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Chapter 11 Bankruptcy

12 Months Ended

Dec. 31, 2017

Voluntary Reorganization under 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 through October 4, 2016. As such, the Company’s bankruptcy proceedings and related matters have been summarized below.

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 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:

•

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 “First Lien Exit Facility”). Refer to Note 12 for additional information.


•	Cash Collateral Account. The Company deposited $50.0 million of cash in an account controlled by the administrative agent to the First Lien Exit Facility (the “Cash Collateral Account”). This deposit was released to the Company in February 2017 in conjunction with the refinancing of the First Lien Exit Facility.

•

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 “Common Stock”) issued at emergence. Additionally, claims under the Senior Secured Notes received approximately $281.8 million principal amount of newly issued, non-interest bearing 0.00% convertible senior subordinated notes due 2020, (the “Convertible Notes”), which mandatorily converted into 14.1 million shares of Common Stock upon the refinancing of the First Lien Exit Facility in February 2017. Refer to Note 12 and Note 16 for additional information.

•

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 Common Stock, 5.2 million of which was issued immediately upon emergence, and (c) 4.9 million Series A Warrants, 4.5 million issued immediately upon emergence, and 2.1 million Series B Warrants, 1.9 million issued immediately upon emergence, with initial exercise prices of $41.34 and $42.03 per share, respectively, which expire on October 4, 2022, (the “Warrants”). Refer to Note 12 and Note 16 for additional information.

•

Building Note. The Building Note with a principal amount of $35.0 million ($36.6 million fair value on the Emergence Date), 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 Senior Unsecured Notes. Proceeds received from the Building Note were subsequently remitted to unsecured creditors on the Emergence Date in accordance with the Plan. Refer to Note 12 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 16 for additional information.Fresh Start Accounting

Fresh Start Accounting. Upon emergence from bankruptcy, the Company applied 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.

The Company elected to apply fresh start accounting effective October 1, 2016, to coincide with the timing of its normal fourth quarter reporting period, which resulted in SandRidge becoming a new entity for financial reporting purposes. The Company evaluated and concluded that events between October 1, 2016, and October 4, 2016, were immaterial and use of an accounting convenience date of October 1, 2016, was appropriate. As such, fresh start accounting is reflected in the accompanying consolidated balance sheet as of December 31, 2016, and related fresh start adjustments are included in the accompanying statement of operations for the period from January 1, 2016, through October 1, 2016 (the “Predecessor 2016 Period”). As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the financial statements for the period after October 1, 2016, (the “Successor 2016 Period”) will not be comparable with the financial statements prior to that date. References to the “Successor” or the “Successor Company” relate to SandRidge subsequent to October 1, 2016. References to the “Predecessor” or “Predecessor Company” refer to SandRidge on and prior to October 1, 2016.

Reorganization Value. Reorganization value represents the fair value of the Successor Company’s total assets and is intended to approximate the amount a willing buyer would pay for the assets immediately after restructuring. Under fresh start accounting, the Company allocated the reorganization value to its individual assets based on their estimated fair values.

The Company’s reorganization value is derived from an estimate of enterprise value. Enterprise value represents the estimated fair value of an entity’s long term debt and other interest-bearing liabilities and shareholders’ equity. In support of the Plan, the Company estimated the enterprise value of the Successor Company to be in the range of $1.04 billion to $1.32 billion, which was subsequently approved by the Bankruptcy Court. This valuation analysis was prepared using reserve information, development schedules, other financial information and financial projections, third-party real estate reports, and applying standard valuation techniques, including net asset value analysis, precedent transactions analyses and public comparable company analyses. Based on the estimates and assumptions used in determining the enterprise value, the Company estimated the enterprise value to be approximately $1.09 billion.

Valuation of Oil and Gas Properties. The Company’s principal assets are its oil and gas properties, which are accounted for under the Full Cost Accounting method as described in Note 3. With the assistance of valuation experts, the Company determined the fair value of its oil and gas properties based on the discounted cash flows expected to be generated from these assets. The computations were based on market conditions and reserves in place as of the bankruptcy emergence date.

The fair value analysis performed by valuation experts was based on the Company’s estimates of proved reserves as developed internally by the Company’s reserves engineers. Discounted cash flow models were prepared using the estimated future revenues and development and operating costs for all developed wells and undeveloped locations comprising the proved reserves. Future revenues were based upon forward strip oil and natural gas prices as of the emergence date, adjusted for differentials realized by the Company. Development and operating costs from proved reserves estimates were adjusted for inflation. A risk adjustment factor was applied to the proved undeveloped reserve category. The discounted cash flow models also included estimates not typically included in proved reserves such as depreciation and income tax expenses.

The risk adjusted after tax cash flows were discounted at 10%. This discount factor was derived from a weighted average cost of capital computation which utilized a blended expected cost of debt and expected returns on equity for similar industry participants.

From this analysis, the Company concluded the fair value of its proved reserves was $632.8 million as of the Emergence Date. The Company also reviewed its undeveloped leasehold acreage and concluded that the fair value of undeveloped leasehold acreage was $113.9 million based on analysis of comparable market transactions. These amounts are reflected in the Fresh Start Adjustments item number 14 below.

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

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

Reorganization value and enterprise value were estimated using numerous projections and assumptions that are inherently subject to significant uncertainties and resolution of contingencies that are beyond our control. Accordingly, the estimates included in this report are not necessarily indicative of actual outcomes, and there can be no assurance that the estimates, projections or assumptions will be realized.

Consolidated Balance Sheet. The adjustments included in the following consolidated balance sheet reflect the effects of the transactions contemplated by the Plan and carried out by the Company on the Emergence Date (reflected in the column “Reorganization Adjustments”) as well as fair value adjustments as a result of the adoption of fresh start accounting (reflected in the column “Fresh Start Adjustments”). The explanatory notes highlight methods used to determine fair values or other amounts of the assets and liabilities as well as significant assumptions.

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

Reorganization items represent liabilities settled, net of amounts incurred subsequent to the Chapter 11 filing as a direct result of the Plan and are classified as gain on reorganization items, net in the accompanying consolidated statement of operations. 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