Bakken Update: Mississippi Lime Well Design Improvements Are Increasing Estimated Recoveries

| About: SandRidge Energy, (SD)
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Over the past several months, I have received interest in how the Mississippi Lime compares to the Bakken. Both plays cover a large area, but this may be the only variable these shales have in common. The Mississippi Lime maintains a 6000 foot depth, while the Bakken varies from 7000 feet in west Williams County to 11000 feet in northeast McKenzie. The Mississippi Lime produces less than 50% oil while the Bakken averages from 78% to 90%. Bakken well costs are some of the highest in the United States, while the Mississippi Lime is one of the cheapest (excluding disposal well costs). These are just a few of the differences, which I will address over several articles. I am beginning with SandRidge (SD), which is the leader in the Mississippi Lime. It provides data consistent throughout the play, with varying well results. It has improved well design, which is improving EURs and IP rates. We should continue to see this, which is improving profitability.

The Mississippi Lime is emerging as one of the top new horizontal plays in the United States. Initially a vertical play, horizontal techniques have increased interest in the area. Production varies significantly from one operator to the next. Well design is the biggest variable, but we need more results to give consistent averages. Horizontal well costs are $2.4 and $3.5 million. Well design varies from 2500 to 6000 foot laterals utilizing 6 to 20 frac stages. Horizontal EURs run from 300 to 500 MBoe. This technique produces a much higher percentage of natural gas, as an average well will produce from 211000 to 300000 barrels of oil. There are two very important factors to remember when analyzing the Mississippi Lime. The first is low well costs. The shallow depth requires low specification rigs. The second is water costs. This formation produces a large amount of water. To be successful, an operator must drill salt water disposal wells, and get pipe in the ground to transport produced water. The low well costs include these water costs. This demonstrates how low drilling and completion costs are.

SandRidge has 1.8 million acres in the Mississippi Lime (shown above in yellow). It could soon be a Mississippian pure play as it plans to divest its Permian acreage in the Central Basin Platform. This could be a good acquisition for a company like Occidental (OXY) or Apache (APA). SandRidge provides two other ways to invest in the Mississippian, with its SandRidge Mississippian Trust I (SDT) and SandRidge Mississippian Trust II (SDR).

SandRidge has more well results than any other operator. Its acreage is spread throughout the play. Well costs are currently $3.45 million for a 4000 to 4500 foot lateral. SandRidge reports little difference in costs from Kansas to Oklahoma. Well costs will decrease to $3 million in 2013 as it improves drilling and completion times. Wells production is 40% oil. Current EURs are 150000 barrels of oil. SandRidge's Mississippi Lime hyperbolic decline is 80% for oil and 63% for gas. The terminal decline is at 5% in its model.

SandRidge has stated the resource mix of its wells is constant throughout the play. The results to date prove differently with changes in the percentage of oil and EUR estimates. The table below lists some of SandRidge's 30-day IP results.

Well Date 30-Day IP Boepd
145 10/28/11 233
146 10/31/11 40
147 11/01/11 285
148 11/02/11 52
149 11/04/11 12
150 11/05/11 365
151 11/09/11 317
152 11/11/11 133
153 11/17/11 96
154 11/19/11 496
155 11/19/11 169
156 11/20/11 534
157 11/21/11 150
158 11/24/11 505
159 11/26/11 294
160 11/30/11 172
161 11/30/11 305
162 12/02/11 416
163 12/07/11 86
164 12/08/11 543
165 12/09/11 83
166 12/12/11 88
167 12/12/11 599
168 12/12/11 12
169 12/16/11 366
170 12/18/11 430
171 12/20/11 426
172 12/25/11 533
173 12/27/11 558
174 12/31/11 226
Avg. 310

The above wells model to an approximate 500 MBoe. If poor well results are removed (30-day IP less than 100 Boe/d), EURs would improve to approximately 600 MBoe. The Mississippi Lime will produce a range of results, but it is safe to say the higher EUR is more accurate. There will always be some disappointing results, but as operators get more comfortable the likelihood of this decreases. The above table has only SandRidge 30-day IP rates for production time frames over 30 days. The table below shows the results from wells with reported production less than 30 days.

Well Date IP Rate Days of Production
175 01/06/12 815 27
176 01/07/12 215 26
177 01/09/12 179 24
178 01/10/12 303 23
179 01/13/12 1269 20
180 01/15/12 272 18
181 01/17/12 183 16
182 01/18/12 361 15
183 01/20/12 328 13
184 01/21/12 391 12
185 01/21/12 827 12
186 01/21/12 2854 12
187 01/22/12 1033 11
695 17.6

The improvements are significant, as SandRidge continues to get comfortable in the Mississippi Lime. The well comparison is important as newer wells have significantly better results. Well 179 was huge and is not the standard, but still important. It produced 25380 Boe over the first 20 days.

In summary, SandRidge provides the best overall data for this play. This helps identify how much better well results are getting over a short period of time. Although EURs have not been revised, 600 MBoe is not out of the question as an average using a good well design. The real question is depletion and how this will affect results further out in time. In part 2, I plan to cover some of the other players, and provide insight into the Mississippi Chat.

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.

Additional disclosure: This is not a buy recommendation. The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, do not reflect actual investment results, do not take in consideration commissions, margin interest and other costs, and are not guarantees of future results. All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. For more articles like this check out my website at Michael Filloon is a Director at Fracwater Solutions L.L.C. We engage in industrial water solutions for oil and gas companies in North Dakota. This includes constructing water depots, pipelines and disposal wells. We also provide contracting services for all types of construction at well sites. Other services include soil remediation. Please contact me via email if you are interested in working with us. For other, more of my articles check out