SandRidge Energy Inc. plans to boost oil production while spending less on capital in 2019, but it is devoting most of its operating cash flow to the North Park Basin in Colorado, where it anticipates finding thousands of potential drilling targets.
The Oklahoma City-based independent plans to spend $160-180 million on capital expenditures in 2019, including $115-125 million on drilling and completions (D&C) between its assets in North Park and northwestern Oklahoma, within the Sooner Trend of Anadarko Basin, mostly in Canadian and Kingfisher counties (STACK). By comparison, the company spent $171 million in 2018, including $115 million on D&C.
During a quarterly earnings call Tuesday, Paul McKinney, who was appointed CEO in January, said 80% of its operating cash flow is being allocated to support development in the North Park Basin.
"We believe North Park offers good risk adjusted rates of return and the upside could be very compelling for a company of our size," he said. "Part of our North Park capital program is designed to help reduce the uncertainty with respect to the resource in place because we truly don't know how big it is. If we find that all of our acreage is equally commercial as our approved area, we could have as many as 2,000 wells or more to drill there -- hence the reason why we're so excited about North Park...
"We have additional Northwest STACK and Mississippian Lime locations to drill, but their economics are not as compelling at today's prices as we'd like. Considering the volatility recently seen, the marketplace needs to offer more confidence to where product prices are going before we're willing to ramp up those programs."
SandRidge also expects production of 11.4-12.0 million boe in 2019, with natural gas at about 48% of production, oil around 32% and natural gas liquids (NGL) about 22%. By comparison, gas made up 52% of last year’s output, while oil made up about 28% and NGLs 23%.
SandRidge said production averaged 33,200 boe/d in 4Q2018, a 13.3% decrease from the year-ago quarter. Full-year production beat guidance and averaged 33,800 boe/d, down 17.2% from 2017. Production of natural gas, crude oil and natural gas liquids all declined in the quarter and for the year.
During 4Q2018, SandRidge averaged two rigs in the Midcontinent and one rig in the North Park in Jackson County, CO. The company drilled six wells at North Park and seven wells in the Midcontinent, with five wells targeting the STACK and two the Mississippian Lime. It also drilled two wells delineating the southern part of the primary development area.
During 2018, the company drilled 12 wells at North Park and turned nine to sales. One rig drilled two spacing tests: an eight-well eastern spacing test that confirmed a minimum of 12 wells/section, and a six-well western spacing test that used a 23-well per section pattern. Results from the western test are expected in early 2Q2019.
"We anticipate a full review of results versus type curve and micro-seismic learnings on our next call," said COO John Suter. "The results from both spacing tests will help determine the proper well density to use in our core acreage."
In the Midcontinent last year, SandRidge drilled 22 wells and brought 20 wells to sales. The Eighteen wells targeted the Meramec formation, of which 15 were drilled under a drilling participation agreement that required SandRidge spend $6 million in capital. SandRidge also drilled and completed a four-well program targeting the Mississippian.
SandRidge reported net income of $54.2 million ($1.53/share) in 4Q2018, compared with a year-ago net loss of $18.8 million (minus 54 cents). For 2018, net losses totaled $9.1 million (minus 26 cents/share), versus net income of $47.1 million ($1.44) in 2017. Full-year revenues totaled $349.4 million in 2018, versus $357.3 million in 2017.
The company entered bankruptcy protection for several months in 2016. During a strategic review that began last May, billionaire hedge fund activist Carl Icahn took control. The reorganized the board rejected multiple offers for a merger or sale last September.