SANDRIDGE ENERGY INC - FORM 8-K/A - EX-99.1 - PRO FORMA FINANCIAL INFORMATION

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8-K/A - FORM 8-K AMENDMENT - SANDRIDGE ENERGY INC	d439120d8ka.htm

Exhibit 99.1

SANDRIDGE ENERGY, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information reflects the historical financial statements of SandRidge Energy, Inc. (“SandRidge”) adjusted on a pro forma basis to give effect to its acquisition of oil and natural gas properties from Hunt Oil Company, Hunt Chieftain Development, L.P., and Hunt Oil Company of Louisiana, Inc. (collectively, “Hunt”). SandRidge’s historical results have also been adjusted to give effect to (i) the acquisition of Dynamic Offshore Resources, LLC (“Dynamic”) by SandRidge and SandRidge’s issuance of approximately 74 million shares of SandRidge common stock and $750.0 million aggregate principal amount of 8.125% Senior Notes due 2022, herein referred to as the financing transactions, to fund the acquisition of Dynamic and (ii) the conveyance of royalty interests in certain oil and natural gas properties (the “Mississippian Trust II Royalty Interests”) to SandRidge Mississippian Trust II by SandRidge. These transactions are described further below.

•

Acquisition of Properties from Hunt. On June 20, 2012, SandRidge acquired oil and natural gas properties from Hunt for approximately $38.5 million, net of purchase price adjustments and subject to post-closing adjustments. The properties comprise approximately 184,000 gross (103,000 net) acres in the Gulf of Mexico (the “Acquired Properties”).

•

Dynamic Acquisition. On April 17, 2012, SandRidge completed its acquisition of Dynamic for approximately $1.2 billion, comprised of approximately $680 million in cash and approximately 74 million shares of SandRidge common stock, referred to herein as the Dynamic Acquisition. Dynamic is an oil and natural gas exploration, development and production company with operations in the Gulf of Mexico.

•

8.125% Senior Notes due 2022. On April 17, 2012, concurrent with the closing of the Dynamic Acquisition, SandRidge issued $750.0 million aggregate principal amount of 8.125% Senior Notes due 2022 (the “8.125% Senior Notes”). Net proceeds from the offering were approximately $730.1 million after deducting offering expenses, and were used primarily to finance the cash portion of the Dynamic Acquisition.

•

SandRidge Mississippian Trust II. On April 23, 2012, SandRidge Mississippian Trust II (the “Mississippian Trust II”), a Delaware statutory trust, completed its initial public offering of 29,900,000 common units representing beneficial interests in the Mississippian Trust II. Net proceeds to the Mississippian Trust II, after underwriting discounts and commissions, were $590.2 million. Concurrent with the closing, SandRidge conveyed the Mississippian Trust II Royalty Interests in exchange for the net proceeds of the Mississippian Trust II’s initial public offering, which were further reduced by $3.1 million for a structuring fee paid to certain of the underwriters, and 19,825,000 units (7,393,750, common units and 12,431,250, subordinated units) representing approximately 39.9% of the beneficial interest in the Mississippian Trust II. The Mississippian Trust II Royalty Interests are in certain existing wells and wells to be drilled on oil and natural gas properties leased by SandRidge in the Mississippian formation in northern Oklahoma and southern Kansas within an area of mutual interest. SandRidge used the net proceeds from the offering for general corporate purposes, which included the funding of its drilling program.

The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2012 is based on the unaudited statement of operations of SandRidge for the nine months ended September 30, 2012, the unaudited statement of revenues and direct operating expenses of the Acquired Properties for the period of January 1, 2012 through June 20, 2012 and the unaudited statement of operations of Dynamic for the period of January 1, 2012 through April 17, 2012 and includes pro forma adjustments to give effect to the acquisition of properties from Hunt, the Dynamic Acquisition, the financing transactions and the Mississippian Trust II Royalty Interests conveyance as if those transactions occurred on January 1, 2011. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2011 is based on the audited statement of operations of SandRidge, the audited statement of revenues and direct operating expenses of the Acquired Properties and the audited statement of operations of Dynamic for the year ended December 31, 2011 and includes pro forma adjustments to give effect to the acquisition of properties from Hunt, the Dynamic Acquisition and the financing transactions as if they occurred on January 1, 2011. Additionally, the audited statements of operations of both SandRidge and Dynamic for the year ended December 31, 2011 have been adjusted for certain acquisition or divesture transactions, as further described below.

SandRidge’s historical results for the year ended December 31, 2011 have been adjusted on a pro forma basis to give effect to (i) its conveyance of the Mississippian Trust II Royalty Interests to the Mississippian Trust II (described above), (ii) the sale of certain producing properties located in eastern Texas (the “East Texas Properties”) and (iii) its conveyance of royalty interests in certain oil and natural gas properties located in Andrews County, Texas (the “Permian Trust Royalty Interests”) to SandRidge Permian Trust. SandRidge’s historical results have also been adjusted to give effect to SandRidge’s July 2010 acquisition of Arena Resources, Inc. (“Arena”), including all related adjustments, as if they had occurred prior to 2011. The sale of the East Texas Properties, the conveyance of the Permian Trust Royalty Interests and the acquisition of Arena are described further below.

•

East Texas Sale. On November 14, 2011, SandRidge sold producing properties located on over 23,000 net acres in Gregg, Harrison, Rusk and Panola counties in Texas for an agreed upon price of $231.0 million.

