approximately $1.4 billion. For purposes of purchase accounting, the value of the common stock issued was determined based on the closing price of $6.55 per share of the Company’s common stock on the New York Stock Exchange at July 16, 2010, the acquisition date. The Company incurred acquisition-related costs of approximately $0.6 million and $17.0 million for the years ended December 31, 2011 and 2010, respectively, which have been included in general and administrative expenses in the accompanying consolidated statements of operations. In the second quarter of 2011, the Company completed its valuation of assets acquired and liabilities assumed related to the Arena Acquisition, which are included in the following table (in thousands):
Current assets | $ | 83,563 |
Oil and natural gas properties(1) | 1,587,630 |
Other property, plant and equipment | 5,963 |
Long-term deferred tax assets | 48,997 |
Other long-term assets | 16,181 |
Goodwill(2) | 235,396 |
Total assets acquired | 1,977,730 |
Current liabilities | 38,964 |
Long-term deferred tax liability(2) | 503,483 |
Other long-term liabilities | 8,851 |
Total liabilities assumed | 551,298 |
Net assets acquired | $ | 1,426,432 |
____________________
(1) | Weighted average commodity prices utilized in the determination of the fair value of oil and natural gas properties were $105.58 per barrel of oil and $8.56 per Mcf of natural gas, after adjustment for transportation fees and regional price differentials. The prices utilized were based upon forward commodity strip prices, as of July 16, 2010, for the first four years and escalated for inflation at a rate of 2.5% annually beginning with the fifth year through the end of production, which was more than 50 years. These assumptions represent Level 3 inputs. Approximately 91.0% of the fair value allocated to oil and natural gas properties is attributed to oil reserves.
(2) | The Company received carryover tax basis in Arena’s assets and liabilities because the merger was not a taxable transaction under the Internal Revenue Code (“IRC”). Based upon the final purchase price allocation, a step-up in basis related to the property acquired from Arena resulted in a net deferred tax liability of approximately $454.5 million, which in turn contributed to an excess of the consideration transferred to acquire Arena over the estimated fair value on the acquisition date of the net assets acquired, or goodwill.
The following unaudited pro forma results of operations are provided for the year ended December 31, 2010 as though the Arena Acquisition had been completed as of the beginning of that year. The pro forma combined results of operations for the year ended December 31, 2010 was prepared by adjusting the historical results of the Company to include the historical results of Arena, certain reclassifications to conform Arena’s presentation to the Company’s accounting policies and the impact of the purchase price allocation. These supplemental pro forma results of operations are provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined company for the period presented or that may be achieved by the combined company in the future. The pro forma results of operations do not include any cost savings or other synergies that resulted from the acquisition or any estimated costs that have been incurred by the Company to integrate Arena. Future results may vary significantly from the results reflected in this pro forma financial information because of future events and transactions, as well as other factors.
| Year Ended December 31, 2010
| (In thousands, except per share data)
| (Unaudited)
Revenues | $ | 1,046,569 |
Income available to SandRidge Energy, Inc. common stockholders(1) | $ | 171,654 |
Earnings per common share |
Basic | $ | 0.44 |
Diluted | $ | 0.43 |
____________________
(1) | Includes a $454.5 million reduction in tax expense related to the release of a portion of the Company’s valuation allowance on existing deferred tax assets.
Revenues of $112.1 million and earnings of $90.1 million generated by the oil and natural gas properties acquired in the Arena Acquisition for the period of July 17, 2010 through December 31, 2010 have been included in the Company’s accompanying consolidated statements of operations for the year ended December 31, 2010. Divestitures. The Company completed the following divestitures in 2010, both of which were accounted for as adjustments to the full cost pool with no gain or loss recognized:
• | On August 26, 2010, the Company sold certain deep acreage rights in the Cana Shale play in western Oklahoma for estimated net proceeds of $109.4 million, net of post-closing adjustments. The Company retained the shallow rights associated with this acreage.
