SandRidge Mississippian Trust I - FORM 10-Q

Attached files

Attached files

Stock widget

Investing forum

SandRidge Mississippian Trust I Reports

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

file	filename
EX-32.1 - EX-32.1 - SandRidge Mississippian Trust I	d579836dex321.htm
EX-31.1 - EX-31.1 - SandRidge Mississippian Trust I	d579836dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35122

SANDRIDGE MISSISSIPPIAN TRUST I

(Exact name of registrant as specified in its charter)

Delaware

27-6990649

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

The Bank of New York Mellon

Trust Company, N.A., Trustee

919 Congress Avenue, Suite 500

Austin, Texas

78701

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(512) 236-6531

Former name, former address and former fiscal year, if changed since last report: Not applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of August 2, 2013, 21,000,000 Common Units and 7,000,000 Subordinated Units of Beneficial Interest in SandRidge Mississippian Trust I were outstanding.

SANDRIDGE MISSISSIPPIAN TRUST I

FORM 10-Q

Quarter Ended June 30, 2013


PART I. FINANCIAL INFORMATION

ITEM 1.	Financial Statements (Unaudited)	3
	Statements of Assets and Trust Corpus	3
	Statements of Distributable Income	4
	Statements of Changes in Trust Corpus	5
	Notes to Financial Statements	6
ITEM 2.	Trustee’s Discussion and Analysis of Financial Condition and Results of Operations	11
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	16
ITEM 4.	Controls and Procedures	17

PART II. OTHER INFORMATION

ITEM 1.	Legal Proceedings	18
ITEM 1A.	Risk Factors	18
ITEM 6.	Exhibits	18

All references to “we,” “us,” “our,” or the “Trust” refer to SandRidge Mississippian Trust I. References to “SandRidge” refer to SandRidge Energy, Inc., and where the context requires, its subsidiaries. The royalty interests conveyed by SandRidge from its interests in certain properties in the Mississippian formation in Oklahoma and held by the Trust are referred to as the “Royalty Interests.”

DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) includes “forward-looking statements” about the Trust, SandRidge and other matters discussed herein that are subject to risks and uncertainties within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact included in this document, including, without limitation, statements under “Trustee’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I and elsewhere herein regarding the Trust’s or SandRidge’s plans and objectives for future operations and information regarding target distributions, are forward-looking statements. Actual outcomes and results may differ materially from those projected. Forward-looking statements are generally accompanied by words such as “estimate,” “target,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “could,” “may,” “foresee,” “plan,” “goal,” “should,” “intend” or other words that convey the uncertainty of future events or outcomes. We have based these forward-looking statements on our current expectations and assumptions about future events. These statements are based on certain assumptions made by us in light of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. However, whether actual results and developments will conform with our expectations and predictions is subject to a number of risks and uncertainties, including the risk factors discussed in Item 1A of the Trust’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the “2012 Form 10-K”), which could affect the future results of the energy industry in general, and the Trust and SandRidge in particular, and could cause those results to differ materially from those expressed in such forward-looking statements. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on SandRidge’s business or the Trust’s results. Such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in such forward-looking statements. The Trust undertakes no obligation to publicly update or revise any forward-looking statements.

PART I. Financial Information

ITEM 1. Financial Statements

SANDRIDGE MISSISSIPPIAN TRUST I

STATEMENTS OF ASSETS AND TRUST CORPUS

(In thousands, except unit data)


	June 30, 2013			December 31, 2012
	(Unaudited)
ASSETS

Cash and cash equivalents	$	1,468		$	1,146

Investment in royalty interests		308,964			308,964
Less: accumulated amortization		(62,530	)		(49,223	)

Net investment in royalty interests		246,434			259,741


Total assets	$	247,902		$	260,887


TRUST CORPUS

Trust corpus, 21,000,000 common units and 7,000,000 subordinated units issued and outstanding at June 30, 2013 and December 31, 2012	$	247,902		$	260,887

The accompanying notes are an integral part of these financial statements.

SANDRIDGE MISSISSIPPIAN TRUST I

STATEMENTS OF DISTRIBUTABLE INCOME

(In thousands, except unit and per unit data)


	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012			2013		2012
	(Unaudited)

Revenues
Royalty income	$	16,096	$	21,124		$	34,203	$	43,129
Derivative settlements, net		1,271		2,260			3,039		4,834


Total revenues		17,367		23,384			37,242		47,963
Expenses
Post-production expenses		797		785			1,722		1,684
Production taxes		164		220			348		445
Trust administrative expenses		241		291			720		912
Cash reserves withheld (used) for current Trust expenses, net of amounts (used) withheld		256		(6	)		322		(180	)

Total expenses		1,458		1,290			3,112		2,861


Income available for distribution prior to incentive calculation		15,909		22,094			34,130		45,102
Less: Incentive distribution to SandRidge		—		57			—		920

Distributable income available to unitholders		15,909		22,037			34,130		44,182

Distributable income per common unit (21,000,000 units issued and outstanding)	$	0.5904	$	0.7870		$	1.2411	$	1.5779

Distributable income per subordinated unit (7,000,000 units issued and outstanding)	$	0.5015	$	0.7870		$	1.1522	$	1.5779

The accompanying notes are an integral part of these financial statements.

SANDRIDGE MISSISSIPPIAN TRUST I

STATEMENTS OF CHANGES IN TRUST CORPUS

(In thousands)


	Six Months Ended June 30,
	2013			2012
	(Unaudited)
Trust corpus, beginning of period	$	260,887		$	286,456
Amortization of investment in royalty interests		(13,307	)		(11,522	)
Net cash reserves withheld (used)		322			(180	)
Distributable income		34,130			44,182
Distributions paid or payable to unitholders		(34,130	)		(44,182	)

Trust corpus, end of period	$	247,902		$	274,754

The accompanying notes are an integral part of these financial statements.

SANDRIDGE MISSISSIPPIAN TRUST I

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

1. Organization of Trust

SandRidge Mississippian Trust I (the “Trust”) is a statutory trust formed under the Delaware Statutory Trust Act pursuant to a trust agreement, as amended and restated, by and among SandRidge Energy, Inc. (“SandRidge”), as Trustor, The Bank of New York Mellon Trust Company, N.A., as Trustee (the “Trustee”), and The Corporation Trust Company, as Delaware Trustee (the “Delaware Trustee”).