•

SandRidge Permian Trust. On August 16, 2011, the SandRidge Permian Trust (the “Permian Trust”) completed its initial public offering of 34,500,000 common units representing beneficial interests in the Permian Trust. Net proceeds to the Permian Trust, after certain offering expenses, were $580.6 million. Concurrent with the closing, SandRidge conveyed the Permian Trust Royalty Interests to the Permian Trust in exchange for the net proceeds of the Permian Trust’s initial public offering and 18,000,000 units (4,875,000 common units and 13,125,000 subordinated units), representing approximately 34.3% of the beneficial interest in the Permian Trust. The Permian Trust Royalty Interests conveyed to the Permian Trust are in certain oil and natural gas properties located in the Central Basin Platform of the Permian Basin in Andrews County, Texas and entitle the Permian Trust to a percentage of the proceeds from the sale of oil, natural gas and natural gas liquids production from currently producing wells and development wells to be drilled by SandRidge within an area of mutual interest. SandRidge used a portion of the net proceeds from the offering to repay borrowings under its senior credit facility and for general corporate purposes.

•

Arena Acquisition. On July 16, 2010, SandRidge completed the acquisition of all of the outstanding shares of common stock of Arena, referred to herein as the Arena Acquisition. In connection with the acquisition, SandRidge paid $4.50 in cash and issued 4.7771 shares of SandRidge common stock for each share of Arena common stock outstanding for a total value per share of $35.79, based upon the $6.55 closing price of SandRidge common stock on July 16, 2010, the closing date of the acquisition. The consideration received by Arena shareholders was valued at $1.4 billion in the aggregate. SandRidge was the surviving parent company after completion of the acquisition. Arena was an oil and natural gas exploration, development and production company with operations in Texas, Oklahoma, Kansas and New Mexico. In the second quarter of 2011, SandRidge completed its valuation of assets acquired and liabilities assumed related to the Arena Acquisition.

Dynamic’s historical consolidated statement of operations for the year ended December 31, 2011 has been adjusted on a pro forma basis to give effect to its acquisition of certain oil and natural gas interests in the Gulf of Mexico as described further below.

•

XTO Acquisition. On August 31, 2011, Dynamic acquired certain oil and natural gas interests in the Gulf of Mexico from XTO Offshore Inc. and other related subsidiaries of ExxonMobil Corporation (“Exxon”) for $173.5 million (the “XTO Acquisition”). The properties acquired comprise substantially all of the Gulf of Mexico assets that Exxon acquired as part of its acquisition of XTO Energy, Inc. in 2010 (the “XTO Acquisition Properties”).

The pro forma adjustments reflecting: (i) SandRidge’s acquisition of properties from Hunt, (ii) the acquisition of Dynamic by SandRidge under the acquisition method of accounting, (iii) SandRidge’s conveyance of the Mississippian Trust II Royalty Interests to the Mississippian Trust II, (iv) SandRidge’s sale of the East Texas Properties, (v) SandRidge’s conveyance of the Permian Trust Royalty Interests to the Permian Trust, (vi) final adjustments recorded in 2011 related to SandRidge’s Arena Acquisition, and (vii) Dynamic’s acquisition of the XTO Acquisition Properties include the use of estimates and assumptions as described in the related notes. The pro forma adjustments are based on information available to management at the time these unaudited pro forma condensed combined financial statements were prepared. SandRidge believes the estimates and assumptions used are reasonable and the significant effects of the transaction are properly reflected. However, the estimates and assumptions are subject to change as additional information becomes available. The pro forma financial statements do not reflect any cost savings (or associated costs to achieve such savings) from operating efficiencies, synergies or other restructuring that could result from the acquisition of properties from Hunt or the Dynamic Acquisition. Additionally, the unaudited pro forma condensed combined statements of operations exclude the impact of non-recurring expenses SandRidge and Dynamic have incurred or will incur as a result of the acquisition of properties from Hunt, the Dynamic Acquisition and related financing, primarily non-capitalizable banking and legal fees, the bargain purchase gain and an income tax benefit resulting from a partial release of the valuation allowance on SandRidge’s deferred tax asset. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2011 also excludes certain non-recurring adjustments recorded in 2011 relating to SandRidge’s July 2010 acquisition of Arena.

The unaudited pro forma condensed combined financial information is for informational purposes only and is not intended to represent or to be indicative of the results that actually would have occurred had the transactions described above been completed as of the dates set forth in this unaudited pro forma condensed combined financial information and should not be taken as indicative of SandRidge’s future combined results of operations or financial position. Actual results may differ significantly from that reflected in the unaudited pro forma condensed combined financial information for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the unaudited pro forma condensed combined financial information and actual results. The unaudited pro forma financial information should be read in conjunction with the accompanying footnotes, SandRidge’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2012 and Annual Report on Form 10-K for the year ended December 31, 2011, the Permian Trust’s Annual Report on Form 10-K for the year ended December 31, 2011, the Mississippian Trust II’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2012, Dynamic’s financial statements and related notes for the year ended December 31, 2011 included in SandRidge’s current report on Form 8-K filed on April 9, 2012 and for the three months ended March 31, 2012 included in SandRidge’s current report on Form 8-K filed on May 18, 2012, the unaudited Statement of Revenues and Direct Operating Expenses for the three months ended March 31, 2012 and the audited Statement of Revenues and Direct Operating Expenses for the year ended December 31, 2011 for the Acquired Properties, both included in SandRidge’s current report on Form 8-K/A on August 31, 2012, and other information that SandRidge has filed with the Securities and Exchange Commission.

