Good day, and thank you for standing by. Welcome to the SandRidge Energy Second Quarter 2021 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I'd now like to hand the conference over to your speaker today, [ Mr. Prestwich ], Director of Finance and Investor Relations. Please go ahead.

Thank you, and good morning, everyone. With me today are Grayson Pranin, our Chief Executive Officer and Chief Operating Officer; Salah Gamoudi, our Chief Financial Officer and Chief Accounting Officer; and Dean Parrish, our Vice President of Operations. Other members of the management team are joining us this morning as well. 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. With that, I'll turn the call over to Grayson.

Thank you, and good morning. Hopefully, at time we review the earnings release, we posted yesterday after the market closed. For the last several years and particularly over the last 15 months, Board of management have worked to transform our company in almost all respects. This transformation, focusing on asset base, streamlining our organizational and cost structures more than a full flip of net debt to net cash, to position the company well in assisting the tailwind of recent commodity price improvements to include an expanded capital program to reactivate over 100 wells in the second half of this year. Before I discuss these points in more detail, Salah will touch on a few highlights from the second quarter.

Thank you, Grayson. Simply put, 2Q '21 was a strong quarter. Despite no new drilling or completion activities, our Mid-Continent daily average production increased from 17,500 BOE per day last quarter to 19,000 BOE per day this quarter and was flat compared to Q4 of 2020. The quarter-over-quarter growth was driven in part by the reactivation of 49 wells curtailed during last year's commodity price downdrafts. During the quarter, our cash and cash equivalents balance, including restricted cash, increased to $90.6 million, a $14 million increase from the prior quarter, primarily as a result of higher production, commodity -- higher commodity price realizations and our continued focus on cost minimization, and despite being offset by the acquisition of the ORRIs held by the SandRidge Mississippian Trust I for a purchase price of $4.9 million. Total debt outstanding remained at $20 million with de minimis interest expense during the first half of 2021. Despite closing on the sale of our North Park Basin assets, during the first quarter of this year, our adjusted EBITDA remained relatively flat from the prior quarter at $20.8 million compared to $21.7 million. For reasons I'll discuss in a moment, I'd like to point out that EBITDA has very little I and no federal income taxes affecting T. Commodity price realizations remained strong over the quarter, at $64.73 per barrel for oil, $1.66 per Mcf for gas and $17.33 per BOE of NGLs. I would like to remind our investors that these figures represent 2Q averages and do not reflect movements made in benchmark commodity prices over the last several months in the third quarter. As I alluded to earlier, regarding our EBITDA, we have maintained our large NOL position, which was over $1.6 billion as of the end of the second quarter of 2021. Our…

Thank you, Salah. That would be helpful to walk through some of the company's highlights, management strategy and other business details. For the last few years, the Board and management have focused the company's assets, optimized production profile, streamlining its organization and cost structure that strengthened its balance sheet. With the divestment of North Park in February of this year, the asset base is now focused in the Mid-Continent region, but primarily PDP relevant, which do not require the certified produce gas. These well listed assets are most fully held by exceptions along industry shallowing and diversified production profile. We have little to no substantial future geologic reservoir or materially concentrated capital risk across the producing assets. Some of the points of these assets are long histories and long lift. Double-digit reserve life enable high risk reduction history [indiscernible]. More than 1,000 miles each are owned and operated SWD and electric infrastructure over our footprint. This substantial owned and integrated infrastructure provides the company with both costs and strategic advantages, bolstering asset operating margins through reduced lifting as well as water handling and disposal costs, while derisking positive free cash flow. In addition, that interconnectivity and ample capacity help buffer these unforeseen curtailments, shallow decline. We began this year with base profile defining expectations at the upper teens, which are anticipated to be extended further to the low teens, driven in part to our well reactivation of workover. Diversified production profile, both on the gas liquid hydrocarbon mix perspective, and over 975 producing well-based perspective. Our interest is in mostly HBP, which gave breakeven to mix in commitment submitted. As a result of this focus in Mid-Con, the company was able to increase quarter-over-quarter production from 17.5 to 19 MBoe per day despite no new drilling or completion driven in…

[Operator Instructions] Your first question, line of Noel Parks with Tuohy Brothers Investors.

A couple of things. You're talking about converting to more efficient artificial lift. Are those like rod pump conversions or?

Yes, we're converting from the initial artificial lift which were predominantly ESP or gas lift to a long-term artificial lift system, which is either rod pump or plunger lift.

Great. Okay. And I was -- it's been a terrific time to be unhedged given the upswing you've seen in commodity prices the last couple of quarters. And could you just refresh my memory, did you monetize some 2021 hedges at some point earlier in the year?

Noel, yes. This is Salah. We did end up doing that. We monetized our hedges in 4Q of '21 -- or 4Q '20, sorry.

Okay. And I was just curious, in your program of returning wells to production, are there any third-party infrastructure issues that are standing in the way of returning any of the wells? I guess with better commodity prices, especially on the gas and NGL side, I was just thinking about the possibility of infrastructure getting a little bit more tax than it's been in recent times.

No, no. That's the benefit of having it owned and operated large infrastructure system, and we're better able to take advantage of the ample capacity that we have in each of those systems.

Okay. Great. And I think my last one. Just thinking about the transaction environment, we've seen a lot of activity across a number of different basins. I'm just thinking about in the Mid-Con, particularly conventional reservoirs, are there PE that private players still out there and in your area? And I'm just curious if among those, if any of them also are spending any significant CapEx these days.

Sure. Yes. There continues to be private equity players in and around Mid-Con. We like to remain wide eye to both their operations as well as public company operations, just so that we can benchmark our performance relative to them. And we think that we compare favorably. In addition, we remain vigilant and research potential opportunities in the market in Mid-Con and are really just looking for something that's the appropriate fit at the right price. And I hope I addressed that question correctly.

