SD - SandRidge Energy

[oldye]

" we're today unveiling an exciting new opportunity on our Mississippian Trend acreage. We have

completed 29 wells to date in the Woodford Oil Shale, with very positive results. Second quarter Woodford results

were highlighted by 10 wells with initial production averaging 840 BOE per day and 30-day IPs of more than 500 BOE

per day. We are excited about our Woodford potential for several reasons.

First, unlike the Mississippi Lime, the Woodford is a shale formation with resource play characteristics. It sits just

below the Miss Lime and can be up to 150 feet thick across portions of our acreage. It is the source rock for much of

our Miss production. The Woodford is less geologically complex and, therefore, should have a much higher drillability

factor and deliver more consistent results than conventional formations.

Second, the type curve emerging for the Woodford Oil Shale looks very similar to our original type curve for the Miss

Lime, with 30-day IPs of about 300 BOE per day and EURs of about 350,000 BOE. Furthermore, on a program basis,

the drill-and-complete cost for these wells should run about $3 million each.

Third, our initial production is about 80% oil on these Woodford shales. While the EUR is expected to be about 1/3

gas and about 1/3 NGLs, this high initial oil content greatly enhances the economics in today's commodity price"

 

Chief Operating Officer

Well, we're pretty excited about this opportunity overall because I think, by the nature of being a shale play and

the fact it is a source rock, actually, for the vast majority of the Mississippian play, by the nature of -- shales tend

to be more consistent in nature. And so that has led to greater consistency in well results already, and we're just

as the beginning stages of really characterizing the overall play. So we are seeing more consistent results. There's

obviously some variability. Some of the keys we're looking for are where we can enhance the permeability through

fracturing, and you see some variability depending on the thickness of the reservoir. But overall, it is a consistent play

that produces strong economic results. You can see where we're using, essentially, for right now, the same type curve

that we're using for Mississippian, but it's going to be a little bit lower well cost. So that's, obviously, even going to

enhance the economics a little bit more. And as I highlighted, we're very confident. We derisked 100,000 acres and we

see the potential for up to 400,000 acres of Woodford potential across our 650,000-acre position in the Miss Trend. So

it's an exciting play. If it works out to scale, you can do the math, but it can add a lot to our light oil story.

Arun Jayaram

Crédit Suisse AG, Research Division

And do you have, Dave, the same water issues that you have in the Miss Lime?

David A. Hager

Chief Operating Officer

No, you don't have near the water issues you have in the Miss Lime.

 

Douglas George Blyth Leggate

BofA Merrill Lynch, Research Division

A couple of questions. Dave, first to you, perhaps. So the Mississippi Lime and the Woodford, are we now basically

seeing the Woodford as a primary target for your acreage there? And could you talk about what the implications are in

terms of development plan, rig count activity -- or rather, I guess, well activity and ultimately how you might change

capital allocation associated with this play? And I've got a follow-up, please.

David A. Hager

Chief Operating Officer

Sure, Doug. We like both of them. I think that's the key. We like the Woodford and we like the Miss Lime. This is

not necessarily -- this is not negative on the Miss Lime. It's just we're -- we have additional potential here in the

Woodford. I think that's really the key. The Woodford is a little bit deeper. And so by drilling -- and it's going to have

 

some of these additional qualities that we've described of being a shale: probably more consistent results, a little

bit easier to drill, lower well costs, all of which are very positive for that in addition to being deeper. When you drill

a Woodford well, you hold all rights above that, and so we're going to have a tendency to drill more Woodford wells

here in the short term to make sure that we get our acreage secured through the Woodford. But ultimately, it's going

to take the rest of this year, I think, really to -- and that's what I've been trying to say consistently, that it's going to

take the rest of this year to really get a clear understanding of what the full potential is on both the Woodford and our

Miss acreage. But it's starting to emerge pretty positive, I can tell you. And it looks like we certainly have a strong leg

that to our -- for our next oil growth within Devon. And so I like where we are, bottom line. It just is nice to have an

additional formation such as a Woodford to really bolster that growth.

