SandRidge Energy (ticker: SD) is an oil and natural gas company headquartered in Oklahoma City, Oklahoma, with its principal focus on exploration and production in the Mid-Continent, Permian Basin, Gulf of Mexico, West Texas Overthrust and Gulf Coast.
The challenging and inconsistent geology in the Mississippian Lime has oil and gas operators split on the true resource potential of the play. Will it work? Maybe. But, SandRidge Energy is putting its money where its mouth is with plans to drill approximately 430 wells in the play in 2014.
SD’s resilience to the Mississippian challenges are stark in contrast to its peers, as large scale operators like Chesapeake (ticker: CHK) and Shell (ticker: RDS.B) either sold or announced the intended sale of Mississippian assets in 2013. The steep learning curve has not deterred SandRidge even after the company revised its decline curves (and its EURS as a result) months ago. The company actually plans to increase its footprint after it drilled a total of 91 horizontal wells in Q3’13 alone. The company plans to extend deeper into Kansas, where its 2014 budget has allotted $350 million to drill an additional 100 horizontal wells and build out infrastructure.
“Just by that number alone you can gauge our interest in the Kansas area,” said Don Lawler, Executive Vice President and Chief Operating Officer of SandRidge, in an interview with the Associated Press. “We see opportunity across all of Kansas.”
The inconsistent geology of the Mississippian Lime can create difficulty, according to studies by Core Laboratories (ticker: CLB). The report says: “(There are) lateral and vertical variations in Mississippian reservoir properties. Production may be driven by matrix properties in some areas, whereas, in other areas fractures play a dominant role. These changes in reservoir properties may have a significant impact on horizontal completion strategies, such as horizontal well directions and the type of stimulation design. Also, water cuts vary regionally, as do initial production rates from horizontal wells (50 BOEPD to over 500 BOEPD). There does not seem to be any known oil-water contact.”
Its total Mississippian production in Q3’13 was enhanced by delivering 104 wells to first sales with an average 30 day IP rate of 307 BOEPD. In a conference call following SD’s Q3’13 results, management said it is utilizing a stacked pay well system in Kansas after seeing success in Oklahoma. The system involves two wells drilling off the same pad, targeting the Upper Mississippian and Lower Mississippian. Results from the first Kansas well delivered 30-day IP rates of 319 BOEPD in the Upper and 456 BOEPD in the Lower, and an estimated 50% of SD’s Kansas wells are candidates for the system in its 2014 drilling program.
A major advantage of SD’s operations is well costs of $2.95 million per well and an operating expense of $7.02 per BOE, both amongst leaders in the industry. Its 1.9 million net acres presents ample opportunity to expand an area that produced 47.9 MBOEPD for SD in Q3’13. The company expects to exit 2013 producing more than 50 MBOEPD and run an average of 23 horizontal rigs. Six of the rigs are planned to operate in Kansas, where the company began development in 2010 and currently has 170 producing wells. According to the Kansas Department of Commerce, 247 active horizontal wells existed at June 30, 2013. SD will single-handedly drive up the number and has identified approximately 3,000 drilling locations on 600,000 net acres in the state.
2014 Mississippian Guidance
SD estimates its 2014 production to increase by 35% in the Mississippian, which includes a 50% increase in liquids and a 12% rise in organic growth. SD expects new opportunities to emerge as its asset base expands and information is received in appraisal areas. Details on its expansion progress will likely be available in SandRidge’s upcoming analyst day, tentatively scheduled in Q1’14.
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication.