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SandRidge Mississippian Trust II (NYSE:SDR)

Q2 2012 Earnings Conference Call

August 10, 2012 09:30 AM ET

Executives

James Bennett – Chief Financial Officer

Tom Ward – Chairman & Chief Executive Officer

Matt Grubb – President & Chief Operating Officer

Analysts

John Ragozzino - RBC Capital Markets

Kevin Smith - Raymond James

Aaron Terry - Kayne Anderson

Operator

Good day ladies and gentlemen and welcome to the Second Quarter 2012 SandRidge Mississippian Trust II Earnings Conference call. At this time all participants are in a listen-only mode. (Operator Instruction) As a reminder this conference is being recorded for replay purposes. I would now like to turn the call over to Mr. James Bennett, Chief Financial Officer. Please proceed sir.

James Bennett

Thank you. Welcome everyone and thank you for joining us on the SandRidge Mississippian Trust II conference call. Joining me today are SandRidge Energy Officers Tom Ward, Chairman and CEO and Matt Grubb, President and COO.

This call is intended to cover SandRidge Mississippian Trust II and not SandRidge Energy or other royalty trusts and except as otherwise noted, this call will address results for the three month period, March through May, 2012. The call at the trust has no employees or officers and SandRidge Energy has sponsored the trust, operates the majority of the trust properties.

Please note that today’s call may contain forward looking statements and assumptions which are subject to inherent risks and uncertainties, and actual results may differ materially from those projected in these forward looking statements. Additional information about risk factors and other factors that could potentially affect the trust and its financial results are included in the trust press release issued July 26 and in the trust filings with the SEC.

As outlined in the press release, the second distribution of approximately $0.50 per unit will be paid on or about August 29 to holders of record as it close the business of August 14. Payments to holders will generally be made 60 days following the end of each counter quarter, and the next distribution covering a period from June through August will be paid on or about November 30. Finally I would like to point out that the trust will file its quarterly report on Form 10-Q on August 13.

Now let me turn the call over to Tom Ward.

Tom Ward

Thank you James and welcome to the SandRidge Mississippian Trust II Conference call, SDR’s second period results surpassed expectations by beating the target distribution. The successful performance for the period resulted in a distribution slightly under $0.50 per unit, which is approximately 8% higher than the $0.46 per unit target distribution.

Now I’ll turn the call over to Matt Grubb for review of SDR’s production and drilling results during the period.

Matt Grubb

Thank you Tom. SDR’s production of 409,000 Boe exceeded expectation for the second reporting period by about 15%, which is 63,000 Boe more than the target estimate of 427,000 Boe. The production split for this period was 231,000 Boe and 1.55 Bcf of natural gas. All production exceeded targets estimate about by roughly 12% and natural gas production exceeded the target’s estimate by about 17%.

During the period SandRidge brought about 33 new wells on production. In addition to the wells brought online, there were three additional wells undergoing completions at the end of the period. All process for the period were lower than assumed. However, the impact of these lower prices was mitigated by the trust of all hedges. Over the period, the trust was hedged on approximately 66% of this whole production at approximately $107 per barrel. These hedges allowed the trust to realize a price of $98.96 per barrel, which was about 6% higher than the wellhead price and 1% lower than the assumed realized price of $100 per barrel for the period.

Natural gas prices for the period were also below our assumptions. The trust realized the price of $1.80 per Mcf which was approximately 20% lower than the assumed realized price of $2.25 per Mcf. All sales excluding realized hedges made up about 82% of the total revenues while natural gas sales contribute approximately 14%. The (inaudible) hedges contribute about $1.2 million and made up around 5% of the total revenues for the period. This concludes our prepared remarks and I will now turn the call over for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of John Ragozzino of RBC Capital Markets, please proceed.

John Ragozzino - RBC Capital Markets

Good morning gentlemen.

Tom Ward

Good morning.

John Ragozzino - RBC Capital Markets

When you’re looking at the play as a whole, I was kind of leading to some more comments on (inaudible), can you just comment on the availability of services and cost trends there, with given the activity level of your understanding?

Tom Ward

Yeah, in the play as the whole and also in relation to these trusts, the services have actually been very stable in trending down in the past year, both on the drilling side and on the hydroelectric action side. There is no shortage of services here.

John Ragozzino - RBC Capital Markets

Okay, are there any other potential hurdles that you might be keeping your eye on in the out years, be then infrastructure, logistical or anything else.

Tom Ward

None, that we see at this time.

John Ragozzino - RBC Capital Markets

And you gave an update with the release last week or so, on terms of the inventory and how far along you were with the drilling. Can you just give us some current update in terms of where we are today?

Tom Ward

In terms of the SBR the royalty trust?

John Ragozzino - RBC Capital Markets

Yes.

Tom Ward

Well, this is our second distribution period and we are for this one, we’re to drill a total of 206 wells and we’re 37.5 wells into it and so we’re 18%.We are slightly where we are. We are well ahead of the - at least at this point we are well ahead the schedule.

John Ragozzino - RBC Capital Markets

And there wasn’t any additional rigs, like you don’t plan a go to it higher than anticipated or assumed rig out there?

Tom Ward

Yeah our rigs bounced around and I can’t say we go higher or how much higher this time, but we have the first distribution we’re right on schedule. The second we’re a little bit higher than any other added impact of higher net revenue interest in these wells, so there is a lot of things going on there. But at the end of the day, we’ll get these wells drilled and I expect we’ll be ahead of schedule as we have been on our other Mississippian Trust.

John Ragozzino - RBC Capital Markets

Great, thanks very much.

Tom Ward

Thank you.

Operator

Your next question comes from the line of Kevin Smith of Raymond James, please proceed.

Kevin Smith - Raymond James

Hi, good morning gentlemen. Just a follow up of John’s line of questioning, I assume are you planning on keeping the drilling pace, say close to 30 wells a quarter, for a while?

Tom Ward

No, I can’t really comment on that going forward. Right now, I think we have 5 rigs, maybe 6 rigs running in SDR and the schedule calls for 4. But that’ll move around.

Kevin Smith - Raymond James

Okay. That’s essentially all I had, thanks.

Tom Ward

Thank you.

Operator

Your next question comes from the line of Aaron Terry of Kayne Anderson, please proceed.

Aaron Terry - Kayne Anderson

Good morning guys.

Tom Ward

Good morning.

Aaron Terry - Kayne Anderson

Hey I just want to see if you could comment, I know last quarter there was some questions about SDT, why they are not any of the larger Mississippian wells that doesn’t Boe a day, type of wells where in the SDT trust, and you guys weren’t able to comment at that point in time on SDR. Can you comment whether or not you’ve seen any of those types of results in SDR?

Tom Ward

No we’re not commenting on specific wells in the trust.

Aaron Terry - Kayne Anderson

Okay, and then just in general, can you guys talk about, I know that there is a lot of Mississippian lands that are in both SDT and SBR, when you guys look at SD corporate and how much of the Oklahoma lands are covered by the different trusts, is there any kind of direction where you can help me understand what percentage of the lands aren’t covered by trusts, do you guys have substantial working interest, did the trust cover a substantial portion of the Oklahoma lands?

James Bennett

No, the trusts were a minority of the Oklahoma lands.

Aaron Terry - Kayne Anderson

Okay, I was just trying to get some direction on it. Alight, thank you guys.

James Bennett

We own in the original Mississippian net to SandRidge 850,000 net acres.

Aaron Terry - Kayne Anderson

How much of that is on the Oklahoma side?

James Bennett

It’s the majority. It only covers four county or the Southern Tier Counties in Kansas.

Aaron Terry - Kayne Anderson

Alright thank you guys, thanks for the commentary, appreciate it.

Operator

At this time there are no further questions in the queue and I would like to turn the call back over to the management for closing.

Tom Ward

I would like to thank everyone for listening to the call this morning and look forward to speaking with you again on the next quarterly call. Thank you.

Operator

Thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect. Have a wonderful day.

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