Photo credit: SandRidge Energy

SandRidge Energy (NYSE: SD) reported really solid third-quarter earnings. It handedly beat estimates and even raised its full-year guidance. Despite this the stock sank. I don't know what those selling investors were thinking. What I do know is that I plan on buying this dip in SandRidge Energy and here's why investors should think about joining me.

Across the board improvements
There wasn't one thing about this past quarter's results that suggested the stock would sell-off. Earnings and cash flow increased. Production was up despite a lower rig count and a dozen wells being deferred due to infrastructure issues. The company is simply getting better at every single metric that matters. It's exactly what we want to see when buying shares of any company. Yet we see a company that at the time of this writing is off nearly 10% from its recent highs.

I think investors have forgotten just how far SandRidge Energy has come over the past few months. On the conference call with analysts, CEO James Bennett really did a great job of putting everything in perspective when he said this: 

It's my belief that the investing community may not appreciate the significant changes we have made in our business and how these translate into real cash flow growth. This year, we implemented a rigorous process designed to generate cash flow growth and returns. For example, in 2013, we significantly decreased our Mississippian per well cost, lowered LOE, lowered G&A, lowered our land spend, greatly improved the utilization of our infrastructure, thus lowering our infrastructure spending and at the same time improved our IP rates and well reserves.

He then put this into perspective by noting what this meant in real terms for the company by saying that,

Together the combination of these changes generates significant operating leverage in our business. In terms of these efficiencies, I still think this is the best and most concrete example. For the year-to-date period 2013 versus the same period in 2012, we have drilled 69 more Mississippian wells for $27 million less capital dollars.

Clearly SandRidge is moving in the right direction, even if its stock is now moving the other way. That said, SandRidge has the potential to get even better in the future.

More improvements still to come
If there was a concern on the quarter, it was the fact that initial production rates of newly drilled wells actually dropped on the quarter. There are a lot of factors that could have caused this to happen. Clearly it's one area the company can improve upon and recent results from its competitors in the play suggest that it can do just that.

One of its competitors in the Mississippian, Range Resources (RRC 1.30%) might have found a solution to improving well performance. Range tested completions with larger fracking stimulations this past quarter and those wells produced 45% above the type curve for the first two months. It didn't cost Range any more money than usual, which suggests that there are things SandRidge could do to improve results.

The other improvement is from the stacked pay potential within SandRidge's focus area. This past quarter the company reported awful results from its Woodford Shale tests. But Devon Energy (DVN 0.84%) had a lot of success from that formation, which suggest that there's potential for SandRidge as well. For example, two recent Devon Energy wells located around SandRidge's acreage produced at 997 barrels per day and 295 barrels per day respectively. Because of results like those SandRidge plans to continue to test the Woodford and better results in the future would add a lot of value to the company.

Investor takeaway
SandRidge's quarter looked very solid to me. The only two minor issues I saw were the sequential decline in initial production rates of wells drilling in the quarter and the poor performance of the initial Woodford tests. But neither appear to be a long-term trend as its competitors in the play aren't seeing the same thing. That's why I see the long-term outlook as being very positive, which is why I plan to take advantage of weakness in the company's shares to add to my position.