Friday, May 4, 2012

SandRidge / Mississippi Limestone Formation -- Not the Bakken -- But Bakken Technology Propelling This Shale Play To The "Front of the Line"

Updates

April 21, 2016: link at Oil & Gas Journal --
White Star Petroleum LLC, until recently known as American Energy-Woodford LLC, has entered a definitive agreement to buy Mississippi Lime and Woodford shale properties from Devon Energy Corp. for $200 million.
White Star is becoming a standalone company after operating as a unit of American Energy Partners LP. As part of that change, Elliot J. Chambers, chief financial officer, has been named to the additional role of chief executive officer, and Joseph D. Craig, formerly vice-president of operations, has been named chief operating officer.

The acquisition from Devon covers 210,000 largely contiguous acres offsetting acreage White Star holds in central-northern Oklahoma. Average net production from 555 operated and nonoperated wells in the acquisition was 12,800 boe/d in the first quarter, about 30% oil. Reserves at yearend 2015 totaled 11 million boe.
White Star said the acquisition doubles its production and acreage in north-central Oklahoma.
August 5, 2014: Zeits on SandRidge ahead of 2Q14 results -- SeekingAlpha.

July 7, 2014: Zeits updates SandRidge in the Mississippi Lime; still learning -- SeekingAlpha

June 19, 2014: the Mississippi Lime, not all its fracked up to be? -- Seeking Alpha

May 26, 2014: Casey Hoerth on SandRidge over at Seeking Alpha. Data points from the article (may be in "draft."

March 6, 2014: SandRidge is ready to outperform -- EquityFlux over at SeekingAlpha

March 5, 2014: what are the assets of SandRidge worth? -- Richard Zeits over at SeekingAlpha. [Unfortunately this article is now linked and requires a paid subscription.]

February 18, 2014: Richard Zeits is not impressed with SD's open-hole completions in the Mississippi Lime

January 14, 2014: a contributor at SeekingAlpha analyzes the GoM sale

December 24, 2013: Multiple zones in SandRidge's Mississippian play? (Motley Fool).
SandRidge Energy Inc., for example, found the key to unlocking oil and gas from the Mississippi Lime formation. However, the company also found that it is stacked with opportunities above and below the Mississippian that has the potential to fuel future growth. SandRidge Energy is currently appraising the potential of the Marmaton, Chester and Woodford formations. It's quite possible that one more of these zones might emerge in 2014 to really fuel SandRidge Energy's stock.
December 24, 2013: SandRidge's Mississippian wells are improving (SeekingAlpha).
SandRidge began drilling in the Lime in late 2010, meaning their oldest wells have produced for about three years. The company is currently estimating that its wells pay out in two years, so we took a look at their oldest producers to see if those estimations are accurate. This data tells us that SD's early wells didn't pay out in two years based on a $3.2 million well cost.
While natural gas production has remained flat, oil production by well increased approximately 20% from 2011 to 2012. This is important because oil is responsible for roughly 73% of a well's revenue. If the 2012 wells continue to produce 20% higher than the 2011 wells, they'll gross $3 million by their second year. SD is currently modeling sub $3 million well costs for the Lime wells, which means their newer wells are paying back in two years. A two-year payback period is on par with most major oil plays in the United States.
At this point, we're not sure why SandRidge's newer wells are producing more oil. It could be that the company is able to focus on its better areas after it delineated it acreage or the new frac designs they've cited in their earnings transcripts are paying off. Either way, the production improvements make it a stock to watch for the future. 
December 9, 2013: SandRidge's advantages in the Mississippi Lime (Motley Fool).  Is SandRidge sitting on a gusher in the gulf? -- Motley Fool

November 19, 2013: will drill 100 Kansas wells in 2013.

November 6, 2013: new presentation (a PDF file); lots of Oreos.

October 8, 2013: Sandridge as an investment, SeekingAlpha.

September 11, 2013: why SandRidge is still a buy.

June 11, 2013: another natural gas processing plant in Oklahoma to support the Mississippi Lime.

June 9, 2013: Glass Mountain Pipeline (crude oil) from Mississippi Lime / western Oklahoma to Cushing; 210 miles; two laterals; initial capacity of 140,000 bopd and intermediate storage of 440,000 bbls; to be commissioned by late 2013.

March 24, 2013: Phillips 66 betting on SandRidge, Mississippi Lime.

February 25, 2013: Chesapeake sells 50% of its acreage in the Mississippi Lime to China's Sinopec.

February 25, 2013: Part II of Mike Filloon's series on the Mississippi Lime.

February 23, 2013: Mike Filloon begins a series on the Mississippi Lime and starts with SandRidge.

January 14, 2013: SandRidge takes a page from the Chesapeake playbook -- maybe the whole playbook.

January 8, 2013: Kansas rolls out the red carpet for fracking companies.

