SandRidge Energy (NYSE:SD) has made major strides over the past several quarters in improving returns from its core play -- the Mississippi Lime -- through a careful focus on targeting the best areas, slashing well costs, and improving well performance.
As part of its new strategy, SandRidge has high-graded its drilling program in the Mississippi Lime by focusing on more proven areas within its acreage. It is currently concentrating on a six-county focus area representing roughly 600,000 acres. Crucially, much of this acreage is characterized by what's known as "stacked pay potential."
This basically means that SandRidge can produce oil and gas from multiple geological zones at various depths, which increases the likelihood of encountering hydrocarbon-bearing zones. The prevalence of stacked pay zones across SandRidge's Mississippian leasehold is important because it could not only improve recovery rates and reduce well costs, but also boost the company's resource base and net asset value (NAV)..
Appraisal success boosting resource base
One of SandRidge's key priorities is expanding its resource base and adding new high-quality drilling locations to its existing inventory. In order to achieve this goal, the company has embarked on an appraisal program testing various geologic concepts across its acreage. Initial results have been quite encouraging and suggest there could be plenty of additional upside from continued appraisal efforts.
During the first quarter, the company completed an 11-well appraisal program in northern Garfield county, Oklahoma, which posted an average 30-day IP of 406 boe/d, roughly 28% above the company's type curve. Crucially, these wells delivered a high aggregate rate of return of 66% and were completed at an average well cost of $3.1 million per well.
As a result of this appraisal success, the company added 10 townships in northern Garfield County to its focus area, representing nearly 40,000 net acres. The company believes it can further reduce costs and improve returns in northern Garfield as it improves its learning curve in the area and implements multilateral and pad-drilling techniques.
SandRidge has also identified additional stacked pay opportunities in the area, which could significantly boost both the company's resource potential and its net asset value. The company has also seen appraisal success in Sumner County, Kansas, where it added over 100,000 acres to its focus area last year. During the first quarter, it brought online four lateral wells that posted an average 30-day IP of 353 boe/d, roughly 11% above type curve and with a high 67% oil content.
Going forward, SandRidge plans to continue appraising additional areas within its acreage like the Marmaton and Woodford. If results are successful, the company could add hundreds of thousands of more acres to its core drilling area, potentially providing a significant boost to its current 10-year drilling inventory of high-return locations.
SandRidge's appraisal efforts have already helped expand the company's resource base, as evidenced by the addition of new acreage in northern Garfield County. As the company continues to appraise other areas within its leasehold acreage position, successful drilling results could lead to further expansion of its resource base, which could boost its NAV and share price. As such, investors may want to keep a close eye on any announcements regarding results from its appraisal program.
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Arjun Sreekumar owns shares of 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.