SANDRIDGE ENERGY, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012


	SandRidge Historical			Dynamic Historical			Dynamic Acquisition Pro Forma Adjustments			SandRidge as Adjusted for Dynamic Acquisition			Acquired Properties Historical (o)		Acquired Properties Pro Forma Adjustments			SandRidge Mississippian Trust II Pro Forma Adjustments			SandRidge Pro Forma Combined
	(In thousands, except per share amounts)
Revenues
Oil and natural gas	$	1,259,375		$	173,588		$	1,229	(a)	$	1,434,192		$	28,232	$	—		$	—		$	1,462,424
Drilling and services		90,701			—			—			90,701			—		—			—			90,701
Midstream and marketing		27,866			—			—			27,866			—		—			—			27,866
Other		14,925			3,117			—			18,042			—		—			—			18,042

Total revenues		1,392,867			176,705			1,229			1,570,801			28,232		—			—			1,599,033
Expenses
Production		342,824			48,721			17,697	(b)		409,242			11,519		—			—			420,761
Production taxes		36,222			—			752	(b)		36,974			462		—			—			37,436
Drilling and services		52,468			—			—			52,468			—		—			—			52,468
Midstream and marketing		27,187			—			—			27,187			—		—			—			27,187
Exploration		—			2,864			(2,864	) (c)		—			—		—			—			—
Depreciation and depletion — oil and natural gas		392,452			55,177			(2,086	) (d)
								(177	) (e)		445,366			—		11,767	(d)		—			457,133
Depreciation and amortization — other		46,357			—			—			46,357			—		—			—			46,357
Accretion of asset retirement obligation		19,625			—			5,360	(b)
								1,853	(f)		26,838			—		1,937	(p)		—			28,775
General and administrative		158,798			9,989			(3,250	) (g)
								(12,880	) (h)		152,657			—		(155	) (h)		250	(q)		152,752
(Gain) loss on derivative contracts		(221,707	)		—			28,922	(b)		(192,785	)		—		—			—			(192,785	)
Loss on sale of assets		3,755			—			—			3,755			—		—			—			3,755
Other		—			25,116			(23,809	) (b)
								(1,307	) (i)		—			—		—			—			—

Total expenses		857,981			141,867			8,211			1,008,059			11,981		13,549			250			1,033,839

Income from operations		534,886			34,838			(6,982	)		562,742			16,251		(13,549	)		(250	)		565,194

Other income (expense)
Interest expense		(217,428	)		(6,633	)		6,633	(j)
								(18,112	) (j)
								(501	) (j)
								10,875	(k)		(225,166	)		—		—			—			(225,166	)
Bargain purchase gain		124,446			—			(124,446	) (l)		—
Loss on derivative contracts		—			(28,922	)		28,922	(b)		—			—		—			—			—
Loss on extinguishment of debt		(3,056	)		—			—			(3,056	)		—		—			—			(3,056	)
Other income (expense), net		3,629			(3,387	)		—			242			—		—			—			242

Total other expense		(92,409	)		(38,942	)		(96,629	)		(227,980	)		—		—			—			(227,980	)

Income (loss) before income taxes		442,477			(4,104	)		(103,611	)		334,762			16,251		(13,549	)		(250	)		337,214
Income tax benefit		(103,414	)		(923	)		104,251	(m)		(86	)		—		—			—			(86	)

Net income (loss)		545,891			(3,181	)		(207,862	)		334,848			16,251		(13,549	)		(250	)		337,300
Less: net income attributable to noncontrolling interest		111,626			—			—			111,626			—		—			11,429	(r)		123,055

Net income (loss) attributable to SandRidge Energy, Inc.		434,265			(3,181	)		(207,862	)		223,222			16,251		(13,549	)		(11,679	)		214,245
Preferred stock dividends		41,644			—			—			41,644			—		—			—			41,644

Income available (loss applicable) to SandRidge Energy, Inc. common stockholders	$	392,621		$	(3,181	)	$	(207,862	)	$	181,578		$	16,251	$	(13,549	)	$	(11,679	)	$	172,601

Earnings per share
Basic	$	0.88								$	0.38										$	0.36

Diluted	$	0.81								$	0.38										$	0.36

Weighted average number of common shares outstanding
Basic		445,991						29,153	(n)		475,144											475,144

Diluted		537,300						(60,981	) (n)		476,319											476,319

The accompanying notes are an integral part of this unaudited pro forma financial information.

SANDRIDGE ENERGY, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2011


	SandRidge Pro Forma Historical (Note 3)			Dynamic Pro Forma Historical (Note 4)			Dynamic Acquisition Pro Forma Adjustments			SandRidge As Adjusted for Dynamic Acquisition			Acquired Properties Historical (o)		Acquired Properties Pro Forma Adjustments			SandRidge Pro Forma Combined
	(In thousands, except per share amounts)
Revenues
Oil and natural gas	$	1,187,259		$	616,420		$	(3,050	) (a)
								(16,496	) (b)	$	1,784,133		$	87,112	$	—		$	1,871,245
Drilling and services		103,298			—			—			103,298			—		—			103,298
Midstream and marketing		66,690			—			—			66,690			—		—			66,690
Other		18,431			—			16,496	(b)		34,927			—		—			34,927

