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Acquisitions and Divestitures | 12 Months Ended
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Dec. 31, 2014
Business Combinations [Abstract] |
Acquisitions and Divestitures | Acquisitions and Divestitures 2012 Acquisitions and Divestitures Sale of Working Interests and Associated Drilling Carry Commitment. In January 2012, the Company completed a transaction whereby it sold working interests in the Mississippian formation to Repsol E&P USA, Inc. (“Repsol”). The Company received cash proceeds of $272.5 million for the sale of working interests and received a drilling carry commitment to fund a portion of its future drilling and completion costs within an area of mutual interest in the amount of $750.0 million. Proceeds received from this transaction were reflected as a reduction of oil and gas properties with no gain or loss recognized. See additional discussion of the associated drilling carry under this agreement and a similar agreement entered into in 2011 with Atinum MidCon I, LLC (“Atinum”) in Note 7. 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”). The Dynamic Acquisition expanded the Company’s presence in the Gulf of Mexico, adding oil, natural gas and NGL reserves and production to its existing asset base in this area. In the second quarter of 2013, the Company completed its valuation of the Dynamic Acquisition with no adjustments in 2013 to the valuation of assets acquired and liabilities assumed, which are included in the following table (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 |
Fair Value of Liabilities Assumed |
Current liabilities | $ | 129,363 |
Asset retirement obligations(4) | 315,922 |
Long-term deferred tax liability(5) | 100,288 |
Other long-term liabilities | 4,469 |
Amount attributable to liabilities assumed | 550,042 |
Total purchase price plus liabilities assumed | 1,785,271 |
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 obligations 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 resulted from the excess of the fair value of net assets acquired over consideration paid. To validate the 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, natural gas and NGL 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 were used by the Company to estimate the fair market value of the oil and natural gas properties acquired. Based on the unobservable nature of certain of these assumptions, the valuation is considered Level 3 under the fair value hierarchy, as described in Note 5. The following unaudited pro forma combined results of operations for the year ended December 31, 2012 are presented as though the Dynamic Acquisition had been completed as of January 1, 2011. The pro forma combined results of operations for the year ended December 31, 2012 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 to exclude the bargain purchase gain, the partial valuation allowance release and certain acquisition costs. The 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. The pro forma results of operations do not include any cost savings or other synergies that resulted from the Dynamic Acquisition or any estimated costs incurred to integrate Dynamic.
| Year Ended December 31, 2012(1)
| (In thousands, except per share data)
| (Unaudited)
Revenues | $ | 2,112,576 |
Net income | $ | 39,563 |
Loss applicable to SandRidge Energy, Inc. common stockholders | $ | (120,962 | )
Loss per common share |
Basic | $ | (0.25 | )
Diluted | $ | (0.25 | )
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(1) | Pro forma net income, loss applicable to SandRidge Energy, Inc. common stockholders and loss 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 statement of operations for the year ended December 31, 2012.
Revenues of $365.0 million and income from operations of $81.5 million associated with Dynamic are included in the accompanying consolidated statement of operations for the year ended December 31, 2012. Additionally, the Company incurred $13.0 million in acquisition-related costs for the Dynamic Acquisition, which are included in general and administrative expense in the accompanying consolidated statement 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”) 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, natural gas and NGL 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, natural gas and NGL 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. Based on the unobservable nature of certain of these assumptions, the valuation is considered Level 3 under the fair value hierarchy, as described in Note 5. The Company estimated the consideration paid for these properties approximated the consideration 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 obligations | (55,443 | )
Total identifiable net assets | $ | 43,282 |
The following unaudited pro forma combined results of operations for the year ended December 31, 2012 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 year ended December 31, 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. The 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.
