SandRidge Energy (NYSE:SD) reported solid third-quarter results. The company beat analyst estimates, and raised production guidance. Let's take a deeper look at what fueled this earnings beat.

Drilling down into the numbers
SandRidge reported earnings of $40.4 million, or $0.07 per share. This was $0.04 ahead of what analysts were expecting on the quarter. It's also well ahead of last year's third-quarter earnings of $29.6 million, or $0.05 per share. The company also delivered operating cash flow of $235 million.

SandRidge was able to deliver such solid results because it has shaved 22% off of its lease operating expense over the past year, which also was 5% lower than the previous quarter. Further, the company was able to hold the line on well costs, at $2.95 million. This is exactly what we wanted to see heading into the quarter.

SandRidge continues to lead the industry with the lowest Mississippian well costs. Its costs are well below peers like Range Resources (NYSE:RRC), which spent $3.2 million per well this past quarter. Range has been working to control its costs, and was actually able to keep them at $3.2 million, despite using larger fracs on the play in an effort to extract more oil and gas. Initial tests showed 45% higher production rates, which will improve Range's returns on the play. That said, SandRidge is still the best in the play when it comes to producing results.

A closer look at the Miss
Production from the company's key Mississippian Lime wells were also solid. The play has delivered production growth of 59% over the past year; however, production is just up 1% over last quarter.

The one number that really shined on the quarter was the company's oil production out of the Mississippian. In the quarter, 48% of SandRidge's Mississippian production was oil, which is up from the 45% it has been averaging. This is incredibly important to see, because 80% of SandRidge's Mississippian cash flow is generated from its oil production.

One other point worth mentioning is that production in the quarter could have been even higher. SandRidge reduced its well count by 15% over the prior quarter as part of its plan to keep its capital costs under control. Further, the company was forced to defer a dozen high-volume wells due to production outperforming gas infrastructure capacity. This is a pretty common problem in emerging plays like the Mississippian, where drillers are finding more oil and gas than can be handled by current midstream infrastructure. Those infrastructure issues have now been solved, and those wells are coming on line in the current quarter.

SandRidge is one of the few drillers that's able to fuel growth from the Mississippian. This past quarter, we saw oil major Royal Dutch Shell (NYSE:RDS-A) decide to give up on the Mississippian, as it put all of its acreage in Kansas up for sale. Shell just couldn't get consistent returns from the play; well costs well above SandRidge's hurt its overall economics. This is why SandRidge really has the play all to itself, which is great considering how good the company is at fueling returns from the Mississippian.

What's next for SandRidge?
SandRidge sees a strong end to the year as it again raised production guidance. The company continues to get better with each well it drills. Not only that, but it's finding new sources of oil and gas on additional zones within its acreage. This stacked pay potential could be a big future driver for the company.

Sandidge sees these solid results continuing into next year, as well, and the company provided initial production guidance for 2014. In the year ahead, the company sees production growing by 12% overall, and 35% in the Mississippian, and it expects to spend about $1.5 billion to do so.

Investor takeaway
SandRidge delivered another very solid quarter. The company continues to perform admirably. Further, with liquidity of $1.65 billion, growing cash flow, and a solid leverage ratio, SandRidge remains on solid financial footing as it pursues its growth plans.


Fool contributor Matt DiLallo owns shares of SandRidge Energy. The Motley Fool recommends Range Resources. 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.