Total revenues		1,375,678			616,420			(3,050	)		1,989,048			87,112		—			2,076,160
Expenses
Production		309,367			133,094			58,087	(b)		500,548			28,780		—			529,328
Production taxes		44,850			—			797	(b)		45,647			1,353		—			47,000
Drilling and services		65,654			—			—			65,654			—		—			65,654
Midstream and marketing		66,007			—			—			66,007			—		—			66,007
Exploration		—			15,085			(15,085	) (c)		—			—		—			—
Depreciation and depletion – oil and natural gas		311,306			203,457			(21,041	) (d)
								(10,851	) (e)		482,871			—		28,890	(d)		511,761
Depreciation and amortization – other		53,630			—			—			53,630			—		—			53,630
Accretion of asset retirement obligation		9,368			—			15,028	(b)
								7,443	(f)		31,839			—		3,876	(p)		35,715
Impairment		2,825			—			—			2,825			—		—			2,825
General and administrative		150,143			24,400			(9,279	) (g)		165,264			—		—			165,264
Gain on derivative contracts		(44,075	)		—			(43,734	) (b)		(87,809	)		—		—			(87,809	)
Gain on sale of assets		(2,044	)		—			(19	) (b)		(2,063	)		—		—			(2,063	)
Other		—			84,124			(73,893	) (b)					—		—
								(10,231	) (i)		—			—		—			—

Total expenses		967,031			460,160			(102,778	)		1,324,413			30,133		32,766			1,387,312

Income from operations		408,647			156,260			99,728			664,635			56,979		(32,766	)		688,848

Other income (expense)
Interest expense		(234,200	)		(13,007	)		13,007	(j)					—		—
								(60,938	) (j)					—		—
								(1,688	) (j)		(296,826	)		—		—			(296,826	)
Loss on extinguishment of debt		(38,232	)		—			—			(38,232	)		—		—			(38,232	)
Bargain purchase gain		—			282			—			282			—		—			282
Gain on derivative contracts		—			43,734			(43,734	) (b)		—			—		—			—
Other income (expense), net		970			(145	)		—			825			—		—			825

Total other (expense) income		(271,462	)		30,864			(93,353	)		(333,951	)		—		—			(333,951	)

Income before income taxes		137,185			187,124			6,375			330,684			56,979		(32,766	)		354,897
Income tax expense (benefit)		377			(5,359	)		5,359	(m)		377			—		—			377

Net income		136,808			192,483			1,016			330,307			56,979		(32,766	)		354,520
Less: net income attributable to noncontrolling interest		97,547			460			—			98,007			—		—			98,007

Net income attributable to SandRidge Energy, Inc.		39,261			192,023			1,016			232,300			56,979		(32,766	)		256,513
Preferred stock dividends		55,583			—			—			55,583			—		—			55,583

(Loss applicable) income available to SandRidge Energy, Inc. common stockholders	$	(16,322	)	$	192,023		$	1,016		$	176,717		$	56,979	$	(32,766	)	$	200,930

(Loss) earnings per share
Basic	$	(0.04	)							$	0.37							$	0.43

Diluted	$	(0.04	)							$	0.37							$	0.42

Weighted average number of common shares outstanding

Basic		398,851						73,759	(n)		472,610								472,610

Diluted		398,851						81,553	(n)		480,404								480,404

The accompanying notes are an integral part of this unaudited pro forma financial information.

SANDRIDGE ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

On June 20, 2012, SandRidge Energy, Inc. (“SandRidge”) acquired oil and natural gas properties from Hunt Oil Company, Hunt Chieftain Development, L.P., and Hunt Oil Company of Louisiana, Inc. (collectively, “Hunt”) for $38.5 million, net of purchase price adjustments and subject to post-closing adjustments. The properties comprise approximately 184,000 gross (103,000 net) acres in the Gulf of Mexico (the “Acquired Properties”).

On April 23, 2012, SandRidge Mississippian Trust II (the “Mississippian Trust II”), a Delaware statutory trust, completed its initial public offering (“IPO”) of 29,900,000 common units representing beneficial interests in the Mississippian Trust II. Net proceeds to the Mississippian Trust II, after underwriting discounts and commissions, were $590.2 million. Concurrent with the closing, SandRidge conveyed certain royalty interests to the Mississippian Trust II in exchange for the net proceeds of the Mississippian Trust II’s IPO, which were further reduced by $3.1 million for a structuring fee paid to certain of the underwriters, and 19,825,000 units (7,393,750 common units and 12,431,250 subordinated units) representing approximately 39.9% of the beneficial interest in the Mississippian Trust II. The royalty interests conveyed to the Mississippian Trust II are in certain existing wells and wells to be drilled on oil and natural gas properties leased by SandRidge in the Mississippian formation in northern Oklahoma and southern Kansas within an area of mutual interest (the “Mississippian Trust II Royalty Interests”).

On February 1, 2012, SandRidge and Dynamic Offshore Holding, LP (the “Seller”) entered into an agreement (the “Equity Purchase Agreement”) for SandRidge to acquire 100% of the outstanding equity interests of Dynamic Offshore Resources, LLC (“Dynamic”), a wholly-owned subsidiary of the Seller. On April 17, 2012, SandRidge completed its acquisition of Dynamic (the “Dynamic Acquisition”) for approximately $1.2 billion, comprised of approximately $680 million in cash and approximately 74 million shares of SandRidge’s common stock. Dynamic is an oil and natural gas exploration, development and production company with operations in the Gulf of Mexico.

SandRidge secured $725.0 million in committed financing (the “Bridge Loan”) from Bank of America, N.A., SunTrust Bank and The Royal Bank of Scotland plc that was available for SandRidge’s use to fund the cash portion of the Dynamic purchase price. SandRidge incurred a $10.9 million fee in connection with securing the Bridge Loan. Rather than using the Bridge Loan, however, SandRidge issued $750.0 million of 8.125% Senior Notes due 2022 (the “8.125% Senior Notes”) on April 17, 2012 to primarily fund the cash portion of the Dynamic purchase price. The pro forma effects of the 8.125% Senior Notes and common stock issuance, herein referred to as the financing transactions, have been reflected in the pro forma adjustments.

The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2012 and the year ended December 31, 2011 exclude the impact of non-recurring expenses SandRidge and Dynamic have incurred or will incur as a result of the acquisition of properties from Hunt, the Dynamic Acquisition and related financings, primarily banking and legal fees, the bargain purchase gain and an income tax benefit resulting from a partial release of the valuation allowance on SandRidge’s deferred tax asset. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2011 also excludes certain non-recurring adjustments recorded in 2011 relating to SandRidge’s July 2010 acquisition of Arena Resources, Inc. (“Arena”). SandRidge’s historical results for the year ended December 31, 2011 have been adjusted on a pro forma basis to give effect to (i) its conveyance of the Mississippian Trust II Royalty Interests to the Mississippian Trust II, (ii) the sale of certain producing properties located in eastern Texas (the “East Texas Properties”) and (iii) its conveyance of the royalty interests in certain oil and natural gas properties located in Andrews County, Texas (the “Permian Trust Royalty Interests”) to SandRidge Permian Trust (the “Permian Trust”). SandRidge’s historical results for the year ended December 31, 2011 have also been adjusted to give effect to final adjustments recorded in 2011 by SandRidge with respect to its July 2010 acquisition of Arena as if they had occurred prior to 2011. See Note 3 to the unaudited pro forma condensed combined financial statements for further discussion of these pro forma adjustments to the SandRidge historical statement of operations. Dynamic’s historical consolidated statement of operations for the year ended December 31, 2011 has also been adjusted on a pro forma basis to give effect to Dynamic’s 2011 acquisition of certain oil and natural gas interests in the Gulf of Mexico. See Note 4 to the unaudited pro forma condensed combined financial statements for further discussion of these pro forma adjustments to the Dynamic historical statement of operations.

SandRidge believes that the assumptions used in the preparation of these unaudited pro forma condensed combined financial statements provide a reasonable basis for presenting the effects directly attributable to the transactions described above. The unaudited pro forma financial information should be read in conjunction with the accompanying footnotes, SandRidge’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2012 and Annual Report on Form 10-K for the year ended December 31, 2011, the Permian Trust’s Annual Report on Form 10-K for the year ended December 31, 2011, the Mississippian Trust II’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2012, Dynamic’s financial statements and related notes for the year ended December 31, 2011 included in SandRidge’s current report on Form 8-K filed on April 9, 2012 and for the three months ended March 31, 2012 included in SandRidge’s current report on Form 8-K filed on May 18, 2012, the unaudited Statement of Revenues and Direct Operating Expenses for the three months ended March 31, 2012 and the audited Statement of Revenues and Direct Operating Expenses for the year ended December 31, 2011 for the Acquired Properties, both included in SandRidge’s current report on Form 8-K/A filed on August 31, 2012, and other information that SandRidge has filed with the Securities and Exchange Commission.

Consolidation of the Trusts by SandRidge. In accordance with Accounting Standards Codification Topic 810, including the guidance in Accounting Standards Update 2009-17, SandRidge consolidates the activities of variable interest entities of which it is the primary beneficiary. SandRidge has determined that it is the primary beneficiary of the Permian Trust and began consolidating the activities of the Permian Trust with its results beginning in August 2011. Additionally, SandRidge has determined that it is the primary beneficiary of the Mississippian Trust II and began consolidating the activities of the Mississippian Trust II with its results beginning in April 2012. In consolidation, the royalty trust net income attributable to common units of the royalty trusts owned by third parties is reflected as noncontrolling interest. Accordingly, the pro forma impact of the Permian Trust and Mississippian Trust II Royalty Interests conveyances primarily are limited to giving effect to noncontrolling interest accounting.

Note 2. Pro Forma Adjustments

The following adjustments were made in the preparation of the unaudited pro forma condensed combined statements of operations:

(a)

Adjustment to reverse the effect on revenues of natural gas imbalances recorded by Dynamic under the entitlement method. SandRidge uses the sales method of accounting for natural gas imbalances.

(b)

Adjustments to align the presentation of Dynamic’s revenues and expenses based on the statement of operations line items and presentation utilized by SandRidge.

(c)

Adjustment to eliminate expense related to unsuccessful exploration costs, geological and geophysical costs and delay rentals attributable to the development of oil and natural gas properties from Dynamic’s historical financial statements in accordance with the full cost method of accounting for oil and natural gas properties. SandRidge follows the full cost method of accounting for oil and natural gas properties while Dynamic followed the successful efforts method of accounting for oil and natural gas properties prior to its acquisition by SandRidge. Certain costs that are capitalized under the full cost method are expensed under the successful efforts method. These costs consist primarily of unsuccessful exploration drilling costs, geological and geophysical costs, delay rental on leases, abandonment costs and general and administrative expenses directly related to exploration and development activities.