The Trust holds Royalty Interests in specified oil and natural gas properties located in the Mississippian formation in Alfalfa, Garfield, Grant, Major and Woods counties in Oklahoma (the “Underlying Properties”). The Royalty Interests were conveyed by SandRidge to the Trust concurrent with the initial public offering of the Trust’s common units in April 2011. As consideration for conveyance of the Royalty Interests, the Trust remitted the proceeds of the offering, along with 3,750,000 Trust common units and 7,000,000 Trust subordinated units, to certain wholly owned subsidiaries of SandRidge. At June 30, 2013, SandRidge owned 528,063 Trust common units and 7,000,000 Trust subordinated units.

The Royalty Interests entitle the Trust to receive 90% of the proceeds (after deducting post-production costs and any applicable taxes) from the sale of oil, including natural gas liquids, and natural gas production attributable to SandRidge’s net revenue interest in 36 wells producing at December 31, 2010 and one additional well undergoing completion operations at that time (together, the “Initial Wells”), and 50% of the proceeds (after deducting post-production costs and any applicable taxes) from the sale of oil, including natural gas liquids, and natural gas production attributable to SandRidge’s net revenue interest in 123 development wells drilled (the “Trust Development Wells”) within an area of mutual interest (“AMI”) beginning January 1, 2011, the effective date of the conveyance.

As specified in the development agreement executed by the Trust with SandRidge, SandRidge was obligated to drill, or cause to be drilled, the Trust Development Wells by December 31, 2015 (see Note 5). SandRidge was credited for having drilled one full Trust Development Well if the well was drilled and perforated for completion with a minimum perforated length of 2,500 feet in a specified target formation and SandRidge’s net revenue interest in the well was equal to 57.0%. As of June 30, 2013, SandRidge had drilled and perforated for completion approximately 124 Trust Development Wells and met its obligation under the development agreement.

The Trust makes quarterly cash distributions of substantially all of its cash receipts, after deducting amounts for the Trust’s administrative expenses and cash reserves withheld by the Trustee, on or about 60 days following the completion of each quarter. Due to the timing of the payment of production proceeds to the Trust, each distribution covers production from a three-month period consisting of the first two months of the most recently ended quarter and the final month of the quarter preceding it.

The common and subordinated units have identical rights and privileges, except with respect to their rights to receive distributions. The subordinated units, all of which are held by SandRidge, constitute 25% of the Trust units issued and outstanding. The subordinated units are entitled to receive pro rata distributions from the Trust each quarter if and to the extent there is sufficient cash to provide a cash distribution on the common units that is no less than 80% of the target distribution for the corresponding quarter (“Subordination Threshold”). If there is not sufficient cash to fund such a distribution on all of the common units, the distribution to be made with respect to the subordinated units is reduced or eliminated for such quarter in order to make a distribution, to the extent possible, of up to the Subordination Threshold amount on all of the common units. In exchange for agreeing to subordinate a portion of its Trust units, and in order to provide additional financial incentive to SandRidge to satisfy its drilling obligation, SandRidge is entitled to receive incentive distributions equal to 50% of the amount by which the cash available for distribution on all of the Trust units in any quarter exceeds 120% of the target distribution for such quarter (“Incentive Threshold”). On June 30, 2014, which is the end of the fourth full calendar quarter following SandRidge’s satisfaction of its drilling obligation with respect to the Trust Development Wells, the subordinated units will automatically convert into common units on a one-for-one basis and SandRidge’s right to receive incentive distributions will terminate. After such time, the common units will no longer have the protection of the Subordination Threshold, and all Trust unitholders will share on a pro rata basis in the Trust’s distributions.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Accounting. The financial statements of the Trust differ from financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as the Trust records revenues when cash is received (rather than when earned) and expenses when paid (rather than when incurred) and may also establish cash reserves for contingencies, which would not be accrued in financial statements prepared in accordance with GAAP. This comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the Securities and Exchange Commission

SANDRIDGE MISSISSIPPIAN TRUST I

NOTES TO FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(“SEC”) as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts. Amortization of investment in royalty interests, calculated on a unit-of-production basis, and any impairments are charged directly to trust corpus. Distributions to unitholders are recorded when declared.

Significant Accounting Policies. Most accounting pronouncements apply to entities whose financial statements are prepared in accordance with GAAP, directing such entities to accrue or defer revenues and expenses in a period other than when such revenues are received or expenses are paid. Because the Trust’s financial statements are prepared on the modified cash basis as described above, most accounting pronouncements are not applicable to the Trust’s financial statements.

The Trust is treated for federal and applicable state income tax purposes as a partnership. For U.S. federal income tax purposes, a partnership is not a taxable entity and incurs no U.S. federal income tax liability. With respect to state taxation, a partnership is typically treated in the same manner as it is for U.S. federal income tax purposes.

Distributable Income Per Common and Subordinated Unit. The Trust calculates distributable income per common and subordinated unit using the two-class method. In accordance with this method, undistributed earnings in the accompanying statements of distributable income have been allocated to the common and subordinated units based upon the subordinated units’ contractual participation rights as if all of the distributable income for the periods presented had been distributed. Distributable income per unit amounts as calculated for the periods presented in the accompanying statement of distributable income does not differ from declared distribution amounts per unit.

Interim Financial Statements. The accompanying unaudited financial statements have been prepared in accordance with the accounting policies stated in the audited financial statements contained in the 2012 Form 10-K and reflect all adjustments that are, in the opinion of the Trustee, necessary to state fairly the information in the Trust’s unaudited interim financial statements. The accompanying statement of assets and trust corpus as of December 31, 2012 has been derived from audited financial statements. The unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the 2012 Form 10-K.

Risks and Uncertainties. The Trust’s revenue and distributions are substantially dependent upon the prevailing and future prices for oil and natural gas, each of which depends on numerous factors beyond the Trust’s control such as overall oil and natural gas production and inventories in relevant markets, economic conditions, the global political environment, regulatory developments and competition from other energy sources. Oil and natural gas prices historically have been volatile and may be subject to significant fluctuations in the future. The Trust’s derivative arrangements serve to mitigate a portion of the effect of this price volatility through December 31, 2015. See Note 5 for a discussion of the Trust’s open oil and natural gas commodity derivative contracts.

3. Distributions to Unitholders

The Trust makes quarterly cash distributions of substantially all of its cash receipts, after deducting amounts for the Trust’s administrative expenses and cash reserves withheld by the Trustee, on or about 60 days following the completion of each quarter. Distributions cover a three-month production period. See Note 7 for discussion of the Trust’s quarterly distribution to be paid in August 2013. A summary of the Trust’s distributions to unitholders during the six-month period ended June 30, 2013 and the year ended December 31, 2012 is as follows:

SANDRIDGE MISSISSIPPIAN TRUST I

NOTES TO FINANCIAL STATEMENTS - CONTINUED

(Unaudited)


				Total
	Covered			Distribution		Distribution Per Unit
	Production Period	Date Declared	Date Paid	Paid		Common		Subordinated
				(in millions)
Calendar Quarter 2013
First Quarter	September 1, 2012 – November 30, 2012	January 31, 2013	March 1, 2013	$	18.2	$	0.6507	$	0.6507
Second Quarter	December 1, 2012 – February 28, 2013	April 25, 2013	May 30, 2013	$	15.9	$	0.5904	$	0.5015

Calendar Quarter 2012
First Quarter(1)	September 1, 2011 – November 30, 2011	February 2, 2012	February 29, 2012	$	22.1	$	0.7909	$	0.7909
Second Quarter(2)	December 1, 2011 – February 29, 2012	April 30, 2012	May 30, 2012	$	22.0	$	0.7870	$	0.7870
Third Quarter	March 1, 2012 – May 31, 2012	July 26, 2012	August 29, 2012	$	20.4	$	0.7277	$	0.7277
Fourth Quarter	June 1, 2012 – August 31, 2012	November 1, 2012	November 29, 2012	$	19.1	$	0.6831	$	0.6831

(1)	Total distribution paid amount excludes $0.9 million incentive distribution paid to SandRidge as holder of the subordinated units.

(2)	Total distribution paid amount excludes $57,000 incentive distribution paid to SandRidge as holder of the subordinated units.

4. Loan Commitment

Pursuant to the trust agreement, if at any time the Trust’s cash on hand (including available cash reserves) is not sufficient to pay the Trust’s ordinary course administrative expenses as they become due, SandRidge will loan funds to the Trust necessary to pay such expenses. Any funds loaned by SandRidge pursuant to this commitment will be limited to the payment of current accounts payable or other obligations to trade creditors in connection with obtaining goods or services or the payment of other accrued current liabilities arising in the ordinary course of the Trust’s business, and may not be used to satisfy Trust indebtedness, or to make distributions. If SandRidge loans funds pursuant to this commitment, no further distributions will be made to unitholders (except in respect of any previously determined quarterly cash distribution amount) until such loan is repaid. Any such loan will be on an unsecured basis, and the terms of such loan will be substantially the same as those which would be obtained in an arm’s length transaction between SandRidge and an unaffiliated third party. There was no such loan outstanding with SandRidge at June 30, 2013 or December 31, 2012.

5. Related Party Transactions

Trustee Administrative Fee. Under the terms of the trust agreement, the Trust pays an annual administrative fee of $150,000 to the Trustee, which will be adjusted for inflation by no more than 3% in any year beginning in 2017. The Trustee’s administrative fees paid during each of the three-month periods ended June 30, 2013 and 2012, totaled approximately $38,000. The Trustee’s administrative fees paid during each of the six-month periods ended June 30, 2013 and 2012, totaled approximately $75,000.

Registration Rights Agreement. The Trust is party to a registration rights agreement pursuant to which the Trust has agreed to register the offering of the Trust units held by SandRidge and certain of its affiliates and permitted transferees upon request by SandRidge. One such registration statement was filed and declared effective during 2012 and remains effective currently. The holders have the right to require the Trust to file no more than five registration statements in aggregate. The Trust does not bear any expenses associated with such transactions.

Development Agreement. The Trust’s development agreement with SandRidge obligated SandRidge to drill, or cause to be drilled, the Trust Development Wells by December 31, 2015. Additionally, SandRidge agreed not to drill and complete, or allow another person within its control to drill and complete, any other well in the AMI other than the Trust Development Wells until SandRidge had fulfilled its drilling obligation.

SANDRIDGE MISSISSIPPIAN TRUST I

NOTES TO FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

A wholly owned subsidiary of SandRidge granted to the Trust a lien (“Drilling Support Lien”) covering its interest in the AMI (except its interest in the Initial Wells) in order to secure the estimated amount of the drilling costs for the Trust’s interests in the undeveloped Underlying Properties. The initial amount recoverable by the Trust pursuant to the Drilling Support Lien could not exceed approximately $166.1 million. As of June 30, 2013, SandRidge had drilled and perforated for completion approximately 124 equivalent Trust Development Wells, thus fulfilling its drilling obligation. Accordingly the Trust has fully released the Drilling Support Lien.

Administrative Services Agreement. The Trust is party to an administrative services agreement with SandRidge that obligates the Trust to pay SandRidge an annual administrative services fee for accounting, tax preparation, bookkeeping and informational services to be performed by SandRidge on behalf of the Trust. For its services under the administrative services agreement, SandRidge receives an annual fee of $200,000, which is payable in equal quarterly installments and will remain fixed for the life of the Trust. SandRidge is also entitled to receive reimbursement for its out-of-pocket fees, costs and expenses incurred in connection with the provision of any of the services under this agreement. The administrative services agreement will terminate on the earliest to occur of: (i) the date the Trust shall have dissolved and commenced winding up in accordance with the trust agreement, (ii) the date that all of the Royalty Interests have been terminated or are no longer held by the Trust, (iii) pertaining to services to be provided with respect to any Underlying Properties transferred by SandRidge, the date that either SandRidge or the Trustee may designate by delivering 90-days’ prior written notice, provided that SandRidge’s drilling obligation has been completed and the transferee of such Underlying Properties assumes responsibility to perform the services in place of SandRidge and (iv) a date mutually agreed to by SandRidge and the Trustee. There were no amounts paid to SandRidge for administrative fees during the three-month period ended June 30, 2013. During the three-month period ended June 30, 2012, the Trust paid administrative fees to SandRidge equal to $50,000. During each of the six-month periods ended June 30, 2013 and 2012, the Trust paid administrative fees to SandRidge equal to $100,000.

Derivatives Agreement. The Trust is party to a derivatives agreement with SandRidge that provides the Trust with the economic effect of certain oil and natural gas derivative contracts entered into by SandRidge with third parties. The underlying commodity derivative contracts cover volumes of oil and natural gas production through December 31, 2015. Under the derivatives agreement, SandRidge pays the Trust amounts it receives from its counterparties and the Trust pays SandRidge any amounts that SandRidge is required to pay such counterparties. The Trust did not bear any costs related to the establishment of the underlying contracts. The Trust does not have the ability to enter into its own derivative contracts. The commodity derivative contracts underlying the derivatives agreement consist of fixed price swaps and collars, which are described below:


Fixed price swaps:		The Trust receives a fixed price for the contract and pays a floating market price over a specified period for a contracted volume.

Collars:		Contain a fixed floor price (put) and a fixed ceiling price (call). If the market price exceeds the call strike price or falls below the put strike price, the Trust receives the fixed price and pays the market price. If the market price is between the call and the put strike price, no payments are due.

