Fair Value0.00USD Economic MoatNoneConsider Buy -- Stewardship GradePoorConsider Sell-- Morningstar UncertaintyExtreme
SandRidge has successfully transitioned to liquids, with a focus on less competitive oil plays.
Mark Hanson, CFAStrategist6/16/16
After a series of divestitures--including its operations in the Permian Basin and the Gulf of Mexico--SandRidge has reduced its portfolio to a single core asset: the horizontal Mississippian. With a new management team in place and improved board oversight to ensure fiscal discipline, the company finally looked to be in a position to deliver the predictability investors have long sought, although those plans have all but been derailed given low oil and natural gas prices and the company's high debt levels. Simply put, we don't believe SandRidge can survive the current price environment without some kind of significant restructuring.
SandRidge built its 1.5-million-acre position in the horizontal Mississippian internally. Though the company has been drilling here since 2007, it wasn't until mid-2010 that it ramped up leasing with the intent of going after the Mississippian horizontally. Under this approach, SandRidge will be "connecting" the hundreds of vertical wells that have been drilled on its Mississippian acreage over the past 30 years, using existing wellbore data to target the thick blanket depositions that emanate from source rock in the Woodford Shale. SandRidge believes horizontal drilling can dramatically increase per-well estimated ultimate recovery and reduce the uncertainty associated with drilling vertically into carbonate reservoirs. Early results appear to confirm this thesis, although it should be noted that horizontal Mississippian drilling is a relatively new industry development. SandRidge will need to push hard to hold acreage here, as most leases were signed with five-year terms. We forecast a drilling program of nearly 1,400 horizontal wells over the next five years which should allow the company to hold the majority of its acreage.
SandRidge should benefit from the significant investment in infrastructure it has made here over the past several years, with savings from water handling and electricity, in particular, providing an advantage over competitors.
