Fresh Start Accounting (Tables)

12 Months Ended

Dec. 31, 2017

Reconciliation of Enterprise Value to Fair Value

The following table reconciles the enterprise value to the estimated fair value of the Successor Company's common stoc

k as of the Emergence Date (in thousands, except per share amounts):



Enterprise value	$	1,089,808
Plus: Cash and cash equivalents	563,372
Less: Fair value of Building Note	(36,610		)
Less: Asset retirement obligation	(92,412		)
Less: Fair value of First Lien Exit Facility	(414,954		)
Less: Fair value of Convertible Notes	(445,660		)
Less: Fair value of warrants, including warrants held in reserve for settlement of general unsecured claims	(95,794		)
Fair value of Successor common stock issued upon emergence	$	567,750

Shares issued upon emergence on October 4, 2016, including shares held in reserve for settlement of general unsecured claims	19,371
Per share value	$	29.31

Reconciliation Of Enterprise Value To Estimated Reorganization Value

The following table reconciles the enterprise value to the estimated reorganization value as of the Emergence Date (in thousands):



Enterprise value	$	1,089,808
Plus: cash and cash equivalents	563,372
Plus: other working capital liabilities	131,766
Plus: other long-term liabilities	8,549
Reorganization value of Successor assets	$	1,793,495

Schedule of Fresh-Start Adjustments

The following table reflects the reorganization and application of Accounting Standards Codification (“ASC”) 852 “Reorganizations” on the consolidated balance sheet as of October 1, 2016 (in thousands):



	Predecessor Company			Reorganization Adjustments				Fresh Start Adjustments				Successor Company
ASSETS
Current assets
Cash and cash equivalents	$	652,680		$	(142,148	)	(1)	$	—			$	510,532
Restricted cash - collateral	—			50,000			(2)	—				50,000
Restricted cash - other	—			2,840			(2)	—				2,840
Accounts receivable, net	61,446			12,356			(3)	—				73,802
Derivative contracts	10,192			—				(669		)	(12)	9,523
Prepaid expenses	12,514			(8,218		)	(4)	—				4,296
Other current assets	1,003			—				3,217			(13)	4,220
Total current assets	737,835			(85,170		)		2,548				655,213
Oil and natural gas properties, using full cost method of accounting
Proved	12,093,492			—				(11,344,684		)	(14)	748,808
Unproved	322,580			—				(205,578		)	(14)	117,002
Less: accumulated depreciation, depletion and impairment	(11,637,538		)	—				11,637,538			(14)	—
	778,534			—				87,276				865,810
Other property, plant and equipment, net	357,528			(41		)		(93,782		)	(15)	263,705
Derivative contracts	70			—				(70		)	(12)	—
Other assets	12,537			(3,770		)	(5)	—				8,767
Total assets	$	1,886,504		$	(88,981	)		$	(4,028	)		$	1,793,495



	Predecessor Company			Reorganization Adjustments				Fresh Start Adjustments				Successor Company
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities
Accounts payable and accrued expenses	$	140,448		$	(14,820	)	(6)	$	—			$	125,628
Derivative contracts	2,982			—				1,666			(12)	4,648
Asset retirement obligations	8,573			—				57,105			(16)	65,678
Total current liabilities	152,003			(14,820		)		58,771				195,954
Long-term debt	—			731,735			(7)	1,610			(17)	733,345
Derivative contracts	935			—				304			(12)	1,239
Asset retirement obligations	62,896			—				(36,161		)	(16)	26,735
Other long-term obligations	3			8,798			(8)	(3		)		8,798
Liabilities subject to compromise	4,346,188			(4,346,188		)	(9)	—				—
Total liabilities	4,562,025			(3,620,475		)		24,521				966,071
Equity
SandRidge Energy, Inc. stockholders’ equity (deficit)
Predecessor preferred stock	6			—				(6		)	(18)	—
Predecessor common stock	718			—				(718		)	(18)	—
Predecessor additional paid-in capital	5,315,655			—				(5,315,655		)	(18)	—
Predecessor additional paid-in capital—stockholder receivable	(1,250		)	1,250			(10)	—				—
Predecessor treasury stock, at cost	(5,218		)	—				5,218			(18)	—
Successor common stock	—			19			(11)	—				19
Successor warrants	—			88,382			(11)	—				88,382
Successor additional paid-in capital	—			739,023			(11)	—				739,023
Accumulated deficit	(7,985,411		)	2,702,820			(9)	5,282,591			(19)	—
Total SandRidge Energy, Inc. stockholders’ (deficit) equity	(2,675,500		)	3,531,494				(28,570		)		827,424
Noncontrolling interest	(21		)	—				21			(20)	—
Total stockholders’ (deficit) equity	(2,675,521		)	3,531,494				(28,549		)		827,424
Total liabilities and stockholders’ equity (deficit)	$	1,886,504		$	(88,981	)		$	(4,028	)		$	1,793,495

Reorganization Adjustments


1.	Reflects the net cash payments made upon emergence (in thousands):



Sources:
Proceeds from Building Note	$	26,847
Total sources	$	26,847

Uses and transfers:
Cash transferred to restricted accounts (collateral and general unsecured claims)	$	52,840
Payments and funding of escrow account related to professional fees	43,770
Payment on Senior Credit facility (principal and interest)	35,238
Repayment of Senior Secured Notes and Unsecured Notes	33,874
Payment of certain contract cures and other	3,273
Total uses and transfers	168,995
Net uses and transfers	$	(142,148	)


2.	Funding of $50.0 million Cash Collateral account and the funding of $2.8 million to be held in reserve by the Company for distribution to satisfy allowed general unsecured claims as specified under the Plan.