The following tables present, as of June 30, 2013, the notional amount and weighted average fixed price or collar range of the open contracts underlying the derivatives agreement.

Oil – Price Swaps


	Notional (MBbl)		Weighted Avg. Fixed Price
July 2013 — December 2013		246	$	102.07
January 2014 — December 2014		541	$	100.94
January 2015 — December 2015		468	$	101.07

Natural Gas – Collars


	Notional (MMBtu)		Collar Range
July 2013 — December 2013		432	$	4.00 - $7.15
January 2014 — December 2014		937	$	4.00 - $7.78
January 2015 — December 2015		1,010	$	4.00 - $8.55

SANDRIDGE MISSISSIPPIAN TRUST I

NOTES TO FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

6. Legal Proceedings

The Trust has recently been named as an additional defendant in a putative class action against SandRidge and others. Regardless of the outcome of the litigation, the Trust will incur expenses in defending the litigation, and the expenses may increase the Trust’s administrative expenses significantly.

7. Subsequent Events

Distribution to Unitholders. On July 25, 2013, the Trust declared a cash distribution of $0.6112 per common unit and $0.5835 per subordinated unit covering production for the three-month period from March 1, 2013 to May 31, 2013 for record holders as of August 14, 2013. The distribution will be paid on or about August 29, 2013. Distributable income for March 1, 2013 to May 31, 2013 was calculated as follows (in thousands, except for unit and per unit amounts):


Revenues
Royalty income	$	17,136
Derivative settlements, net		1,133

Total revenues		18,269

Expenses
Post-production expenses		712
Production taxes		223
Cash reserves withheld by Trustee (1)		414

Total expenses		1,349


Distributable income available to unitholders	$	16,920

Distributable income per common unit (21,000,000 units issued and outstanding)	$	0.6112

Distributable income per subordinated unit (7,000,000 units issued and outstanding)	$	0.5835

(1)	Includes amounts withheld for payment of future Trust administrative expenses.

Income available for distribution on all units was $0.6043 per unit, which was below the Subordination Threshold of $0.6112 for the common units for the period. As a result, the distribution on the subordinated units was decreased to $0.5835 per unit in order to permit a distribution per common unit equal to the Subordination Threshold for the period.

ITEM 2. Trustee’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following discussion and analysis is intended to help the reader understand the Trust’s financial condition, results of operations, liquidity and capital resources. This discussion and analysis should be read in conjunction with the Trust’s unaudited financial statements and the accompanying notes included in this Quarterly Report and the Trust’s audited financial statements and the accompanying notes included in the 2012 Form 10-K.

Overview

The Trust is a statutory trust created under the Delaware Statutory Trust Act. The business and affairs of the Trust are administered by the Trustee and, as necessary, the Delaware Trustee. The Trust’s purpose is to hold the Royalty Interests, to distribute to the Trust unitholders cash that the Trust receives in respect of the Royalty Interests and the derivatives agreement (described in Note 5 to the unaudited financial statements contained in Part I, Item 1 of this Quarterly Report) and to perform certain administrative functions in respect of the Royalty Interests and the Trust units. Other than the foregoing activities, the Trust does not conduct any operations or activities. The Trustee has no involvement with, control or authority over, or responsibility for, any aspect of the operations on or relating to the properties in which the Trust has an interest. The Trust derives all or substantially all of its income and cash flow from the Royalty Interests and the derivatives agreement. The Trust is treated as a partnership for federal income tax purposes.

Properties. As of June 30, 2013, the Trust’s properties consisted of Royalty Interests in (a) the Initial Wells and (b) 121 additional wells (equivalent to approximately 124 Trust Development Wells under the development agreement as described below) that were drilled and perforated for completion between December 31, 2010 and June 30, 2013 within an AMI consisting of approximately 49,900 gross acres (41,600 net acres) in Alfalfa, Garfield, Grant, Major and Woods counties in Oklahoma.

SandRidge was obligated to drill, or cause to be drilled, the Trust Development Wells on or before December 31, 2015. SandRidge was not permitted to drill and complete any well within the AMI for its own account until it had satisfied the drilling obligation to the Trust. As of June 30, 2013, SandRidge had fulfilled its drilling obligation to the Trust by drilling and perforating for completion approximately 124 equivalent Trust Development Wells.

The Trust was not responsible for any costs related to the drilling of the Trust Development Wells and is not responsible for any other operating or capital costs related to the Underlying Properties. The following table presents the number of Initial Wells, Trust Development Wells drilled and Trust Development Wells to be drilled as of June 30, 2013 and December 31, 2012.


	Initial Wells		Trust Development Wells Drilled(1)		Trust Development Wells To Be Drilled		Total
June 30, 2013		37		124		—		161
December 31, 2012		37		107		16		160

(1)

SandRidge was credited for having drilled one full Trust Development Well if a well was drilled and perforated for completion with a minimum perforated length of 2,500 feet and SandRidge’s net revenue interest in the well was equal to 57.0%. For wells with a perforated length of less than 2,500 feet and for wells in which SandRidge had a net revenue interest greater or less than 57.0%, SandRidge received proportionate credit for such well.

Distributions. The Trust makes quarterly cash distributions of substantially all of its cash receipts, after deducting amounts for the Trust’s administrative expenses and cash reserves withheld by the Trustee, on or about 60 days following the completion of each quarter. The Trust’s subordinated units are entitled to receive pro rata distributions from the Trust each quarter if and to the extent there is sufficient cash to provide a cash distribution on the common units that is at least equal to the Subordination Threshold. If there is not sufficient cash to fund such a distribution on all of the common units (including the common units SandRidge owns), the distribution to be made with respect to the subordinated units is reduced or eliminated for such quarter in order to make a distribution, to the extent possible, to all of the common units (including the common units held by SandRidge) up to the Subordination Threshold. However, there is no minimum distribution. If the cash available for distribution on all of the Trust units in any quarter exceeds the Incentive Threshold for the corresponding quarter, SandRidge, as holder of the Trust’s subordinated units, is entitled to 50% of the amount by which the cash available for distribution exceeds the Incentive Threshold. On June 30, 2014, which is the end of the fourth full calendar quarter following SandRidge’s fulfillment of its drilling obligation with respect to the Trust Development Wells, the subordinated units will automatically convert into common units on a one-for-one basis and SandRidge’s right to receive incentive distributions will terminate. After such time, the common units will no longer have the protection of the Subordination Threshold, and all Trust unitholders will share on a pro rata basis in the Trust’s distributions.

The following table sets forth the Subordination Threshold and Incentive Threshold for each remaining calendar quarter through the end of the subordination period, as set out in the trust agreement.