• | On December 10, 2010, the Company sold approximately 40,000 net acres in the Avalon Shale and Bone Spring reservoirs of the Permian Basin for $102.1 million, net of post-closing adjustments. There was no production or proved reserves associated with these assets and the Company retained all rights above and below the Avalon Shale and Bone Spring formations.
2011 Divestitures The Company completed the following divestitures in 2011, all of which were accounted for as adjustments to the full cost pool with no gain or loss recognized:
• | In July 2011, the Company sold its Wolfberry assets in the Permian Basin for $151.6 million, net of fees and post-closing adjustments.
• | In August 2011, the Company sold certain oil and natural gas properties in Lea County and Eddy County, New Mexico, for $199.0 million, net of fees and post-closing adjustments.
• | In November 2011, the Company sold its east Texas natural gas properties in Gregg, Harrison, Rusk and Panola counties for $225.4 million, net of fees and post-closing adjustments.
2012 Acquisitions and Divestitures Dynamic Acquisition. The Company acquired 100% of the equity interests of Dynamic on April 17, 2012 for total consideration of approximately $1.2 billion, comprised of approximately $680.0 million in cash and approximately 74 million shares of the Company’s common stock (the “Dynamic Acquisition”). Dynamic is an oil and natural gas exploration, development and production company with operations in the Gulf of Mexico. The Dynamic Acquisition expanded the Company’s presence in the Gulf of Mexico, adding oil and natural gas reserves and production to its existing asset base in this area. A preliminary allocation of the purchase price as of April 17, 2012 was prepared in connection with the Company’s June 30, 2012 consolidated financial statements. Upon completion of the initial purchase price allocation, the Company reviewed its assessment, including the identification and valuation of assets acquired and liabilities assumed. Upon verification of the purchase price allocation, the Company recorded a bargain purchase gain for the difference between the purchase price and the estimated fair value of the net assets acquired. During the fourth quarter of 2012, the Company updated certain of the estimates used in the preliminary purchase price allocation, primarily with respect to deferred taxes and other accruals for which the Company was awaiting additional information, resulting in adjustments of $1.8 million to the bargain purchase gain and $3.0 million to the initial valuation allowance release, which resulted in income tax expense. The Company recorded a net deferred tax liability associated with the Dynamic Acquisition, which resulted in the release of a portion of the previously recorded valuation allowance on the Company’s net deferred tax asset. The Company will monitor the need to further adjust the Company’s valuation allowance on its net deferred tax asset as the purchase price allocation is finalized and the full impact of the acquisition is determined, both of which are expected to occur by the second quarter of 2013. The Company believes the estimates used in the purchase price allocation are reasonable and the significant effects of the Dynamic Acquisition are properly reflected. However, the estimates are subject to change as additional information becomes available and is assessed by the Company. Changes to the purchase price allocation and any corresponding change to the bargain purchase gain will be adjusted retrospectively to the date of the acquisition. The following table summarizes the estimated values of assets acquired and liabilities assumed in connection with the Dynamic Acquisition (in thousands, except stock price):
Consideration(1) |
Shares of SandRidge common stock issued | 73,962 |
SandRidge common stock price | $ | 7.33 |
Fair value of common stock issued | 542,138 |
Cash consideration(2) | 680,000 |
Cash balance adjustment(3) | 13,091 |
Total purchase price | $ | 1,235,229 |
Estimated Fair Value of Liabilities Assumed |
Current liabilities | $ | 129,363 |
Asset retirement obligation(4) | 315,922 |
Long-term deferred tax liability(5) | 100,288 |
Other non-current liabilities | 4,469 |
Amount attributable to liabilities assumed | 550,042 |
Total purchase price plus liabilities assumed | 1,785,271 |
Estimated Fair Value of Assets Acquired |
Current assets | 142,027 |
Oil and natural gas properties(6) | 1,746,753 |
Other property, plant and equipment | 1,296 |
Other non-current assets | 17,891 |
Amount attributable to assets acquired | 1,907,967 |
Bargain purchase gain(7) | $ | (122,696 | )
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(1) | Consideration paid by the Company consisted of 74 million shares of SandRidge common stock and cash of approximately $680.0 million. The value of the stock consideration is based upon the closing price of $7.33 per share of SandRidge common stock on April 17, 2012, which was the closing date of the Dynamic Acquisition. Under the acquisition method of accounting, the purchase price is determined based on the total cash paid and the fair value of SandRidge common stock issued on the acquisition date.
