Photo credit: SandRidge Energy

Mississippi Lime-focused oil and gas driller SandRidge Energy (NYSE:SD) delivered exceptional second-quarter results on Aug. 6. Not only did the company blow past Wall Street's expectations but it increased its production guidance for the full year. Let's take a closer look at the numbers that drove its success this quarter.

Drilling down into the numbers
SandRidge reported adjusted EBITDA of $268 million which was virtually flat from last year's $269 million. However, that's not an apples-to-apples comparison -- last year's number includes the company's Permian Basin assets which were sold this past February. That's also why SandRidge's adjusted operating cash flow of $176 million was also well below last year's $223 million. What investors need to focus on is the fact that SandRidge sold more mature (i.e. cash-flow-focused) Permian Basin production in order to reinvest the cash into its higher-growth Mississippian acreage. For the company to nearly match last year's adjusted EBITDA numbers is actually a pretty impressive feat.

Drilling a little deeper into the numbers, SandRidge reported adjusted net income of $44.6 million, or $0.08 per share, which was actually well ahead of the $0.03 loss that analysts were expecting. It's also slightly ahead of the $0.07 earnings per share that the company reported in last year's second quarter. The big driver is that SandRidge was able to deliver better production results while slashing costs.

Hitting the sweet spot
SandRidge's average daily production in the Mississippian was 47,300 barrels of oil equivalent for the quarter. That's a 20% increase from last quarter, as the 111 wells it brought on line this past quarter really provided a boost. The company's application of detailed subsurface models, when combined with continuous learning and improvement have really paid off; it was able to find several wells that produced in excess of 1,000 barrels of oil equivalent per day in the quarter. Further, its move to test stacked pay, which is the act of testing new zones in areas of existing production, is also starting to deliver incremental results.

The really impressive news is that the company was able to get its well costs down to just $2.95 million per well, which is well below last quarter's $3.1 million and below its stated goal of less than $3 million. By getting its well costs down SandRidge is able to drill more with less capital, which is important in light of the fact that the company slashed its capital budget earlier this year. SandRidge's redesigned well site production facilities and focus on putting more wells into the same disposal system are the main drivers in its ability to cut its well costs in the quarter.

Looking ahead
Despite cutting its capital budget this past May, SandRidge's impressive results have inspired the company to increase its production guidance for the rest of the year. Overall, SandRidge is increasing its Mississippian production guidance by 4%, while also boosting its company-wide production guidance by 2%. What this really means is that SandRidge's new focus on returns is really starting to pay dividends.

So, what should you do with this information?
SandRidge has had quite the run over the past month -- it's up more than 17% -- but it could have a lot of room to run. In fact, billionaire investor Leon Cooperman believes its shares are worth upwards of $10 each. If this quarter is any indication, he could be right, and that means that investors willing to accept the risk could be very well rewarded.

Fool contributor Matt DiLallo owns shares of SandRidge Energy. Matt DiLallo has the following options: short September 2013 $5 puts on SandRidge Energy. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.