Period(1)	Subordination Threshold(2)		Incentive Threshold(2)

2013
Second quarter (3)	$	0.612	$	0.917
Third quarter		0.613		0.919
Fourth quarter		0.609		0.913

2014
First quarter		0.621		0.932
Second quarter		0.659		0.988

(1)	Due to the timing of the payment of production proceeds to the Trust, each distribution covers production from a three-month period consisting of the first two months of the most recently ended quarter and the final month of the quarter preceding it.

(2)	Each of the Subordination Threshold (80% of quarterly target distribution) and Incentive Threshold (120% of quarterly target distribution) terminates after the fourth full calendar quarter following SandRidge’s completion of its drilling obligation.

(3)	A distribution of $0.6112 per common unit and $0.5835 per subordinated unit was declared on July 25, 2013 and is expected to be paid on or about August 29, 2013. See Note 7 to the financial statements contained in Item 1 of this report for further discussion.

Litigation. As described in more detail in Item 1 of Part II, Legal Proceedings, the Trust has recently been named as an additional defendant in a putative class action against SandRidge and others. Regardless of the outcome of the litigation, the Trust will incur expenses in defending the litigation, and the expenses may increase the Trust’s administrative expenses significantly.

Pursuant to Internal Revenue Code (“IRC”) Section 1446, withholding tax on income effectively connected to a United States trade or business allocated to foreign partners should be made at the highest marginal rate. Under IRC Section 1441, withholding tax on fixed, determinable, annual, periodic income from United States sources allocated to foreign partners should be made at 30% of gross income unless the rate is reduced by treaty. This is intended to be a qualified notice to nominees and brokers as provided for under Treasury Regulation Section 1.1446-4(b) by the Trust, and while specific relief is not specified for IRC Section 1441 income, this disclosure is intended to suffice. Nominees and brokers should withhold at the highest marginal rate, currently 39.6% for individuals, on the distribution made to foreign partners.

Results of Trust Operations

The primary factors affecting the Trust’s revenues and costs are the quantity of oil and natural gas production attributable to the Royalty Interests, the prices received for such production and amounts paid or received as net settlements under the derivatives agreement. Royalty income, post-production expenses, production taxes and derivative settlements are recorded on a cash basis when net revenue distributions are received by the Trust from SandRidge. Information regarding the Trust’s production, pricing and costs for the three and six-month periods ended June 30, 2013 and 2012 is presented below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2013(1)		2012(2)		2013(3)		2012(4)
Production Data
Oil (MBbls)(5)		123		170		275		354
Natural gas (MMcf)		1,445		1,462		3,052		3,030
Combined equivalent volumes (MBoe)		364		413		783		859
Average daily combined equivalent volumes (MBoe/d)		4.1		4.5		4.3		4.7

Well Data
Initial and Trust Development Wells producing - average		147		93		140		88

Revenues (in thousands)
Royalty income	$	16,096	$	21,124	$	34,203	$	43,129
Derivative settlements		1,271		2,260		3,039		4,834

Total revenue	$	17,367	$	23,384	$	37,242	$	47,963

Expenses (in thousands)
Post-production expenses	$	797	$	785	$	1,722	$	1,684
Production taxes		164		220		348		445


Trust administrative expenses		241		291			720		912
Cash reserves withheld (used) for current Trust expenses, net of amounts (used) withheld		256		(6	)		322		(180	)

Total expenses	$	1,458	$	1,290		$	3,112	$	2,861

Income available for distribution prior to incentive calculation		15,909		22,094			34,130		45,102
Less: Incentive distribution to SandRidge		—		57			—		920

Distributable income available to unitholders	$	15,909	$	22,037		$	34,130	$	44,182


Average Prices
Oil (per Bbl)(5)	$	86.91	$	95.86		$	86.38	$	90.07
Natural gas (per Mcf)	$	3.72	$	3.32		$	3.43	$	3.70
Combined equivalent (per Boe)	$	44.21	$	51.10		$	43.67	$	50.20

Average Prices – including impact of derivative settlements and post-production expenses
Oil (per Bbl)(5)	$	96.36	$	98.32		$	96.32	$	95.92
Natural gas (per Mcf)	$	3.24	$	4.04		$	2.97	$	4.06
Combined equivalent (per Boe)	$	45.51	$	54.67		$	45.35	$	53.86

Expenses (per Boe)
Post-production	$	2.19	$	1.90		$	2.20	$	1.96
Production taxes	$	0.45	$	0.53		$	0.44	$	0.52

(1)	Oil and natural gas volumes and related revenues and expenses for the three-month period ended June 30, 2013 (included in SandRidge’s May 2013 net revenue distribution to the Trust) represent oil and natural gas production from December 1, 2012 to February 28, 2013.

(2)	Oil and natural gas volumes and related revenues and expenses for the three-month period ended June 30, 2012 (included in SandRidge’s May 2012 net revenue distribution to the Trust) represent oil and natural gas production from December 1, 2011 to February 29, 2012.

(3)	Oil and natural gas volumes and related revenues and expenses for the six-month period ended June 30, 2013 (included in SandRidge’s March 2013 and May 2013 net revenue distributions to the Trust) represent oil and natural gas production from September 1, 2012 to February 28, 2013.

(4)	Oil and natural gas volumes and related revenues and expenses for the six-month period ended June 30, 2012 (included in SandRidge’s February 2012 and May 2012 net revenue distributions to the Trust) represent oil and natural gas production from September 1, 2011 to February 29, 2012.

(5)	Includes natural gas liquids.

Three Months Ended June 30, 2013 Compared to the Three Months Ended June 30, 2012

Revenues

Royalty Income. Royalty income received during the three-month period ended June 30, 2013 totaled $16.1 million compared to $21.1 million received during the three-month period ended June 30, 2012. Royalty income is a function of production volumes sold attributable to the Royalty Interests and associated prices received. The decrease in royalty income was primarily attributable to the decrease in combined equivalent volumes produced as production from Trust Development Wells completed and brought on production during 2012 and early 2013 was more than offset by natural declines in production from the Initial Wells and older Trust Development Wells. The net revenue distribution from SandRidge received by the Trust during the three-month period ended June 30, 2013 included royalty income attributable to production for the three-month period from December 1, 2012 to February 28, 2013 of 123 MBbls of oil and 1,445 MMcf of natural gas, or 364 MBoe of combined production. The net revenue distribution from SandRidge received by the Trust during the three-month period ended June 30, 2012 included royalty income attributable to production for the three-month period from December 1, 2011 to February 29, 2012 of 170 MBbls of oil and 1,462 MMcf of natural gas, or 413 MBoe of combined production. Also contributing to the decrease in royalty income was a decrease in the average price received for oil production, excluding the impact of derivative settlements and post-production expenses, to $86.91 per Bbl during the three-month period ended June 30, 2013 from $95.86 per Bbl during the same period in 2012. The decreases in total production and the average price received for oil production were slightly offset by an increase in the average price received for natural gas production, excluding the impact of derivative settlements and post-production expenses, to $3.72 per Mcf during the three-month period ended June 30, 2013 from $3.32 per Mcf during the same period in 2012.

