Mississippi Lime 2014 - How Long Until The Code Is Officially Considered Cracked? Jun. 19, 2014 9:34 AM ET | 1 comment | About: SandRidge Energy, Inc. (SD), Includes: ECA, RDS.A
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...) Summary
The energy industry had high hopes for the Mississippi Lime in 2009 and 2010. The first wave of development of the play produced disappointing results with many companies dumping their acreage. Recent well results are starting to show some of the promise originally expected and beaten down shares of Mississippi Lime players may present opportunity.
I'm confused about what to think about the Mississippi Lime oil and gas play that is located in the American states of Oklahoma and Kansas.
During the early days of the Mississippi Lime play I was quite smitten with the idea that Sandridge Energy (SD) had created a huge win for shareholders by building up an enormous acreage position at rock bottom prices.
At the time I had facts to back that opinion up. When I wrote that article Sandridge had accumulated 2 million Miss Lime acres at a total cost of $350 million ($175 per acre) and then sold one quarter of that (500,000 acres) for proceeds of $1.83 billion ($3,660 per acre).
It was pretty incredible really.
In a couple of years Sandridge turned a $350 million investment into deals worth $1.83 billion. On top of that, after the deals Sandridge still held on to 75% of the acreage which if valued at $3,600 per acre (like the acreage that was sold) would be worth $5.5 billion.
SandRidge spent $350 million, received $1.83 billion back from that and still retained another $5 billion plus of the original acreage.
With the benefit of hindsight, it appears that Sandridge should have sold the entire land position back then when the play was hot. Roughly a year after I wrote my original article Miss Lime article I noticed that Sandridge had greatly reduced its estimates of how profitable Miss Lime wells actually were.
The play went from looking like a prolific reservoir going from optimization phase to a very profitable resource harvest phase to one that was still very much in the early stages of optimization.
And that wasn't just a conclusion of mine, some major companies with big land positions in the play confirmed it. An Exodus From The Miss Lime
Like all of the repeatable high profile oil and gas plays that have been in the headlines over the past decade, the Miss Lime has an initial land rush. Sandridge was a leader in this, but there were other companies that also established large positions.
The initial enthusiasm that many of these companies had for the Miss Lime disappeared once they actually got down to the business of drilling wells with the intention of turning a profit.
Here is a list that I've cobbled together of companies that have decided to exit the Miss Lime:
Royal Dutch Shell (RDS.A) - In September of 2013 Shell announced that it was selling off its huge 600,000 acre Miss Lime position which was located in Kansas. Included in what was sold were 45 producing wells that Shell had drilled. In July of 2013 Shell completed a strategic review and concluded that the Miss Lime did not meet the company's internal profitability targets.
Encana (ECA) - Under a new CEO (Doug Suttles) Encana has wisely decided to narrow its focus considerably. Instead of trying to spread capital across 20 different plays, Encana has decided to concentrate on its five best liquids rich assets. One of the plays that Encana has decided to exit is its position in the Miss Lime located in Oklahoma.
Sandridge Energy - Sandridge hasn't exited the Miss Lime, but it has greatly narrowed its focus. A great portion of Sandridge's massive acreage position that was originally thought to be high quality, actually isn't. Out of the nearly 1.85 million acres that Sandridge has in the Miss Lime, the company has narrowed its focus to six "focus areas". Those areas include the counties of Comanche, Barber, Harper, Woods, Alfalfa and Grant.
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