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Acquisitions and Divestitures | 3 Months Ended
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Mar. 31, 2013
Acquisitions and Divestitures [Abstract] |
Acquisitions and Divestitures | Acquisitions and Divestitures 2012 Acquisitions and Divestitures Dynamic Acquisition. The Company acquired 100% of the equity interests of Dynamic Offshore Resources, LLC (“Dynamic”) in April 2012 for total consideration of approximately $1.2 billion, comprised of approximately $680.0 million in cash and approximately 74 million shares of SandRidge common stock (the “Dynamic Acquisition”). Upon completion of the initial purchase price allocation as of April 17, 2012, the Company reviewed and verified its assessment, including the identification and valuation of assets acquired and liabilities assumed. 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 its 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 during 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 period of the acquisition. 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. No adjustments were made to the purchase price allocation in the first quarter of 2013. 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 obligations(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 the Company 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.
Market assumptions of 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 under the fair value hierarchy, as described in Note 4. The following unaudited pro forma combined results of operations for the first quarter of 2012 are presented as though the Dynamic Acquisition had been completed as of January 1, 2011, which was the beginning of the earliest period presented at the time of the acquisition. The pro forma combined results of operations for the first quarter of 2012 have been prepared by adjusting the historical results of the Company to include the historical results of Dynamic and certain reclassifications to conform Dynamic’s presentation and accounting policies to the Company’s, and to exclude certain transaction costs. 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, or may result, from the Dynamic Acquisition or any estimated costs 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.
| Three Months Ended March 31, 2012
| (in thousands, except per share data)
Revenues | $ | 529,805 |
Net loss (1) | $ | (218,725 | )
Loss applicable to SandRidge Energy, Inc. common stockholders (1) | $ | (234,560 | )
Loss per common share (1) |
Basic | $ | (0.49 | )
Diluted | $ | (0.49 | )
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(1) | Pro forma net loss, loss applicable to SandRidge Energy, Inc. common stockholders and loss per common share exclude $2.5 million of acquisition costs and $10.9 million of fees to secure financing included in the accompanying unaudited condensed consolidated statement of operations for the three-month period ended March 31, 2012.
Transaction costs related to the Dynamic Acquisition of $2.5 million and fees incurred to secure financing for the acquisition of $10.9 million are included in general and administrative expense and interest expense, respectively, in the accompanying unaudited condensed consolidated statement of operations for the three-month period ended March 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 $43.3 million, net of purchase price and 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 June 20, 2012, 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 of 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 under the fair value hierarchy, as described in Note 4. 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 of these properties. The Company completed its valuation of assets acquired and liabilities assumed related to the acquired Gulf of Mexico Properties in the first quarter of 2013 and updated estimates used in the preliminary purchase price allocation with respect to certain accruals, resulting in an adjustment of $4.8 million to proved developed and undeveloped properties. The following table summarizes the consideration paid to acquire the properties and the final valuation of assets acquired and liabilities assumed as of June 20, 2012 (in thousands):
Consideration paid |
Cash, net of purchase price adjustments | $ | 43,282 |
Fair value of identifiable assets acquired and liabilities assumed |
Proved developed and undeveloped properties | $ | 98,725 |
Asset retirement obligation | (55,443 | )
Total identifiable net assets | $ | 43,282 |
The following unaudited pro forma combined results of operations for the three months ended March 31, 2012 are presented as though the Company acquired the Gulf of Mexico Properties as of January 1, 2011, which was the beginning of the earliest period presented at the time of the acquisition. The pro forma combined results of operations for the first quarter of 2012 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.
| Three Months Ended March 31, 2012
| (In thousands, except per share data)
Revenues | $ | 396,252 |
Net loss | $ | (215,020 | )
Loss applicable to SandRidge Energy, Inc. common stockholders | $ | (230,855 | )
Loss per common share |
Basic | $ | (0.58 | )
Diluted | $ | (0.58 | )
2013 Divestiture Sale of Permian Properties. On February 26, 2013, the Company completed the sale of 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. This transaction resulted in a significant alteration of the relationship between the Company’s capitalized costs and proved reserves and, accordingly, the Company recorded a loss of $399.1 million on the sale, which is included in loss on sale of assets in the accompanying unaudited condensed statement of operations for the three-month period ended March 31, 2013. A portion of the loss totaling $71.7 million was allocated to noncontrolling interests and is reflected in net (loss) income attributable to noncontrolling interest in the accompanying unaudited condensed statement of operations for the three-month period ended March 31, 2013. The loss was calculated based on a comparison of proceeds received and the asset retirement obligation attributable to the Permian Properties that was assumed by the buyer to the sum of (i) an allocation of the historical net book value of the Company’s proved oil and natural gas properties, (ii) the historical cost of unproved acreage sold and (iii) costs incurred by the Company to sell the properties. The allocated net book value attributable to the Permian Properties was calculated based on the relative fair value of the Permian Properties and the remaining proved oil and natural gas properties retained by the Company as of the date of sale. The following table presents revenues and direct operating expenses of the Permian Properties included in the accompanying unaudited condensed consolidated statements of operations for the three months ended March 31, 2013 and 2012 (in thousands):
| Three Months Ended March 31,
| 2013(1) |  | 2012
Revenue | $ | 68,027 |  |  | $ | 161,765 |
Direct operating expenses | $ | 17,453 |  |  | $ | 35,990 |
__________________ (1) Information for the three months ended March 31, 2013 is through February 26, 2013, the date of sale. Sale of Working Interests and Associated Drilling Carry Commitments During 2011 and 2012, the Company completed two transactions whereby it sold non-operated working interests in the Mississippian formation. 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 within areas of mutual interest 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. These transactions and the associated drilling carries as of March 31, 2013 were as follows:
Partner |  | Closing Date |  | Total Drilling Carry |  | Drilling Carry Recorded |  | Drilling Carry Remaining
|  |  |  | (in millions)
Atinum MidCon I, LLC |  | September 2011 |  | $ | 250.0 |  |  | $ | 197.2 |  |  | $ | 52.8 |
Repsol E&P USA, Inc. |  | January 2012 |  | 750.0 |  |  | 312.5 |  |  | 437.5 |
|  |  |  | $ | 1,000.0 |  |  | $ | 509.7 |  |  | $ | 490.3 |
During the three months ended March 31, 2013 and 2012, the Company recorded approximately $123.3 million and $33.7 million, respectively, for Atinum MidCon I, LLC’s and Repsol E&P USA, Inc.’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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