(2) | Cash consideration paid, including amounts paid to retire Dynamic’s long-term debt, was funded through a portion of the net proceeds from the Company’s issuance of $750.0 million of unsecured 8.125% Senior Notes due 2022.
(3) | In accordance with the acquisition agreement, the Company remitted to the seller a cash payment equal to Dynamic’s average daily cash balance for the 30-day period ending on the second day prior to closing. This resulted in an additional cash payment by SandRidge of $13.1 million at closing.
(4) | The estimated fair value of the acquired asset retirement obligation was determined using the Company’s credit adjusted risk-free rate.
(5) | The net deferred tax liability is primarily a result of the difference between the estimated fair value and the Company’s expected tax basis in the assets acquired and liabilities assumed. The net deferred tax liability also includes the effects of deferred tax assets associated with net operating losses and other tax attributes acquired as a result of the Dynamic Acquisition.
(6) | The fair value of oil and natural gas properties acquired was estimated using a discounted cash flow model, with future cash flows estimated based upon projections of oil and natural gas reserve quantities and weighted average oil and natural gas prices of $113.62 per barrel of oil and $3.83 per Mcf of natural gas, after adjustment for transportation fees and regional price differentials. The commodity prices utilized were based upon commodity strip prices as of April 17, 2012 for the first four years and escalated for inflation at a rate of 2.0% annually beginning with the fifth year through the end of production. Future cash flows were discounted using an industry weighted average cost of capital rate.
(7) | The bargain purchase gain results from the excess of the fair value of net assets acquired over consideration paid and, as additional information becomes available, is subject to adjustment. To validate the estimated bargain purchase gain on this acquisition, the Company reviewed its initial identification and valuation of assets acquired and liabilities assumed. The Company believes it was able to acquire Dynamic for less than the estimated fair value of its net assets due to their offshore location resulting in less bidding competition.
The market assumptions as to future commodity prices, projections of estimated quantities of oil and natural gas reserves, expectations for timing and amount of future development and operating costs, projections of future rates of production, expected recovery rates and risk-adjusted discount rates used by the Company to estimate the fair market value of the oil and natural gas properties acquired represent Level 3 inputs. The following unaudited pro forma combined results of operations for the years ended December 31, 2012 and 2011 are presented as though the Dynamic Acquisition had been completed as of January 1, 2011. The pro forma combined results of operations for the years ended December 31, 2012 and 2011 have been prepared by adjusting the historical results of the Company to include the historical results of Dynamic, certain reclassifications to conform Dynamic’s presentation and accounting policies to the Company’s and the impact of the bargain purchase gain resulting from the preliminary purchase price allocation. These supplemental pro forma results of operations are provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future. The pro forma results of operations do not include any cost savings or other synergies that may result, from the Dynamic Acquisition or any estimated costs that will be incurred to integrate Dynamic. Future results may vary significantly from the results reflected in this pro forma financial information because of future events and transactions, as well as other factors.
| Year Ended December 31,
| 2012(1) |  | 2011(2)
| (in thousands, except per share data)
| (Unaudited)
Revenues | $ | 2,908,899 |  |  | $ | 1,932,945 |
Net income | $ | 39,563 |  |  | $ | 509,644 |
(Loss applicable) income available to SandRidge Energy, Inc. common stockholders | $ | (120,962 | ) |  | $ | 399,278 |
(Loss) earnings per common share |  |  |
Basic | $ | (0.25 | ) |  | $ | 0.84 |
Diluted | $ | (0.25 | ) |  | $ | 0.80 |
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(1) | Pro forma net income, income available to SandRidge Energy, Inc. common stockholders and earnings per common share exclude a $122.7 million bargain purchase gain, a $100.3 million partial valuation allowance release included in income tax benefit, $10.9 million of fees incurred to secure financing for the Dynamic Acquisition included in interest expense and $13.0 million of transaction costs incurred and included in general and administrative expense in the accompanying consolidated statements of operations for the year ended December 31, 2012.
