Good day, and thank you for standing by. Welcome to the SandRidge Energy first quarter 2021 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I'd now like to hand the conference over to your speaker today, Brandon Brown. Please go ahead.
Thank you. Welcome everyone. With me today are Carl Giesler, our CEO, Salah Gamoudi, our CFO, and Grayson Pranin, our COO, as well as other members of management. We would like to remind you that today's call contains forward-looking statements and assumptions, which are subject to risk and uncertainty. Actual results may differ materially from those projected in these forward-looking statements. We may also refer to adjusted EBITDA and adjusted G&A and other non-GAAP financial measures. Reconciliations of these measures can be found on our website.
Thank you. Good morning. Hopefully, you've had time to peruse the earnings release and investor presentation we posted yesterday after the market closed. We typically aim to keep brief our prepared remarks. Today, however, we plan on being more expansive. Over the last several years, and particularly during 2020, the board and management have worked to reset, if you will, our company in almost all respects, from focusing our asset base to streamlining our capital, organizational, and cost structures to reassessing and tightening our capital allocation. Accordingly, we think it'd be useful to your assessment of our company if we walk through the presentation in addition to reviewing our 1 Q 2021 earnings. Before turning to that presentation, though, Salah will touch on a few highlights from our first quarter earnings.
Thank you. Simply put, 1Q 2021 was a strong quarter. During the quarter, our net cash position increased just over $48 million, almost $57 million to compare to just over $8 million in the prior quarter. This net cash position reflects more than a full flip from just over $51.5 million in net debt that we had entering 2020. Our adjusted EBITDA more than doubled from the prior quarter to almost $22 million from just over $9 million in 4Q 2020. We should note that 4Q20 was burdened by a one-time $5.3 million cash hedge loss due to the unwinding of all of our hedge positions. Even without that hedge unwind impact, 1Q 2021 adjusted EBITDA would still be meaningfully higher.
Know that our board and management made the decision to unwind our calendar 2021 gas hedges last November based on an improving 2021 gas price outlook. That decision appears prescient as those swaps were just over $2.60 per MMBtu. Prices this year have been trading and the NYMEX curve remains meaningfully higher. Our production held fairly steady during the quarter, with our Mid-Continent assets producing 17,500 BOE per day compared to 19 in the prior quarter. This quarter's production is particularly notable given the substantial two-plus week negative impact from the snowpocalypse in February. Note that we closed the sale of our North Park Basin asset on February 5th. Owning North Park Basin for only 36 days during 1Q 2021 makes quarter-over-quarter production comparison less relevant for that asset. Price realizations, particularly for NGL, appear to be migrating back up to pre-pandemic levels.
Our 1Q 2021 oil and gas realizations were up 41% and 19% from the prior quarter. NGL realizations as a percent of WTI was 29% in 1Q 2021, up from 21% in the prior quarter. Our cost discipline continued to improve during the quarter, with previously implemented initiatives now manifesting in our financials. This quarter, we shaved nearly $1 million off of adjusted G&A compared to the prior quarter, lowering it to $1.9 million or $1.14 per BOE. While we continue to aggressively press G&A expenses, we do not expect G&A to remain this low on an ongoing quarterly basis. The team also compressed lease operating expenses by $3 million compared to 4Q 2020, reducing it to $8 million or $4.85 per BOE. This general level of LOE should be sustainable going forward.
We believe that we compare favorably with our peers on both the G&A and LOE per BOE basis. It's relatively rare for an E&P company to generate net income. We did that. However, this quarter, earning net income of $35 million, including an almost $20 million gain on the sale of North Park Basin. Also, in the rarity category, we had no oil and gas impairments for the first time since the second quarter of 2019. Lastly, in the rare category, despite still grappling with the waning challenges of COVID, our streak without a reportable HSE incident is now in its 33rd month as of today. We believe few, if any, public E&P companies can boast such a streak, which is further detailed on page seven of our latest investor presentation. The final notable in 1Q 2021 was the simplification of our asset base.
Due in large part to an increasingly challenging Colorado regulatory environment, we exited in February our high decline, higher cost North Park Basin assets. We are now focused solely on our core, long live, predominantly PDP MidCon properties. Subsequent to the quarter, we purchased for $4.9 million in cash, all of the overriding royalty interest assets of SandRidge Mississippian Trust I. When that trust ultimately liquidates, our company will no longer have any affiliated trust. Additionally, we expect to receive back about $1.3 million of that purchase price to reflect our 26.9% ownership in that trust. Before shifting to our investor presentation, we should note that the release posted yesterday and the 10-Q that we will file later today provide further detail on our financial and operational performance during 1Q 2021.
Now turning to the presentation. We thought it'd be helpful to walk through what we're calling the Reset SandRidge.
Over the last few years, the board and management have focused the company's assets, optimized its production profile, streamlined its organization and cost structure, and strengthened its balance sheet. The key highlights are on page three. We have streamlined our asset base to a MidCon focus, primarily PDP asset base. We know these properties especially well as we've had them a long time. They are almost fully HBP with a long lived, shallow, and diversified production profile. As detailed later on page six, overlaying across our acreage position is more than 1,000 mi each of owned and operated SWD and electric infrastructure, representing more than $1 billion in invested capital and providing the company both cost and strategic advantages. Our assets have robust free cash flow capabilities, particularly with their low current BOE cost structure and light CapEx requirements, as well as improving commodity prices and realization.
This cash generation potential provides several paths to increase shareholder value realization. At the NYMEX strip, we believe our PD PV-10 value approximates more than $230 million, and we can build on that by extending and flattening our production profile with small-ball projects and well reactivations, by actively managing our price realizations and further reducing costs, by growing our asset base with opportunistic, economically accretive acquisitions, and by maintaining exposure to commodity price upside. As we realize value and generate cash, our board is committed to utilizing our assets, including our cash, to maximize shareholder value. The reset SD value proposition is materially de-risked from a financial distress perspective by our strengthened balance sheet and financial flexibility. At quarter end, we had a significant cash position with net liquidity approaching $65 million, excluding restricted cash. We don't have MVCs or other significant off-balance sheet financial commitments.
With the recent purchase of the overriding royalty interest of SandRidge Mississippian Trust I, we have no affiliated trust impinging our operating nets. On the opposite end of the spectrum, we ended the quarter with approximately $1.7 billion in NOLs, which could help meaningfully reduce tax impact of a dividend program or other use of cash. Worth highlighting that we take our ESG commitments seriously. We have implemented systems and processes around them. The maps page four lays out our go-forward strategy. The proper pillar is that we're completely focused on growing the cash value and generation capabilities of our business in a safe, responsible, efficient manner. This gestalt strategy has four prongs. The first is to maximize the cash value and generation capacity of our incumbent MidCon PDP assets. You'll hear a version of these cores throughout this call.
One, extend and flatten our production profile with high impact workover and other small-ball projects, as well as low-risk well reactivations. Two, actively manage marketing options to maximize our price realizations. Three, continue to press on costs. The second prong is to ensure we convert as much EBITDA to cash as possible. A good friend once told me, "If you can't buy a cheeseburger with it doesn't count." Keeping low costs, tight CapEx discipline, active working capital management, and limited interest drag is key for us converting EBITDA into true free cash flow. Third prong is to keep vigilant for opportunistic, value-accretive acquisitions. We're focused on PDP-weighted assets that, A, fit our core competencies, cost efficiency and production optimization, B, have sufficient midstream optionality, and C, are in favorable regulatory areas.
As detailed on page 11, MidCon asset purchase from Enduring Resources several years back, as well as last fall and this spring's purchase of the Mississippian Trust overriding royalty interests are emblematic of this approach. The final prong is to uphold our ESG responsibilities.
Progress a little bit quicker as you move through the remainder of this presentation. Page five details our core MidCon asset position. To our view, it's still in a Point 0.1, long lived, more than a nine-year reserve life. Two, shallow decline, with expectations of upper teen declines this year downshifting to low teens and lower going forward. Three, diversified production both from, A, hydrocarbon mix where we're gas and NGL weighted, and B, wellbase, where we have more than 950 producing wells. Finally, we're mostly HBP. This makes spending commitments de minimis. All this sums up to an asset NYMEX strip PD PV-10 value that we believe is approximately more than $230 million. Given that we've already discussed materials on page six and seven, we'll move ahead to page eight.
This page outlines how various initiatives of the board and management over the last several years have led to an absolute and per-BOE reduction in LOE of 70% and more than 40%, respectively, in 2016. A common theme among the initiatives laid out on the left side of the page is a detailed quote, unquote, "white paper reassessment" of almost every cost aspect of our field operations. We're proud that our per-BOE LOE is among the lowest of our peers. Page nine addresses the topic on which we've received a lot of inbound investor calls since our 4Q 2020 earnings in early March, namely NGL and gas realizations. The happy news is that we've seen steady progress over the last few quarters that has continued into the current quarter. No doubt, general market tailwinds have helped. Has actively working with our largest off-takers and leveraging outsourced marketing institutes.
As we'll detail later in this presentation, gas prices and NGL realizations can have material impacts on the PD PV-10 value of our asset base. Page 10 addresses our approach to production optimization. Since last June, we've focused on relatively low capital, quick payback, high return workovers and small ball projects, and candidly enjoyed success in our execution. As we worked to de-lever our balance sheet and expand our liquidity and capital access over the latter part of 2020, we purposefully took a very disciplined approach, limiting spend to projects with a year or less payback. Liquidity was key. Now, with a much stronger balance sheet and liquidity position, we plan to comprehensively evaluate well reactivations, drill outs, recompletions, and even potential new drills. These more aggressive initiatives could significantly help flatten the already shallowing base decline.
Skipping to page 12, fundamental to our reset has been a deliberate shift from a what if to a what is organization. Market headwinds, balance sheet constraints, and other realities required a strategic change from a high CapEx production growth strategy to a more cost-efficient PDP optimization cash flow strategy for our company. Rather than preserve the internal capability and people to maybe someday toggle back from the latter to the former, we decided to radically alter our organization to be more fit for purpose. This alteration had several key components. Number one, rebalancing the weighting of the field versus corporate to reflect where we actually create value. Two, outsource necessary but more perfunctory and less core functions such as operations accounting, land administration, IT, tax, and HR.
Beyond the more than $6 million in per annum G&A savings from this, outsourcing provides us greater flexibility and scalability to adjust to changes in our business or the market. Three, contract is needed for drilling, completion, or other more episodic needs. One happy outcome of this organizational makeover is that we've retained an upgraded, multi-skilled core team of fewer, better incentivized professionals with ample career motivation to drive value for our company. Page 13 hammers home another happy outcome of the organizational streamline, That's a more than 60% reduction in G&A on both an absolute and a per-BOE basis since 2018. Here, let's pause for a second.
Up to this point, we've endeavored to convince you that we have the asset base, strong balance sheet, and execution bona fides to deliver on our overarching strategy to grow the cash value and generation capability of our business in a safe, responsible, efficient manner. Now, we'd like to share our view on what delivering on that strategy could be worth. Page 14 lays out how we think about our PD PV-10 reserve value. It's a bit busy, so I'll try to unpack it. The three bars from left to right show a year-end 2020 audited reserve value at SEC pricing that includes North Park Basin. Then we show the same year-end 2020 reserves with NYMEX pricing without North Park Basin. Finally, we show our first quarter 2021 reserve value with May 5th NYMEX pricing, again, without North Park Basin.
All three bars reflect analysis consistent with standard industry reserve practice, including performance commercial updates for price differentials, operating expenses, and other commercials based on 12-month average. Note that no bar includes a dollar for dollar value of the company's net cash position on its balance sheet. These bars just reflect the value of our PD reserves. Under each bar is a summary of the key drivers, notably the price deck incorporated, WTI, Henry Hub, realizations, LOE, and the average lookback period employed. There are two horizontal lines. The higher line crossing the three vertical bars represents our recent market cap. The lower horizontal line reflects our enterprise value. Essentially, a market cap less a move downward for the value of our net cash position. This enterprise value line is, if you will, the market proxy for the vertical bars.
It reflects the market view of the value of our asset base, separate and apart from our net cash position. The one bumper sticker from this page in my mind is that our estimate of a 1Q 2021 PV-10 value exceeds $230 million, which is more than two times our recent market proxy in terms of enterprise value of only $105 million. Another bumper sticker is the significant sensitivity of that PV-10 value to moves in WTI, Henry Hub, and NGL realizations as a percent of WTI. That last metric, average NGL realizations, has moved more than 10 percentage points over the last three months compared to the last 12 months on average. If these realizations hold, our proved developed reserves should have even greater value. Average LOE per BOE has also set down during the same time frame, also suggesting a higher PD reserve value.
Finally, on page 15, we circle back to where we started this call with our 1Q 2021 results. This page places our first quarter results in the context of our annual guidance shown as initially presented, as well as on a divide by four quarterly basis. We're pleased that we're tracking better on production and substantially better on adjusted G&A and NGL and gas realizations. At this time, thank you for your patience during this much longer than normal set of prepared remarks. We'll now open the call for questions.
At this time I would like to remind everyone on order to ask a question, please press star then one on your telephone keypad. We will pause for a moment while we compile the Q&A roster. And again if you would like to ask a question, please press star then one on your telephone keypad. Our first question comes from the line of Noel Parks from Tuohy Brothers. Go ahead, please. Your line is open.
Good morning.
Good morning.
Thanks for the presentation and all the context on where you've brought the company to strategically. At this point where you have achieved a big improvement in efficiency, and as you pointed out, continued to shift away from a high CapEx strategy. From here forward, can you maybe talk a little bit about, other than, well, I guess with commodity price sort of at the center of it, more of an upside case scenario, in terms of what would encourage you to get a little bit more aggressive in terms of spending and maybe talk a little bit about what the next couple of years would look like if it turned out that we're in a temporary price spike for oil and the strip turns out to be more right for gas than it looks like right now?
Look, I'll handle this question. I don't want to talk or project too far into the future. I will say that-
Sure.
Whatever commodity prices we get, we're going to maximize the cash that we get from them. That is our overarching end. At this point, to kind of answer the front part of your question, I think we're focused on really two things. Organically or internally, there's always things that we can do to press on costs. There's still a little bit of room on LOE. Pretty good on G&A, but we'll continue to press. We always find things when we keep looking. The biggest thing that we have started to do, and that we really need to be more disciplined and systematic about, is working on with our major off-takers and thinking about what optionality we might have to actively manage our price realizations, particularly around gas and NGLs. That is an area that we just have not put a lot of time until very recently.
It should be meaningful going forward. Thirdly, and this is also a meaningful bucket, we have been very conscious of liquidity until we closed the major sales, were building in our North Park Basin, and actually got the cash. Now our team is starting to do the homework. Homework is very important. There's no better way to lose money than bad projects. To look at well reactivations, drill outs, maybe some refracs and things like that. Of course, when we do that's going to require more capital. We'll have to get it through the board, which is a very healthy process to vet those projects, and we get approval. That's something that we're definitely doing.
Then finally, and this is a little bit happens in the background, we are very cognizant of the value that you can realize to the enterprise by being smart about how you off play P&A obligations. There's some wells that are coming end of life at various fringe areas of our asset base, where people will actually pay us positive money for wells that may not be making money and that have an open P&A liability. So from an oil and perspective, we're focused on shedding that. That's a little bit less evident quarter to quarter, but I think something that will be very important. Then finally, like we said, we continue to evaluate M&A that fits our criteria.
Right now, being predominantly PDP with a little bit of development risk. That plays to our core strength of being smart on cost and production profile optimization. Obviously in the regulatory regime that likes the jobs that the oil and gas business brings.