 

'I am glad you asked the question. We do have significant amount of Woodford acreage in our play. Very much similar to Devon's, particularly in Grant County. So we are actually a partner with Devon on one of those wells, or at least one of their wells in the area. And we actually spud our first Woodford well this week. So obviously it's very early and not something we really want to talk about until we get further down the path. But as we see this area is certainly prospective for Woodford.'

 

 

 

Anyone know where Tom is buying 'farm land' today?  He was never the best capital allocator but he sure knows his stuff!

[txlaw]

Anyone know where Tom is buying 'farm land' today?  He was never the best capital allocator but he sure knows his stuff!

 

Still right next to SD's acreage?

 

I kid, I kid.  :D

[ASTA]

Taxlaw,

That's exactly what I meant. And I have 13% in the portfolio so it better not be a 0 :D

[txlaw]

Just now getting to DVN and SD transcripts - this Woodford subzone play could be an interesting wild card for SD if it is similar to DVN.

 

DVN discusses extensively in the CC attached.

 

Thanks for posting, bmichaud. 

 

I love all this talk about scale in the Miss!

[alertmeipp]

Yep, especially the fact that the water infrastructure allows them to keep acquiring better acres at an attractive price. I can understand why TW wants to front load the expenses... the play is just too massive for SD.

 

JV makes sense for them.

[plato1976]

I don't remember this stacked play thing mentioned until quite recently.

Is it unusual ? Or it's quite common in the oil exploration business ? (I think this basically means you have stacked layers under ground - lower miss, middle miss, etc. and at the same spot you can drill multiple layers). My simple question is how unusual it is, or if it's just a common practice ? Will it significantly increase the reserve for SD ? Or it's counted in long time ago...

 

This could be a long term home run if the stacked play works out.

Great quarter operationally, but the shareholder base is rotating from quick sale to long term hold. I am in the quick sale bucket but am coming around.

 

I really like the new CEO.

[plato1976]

 

SD have acre in Woodford subzone ?

 

 

 

Just now getting to DVN and SD transcripts - this Woodford subzone play could be an interesting wild card for SD if it is similar to DVN.

 

DVN discusses extensively in the CC attached.

[CorpRaider]

Just now getting to DVN and SD transcripts - this Woodford subzone play could be an interesting wild card for SD if it is similar to DVN.

 

DVN discusses extensively in the CC attached.

 

Thanks for posting, bmichaud. 

 

I love all this talk about scale in the Miss!

 

Yeah, the ceo of Core Labs keeps saying there are at least two north american shale discoveries, yet to be announced/confirmed that are going to be bigger than the bakken.  When i go to sleep at night, visions of the monterrey and miss dance in my head.

[alertmeipp]

If Miss is anything like Bakken (in term of return AND media coverage), SD will be a home run.

 

For now, nobody thinks the remaining acres are as good as the core ones. I think TW wants to spend the money to prove more location out. But TPG and gangs wants to focus on core. I think that may be a mistake.

[plato1976]

well, what's SD 's value if only core mississippi acres are economical ?

just want to get a conservative estimation

 

If Miss is anything like Bakken (in term of return AND media coverage), SD will be a home run.

 

For now, nobody thinks the remaining acres are as good as the core ones. I think TW wants to spend the money to prove more location out. But TPG and gangs wants to focus on core. I think that may be a mistake.

[alertmeipp]

it's a hard question.

 

my theory is the market is valuing the whole Miss about 2.5 billions or 1k per acre.

 

If they can show Miss should be as valuable as Bakken.. Miss alone should worth 10billions plus (5k plus)

 

That's like 20 bucks.

 

 

[tombgrt]

Guess some hedgies aren't done selling yet after hoping to sell this for a quick buck. Seems like I'll soon be able to buy back those sold calls for a 25-30% discount.

 

Reasonable short overview of some important data points: http://seekingalpha.com/article/1628912-sandridge-energy-do-efficiencies-finally-make-it-attractive

[alertmeipp]

anyone adding? 8)

[txlaw]

anyone adding? 8)

 

Thinking about it . . .

