Chapter 11 Proceedings

On May 16, 2016, the Company and certain of its direct and indirect subsidiaries (collectively with the Company, the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Bankruptcy Court confirmed the Debtors’ joint plan of reorganization on September 9, 2016, and the Debtors’ subsequently emerged from bankruptcy on October 4, 2016 (the “Emergence Date”). Although the Company is no longer a debtor-in-possession, the Company was a debtor-in-possession for the entire quarter ended September 30, 2016. As such, the Company’s bankruptcy proceedings and related matters have been summarized below.

References to “Successor” or “Successor Company” relate to SandRidge on and subsequent to October 4, 2016. References to “Predecessor” or “Predecessor Company” refer to SandRidge on and prior to October 3, 2016.

The Company was able to conduct normal business activities and pay associated obligations for the period following its bankruptcy filing and was authorized to pay and has paid certain pre-petition obligations, including for employee wages and benefits, goods and services provided by certain vendors, transportation of the Company’s production, royalties and costs incurred on the Company’s behalf by other working interest owners. During the pendency of the Chapter 11 case, all transactions outside the ordinary course of business required the prior approval of the Bankruptcy Court.

Automatic Stay. Subject to certain specific exceptions under the Bankruptcy Code, the Chapter 11 filings automatically stayed most judicial or administrative actions against the Company and efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. Absent an order from the Bankruptcy Court, substantially all of the Debtors’ pre-petition liabilities were subject to settlement under the Bankruptcy Code.

Plan of Reorganization. In accordance with the plan of reorganization confirmed by the Bankruptcy Court (the “Plan”), the following significant transactions occurred upon the Company’s emergence from bankruptcy on October 4, 2016:

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First Lien Credit Agreement. All outstanding obligations under the senior secured revolving credit facility (the “senior credit facility”) were canceled, and claims under the senior credit facility received their proportionate share of (a) $35.0 million in cash and (b) participation in the newly established $425.0 million reserve-based revolving credit facility (the “New First Lien Exit Facility”). Refer to Note 6 for additional information.

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Cash Collateral Account. The Company deposited $50.0 million of cash in an account controlled by the administrative agent to the New First Lien Exit Facility (the “Cash Collateral Account”) from the Emergence Date until the first borrowing base redetermination in October 2018 (the “Protected Period”); provided that (a) (i) $12.5 million will be released to the Company upon delivery of an acceptable business plan to the administrative agent, (ii) $12.5 million will be released to the Company upon achievement for two consecutive quarters of certain milestones set forth in the business plan and (b) to the extent the foregoing amounts are not released to the Company, up to $25.0 million will be released to the Company upon meeting a minimum 2.00:1.00 ratio of proved developed producing reserves to aggregate principal loan commitments under the New First Lien Exit Facility at any time after July 4, 2017.

If no default or event of default under the New First Lien Exit Facility exists at the expiration or termination of the Protected Period, all remaining proceeds in the Cash Collateral Account will be released to the Company at that time.

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Senior Secured Notes. All outstanding obligations under the 8.75% Senior Secured Notes due 2020 issued in June 2015 and the $78.0 million principal 8.75% Senior Secured Notes due 2020 issued to Piñon Gathering Company, LLC (“PGC) in October 2015, (the “PGC Senior Secured Notes”) (collectively, “Senior Secured Notes”) were canceled and exchanged for approximately 13.7 million of the 18.9 million shares of common stock in the Successor Company (the “New Common Stock”) issued at emergence. Additionally, claims under the Senior Secured Notes received approximately $281.8 million of newly issued, non-interest bearing 0.00% convertible senior subordinated notes due 2020, (the “New Convertible Notes”), which are mandatorily convertible into approximately 15.0 million shares of New Common Stock upon the first to occur of several triggering events, one of which is maturity. Refer to Note 6 and Note 9 for additional information.

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General Unsecured Claims. The Company’s general unsecured claims, including the 8.75% Senior Notes due 2020, 7.5% Senior Notes due 2021, 8.125% Senior Notes due 2022, and 7.5% Senior Notes due 2023 (collectively, the “Senior Unsecured Notes”) and the 8.125% Convertible Senior Notes due 2022 and 7.5% Convertible Senior Notes due 2023 (collectively, the “Convertible Senior Unsecured Notes” and together with the Senior Unsecured Notes, the “Unsecured Notes”), became entitled to receive their proportionate share of (a) approximately $36.7 million in cash, (b) approximately 5.7 million shares of New Common Stock, 5.2 million of which was issued immediately upon emergence, and (c) 4.9 million Series A Warrants and 2.1 million Series B Warrants, with initial exercise prices of $41.34 and $42.03 per share, respectively, which expire on October 4, 2022, (the “Warrants”). Refer to Note 6 and Note 9 for additional information.

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New Building Note. A note with a principal amount of $35.0 million, which is secured by first priority mortgages on the Company’s headquarters facility and certain other non-oil and gas real property located in downtown Oklahoma City, Oklahoma (the “New Building Note”) was issued and purchased on the emergence date for $26.8 million in cash, net of certain fees and expenses, by certain holders of the Unsecured Senior Notes. Refer to Note 6 for additional information.


•	Preferred and Common Stock. The Company’s existing 7.0% and 8.5% convertible perpetual preferred stock and common stock were canceled and released under the Plan without receiving any recovery on account thereof. Refer to Note 9 for additional information.

Additionally, pursuant to the Plan confirmed by the Bankruptcy Court, the Company’s post-emergence board of directors is comprised of five directors, including the Company’s Chief Executive Officer, James Bennett, and four non-employee directors, Michael L. Bennett, John V. Genova, William “Bill” M. Griffin, Jr. and David J. Kornder.

Fresh Start Accounting. Upon emergence from bankruptcy, the Company will be required to apply fresh start accounting to its financial statements because (i) the holders of existing voting shares of the Company prior to its emergence received less than 50% of the voting shares of the Company outstanding following its emergence from bankruptcy and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the plan of reorganization was less than the post-petition liabilities and allowed claims. Fresh start accounting will be applied to the Company’s consolidated financial statements as of October 4, 2016, the date it emerged from bankruptcy. Under the principles of fresh start accounting, a new reporting entity was considered to have been created, and, as a result, the Company will allocate the reorganization value of the Company to its individual assets, including property, plant and equipment, based on their estimated fair values. The process of estimating the fair value of the Company’s assets, liabilities and equity upon emergence is currently ongoing and, therefore, such amounts have not yet been finalized. In support of the Plan, the enterprise value of the Successor Company was estimated and approved by the Bankruptcy Court to be in the range of $1.04 billion to $1.32 billion. The face value of our long-term debt issued at emergence was a stated amount of $316.8 million. As a result of the application of fresh start accounting and the effects of the implementation of the plan of reorganization, the financial statements on or after October 4, 2016 will not be comparable with the financial statements prior to that date.

Reorganization Expenses. The Company and the Debtors have incurred and will continue to incur significant costs associated with the reorganization, primarily legal and professional fees. The amount of these costs, which are being expensed as incurred, are expected to significantly affect the Company’s results of operations. In accordance with applicable guidance, certain costs associated with the bankruptcy proceedings have been recorded as reorganization items within our accompanying unaudited condensed consolidated statements of operations for the three and nine-month periods ended September 30, 2016. For additional information, see “Reorganization Items” below.

Financial Statement Classification of Liabilities Subject to Compromise. The accompanying unaudited condensed consolidated balance sheet as of September 30, 2016, includes amounts classified as liabilities subject to compromise, which represent liabilities the Company anticipates will be allowed as claims in the Chapter 11 case. These amounts represent the Debtors’ current estimate of known or potential obligations to be resolved in connection with the Chapter 11 proceedings. Differences between liabilities estimated and claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process. The Company will continue to evaluate these liabilities throughout the Chapter 11 process and adjust amounts as necessary. Such adjustments may be material.

Liabilities subject to compromise includes amounts related to the rejection of various executory contracts. Additional amounts may be included in liabilities subject to compromise in future periods if rejected executory contracts are determined to involve greater contract damages than originally anticipated. Conversely, liabilities associated with executory contracts that are not rejected and are instead assumed, would constitute post-petition liabilities which will be satisfied in full under the Plan.

The following table summarizes the components of liabilities subject to compromise included on the Company’s unaudited condensed consolidated balance sheet as of September 30, 2016 (in thousands):



	September 30, 2016
Current maturities of long-term debt and accrued interest	$	4,179,483
Accounts payable and accrued expenses	157,422
Other long-term liabilities	9,283
Liabilities subject to compromise	$	4,346,188

Reorganization Items. The Company and the Debtors have incurred significant one-time costs during the three and nine-month periods ended September 30, 2016, associated with the reorganization, primarily the write-off of unamortized debt issuance costs and related unamortized debt premiums, discounts and derivatives, as well as adjustments for estimated allowable claims related to the Company’s legal proceedings and executory contracts approved for rejection by the Bankruptcy Court, and professional fees incurred subsequent to the Chapter 11 filings for the restructuring process. These costs, which are being expensed as incurred, significantly impact the Company’s results of operations. No such costs were incurred in the comparable 2015 periods.

The following table summarizes the components included in reorganization items in the Company’s accompanying unaudited condensed consolidated statements of operations for the three and nine-month periods ended September 30, 2016 (in thousands):



	Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016
Unamortized debt premiums and discounts	$	—		$	(95,296	)
Unamortized debt issuance costs	(5		)	(63,292		)
Debt holder conversion feature and mandatory prepayment feature - PGC Senior Secured Notes	—			9,777
Estimated litigation claims	—			(20,478		)
Rejections and cures of executory contracts	(3,148		)	(21,309		)
Ad valorem and franchise taxes	—			(3,494		)
Legal and professional fees and expenses	(45,176		)	(55,935		)
Adjustment of pre-petition accounts payable settlements	5,575			6,355
Reorganization items	$	(42,754	)	$	(243,672	)

A non-cash charge to write-off all of the unamortized debt issuance costs and associated discounts and premiums, as applicable, related to the senior credit facility, Senior Secured Notes and the Unsecured Notes is included in reorganization items as these debt instruments were impacted by the Chapter 11 proceedings. Legal and professional fees and expenses included in reorganization items represent post-petition costs incurred as a result of the restructuring process and are included in accounts payable and accrued expenses on the accompanying unaudited condensed consolidated balance sheet at September 30, 2016.