On November 1, 2017 SandRidge Energy, (ticker: SD) announced third quarter financial and operational results.
Highlights
- Confirmed All Four North Park Basin Niobrara Benches (A, B, C and D) Productive
- Achieved $0.5 Million D&C Capital Reduction on North Park Niobrara Two-Mile XRLs
- Spud Initial Wells Under NW STACK Drilling Participation Agreement
- Confirmed Meramec/Osage Stacked Pay in NW STACK Spacing Test
- Drilled First SandRidge NW STACK Well in Dewey County, Oklahoma
- Lowered Lease Operating Expense Guidance to $6.90-$7.25 from $7.00-$7.50
- Lowered Adjusted G&A per Boe Guidance to $4.00-$4.20 from $4.25-$4.50
- Net Loss of $8 Million and Adjusted Net Income of $12 Million
- Adjusted EBITDA of $42 Million
- Capital Expenditures of $71 Million
- Production of 3.6 MMBoe (27% Oil, 23% NGLs and 50% Natural Gas)
- $515 Million of Liquidity Including $98 Million of Cash and $417 Million Capacity Under Credit Facility (Net of Letters of Credit)
- Confirmed $425 Million Borrowing Base Under Credit Facility
Operations by Region
Mid-Continent Assets in Oklahoma
- Third quarter production of 3.3 MMBoe (36.0 MBoepd, 22% oil, 24% NGLs, 54% natural gas)
- Drilled first SandRidge Dewey County Meramec well with a 30-Day IP of 598 Boepd (71% oil)
- Confirmed Meramec/Osage stacked pay with Meramec well producing a 30-Day IP of 397 Boepd (88% oil)
- Spud initial wells under NW STACK Drilling Participation Agreement
- Averaged two rigs targeting the Meramec during the quarter
- Drilled seven SRLs and two XRLs during the quarter and brought two SRLs and three XRLs online
NW STACK highlights from the third quarter include extension of Meramec production south into Dewey County and the confirmation of stacked pay. SD drilled its first Meramec well in Dewey County, Oklahoma. Producing a 30-Day IP of 598 BOEPD (71% oil), this well extends the SD’s production and resource potential beyond Major, Woodward and Garfield counties.
In Major County, the company confirmed Meramec/Osage stacked pay by drilling a Meramec well above existing horizontal Osage production. This well, producing a 30-Day IP of 397 BOEPD (88% oil) from the Meramec, supports stacked pay potential in the NW STACK. As part of the company’s strategy to initially develop the Meramec, this spacing test supports future development of the Osage.
During the fourth quarter, SD will spend approximately $15 completing wells drilled in the third quarter and running two rigs under the Drilling Participation Agreement. The two rigs will continue to drill SRLs and XRLs targeting the Meramec where drilling and completion costs are $4.4 million and $6.5million, respectively.
As previously announced, the company executed a $200 million development agreement (the “Drilling Participation Agreement”) with a private investment fund (“Counterparty”) to develop SandRidge Meramec operated wells in dedicated sections, primarily in Major and Woodward Counties. Under the Drilling Participation Agreement, the Counterparty will fund an initial $100 million tranche for its share of drilling and completion costs, receiving a wellbore-only working interest subject to reversionary hurdles.
SD initiated the first wells under the Drilling Participation Agreement during the quarter and will continue running two rigs under its terms. Designated as operator, the company is responsible for the selection, location and scheduling of wells drilled. Following the initial tranche of wells and funding, a second $100 million tranche will be available subject to mutual agreement.
Source: SandRidge Energy
Niobrara Asset in North Park Basin, Jackson County, Colorado
- Third quarter oil production of 128 MBo (1.4 MBopd)
- Confirmed all four North Park Basin Niobrara benches (A, B, C, and D) productive
- Achieved Niobrara XRL D&C capital reduction of $0.5 million due to pad drilling
- One rig targeting the Niobrara during the quarter
- Drilled three XRLs and brought two XRLs online during the quarter
SD has operations in the north-central region of Colorado, which is different from most Niobrara operations which are in the north-east region. The basin SD is operating out of is known as North Park.
During the quarter, SD completed and brought online two XRLs, the Grizzly wells, which are currently flowing back. These wells established oil production in the Niobrara A and B benches, confirming all four Niobrara benches (A, B, C and D) productive.
In addition to growing its inventory, SD has continued to capture efficiencies in the North Park Basin. The Grizzly wells were each drilled in 12 days, surpassing cycle time expectations by 20%. Furthermore, four additional XRLs were drilled in less than 14 days each as part of a recent 80 acre spacing test. These cycle time achievements and numerous other pad drilling efficiencies have successfully led to reduced drilling and completion costs of $6.7 million, compared to $7.2 million where full rig mobilization is required.