[fareastwarriors]

anyone adding? 8)

 

Thinking about it . . .

 

I'm probably going to add more sub-$5...

[alertmeipp]

I added some today,the info we gained in the most recent call makes the price irresistible. Very nice risk / reward.

 

[alertmeipp]

btw, i suspect some of the board members are part of the selling given how some of us think this company will get sold in relatively short term.

 

Leave us a comment to share your thinking as well.

 

I am debating whether I should make this my biggest position or not.

[plato1976]

fully agree, although I don't have a downside price accurately calculated (which means we assume the non-core is really bad so majority of value will be from MISS core).

I think we have many forced sellers now - those short-term oriented HF, TW himself, etc.

It is the time a value investor should jump in

The upside can be huge, seems, if oil price holds and MISS is a home run

 

I added some today,the info we gained in the most recent call makes the price irresistible. Very nice risk / reward.

[plato1976]

not really,

I was in for the short term - I thought it would be sold quickly

but I don't mind to be in for the long term , as long as they can prudently manage this corp

long term oil price is the only wild card , and for this reason I am not planning to set up a bigger than 10% position

 

btw, i suspect some of the board members are part of the selling given how some of us think this company will get sold in relatively short term.

 

Leave us a comment to share your thinking as well.

 

I am debating whether I should make this my biggest position or not.

[goldfinger]

long term oil price is the only wild card

 

Nice little article on the long term price of oil: http://www.csmonitor.com/Environment/Energy-Voices/2013/0114/Natural-gas-oil-prices-why-the-long-term-forecasts-are-wrong

[bmichaud]

After going through the call I'm relatively disturbed at the amount of acreage they are giving up. I'm still working on the updated numbers, but it may not be as cheap as I thought on a per acre basis.

 

I got lucky and sold before before the recent decline in order to buy something else that got hit. Reevaluating things and trying to figure out what it will look like by 2015. Doesn't look like it will be sold for awhile.

[alertmeipp]

Interesting, I was actually feeling better that they are willing to let some acres expired selectively while adding some good acres to gain efficiency.

 

The sense I got is SD now actually has a moat in some of the areas in Miss play. I.e. in some area, the acres are worth much less to others than to SD.

[bmichaud]

According to SD's most recent presentation, they have approximately 1.9MM net acres in the Mid-Con. Per the latest CC, 250K acres are expiring in 2013, of which they are extending 45% (75% of the 60% extendable), and 740K in 2014. They did not specify how much of the 80% they will extend in 2014, but assuming they extend the full amount, that leaves effectively 1.6MM net acres. Of the 1.6MM, the "core" comprises 415K after expirations, leaving "non-core" acreage of 1.2MM.

 

Current Core acreage is 615K - if the Core is valued at $10K/acre, the loss of 200K Core acres represents a loss of fair enterprise value of approximately $3.40 per share.

 

My work is attached, but in summary: Valuing the Core Miss acreage at $10K/acre and the Non-Core at $2K, GOM assets at the $1.2B purchase price, WTO acreage at $5K and the SWD infrastructure at mgmt-projected FYE13 book value of $650MM, I can get to a fair enterprise value of $16.11. Backing out total liabilities of $4.5B, minority interest of $1.4B and corporate expenses of $1.4B, and adding back current assets of $1.6B brings me to a fair equity value of $6.64 per share.

 

Of note, the Mid-Con PV10 as of FYE12 was $2.3B versus my Core Mid-Con FV estimate of $4.2B.....

SD_SOTP_VALUATION_AUGUST_2013.pdf

[alertmeipp]

Sanj, i think u have mentioned that SD is your largest position, still comfortable with it?

[CorpRaider]

Yeah there were a lot of questions about them letting leases expire (moreso on the call before this last one).  I suppose it is just a realization that they are choosing to eat the sunk costs in those leases, but to hear them tell it, they come out better from a cash flow perspective to lease more land in their focus areas than to spend the cash to hold the properties they are allowing to come off the roles.