(2) | Pro forma net income, income applicable to SandRidge Energy, Inc. common stockholders and earnings per common share include a $122.7 million bargain purchase gain, a $100.3 million partial valuation allowance release, $10.9 million of fees incurred to secure financing for the Dynamic Acquisition and $13.0 million of estimated transaction costs.
Revenues of $365.0 million and income from operations of $81.5 million associated with Dynamic have been included in the accompanying consolidated statements of operations for the year ended December 31, 2012. Additionally, the Company has incurred $13.0 million in acquisition-related costs for the Dynamic Acquisition, which have been included in general and administrative expense in the accompanying consolidated statements of operations for the year ended December 31, 2012. Sale of Tertiary Recovery Properties. In June 2012, the Company sold its tertiary recovery properties located in the Permian Basin area of west Texas for approximately $130.8 million, net of post-closing adjustments. The sale of the acreage and working interests in wells was accounted for as an adjustment to the full cost pool with no gain or loss recognized. Acquisition of Gulf of Mexico Properties. In June 2012, the Company acquired oil and natural gas properties in the Gulf of Mexico (the “Gulf of Mexico Properties”) located on approximately 184,000 gross (103,000 net) acres for approximately $38.5 million, net of purchase price adjustments and subject to post-closing adjustments. This acquisition expanded the Company’s presence in the Gulf of Mexico, adding oil and natural gas reserves and production to its existing asset base in this area. This acquisition qualified as a business combination for accounting purposes and, as such, the Company estimated the fair value of the acquired properties as of the June 20, 2012 acquisition date, which was the date on which the Company obtained control of the properties. The fair value was estimated using a discounted cash flow model based upon market assumptions as to future commodity prices, projections of estimated quantities of oil and natural gas reserves, expectations for timing and amount of future development and operating costs, projections of future rates of production, expected recovery rates and risk-adjusted discount rates. These assumptions represent Level 3 inputs. The Company estimated the consideration paid for these properties approximated the fair value that would be paid by a typical market participant. As a result, no goodwill or bargain purchase gain was recognized in conjunction with the purchase. Acquisition-related costs of $0.2 million have been expensed as incurred in general and administrative expense in the accompanying consolidated statements of operations for the year ended December 31, 2012. Revenues of $26.2 million and earnings of $19.1 million generated by the acquired properties have been included in the accompanying consolidated statements of operations for the year ended December 31, 2012. The following table summarizes the consideration paid to acquire the properties and the amounts of the assets acquired and liabilities assumed as of June 20, 2012. The purchase price allocation is preliminary and subject to adjustment upon the final closing settlement to be completed during the first quarter of 2013 (in thousands):
Consideration paid |
Cash, net of purchase price adjustments | $ | 38,458 |
Fair value of identifiable assets acquired and liabilities assumed |
Proved developed and undeveloped properties | $ | 93,901 |
Asset retirement obligations | (55,443 | )
Total identifiable net assets | $ | 38,458 |
The following unaudited pro forma combined results of operations for the years ended December 31, 2012 and 2011 are presented as though the Company acquired the Gulf of Mexico Properties as of January 1, 2011. The pro forma combined results of operations for the years ended December 31, 2012 and 2011 have been prepared by adjusting the historical results of the Company to include the historical results of the acquired properties and estimates of the effect of the transaction on the combined results. These supplemental pro forma results of operations are provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved had the transaction been in effect for the periods presented or that may be achieved by the Company in the future. Future results may vary significantly from the results reflected in this pro forma financial information because of future events and transactions, as well as other factors.
| Year Ended December 31,
| 2012 |  | 2011
| (In thousands, except per share data)
| (Unaudited)
Revenues | $ | 2,759,381 |  |  | $ | 1,502,325 |
Net income | $ | 248,920 |  |  | $ | 191,335 |
Income available to SandRidge Energy, Inc. common stockholders | $ | 88,395 |  |  | $ | 81,429 |
Earnings per common share |  |  |
Basic | $ | 0.19 |  |  | $ | 0.20 |
Diluted | $ | 0.19 |  |  | $ | 0.20 |
Sale of Permian Properties. In December 2012, the Company entered into an agreement to sell all of its oil and natural gas properties in the Permian Basin in west Texas, excluding the assets attributable to the Permian Trust’s area of mutual interest (the “Permian Properties”) for $2.6 billion, subject to post-closing adjustments. In December 2012, the Company received a $255.0 million escrow deposit associated with the sale of the Permian Properties. This deposit is included as a restricted deposit in the accompanying consolidated balance sheets at December 31, 2012. This deposit was released from escrow to the Company on February 26, 2013 in connection with closing of the sale of the Permian Properties. See Note 22 for further discussion of the Permian Properties sale. Sale of Working Interests and Associated Drilling Carry Commitments During 2011 and the first quarter of 2012, the Company completed two transactions whereby it sold non-operated working interests in the Mississippian formation. Each of these transactions is described in more detail below. In these transactions, the Company received aggregate cash proceeds of $500.0 million for the sale of working interests and received drilling carry commitments to fund a portion of its future drilling and completion costs totaling $1.0 billion. For accounting purposes, initial cash proceeds from these transactions were reflected as a reduction of oil and natural gas properties with no gain or loss recognized, and amounts received or billed during 2011 and 2012 attributable to the drilling carry reduced the Company’s capital expenditures. These transactions and the associated drilling carries as of December 31, 2012, are as follows:
Partner |  | Closing Date |  | Proceeds Received At Closing(1) |  | Drilling Carry Recorded |  | Drilling Carry Remaining
|  |  |  | (In millions)
Atinum MidCon I, LLC |  | September 2011 |  | $ | 287.0 |  |  | $ | 157.2 |  |  | $ | 92.8 |
Repsol E&P USA, Inc. |  | January 2012 |  | 272.5 |  |  | 229.3 |  |  | 520.7 |
|  |  |  | $ | 559.5 |  |  | $ | 386.5 |  |  | $ | 613.5 |
____________________ (1) Includes amounts related to the drilling carry. In September 2011, the Company sold to Atinum MidCon I, LLC (“Atinum”) non-operated working interests equal to approximately 113,000 net acres in the Mississippian formation in northern Oklahoma and southern Kansas for approximately $250.0 million. In addition, Atinum agreed to pay the development costs related to its working interest, as well as a portion of the Company’s development costs equal to Atinum’s working interest for wells within an area of mutual interest up to $250.0 million. The Company expects Atinum’s funding of the Company’s development cost for wells within the area of mutual interest to occur over a period not to exceed three years. In January 2012, the Company sold (i) non-operated working interests, equal to approximately 250,000 net acres, in the Mississippian formation in western Kansas and (ii) non-operated working interests, equal to approximately 114,000 net acres, and a proportionate share of existing salt water disposal facilities in the Mississippian formation in northern Oklahoma and southern Kansas to Repsol E&P USA Inc. (“Repsol”) for approximately $250.0 million. In addition, Repsol agreed to pay the development costs related to its working interests, as well as a portion of the Company’s development costs equal to 200% of Repsol’s working interests for wells within an area of mutual interest up to $750.0 million. The Company expects Repsol’s funding of the Company’s development cost for wells within the area of mutual interest to occur over a three-year period. During the years ended December 31, 2012 and 2011, the Company recorded approximately $367.6 million and $18.9 million, respectively, for Atinum’s and Repsol’s drilling carries, which reduced the Company’s capital expenditures for the respective period.

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- Definition This element may be used to capture disclosure pertaining to acquisitions and dispositions. For acquisitions, description of a business acquisition (or series of individually immaterial business combinations) planned, initiated, or completed during the period, including background, timing, and allocation of acquisition costs. For dispositions, disclosure includes the facts and circumstances leading to the completed or expected disposal, manner and timing of disposal, the gain or loss recognized in the income statement and the income statement caption that includes that gain or loss, and the segment in which the disposal group was reported. + References No definition available. + Details
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