Source: SandRidge Energy.

It's two months late, but SandRidge Energy (UNKNOWN:SD.DL) finally reported updated financial results for its investors to review. The company's third-quarter report, which had been delayed because of a review by the SEC of its accounting practices, was surprisingly strong and upbeat. The company's management team firmly believes it entered the current downturn in commodity prices in a stronger position than the market realizes.

Drill down into the numbers
SandRidge Energy reported adjusted net income of $43 million, or $0.07 per share. Not only did this beat estimates by $0.03, but it was a penny above its third-quarter results from the prior year. That said, adjusted operating cash flow of $203 million did shrink from the $227 million the company reported in the third quarter of 2013. 

The other important financial announcement this quarter was the change the company is making to its accounting practices as a result of its discussions with the SEC. The review stemmed from the fact that SandRidge Energy supplies Occidental Petroleum (NYSE:OXY) with carbon dioxide, which Occidental Petroleum uses for enhanced oil recovery. However, if SandRidge Energy fails to deliver its contracted volumes, then it pays Occidental Petroleum a penalty each year. Given that SandRidge Energy supplies this carbon dioxide as a result of drilling natural gas wells, and drilling these new natural gas wells aren't currently profitable, the company has been forced to pay Occidental this penalty each year. SandRidge Energy had been accruing the penalty on an annual basis, but the SEC now wants it to accrue the penalty on a quarterly basis. The end result is that the company is now complying with the SEC's wishes, which resulted in the company restating its quarterly results for 2013 and 2014; however, the restatement had no change to its annual results or its cash flows.

What's next for SandRidge Energy?
With the SEC review behind the company, SandRidge Energy is now fully focused on the currently challenging energy market. However, the company believes it is well prepared to endure the current market turmoil. CEO James Bennett pointed this out:

Since the operating update [in November], oil prices have fallen sharply; however, SandRidge is defensively positioned for 2015. We have an enviable hedge position on the vast majority of our liquids production, have no bond maturities until 2020 and at quarter end $1.4 billion of liquidity.

As Bennett points out, the company believes it is defensively positioned for the current downturn, as most of its production is hedged while it also has plenty of liquidity. This should protect the company in the short term; however, the company's longer-term viability is uncertain if oil prices remain at current levels, or below, for more than a year. That said, the company still believes it can endure such an environment, as Bennett confirmed:

Importantly, our Mid-Continent drilling program continues to generate commercial returns, even at current commodity prices. Given the market backdrop, we are high grading our development plans and are already reducing our rig count and capex levels. We anticipate announcing 2015 capital plans and full year guidance in February. Meanwhile, our teams are focused on continued well cost reductions, now further supported by likely lower service costs ahead.

Bennett notes that even at $50 oil, SandRidge Energy is making some money. However, the company is planning to focus on drilling only its best acreage, as these wells should produce better returns in today's environment. Meanwhile, the company is also looking to push its well costs lower so it can improve its returns should oil prices remain depressed for quite some time.

Investor takeaway
SandRidge Energy reported a better-than-expected third quarter, which should provide some relief for investors. On top of that, the company's management team seemed rather upbeat about its prospects. They believe SandRidge is defensively positioned for 2015, and that even if oil prices remain depressed, the company can continue to economically drill wells, with the potential for its economics to improve if services costs start to drop. That being said, the company really is built for higher oil prices, so even though it might survive, it likely won't thrive unless oil prices spike.