SandRidge Energy Inc. Just Keeps Getting Better

SandRidge Energy is improving where it matters most.

Mar 4, 2014 at 1:00PM

Sandridge Energy

Photo credit: SandRidge Energy.

SandRidge Energy (NYSE:SD) is continuing to put up some really good numbers. What's most impressive is how these numbers are working together to create long-term value for investors. Let's drill down into how the company's numbers are improving and what this means for investors.

Capital efficiency
The biggest improvement SandRidge Energy has made over the past few years is in capital efficiency. The company is spending less money on each well, enabling it to stretch its capital dollars. New CEO James Bennett said it best on the gas and oil company's Feb. 28 earnings conference call:

In 2013, in the midcontinent, and you can get this number on page seven of the earnings release, we spent $844 million in the midcontinent. That's all-in well costs, including all D&Cs, saltwater disposal infrastructure, workovers, and capitalized interest. So $844 million to drill 434 wells. That compares to 2012, when we spent $927 million to drill 396 wells. So in this improved capital efficiency then, we spent 9% less capital and drilled 10% more wells.

This is a continuation of the company's focus on improving returns. Chief Operating Officer David Lawler noted on the conference call that over the past eight quarters SandRidge has lowered total well costs by $1 million, or 26% per well. That's a remarkable improvement and a big value creator for investors. It not only improves the company's internal rate of return, but it enhances liquidity as SandRidge can drill more wells with much less money than just a few years ago.

Opportunity within its portfolio
Another important improvement is the company's growing opportunity within its current portfolio. While SandRidge Energy has been shedding assets over the past year it has also been increasing future opportunities.

This past quarter the company's appraisal program added more than 100,000 additional acres to its focused core drilling program. SandRidge is also exploring additional formations, including the Marmaton and Woodford, within its acreage position. These targets could eventually be added to this core drilling focus. As it stands now, the company has a 10-year inventory of high return drilling locations, which should continue to grow over time.

Apache

Photo credit: Apache  

Energy companies in America are finding a lot more oil and gas than previously thought. The Marmaton, for example, is a play few investors have probably heard about. It extends throughout portions of Oklahoma and is seen as promising by Apache (NYSE:APA) as a solid liquids-rich play. Because of that, Apache is doubling its Lower Marmaton activity this year. While the returns aren't yet phenomenal, it's still a solid play that holds liquids rich potential that could eventually fuel additional growth for SandRidge Energy.

Another potentially important future play for SandRidge Energy is the Woodford. While the company's first few wells have been poor, SandRidge believes it is making progress in cracking the code to unlock the Woodford's oil. The Woodford is a play that's beginning to gain importance for peers like Devon Energy (NYSE:DVN), as that company's emerging Mississippian-Woodford Trend is growing fast -- in the last quarter production there jumped 47% quarter over quarter. Production also exceeded Devon Energy's projected exit rate, which should give SandRidge Energy investors some hope that it too will see future success in the play as Devon Energy is drilling some Woodford wells near SandRidge's acreage.

Devon Energy Cana

Photo credit: Devon Energy.  

Proved reserves
The final area that is improving at SandRidge Energy is proved reserves. While the company sold a significant amount of proved reserves over the past few years, on a pro forma basis proved reserves are up 25% over the past year. Furthermore, the company was able to replace 425% of production through its drilling program last year.

This is starting to translate into real value creation. One number that indicates this is the company's PV-10, which is now $4.1 billion. That's up 43% from the PV-10 value of $2.9 billion that SandRidge had at the end of 2012 on a pro forma basis. Both proved reserves and PV-10 should continue to increase over time as the company's drilling program adds new reserves.

Investor takeaway
There's a lot to like at SandRidge Energy. The company offers compelling production growth, as well as upside from its appraisal and exploration program. That should create solid value over the next few years as the company's capital efficiency really begins to shine.

Is SandRidge Energy the top stock to buy in 2014?

There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Matt DiLallo owns shares of SandRidge Energy. The Motley Fool owns shares of Devon Energy. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers