SandRidge Energy: March Well Results Show Improvement

Apr.20.14 | About: SandRidge Energy, (SD)


Following weak well results in Oklahoma in January-February, SandRidge posted much stronger wells in March.

The average test rate for the Q1 Well Sample in Oklahoma has improved and is now in line with Q4 2013.

The probability of a weak production report for Q1 is nonetheless high due the expected quarter-on-quarter well count decline and high percentage of weaker wells in January-February.

However, if such weakness indeed manifests itself, it should not be perceived as a deterioration in well performance.

Latest Mississippian Well Results

The latest batch of initial production test data for SandRidge Energy's (NYSE:SD) wells in Oklahoma shows a dozen of wells with a strong average IP rate brought on production in March. The twelve wells, on average, tested with 376 barrels of oil and 1.5 MMcf of natural gas per day. The oil rate exceeds the average for the wells brought on production during January and February by a factor of two. The result is driven, to a significant degree, by two highly successful wells drilled within the same section.

As a result, the average test rate for the quarter, based on a 43-well data set, has increased to 234 barrels of oil and 1.26 MMcf of natural gas per day, which is in line with the preceding quarter.

The table below provides well-by-well initial production test results (24-hour tests) for SandRidge's operated Mississippian and Woodford wells in the State of Oklahoma. The data set includes wells that saw first production during the first quarter of 2014 and for which operating data is in the public domain as of April 18, 2014. While the table below should capture the vast majority of such wells, the 43-well set is being referred to as "sample." Color-coded in blue are wells that have been added to the list since my last update two weeks ago.

Among the newly reported results, two wells belong to the "notable" category:

  • The Highfill 2711 #2-12H in Alfalfa County tested with an exceptionally strong rate of 1,394 barrels of oil and 2.4 MMcf of natural gas per day (1,792 Boe/d on a two-stream basis). The test was conducted 18 days after the first production date. The well had an open hole completion and was fracked with 825,000 pounds of proppant. The well is located is Section 12, Township 27 North, Range 11 West.
  • A sister well, the Highfill 2711 #1-12H, tested with 739 barrels of oil and 1.9 MMcf of natural gas per day (1,064 Boe/d on a two-stream basis).

Production from these two wells ramped up towards the end of March. As a result, the wells' contribution to the Q1 volumes will be limited.

Click to enlarge

(Source: Zeits Energy Analytics)

Quarter-On-Quarter Comparison

The 43 wells presented in the table above capture an estimated two-thirds of all wells that SandRidge will have turned to sales during the first quarter of 2014. Given the very high variability of well results, it is still difficult to predict the quarter's outcome with confidence. However, the data set may be helpful when estimating the company's Q1 2014 volumes.

The table below shows an updated quarter-by-quarter comparison of test results (several data points have been added to the earlier quarters since the previous update). Based on the data captured to date, the first quarter is now shaping up as a relatively strong quarter in terms of well quality. However, due to the timing of the best wells (towards the quarter's end) and the visibly lower well count during the quarter relative to the 2013 average, the probability is high that Q1 production volumes, to be reported in several weeks, may disappoint.

I must re-iterate that the analysis includes test data for Oklahoma only (Kansas wells are not included due to the delay in data availability) and therefore cannot capture the full picture.

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.

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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.