(d)

Adjustment to depreciation and depletion resulting from the pro forma calculation of the combined entity’s depletion expense under the full cost method of accounting for oil and natural gas properties. The pro forma depletion adjustments utilize depletion rates of $15.83 and $15.69 per Boe for the nine months ended September 30, 2012 and year ended December 31, 2011, respectively. The pro forma depletion adjustments for the nine months ended September 30, 2012 reflect depletion using the combined entity’s rate through the acquisition date for the acquisition of properties from Hunt (June 20, 2012) and the Dynamic Acquisition (April 17, 2012). Under the successful efforts method of accounting, proved property acquisition costs are amortized on a unit-of-production basis over total proved reserves and costs of wells, related equipment and facilities are depreciated over the life of the proved developed reserves that will utilize those capitalized assets on a field-by-field basis. Under the full cost method of accounting, property acquisition costs, costs of wells, related equipment and facilities and future development costs are included in a single full cost pool, which is amortized on a unit-of-production basis over total proved reserves.

(e)

Adjustment to eliminate the impairment of oil and natural gas properties recorded by Dynamic under the successful efforts method of accounting.

(f)

Adjustment to Dynamic’s accretion expense due to changes in the asset retirement obligation as a result of calculating the obligation based upon SandRidge’s credit adjusted risk-free rate.

(g)

Adjustment to capitalize a portion of Dynamic’s general and administrative expenses as allowed under the full cost method, using SandRidge’s historical capitalization rates of approximately 33% and 38% for the period of January 1 through April 17, 2012 and the year ended December 31, 2011, respectively.

(h)

Adjustment to eliminate non-recurring acquisition costs, which were included in SandRidge’s historical statement of operations for the nine months ended September 30, 2012.

(i)

Adjustment to eliminate the loss on abandonment recorded by Dynamic under the successful efforts method of accounting. Under full cost accounting, any differences between the recorded asset retirement obligation and actual plugging and abandonment costs are recorded as an adjustment to accumulated depletion.

(j)

Adjustment to eliminate historical interest expense on Dynamic’s debt, which was repaid at closing, record interest expense on the $750.0 million principal amount of 8.125% Senior Notes and amortize estimated debt issuance costs of $19.9 million related to the 8.125% Senior Notes over the term of the notes. The pro forma adjustment for the nine months ended September 30, 2012 reflects interest expense and amortization of debt issuance costs through April 17, 2012.

(k)

Adjustment to eliminate the non-recurring fee SandRidge incurred to secure the Bridge Loan, which was included in SandRidge’s historical statement of operations for the nine months ended September 30, 2012.

(l)

Adjustment to reverse the bargain purchase gain resulting from the Dynamic Acquisition. The bargain purchase gain is the excess fair value of net assets acquired over consideration paid and was included in SandRidge’s historical statement of operations for the nine months ended September 30, 2012.

(m)

Adjustment to reverse Dynamic’s income tax benefit. There was no pro forma income tax provision related to the acquisition of Dynamic due to SandRidge’s net deferred tax asset position and the corresponding full valuation allowance. A net deferred tax liability resulted from the difference between the estimated fair value and SandRidge’s tax basis in the assets acquired and liabilities assumed. The net deferred tax liability also includes the effects of deferred tax assets associated with net operating losses and other tax attributes acquired through the Dynamic Acquisition. This net deferred tax liability was offset with SandRidge’s existing net deferred tax asset, resulting in the release of $103.3 million of valuation allowance against SandRidge’s existing net deferred tax asset, which is reflected in SandRidge’s historical statement of operations for the nine months ended September 30, 2012. The release of the valuation allowance is considered non-recurring and therefore reversed in the pro forma adjustments for the nine months ended September 30, 2012.

(n)

Adjustment to weighted average shares outstanding for the issuance of SandRidge common stock in conjunction with the Dynamic Acquisition.

(o)

Adjustment to recognize revenues and direct operating expenses of the properties acquired from Hunt.

(p)

Adjustment to record accretion expense on the asset retirement obligation assumed in the acquisition of oil and natural gas properties from Hunt.

(q)

The Mississippian Trust II’s general and administrative expenses are estimated at $1.3 million annually and include an annual administrative services fee of $0.3 million payable by the Mississippian Trust II to SandRidge that is eliminated in consolidation. Adjustment for the Mississippian Trust II for the nine months ended September 30, 2012 is net of amounts attributable to the Mississippian Trust II from April 23, 2012 to September 30, 2012 already reflected in the SandRidge historical results.

(r)

Reflects net income of the Mississippian Trust II attributable to the third-party beneficial ownership of 60.1%. Such amounts were estimated based on pro forma distributable income of the Mississippian Trust II of $27.7 million less depletion of $8.7 million for the nine months ended September 30, 2012.

Note 3. SandRidge’s Unaudited Pro Forma Condensed Statement of Operations

SandRidge’s unaudited pro forma condensed statement of operations for the year ended December 31, 2011 included in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2011 gives effect to the following transactions:

•

SandRidge Mississippian Trust II. On April 23, 2012, the Mississippian Trust II completed its IPO. Concurrent with the closing, SandRidge conveyed the Mississippian Trust II Royalty Interests to the Mississippian Trust II in exchange for the net proceeds of the IPO and 19,825,000 units (7,393,750, common units and 12,431,250, subordinated units). See Note 1 for further discussion of the Mississippian Trust II’s IPO.

