SandRidge Energy (NYSE:SD) reported double-digit production growth from the Mississippian play during the first quarter of 2012, solidifying its lead in this emerging oil play in Kansas and Oklahoma.

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Mississippian Play
SandRidge Energy has approximately 1.7 million acres under lease prospective for the Mississippian play and is the acknowledged leader in developing this formation. The company is currently operating 29 rigs in Oklahoma and Kansas, and drilled 68 horizontal wells during the first quarter of 2012.

SandRidge Energy's full year drilling program for the Mississippian play calls for spending of $755 million and the drilling of 380 horizontal wells.

SEE: Oil And Gas Industry Primer

Production Growth
SandRidge Energy's large development program in the Mississippian play is leading to rapid production growth. The company reported average production of 19,300 barrels of oil equivalent (BOE) from here during the first quarter of 2012, up 23% on a sequential basis. This production growth is continuing in the second quarter of 2012, with SandRidge Energy increasing production to 26,737 BOE per day at the end of April 2011.

SandRidge Energy has become more efficient in its drilling operations in this play over the last three years. The company's cumulative peak 30-day production rate increased to an average of 310 BOE per day, up from 244 BOE per day in 2010.

SEE:A Guide To Investing In Oil Markets

A look at the economics of drilling here demonstrates why SandRidge Energy is so intently focused on this area. The company estimates that wells here will generate a 93% internal rate of return. This calculation assumes a drilling and completion cost of $3.2 million, an estimated ultimate recovery (EUR) of 456,000 BOE and current NYMEX strip prices.

These assumptions are close to what other operators are using in this play. Devon Energy (NYSE:DVN) has 230,000 gross acres and is using a well cost range of $3 million to $3.5 million and a EUR between 300,000 and 400,000 BOE.

Other Operators
Another operator active in the Mississippian play in Oklahoma and Kansas is PetroQuest Energy (NYSE:PQ), which has 25,000 net acres under lease. The company recently completed its first well into this play and has two other wells nearly finished. PetroQuest Energy expects to release production results of these three wells during the first quarter of 2012.

Chesapeake Energy (NYSE:CHK) is also involved with the Mississippian play and is a distant second to SandRidge Energy here. The company reported average production of 12,800 BOE per day here during the first quarter of 2012, up 22% on a sequential basis.

SEE: What Determines Oil Prices?

The Bottom Line
SandRidge Energy was a first mover in the emerging Mississippian play in Kansas and Oklahoma and is now the leading operator in this area. The company plans to leverage this core area to grow over the rest of the decade.

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

Tickers in this Article: SD, PQ, CHK, DVN

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