SandRidge Energy Drilling Down On The Mississippian Play

By Eric Fox | March 08, 2012 AAA

SandRidge Energy (NYSE:SD) is counting on a Mississippian age oil play in the Mid Continent area to provide the bulk of growth for the company over the next three years. The company provided additional details on this emerging play at a recent analyst day held in February 2012.

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Mississippian Play
The Mississippian play is prospective over a 17 million acre portion of Kansas and Oklahoma and is present at a relatively shallow depth of 5,000 to 6,000 feet. The targeted play is a carbonate that was deposited 325 million years ago and has an average thickness of 300 feet. The source rock for the Mississippian play is the Woodford Shale, which lies just underneath the play.

SandRidge Energy Activity
SandRidge Energy saw the potential of the Mississippian play before many other operators and built up a position of two million acres in Kansas and Oklahoma. The company then monetized 550,000 net acres through two joint ventures and the creation of two royalty trusts.

The company ramped up activity here very quickly and is now producing more than 21,000 barrels of oil equivalent (BOE) per day from this play.

SandRidge Energy has also become more efficient at drilling here since it entered the play and averaged 19 days from spud to rig release in December 2011. This was down from the 23-day average over the January to September period.

Mississippian Economics
SandRidge Energy estimates that the average Mississippian well will cost $3.2 million and yield an estimated ultimate recovery (EUR) of 456,000 BOE per well, with 44% of the EUR composed of crude oil.

The company estimates that the internal rate of return on Mississippian wells may be as high as 200%, assuming crude oil prices of $120 per barrel. SandRidge believes that the play will work even at lower crude oil prices and estimates a 40% internal rate of return with crude oil at $60 per barrel.

2012 Drilling Plans
SandRidge Energy plans to operate an average of 26 rigs in the Mississippian play in 2012, and drill 380 wells during the year. It has budgeted $900 million here to cover drilling and a saltwater disposal system in 2012. This budget is prior to any drilling carry from the company's joint venture partners.

The company will drill 330 wells in what the company calls the original Mississippian play, and 50 wells in an extension area in northwestern Kansas. The company has studied this extension area and believes that this area may have better reservoir quality than the original portion of the play.

Chesapeake Energy (NYSE:CHK) is also involved with the Mississippian oil play and reported average daily production of 11,300 BOE from this play as of February 2012. The company is currently looking for a joint venture partner to help develop this play.

Range Resources (NYSE:RRC) has 125,000 net acres prospective for the Mississippian oil play and plans to operate as many as three rigs here in 2012.

Unit Corporation (NYSE:UNT) is also at an early stage of development of the Mississippian oil play and has 60,000 net acres exposed to this play. The company plans to drill its first horizontal well here shortly.

The Bottom Line
SandRidge Energy's early initiative in the Mississippian oil play is now paying off for the company as other operators begin to recognize the potential of this oil and liquids play in the Mid Continent area.

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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