Casey Hoerth on SandRidge over at Seeking Alpha:
Of all the horizontal drilling plays, the Mississippi Lime is often
regarded as the most disappointing. Between 2009 and 2010, a litany of
well-known oil and gas companies entered this play situated between
Kansas and Oklahoma: Shell, Chesapeake, Encana, Apache, SandRidge and a few others.
Among these five big players, only one remains: SandRidge Energy. When others left, SandRidge
not only hung around, but picked up the pieces. The company now has
over 2 million acres of leasehold in the Mississippi Lime.
The other four left for similar reasons. They saw returns not hitting
production targets, and therefore redeployed assets elsewhere. Returns
were challenged for a few reasons: A disappointingly low oil cut, very
high decline rates, high well costs in a fairly low-populated area and,
perhaps most of all, the issue of saltwater in the geology. In some
locations, the ratio of hydrocarbons to saltwater coming out of the well
was as high as 1:10. Dealing with all that saltwater can be a huge
deterrent, especially when other plays are yielding oilier cuts without
the saltwater.
SandRidge, for its part, had been caught in a
proxy battle which resulted in the ousting of its former CEO Tom Ward,
who was also the co-founder of Chesapeake Energy. Much like Chesapeake
under Aubry McClendon, SandRidge bet big on certain plays, acquired lots of contiguous acreage, and drilled as many wells as it could.
And as was the case with Chesapeake, SandRidge's new management team was left to clean up the ensuing mess. It turns out, however, that SandRidge
has, as one of the few players left in the Mississippi Lime, managed to
transform the Mississippi Lime into a reasonably profitable play.
Better yet, the market seems yet to fully realize this fact. This
article will focus on what SandRidge did in order to find treasure in what so many others forsook as trash.
Data points:
Based on today's pricing, the average SandRidge well now
provides a rate of return of 64%; a huge improvement over the previous
players who vacated the play. While 64% may not come close to rivaling
the Eagle Ford or Bakken, such a return is nothing to laugh at. Even
better, as SandRidge reduces its well cost, returns will jump to 79% within three years, and even up to 128% in the further future.
By the way, I am seeing the same thing in the Bakken:
SandRidge has a lot of acreage in the Mississippi Lime. Instead of maximizing drilling, last year SandRidge's
new management took a different approach: Focus on the proven sweet
spots and avoid the 'dud' areas. In other words, management got picky.
Much more at the link.
SeekingAlpha has a way of archiving these "better" articles putting them off-limits unless one has a subscription.
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