3.	Accrual for future reimbursement of the unused portion of the professional fees escrow account and other receivables.


4.	Write-off of prepaid expenses primarily related to $7.5 million of prepaid premium for the Predecessor Company’s directors and officers insurance policy.


5.	Application of a $3.8 million deposit held by a utility service toward the settlement of the utility service’s claims under the Plan.


6.	Includes a $43.8 million decrease in accrued liabilities as a result of funding an escrow account established for the payment of professional fees, partially offset by the reinstatement of certain liabilities subject to compromise as accounts payable and accrued expenses.


7.	Principal balances of $35.0 million of the Building Note, $281.8 million of the Convertible Notes, and the $415.0 million drawn on the First Lien Exit Facility.


8.	Reclassification of non-qualified deferred compensation plan and gas balancing liabilities from liabilities subject to compromise to other long term obligations, as these liabilities became obligations of the Successor.


9.	Liabilities subject to compromise were settled as follows in accordance with the Plan (in thousands):



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 of the Predecessor	4,346,188

Cash payments at emergence	(72,385		)
Cash proceeds from building mortgage	26,847
Write-off of prepaid accounts upon emergence	(8,218		)
Accrual for future reimbursement from professional fees escrow account and other receivables	12,356

Total consideration given pursuant to the Plan:
Fair value of equity issued	(827,424		)
Principal value of long-term debt issued and reinstated at emergence	(731,735		)
Reinstatement of liabilities subject to compromise as accounts payable and accrued expenses	(37,789		)
Release of stockholder receivable	(1,250		)
Application of deposit held by utility services	(3,770		)
Gain on settlement of liabilities subject to compromise	$	2,702,820


10.	Release of a receivable from the Predecessor’s former director and officer as outlined in the Plan.


11.	The following table reconciles reorganization adjustments made to Successor common stock, warrants and additional paid in capital (in thousands):



Par value of 18.9 million shares of Common Stock issued to former holders of the Senior Secured Notes and Unsecured Notes (valued at $29.31 per share)	$	19
Fair value of warrants issued to holders of the Unsecured Notes(1)	88,382
Additional paid in capital - Common Stock	575,144
Additional paid in capital - premium on Convertible Notes(2)	163,879
Total Successor Company equity issued on Emergence Date	$	827,424

____________________


(1)	The fair value of the warrants was estimated using a Black-Scholes-Merton model with the following assumptions: implied stock price of the Successor Company; exercise price per share of $41.34 and $42.03 for Warrant classes A and B, respectively; expected volatility of 59.26%; risk free interest rate, continuously compounded, of 1.36%; and holding period of six years.

(2)

The fair value of the Convertible Notes was estimated using a Monte Carlo simulation with the following assumptions; the implied Successor Company stock price; expected volatility of 56.06%; risk free interest rate, continuously compounded, of 1.08%; recovery rate of 15.00%; hazard rate of 12.41%; drop on default of 100.00%; and termination period after four years. The premium is the difference between the fair value of the Convertible Notes of $445.7 million and the principal value of the Convertible Notes of $281.8 million.

Fresh Start Adjustments


12.	Adjustments and reclassifications of derivative contracts based on their Emergence Date fair values, which were determined using the fair value methodology for commodity derivative contracts discussed in Note 7.


13.	Fair value adjustment to other current assets to record assets held for sale at their anticipated sales prices.


14.	Fair value adjustments to oil and natural gas properties, including asset retirement obligation, associated inventory, unproved acreage and seismic. See above for detailed discussion of fair value methodology.

15.

Adjustments to other property, plant and equipment to record the assets at their respective fair values on the Emergence Date. A combination of the cost approach and income approach were utilized to determine the fair values of the Company’s headquarters and other properties located in downtown Oklahoma City, Oklahoma, and the cost approach was utilized to determine the fair value of all other property, plant and equipment.


16.	Fair value adjustments to the Company’s asset retirement obligations as a result of applying fresh start accounting. Upon implementation of fresh start accounting, the Company revalued these obligations based upon updates to wells’ productive lives and application of the Successor Company’s credit adjusted risk fee rate.


17.	Fair value adjustment to record premium on the Building Note.


18.	Cancellation of Predecessor Company’s common stock, preferred stock, treasury stock and paid-in capital.


19.	Adjustment to reset retained deficit to zero.

20.

Elimination of the Predecessor non-controlling interest.

Reorganization Items

The following table summarizes reorganization items for the Predecessor 2016 Period (in thousands):



Unamortized long-term debt	$	3,546,847
Litigation claims	(20,478		)
Rejections and cures of executory contracts	(16,038		)
Ad valorem and franchise taxes	(3,494		)
Legal and professional fees and expenses	(44,920		)
Write off of director and officer insurance policy	(7,533		)
Gain on accounts payable settlements	84,228
Loss on mortgage	(8,153		)
Gain on preferred stock dividends	37,893
Fresh start valuation adjustments	(28,549		)
Fair value of equity issued	(827,424		)
Principal value of Convertible Notes issued	(281,780		)
Gain on reorganization items, net	$	2,430,599