SandRidge was hard-hit after releasing its third-quarter adjusted earnings of $29.6 million (EPS of $0.05) in addition to announcing its intent to sell its Permian Basin assets in an attempt to strengthen the company's balance sheet. The Permian Basin acres are relatively safe, cash-generating assets that management used to further enhance its Mississippian play. By selling these assets, SandRidge plans on decreasing debt as well as funding its capital expenditure budget through 2014, which would be used to increase the Mississippian production schedule.
Besides the Permian announcement, SandRidge increased its quarter-over-quarter total production by 15% in barrels of oil equivalent. However, natural gas production was greater than anticipated in the Mississippian because the play is producing less oil than previous expected, but management still sees high rates of return from the play.
The last bit of bad news from the quarter addressed future guidance: 2012 capital expenditures would be higher than expected, coming in at $2.15 billion for the year compared to $2.1 billion. While the increase was partly due to a rise in horizontal wells, the news that possibly affected SandRidge's share price the most was about expectations of flat year-over-year oil production. The Mississippian is experiencing steeper oil declines than previously expected; there are also declines due to shutting off Permian production.
Overall, the quarter was better than expectations, but steeper oil declines in the Mississippian Lime could seriously jeopardize the company, especially since management is resting the company's fate on this one play.
At the time of publication, Joel South owned no shares of the companies mentioned. The Motley Fool owns shares of Chesapeake Energy.