SandRidge Energy, Inc. (fka SDOCQ)

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ok here is some well Data
not what we need to hear

Richard Zeits
Oil & gas, commodities, long/short equity, research analyst
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SandRidge Energy: Latest Mississippian Well Results
Mar. 10, 2014 8:58 AM ET | About: SD

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)

Summary

Presented are production test results for SandRidge's operated Mississippian/Woodford wells in Oklahoma brought on-line during January 2014.
Comparison to the previous four quarters indicates weaker average oil production rates and stronger natural gas rates.
Approximately 80% of the Mississippian wells used open hole completions.
Permitting and spudding activity indicates increased focus on Garfield County, Oklahoma.

Latest Well Data

The table below provides well-by-well initial production test results (24-hour tests) for SandRidge (SD) operated Mississippian and Woodford wells in the State of Oklahoma. The data set includes wells that saw first production during the month of January, 2014 and for which operating data is in the public domain as of March 10, 2014. While the table below should capture the vast majority of such wells, the 15-well set is being referred to as "sample."

Among the newly reported results, just one well belongs to the "notable" category:

The Jet 2610 #1-27H in Alfalfa County tested with 803 barrels of oil and 3.4 MMcf/d of natural gas per day (1,375 Boe/d on a two-stream basis). The test was conducted 25 days after the first production date. The well had an open hole completion with 825,000 pounds of proppant used. The well's location is Section 28, Township 26 North, Range 10 West.

Test results continue to be characterized by wide well-to-well variability. Oil rate ranged from 24 barrels per day to 803 barrels per day. Of the 15 wells, six wells have high likelihood of being non-commercial.

Among the 15 wells, 14 wells were completed in the Mississippian and one well in the Woodford. The Woodford well, the Sons 2505 #1-22H15 located in Grant County of Oklahoma, tested with a non-commercial rate of 36 barrels of oil per day (60 Boe/d). The test was conducted after the well has been online for one month.

(click to enlarge)

(Source: Zeits Energy Analytics)

Well Test Results: Quarter-On-Quarter Comparison

The 15 wells presented in the table above are not yet indicative of the expected operating outcome for the first quarter of 2014 as they represent approximately one quarter of all wells that SandRidge is expected to turn to sales in Oklahoma during the quarter. However, the data set is large enough to be worth analyzing (and will be updated as well results become available).

The table below shows a quarter-by-quarter comparison of test results for SandRidge-operated wells in Oklahoma.

The 15 wells turned in-line in January 2014 had noticeably weaker oil production rates than in 2013, while natural gas rates were significantly stronger. The average oil yield for the 15 wells was 40%, compared to 51%-62% range in 2013. On a Boe basis, the average test rate for the 15 wells looks in line with the two stronger quarterly averages during 2013.

(click to enlarge)

(Source: Zeits Energy Analytics)

It is important to note here that the 24-hour production test rate, which is the primary focus in this analysis, represents a very different metric than the 30-day IP rates reported by the company in its quarterly press releases or the first-month rate used as a parameter in the company's type curve. Moreover, in select cases, the test rate may be an inaccurate predictor of the well's peak 24-hour rate or peak 30-day rate. However, the analysis of the 2013 data shows a distinct correlation between the average test rates for the Oklahoma well samples and the actual average 30-day production rates disclosed by SandRidge (as shown by the graph below).

(click to enlarge)

(Source: SandRidge Energy's March 4, 2014 Analyst Day Presentation)

Despite the obvious limitations, the production test data may provide a valuable hint with regard to how the company's current quarter is shaping up relative to previous quarters.

Open Hole Completions

SandRidge used open hole completions in ~80% of the 14 Mississippian wells in the January 2014 sample. The strongest well in the group, the Jet 2610 #1-27H, had an open hole completion. On the other hand, the open hole completion design was also used in the five weakest wells in the sample.

As I discussed earlier in connection with the Q4 2013 operating statistics, production test data does not yet provide clear evidence that the method leads to better well performance.

The 63-well Q4 2013 sample that I analyzed included 22 wells in which open hole completions were used. The average IP test rates for those 22 wells were 187 barrels of oil and 1.2 MMcf of natural gas per day. These rates compare to the 63-well average IP test rate of 224 barrels of oil and 1.3 MMcf of natural gas per day. Statistical significance of this comparison is low, given the small size of the samples and lack of knowledge of specific operating circumstances. However, this data - at least on its surface - so far does not lend support to the thesis that open hole completions provide a "silver bullet" for improving well performance or reducing costs.

Active Drilling In Garfield County

Of note, SandRidge has substantially increased its drilling presence in Garfield County of Oklahoma which until recently accounted for a very small percentage of the company's activity. While SandRidge has reported only three new producers in the County in January, a significant number of additional wells are reported as spud or recently permitted.

Disclaimer: Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisor capacity. This is not an investment research report. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.


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