Is SandRidge Energy Sitting on a Gusher in the Gulf?

Credit: SandRidge Energy

In SandRidge Energy's (NYSE: SD  ) last earnings release there were two small notes about its offshore operations that basically went unnoticed by investors. We really didn't get much color on what SandRidge was doing until the company's conference call. It was there that SandRidge went into greater depth about the oil riches that it could possibly be sitting on. Let's take a closer look and explore the possibility that SandRidge could be sitting on a real gusher in the Gulf of Mexico.

The rebirth of Bullwinkle?
In its earnings release, SandRidge casually mentioned that it had licensed 25 blocks of seismic data over Bullwinkle and the adjacent Miocene producing subsalt fields. The purpose was to analyze the Miocene reservoirs that are underneath the Bullwinkle platform. The company also mentioned that it's looking for an industry partner to test the prospect.

It wasn't until the company's conference call that it got interesting. CEO James Bennett noted that it had identified a significant number of Miocene-age sands underneath its Bullwinkle platform. These were between 15,000 feet and 25,000 below the surface, which is well outside of SandRidge's drilling skillset. This prospect was originally identified by Royal Dutch Shell (NYSE: RDS-A  )  but never developed. Bennett went on to say that the company is "pretty excited about the oil potential underneath Bullwinkle."

Later on in the call COO David Lawler noted that Shell had estimated that there was somewhere around 200 million barrels of oil underneath Bullwinkle. That's a lot of oil. In fact, SandRidge's total proved reserves as of the end of last year was just 367 million barrels of oil equivalent, with just 46% of those reserves being oil.

Now, not all of that oil would accrue to SandRidge as it actually only owns 49% of Bullwinkle. Superior Energy Services (NYSE: SPN  ) owns the rest of the platform as part of a decommissioning deal it signed with Shell in 2010. Further, the joint venture partner would take its share. That said, this opportunity still does offer some compelling upside for SandRidge investors.

Something under South Pass?
That's not the only potential offshore opportunity SandRidge investors should keep an eye on. The company also mentioned in its press release that it was procuring nine blocks of seismic data in and around its South Pass 60 to analyze a subsea prospect. Again, it's looking to sign on an industry partner to pursue this opportunity.

The company didn't provide as much color on the opportunity at South Pass on its conference call. What it did say was that it believes South Pass and Bullwinkle are two of the best exploration prospects in the Gulf right now. It believes that both could potentially be very lucrative prospects. While oil companies say that all the time, especially to investors and potential partners, it is a very intriguing opportunity for additional upside.

Investor takeaway
SandRidge has really focused lately on getting more out of its current assets. The company has been tapping into other zones in its core Mississippian acreage and is looking to go deeper into the Gulf. Both have the potential to unlock additional value for SandRidge's investors, which is why investors need to keep tabs on its progress.

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