Derivative Settlements. The Trust’s derivatives agreement with SandRidge reduces the Trust’s exposure to commodity price volatility attributable to a portion of production from the Royalty Interests through December 31, 2015 by the use of oil fixed price swaps and natural gas collars. Net cash settlements under the derivatives agreement for the three-month period ended June 30, 2013

for production from December 1, 2012 to February 28, 2013 were approximately $1.3 million, which effectively increased the average price received for oil by $9.45 per Bbl to $96.36 per Bbl and increased the average price received for natural gas by $0.08 per Mcf to $3.80 per Mcf ($3.24 per Mcf including the impact of post-production expenses). Net cash settlements under the derivatives agreement for the three-month period ended June 30, 2012 for production from December 1, 2011 to February 29, 2012 were approximately $2.3 million, which effectively increased the average price received for oil by $2.46 per Bbl to $98.32 per Bbl and increased the average price received for natural gas by $1.26 per Mcf to $4.58 per Mcf ($4.04 per Mcf including the impact of post-production expenses). Net cash settlements received during both periods were comprised of gains on oil fixed price swaps and natural gas collars due to lower average commodity prices at the time of settlement compared to contract prices.

Expenses

Post-Production Expenses. The Trust bears post-production expenses attributable to production from the Royalty Interests. Post-production expenses generally consist of costs incurred to gather, store, compress, transport, process, treat, dehydrate and market the oil and natural gas produced. Post-production expenses totaled approximately $0.8 million for each of the three-month periods ended June 30, 2013 and 2012. Post-production costs per Boe increased approximately 15% for the three-month period ended June 30, 2013 from the comparable period of 2012 as natural gas production comprised a larger portion of total production during the 2013 period.

Production Taxes. Production taxes are calculated as a percentage of oil and natural gas revenues, excluding the effects of derivative settlements and net of any applicable tax credits. Production taxes for the three-month period ended June 30, 2013 totaled approximately $0.2 million, or $0.45 per Boe, and were approximately 1.0% of royalty income. Production taxes for the three-month period ended June 30, 2012 totaled approximately $0.2 million, or $0.53 per Boe, and were approximately 1.0% of royalty income.

Trust Administrative Expenses. Trust administrative expenses generally consist of fees paid to the Trustee and the Delaware Trustee, administrative services fees paid to SandRidge, tax return and related form preparation fees, legal and accounting fees, and other expenses incurred as a result of being a publicly traded entity. Trust administrative expenses for the three-month period ended June 30, 2013 totaled approximately $0.2 million compared to approximately $0.3 million for the three-month period ended June 30, 2012.

Incentive Distribution to SandRidge

Cash available for distribution prior to the incentive calculation in the May 2012 quarterly Trust distribution (covering production for the period from December 1, 2011 to February 29, 2012) exceeded the Incentive Threshold by approximately $114,000. As holder of the Trust’s subordinated units, SandRidge received 50% of the amount by which the cash available for distribution exceeded the Incentive Threshold, or approximately $57,000. No incentive distributions were made during the three-month period ended June 30, 2013.

Distributable Income

Distributable income for the three-month period ended June 30, 2013 was $15.9 million, which included a net addition to the cash reserve for payment of future Trust expenses of approximately $256,000 (approximately $497,000 withheld from the May 2013 cash distribution to unitholders partially offset by approximately $241,000 used to pay Trust expenses during the period). Distributable income for the three-month period ended June 30, 2012 was $22.0 million, which included a net reduction to the cash reserve for payment of future Trust expenses of approximately $6,000 (approximately $291,000 used to pay Trust expenses during the period partially offset by approximately $285,000 withheld from the May 2012 cash distribution to unitholders).

Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012

Revenues

Royalty Income. Royalty income received during the six-month period ended June 30, 2013 totaled $34.2 million compared to $43.1 million received during the six-month period ended June 30, 2012. The decrease in royalty income was primarily attributable to the decrease in combined equivalent volumes produced as production from Trust Development Wells completed and brought on production during 2012 and early 2013 was more than offset by natural declines in production from the Initial Wells and older Trust Development Wells. The net revenue distributions from SandRidge received by the Trust during the six-month period ended June 30, 2013 included royalty income attributable to production for the six-month period from September 1, 2012 to February 28, 2013 of 275 MBbls of oil and 3,052 MMcf of natural gas, or 783 MBoe of combined production. The net revenue distributions from SandRidge received by the Trust during the six-month period ended June 30, 2012 included royalty income attributable to production for the six-month period from September 1, 2011 to February 29, 2012 of 354 MBbls of oil and 3,030 MMcf of natural gas, or 859 MBoe of combined production. Also contributing to the decrease in royalty income was a decrease in the average prices received for oil and

natural gas production. Average prices received for oil and natural gas production, excluding the impact of derivative settlements and post-production expenses, during the six-month period ended June 30, 2013 were $86.38 per Bbl of oil and $3.43 per Mcf of natural gas compared to $90.07 per Bbl of oil and $3.70 per Mcf of natural gas during the six-month period ended June 30, 2012.

Derivative Settlements. Net cash settlements under the derivatives agreement for the six-month period ended June 30, 2013 for production from September 1, 2012 to February 28, 2013 were approximately $3.0 million, which effectively increased the average price received for oil by $9.94 per Bbl to $96.32 per Bbl and increased the average price received for natural gas by $0.11 per Mcf to $3.54 per Mcf ($2.97 per Mcf including the impact of post-production expenses). Net cash settlements under the derivatives agreement for the six-month period ended June 30, 2012 for production from September 1, 2011 to February 29, 2012 were approximately $4.8 million, which effectively increased the average price received for oil by $5.85 per Bbl to $95.92 per Bbl and increased the average price received for natural gas by $0.92 per Mcf to $4.62 per Mcf ($4.06 per Mcf including the impact of post-production expenses). Net cash settlements received during both periods were comprised of gains on oil fixed price swaps and natural gas collars due to lower average commodity prices at the time of settlement compared to contract prices.