Great. Thanks for that explanation. You did just mention that with the cash from the Colorado sale now in the door, the team is beginning to do some homework. That brings me to the other thing I was wondering. The inventory of quick return projects, rework, bringing wells back online, and so forth. Can you give a sense of, as far as what you identified for those projects, how many of them have you worked through at this point? As you begin doing more homework on what else is possible out there, is that likely to sort of replenish the list of rework jobs you've done so far? Do you think of it maybe as just defining, say, a list of projects for the coming year or something like that, but not necessarily a long-term plan?
Sure. Good morning, this is Grayson. Happy to answer that question. I can't give you an exact number of inventory. I can say that we have a meaningful inventory set that we are currently evaluating. We'll be opportunistic as market conditions sustain and continue to improve. I do think that this inventory set is potentially robust enough to be meaningful both this year, next year, and potentially in the following year.
Okay. Terrific. That really does kind of give you a line of sight past our current commodity cycle. I guess that in turn would give you a good deal of strategic flexibility looking ahead as far as what you want to do on the capital or the acquisition side. Is that fair?
That's fair. Well, I would just point out that, while we have a little bit over 200 2P operated wells, we have a lot of wells on our property that have been temporarily abandoned or shut in. There's a lot for us to evaluate and play with. The good thing is these wells have already been drilled, so bringing them back on doesn't require nearly as much CapEx as redrilling.
Gotcha. Just the last one from me. We've seen quite an uptick in corporate level transaction activity, M&A, in just about every basin you can think of, and really just in the last few weeks. Just curious what you're seeing in the Mid-Con. Curious in particular, if you have any private or PE-backed assets that have come to the market. I understand more things have come to the market in recent weeks than we've seen in some time.
I think really all I can say on this front is, as things come to the market that are kind of in our wheelhouse and are good, we certainly look at them. You're right, there has been an uptick in activity in the Mid-Con, and we feel like we're in the flow of being able to look at those opportunities.
Great. Thanks a lot for all the strategic backdrop. That's it for me.
Again, as a reminder, if you'd like to ask a question, please press star and then one on your telephone keypad. Our next question comes from the line of Josh Young with Bison Interests. Go ahead please. Your line is open.
Hey, good morning guys. These are great results. Just have a couple of questions on this presentation and follow-ups. One, on slide 14, you guys show three bars and there's kind of the fourth implied bar that's missing, but implies kind of even better reserve value at a PD PV-10 basis on kind of current differentials, which have improved versus Q1. I guess, how do you guys think about it. It looks like you're kind of anchoring the value of the company to the PD PV-10, but you're building a cash position. There's no dividend, there's no buybacks. There's just kind of this increasing cash balance, which of course is great, but I guess there's this overriding high level question of what's next that doesn't seem to get answered in these materials or hasn't been answered.
I know it was kind of, I guess, more politely indirectly asking kind of the same thing. To the extent you guys could provide just more clear guidance at a high level, maybe that would help.
Yeah. Josh, thanks for listening and for the kind words. Let me start off on page 14. What we endeavor to do, and I think it's appropriate, is show our approximate, or what we believe our PD reserve, PD-10 value is in a manner consistent with industry audited reserve practice, right? 12 month looks back, so on and so forth. We did feel it was useful to lay out, as you mentioned, where there is no bar, kind of where things are currently. We are seeing over the last three months, last quarter, we had a 29% NGL utilization. We can't say that for the last 12 months at this point, but that held through. We gave you some sensitivities to suggest what that might do to value.
I believe you said we don't believe our value is tethered just to the value of our reserve base. Obviously, the roughly $60 million of net cash we have on our balance sheet is very valuable as well, and that is in addition to the value of the reserve base. In some ways, we're a very simple company. We have PD reserves and we have cash. Net cash. Not that complicated. We didn't really feel the need to kind of do the math. People can take the numbers and add them together and divide by the share count and get to an asset value and do whatever they want to do with the G&A and other things. We didn't feel the need to go there. In terms of the cash balance, this is really the first quarter.
As Salah said, we had a significant step up from roughly $8 million to your current net cash position. As I mentioned, our board is committed to using that cash and using all our assets in a way that maximizes shareholder value. They're thinking through, in a methodical fashion, what the best use for that is. We think that's the best way to put it at this point. I think they'll be very disciplined and focused on what makes the most money for shareholders and how to use that cash, whether it be deployment, acquisition, or eventually some type of return.
