Casey Hoerth On SandRidge Over At "Seeking Alpha"

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.