Your next question, the line of Brett Hendrickson with Nokomis Capital.

It's Brett with Nokomis Capital. And I'd love to follow up with you guys off-line on this maybe. But congrats on what looks like a really high return reactivation program. I am assuming that you guys are probably in a pretty rational actors. So you did the -- I imagine you did the best reactivations first in the 49 or are they more linear in terms of the uptick that you get from an incremental reactivation on the next 100? Just any color would be appreciated.

Sure. It's a mix. There was a subset there that didn't require any wells integrating into workover. So it's just a matter of going on and turning on the well. So those got turned on quickly. We did go in, in high grade. And as we've had continued price uplift, we felt it was appropriate to bring on the next 100-well tranche in the back half of this year.

Okay. So you had somehat they were just easy to turn on --to turn them on but there might not have been much production. So then I guess the follow-up would be how many of the next 100 -- I think, 30 of the first 49 required a workover. How many of the next 100 or so will require workover?

The majority.

The majority one, okay. And remind me, what's the average cash cost on a workover?

These workovers vary. On average, they're about $65,000.

[Operator Instructions] Your next question, the Josh Young with Bison Interests.

So a couple of questions. One on the price realizations. It looks like the realizations for gas and NGLs weren't up that much, even though the headline price for those commodities were up or, I guess, if you could help reconcile kind of where that difference is and if there are any opportunities to improve your realizations versus the houses?

Yes. Thanks, Josh, and good morning. I'll touch on a few points, and then I'll turn it over to Salah to reinforce some others. So we've seen improvement in realization since last year. We're focused on further improving these realizations by actively working with our largest purchasers. In addition, we believe that as the benchmark increases, Sand realization will also improve as the fixed cost components are less impactful, subject to change in local market conditions. Salah?

That's correct. And one thing we just wanted to make sure that everybody was -- and Josh, I know you are, but just all of our investors are aware that 2Q of '20 -- of '21, sorry, the commodity prices that -- the posted commodity prices weren't -- they weren't as gangbuster as they have been in the third quarter. And so I know there's a lot of excitement about where Henry Hub is going and things like that, but we still saw -- certainly, we saw commodity price improvements from the prior year. And just as Grayson said, we continue to expect that the realizations will continue to improve as we go along here. So with our efforts on the marketing side as well, fixed cost component that Grayson was speaking of, I think that we'll continue to see that.

Great. Okay. That's helpful. And then my other question is on -- it looks like there are a couple of drilling permits that were filed for you guys. Are those workover wells or new wells? And then I guess, to the extent that they aren't -- to the extent they're just kind of workovers that were prior rigs, is there a price that you guys are tracking where you see new wells in drilling your PUDs? Is there a breakeven price that you'd track where at a certain price or higher, it would start to become economic and compelling call for capital to start drilling new Mississippian Lime wells?

Yes. Thanks, Josh. You may have heard it during the call. But the 2 recompletions that I mentioned related to the permanence question. And there, we're looking at testing the Aswego and Red port. As I mentioned, we're really focused on what's the highest risk-adjusted return in our inventory right now, which is the well reactivations. We remain focused on potential for drilling opportunities. And I think you can see us lean into that as prices firm around current spot degrader. But right now, we do have inventory that's economic. But you'll see us be a little bit more conservative in ensuring that we deliver a very high risk adjusted fully rate of return out to the shareholders as we realize those success. So we're not going to drill in low double-digit return properties.

Got it. That's really helpful. And then just one quick follow-on on that. It looks like you guys amended your credit agreement to be able to start to hedge if you choose to you did a great job in covering your hedges at a cost and total market kind of penalty for that late last year that we saw in filings this year. Do you guys have plans to hedge? Or could you kind of clarify a little bit in terms of like what the thinking there is in getting that change in the credit agreement?

Yes, Josh, the change in the credit agreement really was administrative in nature in the sense that we wanted to be able to enter and exit hedges in the normal course. The way that the credit agreement was structured, we made that difficult. And so we discussed that with our lender about that past. With that said, we'll always continue to look at the potential for hedging, especially as our capital program here has been increased, and we'll continue evaluating that. But the change in the credit agreement in and of itself was really just allowing us to act in the normal course of any -- as a typical E&P company would.

[Operator Instructions] Your next question, line of Michael Melby with Gate City Capital Market.

Congrats on the good results. Could you update us -- you had a nice slide last quarter on your infrastructure assets, and I appreciate the update here. Can you talk about any other strategic or other ways you might be looking to gain value off of your infrastructure assets?

Yes, good morning Michael. Thank you for the question. That's something that we continue to evaluate. We have the benefit of having that large infrastructure position, and we're always looking at ways to increase profitability or cash flow around them. But I don't have anything to report out today.

Got it. And the share repurchase was nice to see. I guess my understanding is with a dividend, you could deliver capital back without -- in a tax-efficient way, I guess, I should say. Could you talk about your decision for share repurchases versus the dividends?

Thanks, Michael. That's a great question. The way that we saw it is on implementing the program and reviewing the fact and figures internally, we still believe as a company that's -- they're still a value disconnect between our share price and our intrinsic value. So we thought it would be prudent to allocate capital in such a way that would give our investors the highest return. And when we reviewed that buying back our own stock to potentially be an avenue for that. I'd also like to point out that the share repurchase program is concluded at our discretion. It is a 10b-18 program, which allows us to purchase when and where want and how much. And so the $25 million that's approved is an up Q amount and we will evaluate each one of those decisions in isolation as we go.

[Operator Instructions] And there are no other questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.