•

SandRidge Permian Trust. On August 16, 2011, the Permian Trust completed its IPO of 34,500,000 common units representing beneficial interests in the Permian Trust. Net proceeds to the Permian Trust, after certain offering expenses, were $580.6 million. Concurrent with the closing, SandRidge conveyed the Permian Trust Royalty Interests to the Permian Trust in exchange for the net proceeds of the Permian Trust’s IPO and 18,000,000 units (4,875,000 common units and 13,125,000 subordinated units), representing approximately 34.3% of the beneficial interest in the Permian Trust.

•

Arena Acquisition. On July 16, 2010, SandRidge completed the acquisition of all of the outstanding shares of common stock of Arena. In connection with the acquisition, SandRidge paid $4.50 in cash and issued 4.7771 shares of SandRidge common stock for each share of Arena common stock outstanding for a total value per share of $35.79, based upon the $6.55 closing price of SandRidge common stock on July 16, 2010, the closing date of the acquisition. The consideration received by Arena shareholders was valued at $1.4 billion in the aggregate. SandRidge was the surviving parent company after completion of the acquisition. In the second quarter of 2011, SandRidge completed its valuation of assets acquired and liabilities assumed related to the Arena Acquisition.

The unaudited pro forma condensed statement of operations for the year ended December 31, 2011 is based on the audited statement of operations of SandRidge for the year ended December 31, 2011, and includes pro forma adjustments to give effect to SandRidge’s conveyance of the Permian Trust Royalty Interests to the Permian Trust, the East Texas Sale and the conveyance of the Mississippian Trust II Royalty Interests to the Mississippian Trust II as if those transactions occurred on January 1, 2011, and to reflect the effects of final adjustments for the Arena Acquisition. SandRidge believes that the assumptions used provide a reasonable basis for presenting the effects directly attributable to these transactions. Certain reclassifications have been made to the historical statement of operations for the year ended December 31, 2011 to conform to the presentation in the historical statement of operations for the nine months ended September 30, 2012.

SandRidge Energy, Inc.

Unaudited Pro forma Condensed Statement of Operations

Year Ended December 31, 2011


				Pro Forma Adjustments
							Dispositions
	SandRidge Historical			Arena Acquisition			SandRidge Permian Trust			East Texas Sale			SandRidge Mississippian Trust II			SandRidge Pro Forma Historical
	(In thousands, except per share amounts)
Revenues
Oil and natural gas	$	1,226,794			—			—		$	(39,535	) (f)		—		$	1,187,259
Drilling and services		103,298			—			—			—			—			103,298
Midstream and marketing		66,690			—			—			—			—			66,690
Other		18,431			—			—			—			—			18,431

Total revenues		1,415,213			—			—			(39,535	)		—			1,375,678

Expenses
Production		322,877			—			—			(13,510	) (f)		—			309,367
Production taxes		46,069			—			—			(1,219	) (f)		—			44,850
Drilling and services		65,654			—			—			—			—			65,654
Midstream and marketing		66,007			—			—			—			—			66,007
Depreciation and depletion — oil and natural gas		317,246			—			—			(5,940	) (g)		—			311,306
Depreciation and amortization — other		53,630			—			—			—			—			53,630
Accretion of asset retirement obligation		9,368			—			—			—			—			9,368
Impairment		2,825			—			—			—			—			2,825
General and administrative		148,643			—			500	(c)		—			1,000	(c)		150,143
Gain on derivative contracts		(44,075	)		—			—			—			—			(44,075	)
Gain on sale of assets		(2,044	)		—			—			—			—			(2,044	)

Total expenses		986,200			—			500			(20,669	)		1,000			967,031

Income from operations		429,013			—			(500	)		(18,866	)		(1,000	)		408,647

Other income (expense)
Interest expense		(237,332	)		—			3,132	(d)		—			—			(234,200	)
Loss on extinguishment of debt		(38,232	)		—			—			—			—			(38,232	)
Other income, net		3,122			(2,152	) (a)		—			—			—			970

Total other expense		(272,442	)		(2,152	)		3,132			—			—			(271,462	)

Income before income taxes		156,571			(2,152	)		2,632			(18,866	)		(1,000	)		137,185
Income tax (benefit) expense		(5,817	)		6,247	(b)		—			(53	) (h)		—			377

Net income		162,388			(8,399	)		2,632			(18,813	)		(1,000	)		136,808

Less: net income attributable to noncontrolling interest		54,323			—			26,612	(e)		—			16,612	(i)		97,547

Net income attributable to SandRidge Energy, Inc.		108,065			(8,399	)		(23,980	)		(18,813	)		(17,612	)		39,261
Preferred stock dividends		55,583			—			—			—			—			55,583

Income available (loss applicable) to SandRidge Energy, Inc. common stockholders	$	52,482		$	(8,399	)	$	(23,980	)	$	(18,813	)	$	(17,612	)	$	(16,322	)

Earnings (loss) per share
Basic	$	0.13														$	(0.04	)

Diluted	$	0.13														$	(0.04	)

Weighted average number of common shares outstanding

Basic		398,851															398,851

Diluted		406,645												(7,794	) (j)		398,851

(a)

Adjustment to reverse income amounts resulting from the final adjustment to liabilities established in the Arena Acquisition purchase price allocation that were reduced to zero based on final information received during the year ended December 31, 2011. Income from adjusting the liability is considered non-recurring and therefore reversed in the unaudited pro forma condensed statement of operations.