Okay. I guess again, it just sounds like you don't really have a clear, you're still evaluating and knowing that the cash would come in ahead of the North Park sale, obviously there's a number of months where this kind of deliberation is going on. It sounds like there isn't a specific clear path forward. There's kind of this multiple potential paths that you guys could take. It sounds like that's a reasonable interpretation of what you're saying.
Yeah. I think that's right. It's not dithering. You have all the traditional return on capital options. Of course, if you look at the volatility of our stock, does that have implications for how you might do it? In my mind, yes. If you put in some sort of regular dividend, at what level? If you did a special dividend, what does that do longer term to your value? Your cash aside from returning it to shareholders has a very strategic element. I think it's pretty well accepted that there's some economies of scale in this business. It's value intensive. The lower your cost can be, the better you perform, so sometimes being bigger is better. If we were ever to entertain a merger, our cash could have a lot of value in that context.
We could help partner with a company and immediately de-lever them or provide low-cost capital for them to accelerate high-value drilling inventory. It's very important to think through all the ways that that cash can add value to the enterprise. Our board is actively doing that and I think doing it in an appropriate fashion.
Great. Okay, just one last thing on the saltwater disposal on page six of the presentation. Integrated power as well. I don't think this is something. This is, I think, the first slide we've seen on this in maybe many years for SandRidge, and it's very exciting to see. I guess, is this something that you guys would look at monetizing, or is the point of showing this just to highlight kind of where some of the cost savings and opportunities are coming from?
It's a good question. My understanding is that this company in its past did look somewhat thoroughly at monetizing this. From where we sit, we think it's primarily customers who are kind of using it as almost a financing vehicle, right? We just don't need to do that. I think it would add unnecessary complication and artificial pricing dynamics. We think we can. It's significant capital that's been invested in this very substantial system, provides a lot of cost benefits that we're seeing in our cash flow. It also provides us very real strategic benefits to the extent that assets in the round that system available. That means we'll just be able to operate them more efficiently than someone else, and can be more competitive and get more out of them.
To answer your question distinctly, I don't think we're actively considering monetizing these assets.
Great. Thank you very much.
Our next question comes from the line of Michael Melby with Gate City.
Yeah, thanks for the question. Mine was actually on slide six too, with the saltwater disposal wells. Could you confirm just the cash balance you mentioned on May 7th then after the purchase of the SandRidge Trust and all that additional cash is from operations?
The cash balance that we disclosed of over $80 million, was just cash on hand. That was after the acquisition of SDT, the overriding royalty interest of SDT, and then negative impact, and then obviously cash flow from operations increased the balance from quarter end.
Yeah. We're also expecting our payment, so we paid for all of SDT, and as Salah mentioned, we're expecting to get $1.3 million back when that actually happens.
Got it. Thanks. Could you update us at a high level on how the acquisition of the trust impacts, I guess, slide 15 and maybe even slide 14, if it moves the needle at all? Thanks.
Sure. If we're looking at slide 14, note that that third column from the left, Q1 2021 reserves includes the net impact of the SDT acquisition. In reference to slide 15, we're reconfirming our 2021 guidance and do not plan to change that at this time.
I mean, in the press release that we put out on the acquisition of the overriding royalty interest in SDT, we stated that it was our belief that we're buying them at PV-5. You can imagine we're showing them in one of these bars at PV-10. It is a meaningful giving amount, which it counts. That does have an impact on that far-right bar on page 14. Page 15, we provide guidance once a year, and we were well aware, maybe not of the exact timing, but of the general timing of the liquidation process at SDT, and we factored that into our annual guidance.
Got it. Thanks for your help.
There are no further questions in queue at this time. I would like to turn the call back over to our presenters.
Thank you all very much for your interest in SandRidge, and we'll look forward to talking next quarter, if not before with some of you all. Thank you.
This concludes today's conference call. You may now disconnect.