There was plenty of good news coming out of Oklahoma City for SandRidge Energy
For the full-year, SandRidge reported a slight uptick in adjusted EBITDA from $645 million in 2010 to $654 million in 2011. Its operating cash flow also increased over the same period, from $410 million to $535 million. Revenue was $373.8 million, ahead of analyst expectations of $339.2 million.
From an oil production standpoint, things also went very well. The company set records for fourth-quarter and full-year production, producing 3.29 million barrels and 11.83 million barrels, respectively.
SandRidge's most important asset is its stake in the Mississippian region, and the company takes every opportunity to remind investors of that. A first mover in the region, SandRidge has the most acreage among its competitors and operates with efficiencies due to economy of scale that will only increase over time. For reference, to date about 480 horizontal wells have been drilled in the play, SandRidge has drilled 232 of them.
SandRidge spent 2011 drilling 167 wells in its Mississippian acreage. It has identified 7,000 more net drilling locations across its 1.5 million net acres. Looking ahead, SandRidge plans to drill 380 horizontal wells here over the course of this year. The company will increase its rig count to 26 to achieve this goal.
Acknowledging that much of the company's value is derived from the potential locked up in its Mississippi acreage, SandRidge has said that it would consider a joint venture in up to 250,000 acres of its position there, but that is not something the company is actively pursuing right now.
Ward mentioned that the key to developing its Mississippian acreage is the cheap disposal of salt water -- efficiencies in this process save SandRidge $2 per barrel in production costs. The water that comes out of the region's limestone during oil production must be taken care of, and typically, this means injecting the water into disposal wells. That means that as SandRidge moves into its newer acreage to drill for oil, disposal wells must be drilled as well. In fact, a February 1 press release indicated the company was currently drilling three of these wells on its Mississippian acreage.
These wells have come under a bit of controversy of late, because many fear the injections cause earthquakes. Investors should understand that any regulation or moratorium on salt water injection wells will significantly impact SandRidge's operations here.
Game plan going forward
The company plans to add one rig a month to its Mississippian acreage through 2014, bringing its total rig count in the play to 45.
SandRidge will also drill over 750 wells in the Permian Basin in 2012, after drilling 803 wells there last year. Predominantly, these wells are vertical wells.
Additionally, it will follow a $200 million capital program for its Dynamic Offshore Resources acquisition. The majority of spending will come in the second half of the year, after the acquisition is approved.
And finally, much to the excitement of dividend investors, SandRidge will IPO a new royalty trust sometime during the second quarter, once it receives approval from the SEC.
SandRidge had a surprisingly strong 2011, and management has the company poised for what CEO Tom Ward calls "the harvest years." Premium assets and an ability to control costs position SandRidge well for future success. It is one of several energy companies that will benefit from the high price of oil. Click here for three more ideas from our top analysts.