| Year Ended December 31, 2012
| (In thousands, except per share data)
| (Unaudited)
Revenues | $ | 1,963,058 |
Net income | $ | 247,035 |
Income available to SandRidge Energy, Inc. common stockholders | $ | 86,510 |
Earnings per common share |
Basic | $ | 0.19 |
Diluted | $ | 0.19 |
Revenues of $26.2 million and earnings of $19.1 million generated by the acquired properties are included in the accompanying consolidated statement of operations for the year ended December 31, 2012. The Company incurred $0.2 million in acquisition-related costs in conjunction with the transaction which are included in general and administrative expense in the accompanying consolidated statement of operations for the year ended December 31, 2012. 2013 Divestiture Sale of Permian Properties. On February 26, 2013, the Company sold its oil and natural gas properties in the Permian Basin area of west Texas, excluding the assets associated with the SandRidge Permian Trust area of mutual interest (the “Permian Properties”) for $2.6 billion, including certain post-closing adjustments that were finalized in the third quarter of 2013. 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 $398.9 million loss on the sale. The loss is included in loss on sale of assets in the accompanying consolidated statement of operations for the year ended December 31, 2013. The loss was calculated based on a comparison of proceeds received and the asset retirement obligations attributable to the Permian Properties that were 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 attributable to the Permian Properties, (ii) the historical cost of unproved acreage sold and (iii) costs incurred by the Company to sell these 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. A portion of the loss totaling $71.7 million was allocated to noncontrolling interests and is reflected in net income attributable to noncontrolling interest in the accompanying consolidated statement of operations for the year ended December 31, 2013. The following table presents revenues and direct operating expenses of the Permian Properties included in the accompanying consolidated statements of operations for the years ended December 31, 2013 and 2012 (in thousands):
|  | Year Ended December 31,
|  | 2013(1) |  | 2012
Revenues |  | $ | 68,027 |  |  | $ | 566,075 |
Direct operating expenses |  | $ | 17,453 |  |  | $ | 130,337 |
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(1) | Includes revenues and direct operating expenses through February 26, 2013, the date of sale.
2014 Divestiture Sale of Gulf of Mexico and Gulf Coast Properties. On February 25, 2014, the Company sold subsidiaries that owned the Company’s Gulf of Mexico and Gulf Coast oil and natural gas properties (the “Gulf Properties”) for approximately $702.6 million, net of working capital adjustments and post-closing adjustments, and the buyer’s assumption of approximately $366.0 million of related asset retirement obligations to Fieldwood Energy LLC (“Fieldwood”). This transaction did not result in a significant alteration of the relationship between the Company’s capitalized costs and proved reserves and, accordingly, the Company recorded the proceeds as a reduction of its full cost pool with no gain or loss on the sale. See Note 20 for discussion of Fieldwood’s related party affiliation with the Company. In accordance with the terms of the sale, the Company agreed to guarantee on behalf of Fieldwood certain plugging and abandonment obligations associated with the Gulf Properties for a period of up to one year from the date of closing. The Company recorded a liability equal to the fair value of these guarantees, or $9.4 million, at the time the transaction closed. As of December 31, 2014, the fair value of the guarantees was approximately $5.1 million. See Note 5 for additional discussion of the determination of the guarantees’ fair value. The guarantees do not include a limit on the potential future payments for which the Company could be obligated; however, Fieldwood agreed to indemnify the Company for any costs it may incur as a result of the guarantees and to use its best efforts to pay any amounts sought from the Company by the Bureau of Ocean Energy Management that may arise prior to the expiration of the guarantees. Additionally, Fieldwood agreed to maintain, for a period of up to one year from the closing date, restricted deposits totaling approximately $28.0 million held in escrow for plugging and abandonment obligations associated with the Gulf Properties. At the one year anniversary of the closing date, the Company was scheduled to receive payment from Fieldwood for half of such restricted deposits, or approximately $14.0 million. A receivable for this amount is included in other current assets in the accompanying consolidated balance sheet at December 31, 2014. The Company has not incurred any costs as a result of this guarantee, which, as of February 25, 2015, it was permitted to terminate under the terms of the agreement with Fieldwood, and expects to receive approximately $14.0 million from Fieldwood for half of the restricted deposits associated with the Gulf Properties in the first quarter of 2015. The following table presents revenues and expenses, including direct operating expenses, depletion, accretion of asset retirement obligations and general and administrative expenses, for the Gulf Properties included in the accompanying consolidated statements of operations for the years ended December 31, 2014, 2013 and 2012 (in thousands):
| Year Ended December 31,
| 2014(1) |  | 2013 |  | 2012
Revenues | $ | 90,920 |  |  | $ | 627,236 |  |  | $ | 449,420 |
Expenses | $ | 63,674 |  |  | $ | 491,991 |  |  | $ | 360,209 |
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(1) | Includes revenues and expenses through February 25, 2014, the date of the sale.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References No definition available. + Details
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