(b)

Adjustment to reverse the release of a portion of SandRidge’s valuation allowance for the year ended December 31, 2011. A deferred tax liability resulted from the step-up in basis on the property acquired from Arena. This deferred tax liability was offset with SandRidge’s existing net deferred tax asset, resulting in the release of $7.0 million of valuation allowance against SandRidge’s existing net deferred tax asset for the year ended December 31, 2011. The $7.0 million valuation allowance release is presented net of $0.8 million of income tax expense related to the filing of Arena’s final tax returns. The release of the valuation allowance is considered non-recurring and therefore reversed in the unaudited pro forma condensed statement of operations for the year ended December 31, 2011.

(c)

The Permian Trust and Mississippian Trust II’s general and administrative expenses are each estimated at $1.3 million annually and include an annual administrative services fee of $0.3 million payable by each of the Permian Trust and Mississippian Trust II to SandRidge that will be eliminated in consolidation. Adjustment to the Permian Trust for the year ended December 31, 2011 is net of amounts attributable to the Permian Trust from August 16, 2011 to December 31, 2011 already reflected in the SandRidge historical results.

(d)	Adjustment to reflect reduction of interest expense due to repayment of amounts outstanding under SandRidge’s senior secured revolving credit facility with proceeds from the Permian Trust’s IPO.

(e)

Reflects net income of the Permian Trust attributable to third-party beneficial ownership of 65.7%. Such amounts were estimated based on pro forma distributable income of the Permian Trust of $89.8 million less estimated depletion of $15.7 million for the year ended December 31, 2011. Adjustment for the year ended December 31, 2011 is net of amounts attributable to the Permian Trust from August 16, 2011 to December 31, 2011 already reflected in the SandRidge historical results.

(f)	Adjustment to reduce oil and natural gas sales, production expense and production tax expense for amounts attributable to the East Texas Properties during the year ended December 31, 2011.

(g)	Adjustment to reduce depletion, using the unit-of-production method under the full cost method of accounting, for amounts attributable to the East Texas Properties during the year ended December 31, 2011.

(h)

Adjustment to income tax expense for income tax attributable to net revenues generated by the East Texas Properties during the year ended December 31, 2011. Adjustment was based upon the SandRidge consolidated effective income tax rate excluding the effects of adjustments to SandRidge’s valuation allowance caused by the Arena Acquisition discussed in (b) above.

(i)

Reflects net income of the Mississippian Trust II attributable to third-party beneficial ownership of 60.1%. Such amounts were estimated based on pro forma distributable income of the Mississippian Trust II of $37.3 million less estimated depletion of $9.7 million for the year ended December 31, 2011.

(j)	Adjustment to the weighted average number of common shares outstanding – diluted based on pro forma loss applicable to SandRidge Energy, Inc. common stockholders.

Note 4. Dynamic Unaudited Pro Forma Condensed Statement of Operations

Dynamic’s unaudited pro forma condensed statement of operations for the year ended December 31, 2011 included in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2011 gives effect to its acquisition of certain oil and natural gas interests in the Gulf of Mexico from XTO Offshore Inc. and other related subsidiaries of ExxonMobil Corporation (“Exxon”) for $173.5 million on August 31, 2011 (the “XTO Acquisition”). The properties acquired comprise substantially all of the Gulf of Mexico assets that Exxon acquired as part of its acquisition of XTO Energy, Inc. in 2010.

Dynamic Offshore Resources, LLC

Unaudited Pro Forma Condensed Statement of Operations

For the Year Ended December 31, 2011


	Dynamic Historical			XTO Acquisition		Pro Forma Adjustments			Dynamic Pro Forma Historical
	(In thousands)
Revenues	$	520,782		$	95,638	$	—		$	616,420
Expenses
Production		113,487			19,607		—			133,094
Exploration expense		15,085			—		—			15,085
Depreciation, depletion and amortization		173,585			—		29,872	(a)		203,457
General and administrative expense		24,400			—		—			24,400
Other operating expense		77,505			4,125		2,494	(a)		84,124

Total expenses		404,062			23,732		32,366			460,160

Income from operations		116,720			71,906		(32,366	)		156,260

Other income (expense)
Interest expense		(9,503	)		—		(3,504	) (b)		(13,007	)
Commodity derivative income		43,734			—		—			43,734
Bargain purchase gain		282			—		—			282
Other		(145	)		—		—			(145	)

Total other income		34,368			—		(3,504	)		30,864

Income before income taxes		151,088			71,906		(35,870	)		187,124
Income tax benefit		(5,359	)		—		—			(5,359	)

Net income		156,447			71,906		(35,870	)		192,483
Less: net income attributable to noncontrolling interest		460			—		—			460

Net income attributable to Dynamic	$	155,987		$	71,906	$	(35,870	)	$	192,023

(a)	Adjustment to reflect additional depreciation, depletion and amortization expense and accretion expense attributable to XTO Acquisition properties.

(b)	Adjustment to reflect additional interest expense incurred on $173.7 million in borrowings to fund the XTO Acquisition from January 1, 2011 to August 31, 2011, at an estimated annual rate of approximately 3.0%.

SANDRIDGE ENERGY INC - FORM 8-K/A - EX-99.1 - PRO FORMA FINANCIAL INFORMATION - November 15, 2012

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