SandRidge Energy (NYSE:SD) will focus much of its efforts in 2011 on developing oil plays in the United States, including a Mississippian oil play in Oklahoma and Kansas. This play is attracting considerable interest from other operators in the industry.

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2011 Plans
SandRidge Energy has budgeted just over $1 billion in capital in 2011 to develop its properties in the Permian Basin and Mid-continent. This level of capital will enable the company to operate 28 rigs and drill more than 900 wells during the year.

SandRidge Energy has 780,000 net acres under lease with exposure to a Mississippian oil play in Oklahoma and Kansas. The company has already drilled 37 horizontal wells into this formation and reported that these wells had average daily production of 272 barrels of oil equivalent (BOE) during the first 30 days. In 2011, SandRidge Energy will operate 12 rigs to develop this play and plans to drill 138 wells here.

SandRidge Energy favors this play because the targeted formation is at a relatively shallow depth of between 4,000 and 6,000 feet, and can be completed at lower costs than other areas. The location of the play in the Mid-continent area also provides ready access to infrastructure.

This development has already paid off for SandRidge Energy, as oil production has increased here quickly over the last year. The company reported oil production of 2,520 barrels per day in the fourth quarter of 2010, up from 525 barrels per day in the same period in 2009.

SandRidge Energy estimates that its internal rate of return on wells here will reach 120%. This analysis assumes a total cost of $2.7 million to drill and complete wells and an estimated ultimate recovery of 409,000 BOE per well.

This return compares favorably with some other better known unconventional plays in the United States. Kodiak Oil and Gas (NYSE:KOG) is active in the Bakken in North Dakota. The company estimates the internal rate of return for wells in Dunn County at 86%, assuming a $95-per-barrel price for oil.

Other Players
Another exploration and production company active in this area is RAM Energy Resources (Nasdaq:RAME), which has approximately 56,000 net acres under lease in Oklahoma. The company drilled three wells here in 2010, and plans as many as 11 wells in 2011.

Ranges Resources (NYSE:RRC) has 22,000 net acres prospective for this play and recently reported two well-completions here with an average initial production rate of 1,314 BOE per day. The company estimates that it has 108 drilling locations to develop here.

The Bottom Line
SandRidge Energy loves oil, like many other operators in the industry, and is putting a large amount of capital into a Mid-continent Mississippian oil play in 2011. The company likes the low cost and high returns of drilling here. (To learn more, see our Oil & Gas Industry Primer.)

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