SandRidge Energy Inc. said Tuesday it will delay filing its 3Q2014 report until it has resolved a “routine review” by the U.S. Securities and Exchange Commission (SEC), which could result in restating almost two years of earnings results.

The quarterly results “will not be filed timely but, rather, will be completed and filed as soon as possible following the resolution of the SEC’s review,” the Oklahoma City-based independent said.

The review concerns a 30-year agreement reached in 2008 under which SandRidge agreed to deliver and remove carbon dioxide (CO2) from Occidental Petroleum Corp.’s (Oxy) natural gas production in the Permian Basin of West Texas (see Daily GPI, July 7, 2008). Oxy agreed to build and operate facilities in Pecos County, TX, while SandRidge agreed to drill, produce and deliver the CO2, and retain 100% of the methane gas at the tailgate.

After each calendar year, SandRidge is obligated under the contract to pay a penalty fee if it misses the minimum required CO2 delivery volume targets. Historically, SandRidge has accrued a liability for the annual penalty on an annual basis. However, SEC staff of the Division of Corporation Finance recently requested the company reassess that practice and consider whether the liability should have been accrued on a quarterly basis.

“We are obviously disappointed in the distraction this news may bring at such an otherwise exciting time for SandRidge,” CEO James Bennett said. “We want to be clear that, while certainly unfortunate, at this time we believe the resolution of this matter will only affect the timing of accruals of our CO2 under-delivery penalty and does not have any material impact on the core sectors of our business.

“Our team is working diligently to resolve this matter with the SEC as quickly as possible, and we will still host our regularly scheduled conference call to update our investors on operating progress.” No impact is expected on SandRidge’s cash and cash equivalent balances reported for any of the periods being reassessed.

Because of the ongoing dialogue with SEC staff, “some or all of the liabilities associated with the agreement may be required to be shifted to one or more prior periods, which could materially affect the net income of such prior periods,” management stated. SandRidge plans to restate, to the extent necessary, any financial statements that would reflect any financial shifts, once the matter has been resolved.

“In addition, the company is reassessing its previous conclusions regarding the effectiveness of internal control over financial reporting and disclosure controls and procedures as they relate to the accounting under the agreement,” it said. The board’s audit committee has concluded that the consolidated financial statements included in the annual reports filed with SEC for 2012 and 2013, and the quarterly reports filed for all of 2013 and the first half of 2014 “cannot be relied upon until resolution of this matter.”

Despite the delay in filing the 3Q2014 report, management still plans to hold a conference call at 8:00 a.m. CST on Thursday to discuss operational results.