During the fourth quarter, the company will spend approximately $34 million of capital completing wells drilled in the third quarter and running one rig drilling Niobrara XRLs. The company’s 2017 drilling program will hold over 105,000 acres by production or federal unit, which represents 85% of its current 123,000 net acre position. Lastly, $13 million will be invested to construct central tank batteries and infrastructure in support of production brought online this year and into 2018.
Source: SandRidge Energy
Q&A from SD Q3 conference call
Q: Just wanted to clarify your comments on oil becoming a larger portion of production, how can we think about this trend in the fourth quarter given the increasing activity in Colorado?
President and CEO, James D. Bennett: If you look at the third quarter, oil production was about 10,400 barrels per day. That’s third quarter actual. If you take the midpoint of guidance, that gets you to about 11,600 barrels a day. So we’re on that trajectory. And we’ve said for a long time that oil turns a corner at the end of this year, and it is this quarter. So we’ve got the two Grizzly wells coming online, and then the two more Castle wells that John mentioned will also be coming online in the fourth quarter. So that really contributes quite a bit to the oil turning the quarter, that and a set of Mid-Con wells that are coming online right now.
Q: You had LOE increase a bit in 3Q. The midpoint of the updated guidance for the year suggests it could trend even higher in the fourth quarter, and that’s not necessarily surprising given your oilier production, but how can we think about that trending in 2018?
James D. Bennett: We’ve got a little bit – on a BOE basis, we still have a little gas decline. So while we’re focused on oil and cash flow growth, we’re still seeing a total BOE production decline. So that will have some of your fixed costs and your LOE costs on a BOE basis to increase slightly. But if you look at this year, we’ve taken LOE guidance down twice and continue to improve it. So that’ll really give multiyear LOE outlook yet, but looking into next year, I would consider it to be similar to where we’re going to end this year.
Q: I noticed your 2018 hedges are all in swaps. Do you have any idea how much you’re looking to hedge in 2018? And are you planning to add any flexibility into that hedging program with two-way or three-way collars?
James D. Bennett: We have flexibility in the program to do all of those. We’ve done three-way collars in the past. And when we looked ahead, we look at all those alternatives. For us, lately, with the volatility in the market, swaps have been the most cost effective for us, but we’ve used all those methods before. But previously, we’ve hedged quite a bit of our production for the current year, for the upcoming 12 months, particularly on the crude side given that’s where most of our cash flows, and then lesser percentage in years two, and even a little bit in years three. So I don’t want to give you the exact percentage, but look for us to continue to hedge particularly the first 12 and 24 months of production.
Q: Regarding the Northwest STACK. What are the milestones for the additional funding to come in, and when is it expected to come in from your joint venture?
James D. Bennett: I think you’re referring to the Drilling Participation Agreement. So we closed that in July. We’ve already started drilling wells under that agreement. And I believe we’re at well number three. We’re in the third well now. And we’ve received our initial GIAB funding from that. So that will continue to fund for the next 18 to 20 months as we roll out the program. It calls for drilling about 25 wells under the program. So it’ll continue to fund every month. It’s not a lump sum. It doesn’t fund all at once at the beginning or the end, it funds 90% of the cost as the wells are drilled. And there are really no milestones to think about.
Q: You guys give industry averages for these wells. Can you give us some sense of where your average has come in for these as well?
James D. Bennett: Yes. So our averages are very close to those, right in line with those. We’ve got some outliers on either side as we step out and delineate the plays to the east and the west. Our acreage is over 100 miles wide east to west, so as we stepped out and delineated, we’ve had some lower results on the edges of the play. But our averages are right within those same range, of 400 to 500 BOE for a single, and 600 to 800 BOE for an extended lateral.
Q: And my last question is regarding, again, trying to get a sense of when can we expect the overall production to trough from a companywide perspective. Is there, in your mind, a rough timeframe for that? I know you’ve talked about oil, but what about the overall company?
James D. Bennett: Yeah. Honestly, I don’t think about total BOE growth. I mean, I’m focused on cash flow growth, and growing our cash flow, and closing any outspend. So I’m not ready to say here’s exactly when our total BOEs will trough. It really depends on what we spend next year. Kind of gets back to your other question, what’s your oil production going to look like next year, really gets back to the spending. So, we need to finalize our budget for 2018, get that approved and roll that out in the first quarter. But again, give me to the first quarter so we come out with 2018 budget, and then we can tell you what oil production looks like and further what total BOE production looks like.