Expenses

Post-Production Expenses. Post-production expenses totaled approximately $1.7 million for each of the six-month periods ended June 30, 2013 and 2012. Post-production costs per Boe increased approximately 12% for the six-month period ended June 30, 2013 from the comparable period of 2012 as natural gas production comprised a larger portion of total production during the 2013 period.

Production Taxes. Production taxes for the six-month period ended June 30, 2013 totaled approximately $0.3 million, or $0.44 per Boe, and were approximately 1.0% of royalty income. Production taxes for the six-month period ended June 30, 2012 totaled approximately $0.4 million, or $0.52 per Boe, and were approximately 1.0% of royalty income.

Trust Administrative Expenses. Trust administrative expenses for the six-month period ended June 30, 2013 totaled approximately $0.7 million compared to approximately $0.9 million for the six-month period ended June 30, 2012.

Incentive Distribution to SandRidge

Cash available for distribution during the six-month period ended June 30, 2012 prior to incentive calculations exceeded Incentive Thresholds for the applicable distribution periods by approximately $1.8 million ($1.7 million for the February 2012 distribution and $0.1 million for the May 2012 distribution). As the holder of the Trust’s subordinated units, SandRidge received 50% of the amount by which the cash available for distribution exceeded the Incentive Threshold for each distribution, or approximately $0.9 million total. No incentive distributions were made during the six-month period ended June 30, 2013.

Distributable Income

Distributable income for the six-month period ended June 30, 2013 was $34.1 million, which included a net addition to the cash reserve for payment of future Trust expenses of approximately $0.3 million (approximately $1.0 million withheld from the March 2013 and May 2013 cash distributions to unitholders partially offset by approximately $0.7 million used to pay Trust expenses during the period). Distributable income for the six-month period ended June 30, 2012 was $44.2 million, which included a net reduction to the cash reserve for payment of future Trust expenses of approximately $0.2 million (approximately $0.9 million used to pay Trust expenses during the period partially offset by approximately $0.7 million withheld from the February 2012 and May 2012 cash distributions to unitholders).

Liquidity and Capital Resources

The Trust’s principal sources of liquidity and capital are cash flow generated from the Royalty Interests and derivative contracts under the derivatives agreement. The Trust’s primary uses of cash are distributions to Trust unitholders, including, if applicable, incentive distributions to SandRidge, payment of amounts owed under the derivatives agreement, payment of Trust administrative expenses, including any reserves established by the Trustee for future liabilities, and payment of expense reimbursements to SandRidge for out-of-pocket expenses incurred on behalf of the Trust. Under the conveyances granting the Royalty Interests, the Trust does not have any capital requirements related to drilling wells or any other operating and capital costs related to the wells.

Administrative expenses include payments to the Trustee and the Delaware Trustee as well as a quarterly fee to SandRidge pursuant to an administrative services agreement. Each quarter, the Trustee determines the amount of funds available for distribution. Available funds are the excess cash, if any, received by the Trust from the sale of oil and natural gas production attributable to the Royalty Interests for the quarter, over the Trust’s expenses for the quarter, subject in all cases to the subordination and incentive

provisions previously described. If at any time the Trust’s cash on hand (including available cash reserves) is not sufficient to pay the Trust’s ordinary course administrative expenses as they become due, the Trust may borrow funds from the Trustee or other lenders, including SandRidge, to pay such expenses. The Trustee does not intend to lend funds to the Trust. If such funds are borrowed, no further distributions will be made to unitholders (except in respect of any previously determined quarterly distribution amount) until the borrowed funds have been repaid. There was no such loan outstanding at June 30, 2013 or December 31, 2012.

Under the derivatives agreement, SandRidge pays the Trust amounts it receives from its counterparties and the Trust pays SandRidge any amounts that SandRidge is required to pay such counterparties. Significant payments by the Trust to SandRidge to cover such settlements could reduce or eliminate distributions paid to unitholders.

2013 Trust Distributions to Unitholders. During the six months ended June 30, 2013, the Trust’s distributions to unitholders were as follows:


	Covered Production Period	Date Declared	Date Paid	Total Distribution Paid
				(in millions)
Calendar Quarter 2013
First Quarter	September 1, 2012 – November 30, 2012	January 31, 2013	March 1, 2013	$	18.2
Second Quarter	December 1, 2012 – February 28, 2013	April 25, 2013	May 30, 2013	$	15.9

Future Trust Distributions to Unitholders. On July 25, 2013, the Trust declared a cash distribution of $0.6112 per common unit and $0.5835 per subordinated unit covering production for the three-month period from March 1, 2013 to May 31, 2013 for record unitholders as of August 14, 2013. The distribution will be paid on or about August 29, 2013 and was calculated as follows (in thousands, except for unit and per unit amounts):


Revenues
Royalty income	$	17,136
Derivative settlements, net		1,133

Total revenues		18,269

Expenses
Post-production expenses		712
Production taxes		223
Cash reserves withheld by Trustee(1)		414

Total expenses		1,349


Distributable income available to unitholders	$	16,920

Distributable income per common unit (21,000,000 units issued and outstanding)	$	0.6112

Distributable income per subordinated unit (7,000,000 units issued and outstanding)	$	0.5835

(1)	Includes amounts withheld for payment of future Trust administrative expenses.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

This discussion provides information about commodity derivative contracts, the benefits and obligations of which SandRidge has passed to the Trust pursuant to a derivatives agreement. Under the derivatives agreement, SandRidge pays the Trust amounts it receives from counterparties under certain of its derivative contracts with third parties, and the Trust pays SandRidge any amounts that SandRidge is required to pay the counterparties under such derivative contracts. The Trust did not bear any costs related to establishing the contracts underlying the derivatives agreement. The commodity derivative contracts underlying the derivatives agreement are settled in cash and do not require the actual delivery of a commodity at settlement. Fixed price swap and collar contracts are settled based upon New York Mercantile Exchange prices. Collar contracts result in a cash settlement only when the settlement price exceeds the fixed ceiling price or falls below the fixed floor price. The contracts underlying the derivatives agreement cover a portion of the anticipated future sales volumes of oil and natural gas production from the Initial Wells as well as a portion of the anticipated future production from the Trust Development Wells through December 31, 2015. The Trust does not have the ability to enter into its own derivative contracts. See Note 5 to the unaudited financial statements contained in Part I, Item I of this Quarterly Report for notional and price information of the Trust’s open oil and natural gas derivative contracts. The Trust received net settlement proceeds of approximately $3.0 million and $4.8 million related to the derivatives agreement during the six-month periods ended June 30, 2013 and 2012, respectively.

Commodity Price Risk. Because the Trust’s primary asset and source of income is the Royalty Interests, which generally entitle the Trust to receive a portion of the net proceeds from sales of oil and natural gas production from the Underlying Properties, the Trust’s most significant market risk relates to the prices received for oil and natural gas production. The derivative contracts described above are intended to mitigate a portion of the variability of oil and natural gas prices received for the Trust’s share of production from the Underlying Properties through December 31, 2015.

Credit Risk. A portion of the Trust’s liquidity is concentrated in the derivative contracts described above. The use of derivative contracts, including the arrangement between the Trust and SandRidge, involves the risk that SandRidge or its counterparties will be unable to meet their obligations under the contracts. The Trust’s counterparty under the derivatives agreement is SandRidge, whose counterparties are institutions with an “investment grade” credit rating. SandRidge is not required to pay the Trust to the extent of payment defaults by SandRidge’s counterparties.

ITEM 4. Controls and Procedures

The Trustee conducted an evaluation of the Trust’s disclosure controls and procedures, as defined in Rules 13a-15 and 15d-15 under the Exchange Act, designed to ensure that information required to be disclosed by the Trust in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and such information is accumulated and communicated as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Trustee has concluded that the disclosure controls and procedures of the Trust are effective as of the end of the period covered by this report. In its evaluation of disclosure controls and procedures, the Trustee has relied, to the extent considered reasonable, on information provided by SandRidge.

Due to the nature of the Trust as a passive entity and in light of the contractual arrangements pursuant to which the Trust was created, including the provisions of (i) the trust agreement, (ii) the administrative services agreement, (iii) the development agreement and (iv) the conveyances granting the Royalty Interests, the Trustee’s disclosure controls and procedures related to the Trust necessarily rely on (A) information provided by SandRidge, including information relating to results of operations, the status of drilling of the Trust Development Wells, the costs and revenues attributable to the Trust’s interests under the conveyance and other operating and historical data, plans for future operating and capital expenditures, reserve information, information relating to projected production, and other information relating to the status and results of operations of the Underlying Properties and the Royalty Interests, and (B) conclusions and reports regarding reserves by the Trust’s independent reserve engineers.

There were no changes in the Trust’s internal control over financial reporting during the quarter ended June 30, 2013, that have materially affected, or are reasonably likely to materially affect, the Trustee’s internal control over financial reporting. The Trustee notes for purposes of clarification that it has no authority over, has not evaluated and makes no statement concerning, the internal control over financial reporting of SandRidge.

PART II. Other Information

ITEM 1. Legal Proceedings

The Trust has recently been named as an additional defendant in a putative class action against SandRidge Energy, Inc. (“SandRidge”) and others as described below.

On December 5, 2012, James Glitz and Rodger A. Thornberry, on behalf of themselves and all other similarly situated stockholders, filed a putative class action complaint in the U.S. District Court for the Western District of Oklahoma against SandRidge and certain current and former executive officers of SandRidge. On January 4, 2013, Louis Carbone, on behalf of himself and all other similarly situated stockholders, filed a substantially similar putative class action complaint in the same court and against the same defendants. On March 6, 2013, the court consolidated these two actions under the caption “In re SandRidge Energy, Inc. Securities Litigation” (the “Securities Litigation”) and appointed a lead plaintiff and lead counsel. By order dated April 10, 2013, the court granted the lead plaintiff until July 23, 2013 to file a consolidated amended complaint in the action.

On July 23, 2013 the lead plaintiff filed a consolidated amended complaint, in which the Trust was named as an additional defendant. The Consolidated Amended Complaint asserts a variety of federal securities claims against the Trust and SandRidge and certain of its current and former officers and directors, among other defendants, on behalf of a putative class of (a) purchasers of SandRidge common stock during the period from February 24, 2011 to November 8, 2012, (b) purchasers of common units of the Trust in or traceable to its initial public offering on or about April 12, 2011, and (c) purchasers of common units of SandRidge Mississippian Trust II in or traceable to its initial public offering on or about April 23, 2012. The claims are based on allegations that SandRidge and certain of its current and former officers and directors, among other defendants, including the Trust with respect to certain of the allegations, are responsible for making false and misleading statements, and omitting material information, concerning a variety of subjects, including oil and gas reserves, SandRidge’s capital expenditures, and certain transactions entered into by companies allegedly affiliated with SandRidge’s former CEO Tom Ward. The plaintiffs seek class certification, an order rescinding the Trust’s initial public offering and an unspecified amount of damages, plus interest, attorneys’ fees and costs.

Because the Securities Litigation has only been recently filed, and the Trust was only recently served, an estimate of reasonably possible losses associated with it, if any, cannot be made at present and cannot be made until the facts, circumstances and legal theories relating to the plaintiffs’ claims against the Trust and available defenses are fully disclosed and analyzed. The Trust has not established any reserves relating to the Securities Litigation. Further, the Trust has not yet analyzed any rights it may have to indemnities that may be applicable or any claims it may make in connection with the Securities Litigation.

ITEM 1A. Risk Factors

Risk factors relating to the Trust are contained in Item 1A of the Trust’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. Except as described in Item 1, Legal Proceedings, in this Form 10-Q, no material change to such risk factors has occurred during the six-month period ended June 30, 2013.

ITEM 6. Exhibits

See the Exhibit Index accompanying this Quarterly Report.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


SANDRIDGE MISSISSIPPIAN TRUST I

By:		THE BANK OF NEW YORK MELLON
		TRUST COMPANY, N.A, Trustee

By:		/s/ Michael J. Ulrich
		Michael J. Ulrich Vice President

Date: August 9, 2013

The Registrant, SandRidge Mississippian Trust I, has no principal executive officer, principal financial officer, board of directors or persons performing similar functions. Accordingly, no additional signatures are available, and none have been provided. In signing the report above, the Trustee does not imply that it has performed any such function or that any such function exists pursuant to the terms of the trust agreement under which it serves.

EXHIBIT INDEX

Incorporated by Reference

Exhibit

No.

Exhibit Description

Form

SEC

File No.

Exhibit

Filing Date

Filed

Herewith

3.1

Certificate of Trust of SandRidge Mississippian Trust I

S-1

333-171551

3.1

01/05/2011

3.2

Amended and Restated Trust Agreement of SandRidge Mississippian Trust I, dated April 12, 2011, by and among SandRidge Energy, Inc., The Bank of New York Mellon Trust Company, N.A., and The Corporation Trust Company

8-K

001-35122

3.1

04/18/2011

3.3

Amendment No. 1 to Amended and Restated Trust Agreement of SandRidge Mississippian Trust I, dated June 13, 2012, by the Bank of New York Mellon Trust Company, N.A.

10-Q

001-35122

3.3

08/13/2012

31.1

Section 302 Certification

32.1

Section 906 Certification

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company