December 19, 2012: sells Permian Basin assets for $2.6 billion -- Reuters

December 17, 2012: an update on SandRidge experience in the Mississippi Lime -- SeekingAlpha

August 30, 2012: SandRidge undervalued -- SeekingAlpha

August 9, 2012: Mississippi Lime/SandRidge at SeekingAlpha.com.

August 8, 2012: the Mississippi Lime sprawls northward into Nebraska
Horizontal wells in the US Midcontinent Mississippi lime oil play aren’t as productive as those in the Williston basin Bakken, but shallower depths and cheaper drilling costs are driving increased interest in the Mississippi lime, ...

The land play has expanded to more than 17 million acres in northern Oklahoma, western Kansas, and southern Nebraska, ...

“This is a shallow carbonate play, with depths ranging from 3,000 ft to 6,000 ft, and since it’s shallower than other US unconventional plays, operators can employ less expensive, lower horsepower rigs to drill it.”
August 6, 2012: the eastern limb of the Mississippi Lime is attracting more operators. Shallow but lots of water.
The formation is now being drilled horizontally after having produced through vertical wells for more than 50 years. IHS Inc. noted last week that the land play covers more than 17 million acres in northern Oklahoma, western Kansas, and southwestern Nebraska.

Devon Energy Corp. said it has increased its exposure to the light oil resource play to 545,000 net acres. Other acreage holders on the eastern limb include Range Resources Corp., Highmount Exploration & Production Co., Halcon Resources Corp., PetroQuest Energy Inc., and numerous private entities.

SandRidge Energy, which plans to drill 380 Mississippi lime horizontal well by the end of 2012, expects to be running 33 rigs at the end of the year.

Four of the 29 rigs SandRidge is now running drill disposal wells, given that Mississippi Lime wells produce 90% water along with commercial volumes of oil. SandRidge told investors it plans to drill 10 producing wells for every disposal well when it reaches development mode compared with five producing wells per disposal well at present.
July 15, 2012: new SandRidge corporate presentation.  I don't follow SD but their slides say shallow, conventional, and horizontal. If conventional, they should not be fracking? Back in 2010 they were producing 2,000 boepd; now SD is at 32,000 boepd.  Answer from a reader: conventional wells in the Permian Basin do not require fracking.  The Mississippi Lime is unconventional shale, requires Bakken-like completion. Because the Mississippi Lime is more shallow than the Bakken, it has cost advantages.

June 18, 2012: Sandridge -- 15 billion bbls of recoverable oil in Kansas; drilling to continue for at least ten more years;

June 4, 2012: new SandRidge corporate presentation.

June 1, 2012: trailers renting for $2000/month in Kansas. These are not FEMA trailers.

May 31, 2012: CNBC has discovered the Mississippi Lime in Kansas
Tom Ward [Sandridge] says oil output in the region by the end of the decade will grow to rival the production seen in the Bakken Shale in North Dakota, ramping up from just over 3.5 million barrels a month, to well over 18 million barrels of oil and gas. And with it, he expects a similar boom in economic development.

"Overall, the impact of Kansas, in our opinion, will be an additional 1000,000 [sic -- 100,000?] jobs that will be coming in the next 15 years," Ward says.
May 6, 2012: Things To like about SandRidge -- SeekingAlpha.com

April 20, 2012: SeekingAlpha interview with Tom Ward, SD/CEO --
SA - The Mississippian is an interesting asset as it is cheap to drill and is repeatable. If I were to compare the Bakken to the Mississippian, I would estimate a Bakken well costing between $9.5 million and $11 million with an average Estimated Ultimate Recovery (EUR) of approximately 600,000 barrels of oil equivalent. And actually, I’m just using a general number that Continental Resources throws out there, because they are all over the play.Your estimated well cost in the Mississippian is about $3.2 million, and it looks like the majority of your more recent completion models would give you an EUR close to 500,000 barrels of oil equivalent. Although, this is a very generic comparison, why do you believe the Mississippian does not get more positive attention?
TW - Well, half of the production is gas, so I think there are people who believe that’s a negative where I look at as upside, because the rate of return in our opinion is superior to the Bakken. I like the Bakken play, but it costs more to development and was already a crowded market by the time I wanted to buy oil. So the Mississippian was a better place to have a low entry cost and we see about 80% of the revenue that we have coming from oil, but having upside for natural gas if gas prices rebound even to $4 an Mcf, which I believe is more realistic to the market in the next year or so than the $2 that we’re at today.
The other reason is there is a high level of water production that comes along with the Mississippian. It is a very large stratigraphic trap, but as I mentioned about the Piñon field, you have to understand why this field wasn’t discovered and drilled over time, even though there have been thousands of Mississippian wells drilled over the last 50 years. But in a large portion of this area, it produces a large amount of water. So where others saw water, we saw oil and by skimming off a 10% oil cut, we can produce the quantities of oil that you mentioned and still have in our opinion the best rates of return in the U.S. today.
TW – It’s very simple: I don’t care for ultra-tight rock [Editor’s note: meaning, very tight shale requiring hydraulic fracturing, or “fracking”]. That’s not to say that there aren’t great places to drill in shale. But shale formations are a nanodarcy [a measure of permeability] reservoir and if you look at the theory of permeability, that’s about a thousand times more tight than millidarcy, which is a thousand times more tight than a darcy. And so over the course of time of our industry, we went from producing darcy reservoirs in the very earliest days of oil and gas exploration to millidarcy reservoirs and from 1948, when we created fracture treatments, to the recently nanodarcy reservoirs which are one thousand times more tight than a millidarcy.
The reason to go back through all that is that anytime you are producing from just strictly a shale, and I don’t consider the Bakken a shale, I consider it more of a dolomite, but let’s just say it is a straight shale reservoir, the odds of having a poor well are much greater than having a good well, especially if you buy all the acreage first, then have to drill wells. It’s just a riskier proposition. So, in the Haynesville Formation for example, there is a small area that geologically has storage capacity to be able to produce at a very tight rock. In the rest of the area, it is high cost in order to get that gas out, and takes very high natural gas prices in order to be profitable, and I just thought it was too risky. And I didn’t know enough about the reservoirs to be able to predict where they might be good and bad.
SA – Great.Would you be interested in purchasing acreage in any of the U.S. unconventional plays, or are you currently going to focus on the Permian and Mississippian in the short-term?
TW – No. We purchased the cheapest oil in the country right now. It’s being sold in the shallow waters of the Gulf of Mexico, so that was why we made the $1.275 billion acquisition of Dynamic Offshore Resources, LLC that closed this week.
SA Contributor Michael Filloon – With your purchase of 2 million acres in the Mississippian at about $200 per acre, maybe one of the biggest steals in recent memory, give the value of the acreage and why you would choose to monetize these assets as opposed to develop and create cash flow through the drill bit?

