Sandridge
Energy, Inc. is a major player in the Mississippian Lime, where it has a lease
of around 1.85 million acres. The company’s major operations are targeted to
the “focus areas”, which consist of six counties: Comanche, Barber, Harper,
Woods, Alfalfa, and Grant. During the third quarter, the company operated
around 22 rigs in the region, and it plans to operate 23 rigs in the coming
quarter. In the focus area, Sandridge drilled around 211 wells as of the start
of November this year, and it has identified 3,000 development locations.
During the third quarter of this year the company was able to increase
production by 59% year over year to around 47,900 barrels of oil equivalent per
day, or boepd, which is around 53% of the company’s total production. With the
number of potential development locations, the company will be able to increase
production from the Mississippian.
In
the Mississippian play Sandridge has a cost of around $2.95 million per well.
In general, at well cost of around $3 million, a driller in the Mississippian
Lime play needs to generate around $4,110 per day to achieve break-even in two
years. This means that a company has to produce around 41 barrels of oil per day
at a price of around $100 per barrel of oil for break-even. Sandridge’s wells
have a 30-day initial production rate of around 140 barrels of oil per day and
an initial decline rate of 76%. The company estimates a payback period of two
years for its wells. With these production rates, the company has a certain
degree of flexibility if the oil prices vary between $90 and $100 per barrel.
The WTI prices are expected to be around $97 per barrel through the end of this
year and an average of around $95 per barrel during the next year. At these
price levels and the well production levels, Sandridge is likely to cover the
cost of its well comfortably in the coming quarters.
Sandridge
is not the only player in the Oklahoma shale formations; it has competition from
Apache Corporation (APA). The company operates in what it calls the Central
Region, which constitutes western Oklahoma and the Texas panhandle, totaling an
area of 2 million gross acres. During the third quarter the company produced
around 94,773 boepd, a 4% quarter over quarter production rise. In the region,
Apache is currently operating more than 300 wells in different shale plays like
the Cleveland, Canyon Wash, Granite Wash, Sweetwater, Cottage Grove, and
others. Apache plans to increase production to more than 160,000 boepd from the
region by 2016, and it has good traction as it has exceeded its projected value
with the rate of growth in drilling. The potential for exploration and
exploitation of multiple shale formations in the Central region provide Apache
the opportunity to grow its production in the coming quarters.
More
from the Mississippian stack pay
The
total oil and condensate recoverable from the Mississippian play is around 1.3
billion barrels through 2035. The Mississippian has three stacked layers known
as the Upper, Middle, and Lower Mississippian. Sandridge is developing the
Upper and the Lower Mississippian in Harper County and Grant County
respectively to increase the productivity of its acreage. In Harper County the
company is testing two stacked laterals, one in the Upper and the other in the
Lower Mississippian. Stacked laterals are horizontal wells drilled one above
the other. The data from these two wells showed 30-day initial production, or
IP, of around 456 boepd from the Lower Mississippian and 391 boepd from the
Upper Mississippian. In Grant County, Sandridge tested multi-well in the Upper
and the Lower Mississippian, and these wells delivered more than 400 boepd.
Sandridge’s year to date average 30-day IP is 339 boepd. This shows that the
new wells in the Upper and Lower Mississippian currently have 30 day IP rates
that are currently above or in line with the company’s average for the year.
Sandridge
also started the appraisal of the Woodford Shale, which lies below the Mississippian
Lime and is around 80 feet thick. The Woodford shale is expected to contain oil
and natural gas in equal proportion. Sandridge is carrying out the appraisal
program in five counties within its acreage and has completed three wells.
Among the three wells, two wells produced hydrocarbons at the rate of 68 bpd
and 37 bpd, while the third yielded only water. We believe the activity in the
Woodford shale formation is gaining momentum and will continue into the coming
quarters. The combined number of rigs in the Woodford formation as of November
15, 2013 is around 50, while it was around 41 during same time last year.
Continental
Resources (CLR) is a major player in the Woodford shale formation. The company
operates in the Anadarko Woodford and Cana Woodford, which is located in
Oklahoma. These two plays are located in the area the company calls South
Central Oklahoma Oil Province, or SCOOP. In the SCOOP region the company has
leasehold of 320,000 net acres, and it currently operates around 12 rigs in the
region with plans to increase the number of rigs to 18 by the middle of next
year. Continental’s plans to increase the number of rigs are supported by the
increase in production from this region. The company was able to produce around
20,100 boepd during the third quarter of this year, which was a 293% increase
year over year. The SCOOP region has a thickness of 122 meters and around 70
billion barrels of oil in place. With this amount of oil in place and the
company’s robust plan, it will be able to increase the oil production from the
region.
Goose
that lays the golden eggs
While
exploring the Mississippian Lime play to increase its productivity, Sandridge
has the advantage of it being a stack pay. With its long history of operations
in the Mississippian Lime, the company has a better understanding of the play.
One of the high potential regions of the Mississippian stack pay could be the
Woodford formation in which the company is currently investing. Currently
Sandridge’s stock trades at a price-to-book, or P/B, of around 1.50. The
company’s further development of the Mississippian Lime is expected to decrease
its P/B value in the coming quarters.
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