TW – We’ll do both. So we bought more acreage than we could drill in a reasonable time frame. Some companies will keep 30, 40 or 50 years of drilling inventory and we’ve chosen to try to narrow our inventory down to around 15 years of time when we bought in the play. By being the first company to understand the scope of the play, we were able to go buy very inexpensively and so we bought with the idea that we would have other companies come and help fund our drilling in the play.
Original Post

Link here from "The American Oil & Gas Reporter," undated --
... on the way down to the Woodford Shale (downdip to the southwest of the Mississippian play area), producers had to drill through the Mississippian formation—a thick, porous carbonate deposition that extends over millions of acres in northern Oklahoma and southern Kansas. Woodford operators realized the formation had porosity, permeability, and lots of hydrocarbon shows. In fact, the Mississippian has produced commercially from thousands of vertical wells for more than 50 years.

However, what suddenly has jumped the Mississippi formation to the front of the line as a top-flight onshore oil play is the same set of technologies that independent operators are deploying to enable economic shale development: horizontal drilling and multistage completions. With the industry’s focus turning to liquids-rich plays, the horizontal Mississippian oil play is right in the thick of the action.

In fact, the Mississippian play in the Mid-Continent region has cost advantages to other emerging plays because of its shallow drilling depths and low horsepower requirements for hydraulic fracturing. The added bonus for Mississippian operators in Oklahoma and Kansas is that they are working in the heart of the Mid-Continent, with ready access to transportation infrastructure, services, equipment and skilled personnel.
And more, from the SandRidge Energy perspective --
Oklahoma City-based SandRidge Energy was an early mover in the Mississippian horizontal play and is in the process of putting together a second major land position. Although Matthew Grubb, president and chief operating officer, cannot publicly disclose exactly where the new acreage holdings are being acquired because of leasing considerations, he notes that the geological characteristics are very similar to its original Mississippian play, and there is good reservoir control and production history because of the thousands of vertical wells that have been drilled in the area.

“We have identified and are actively pursuing acreage in a second Mississippian play,” says Grubb.

“Our original position is 900,000 acres in northern Oklahoma and southern Kansas. In the new Mississippian play, we have leased about 400,000 acres with the goal of ultimately leasing 1 million acres. It is the same type of rock, depth and vertical production characteristics that we see in our original Mississippian play.”
Now, from the 1Q12 SandRidge earnings conference call --
We anticipate ending the year at 32 horizontal rigs and project ending 2013 45 horizontal rigs drilling for shallow, conventional oil across Northern Oklahoma and Kansas. We believe our industry will create over 100,000 jobs across this area over the next 5 years, and we'll play -- and we'll have a play as large and as important as the Bakken is to North Dakota and Montana. So we think it's a good use of capital to increase land in an area have already sold for more than 10 times your investment and are drilling exceptional wells instead of trying to find a new area to buy and start all over again.
Disclaimer: this is not an investment site. I posted this because it's part of the "North Dakota to Texas Renaissance Zone" which has gotten me very, very excited. This is still a Bakken blog, but there may be additional stories on this and other plays north-to-south in fly-over-country.

This post is not a buy, sell, hold recommendation. I made my first purchase of SandRidge earlier this week and expect to accumulate more as opportunities present.