Q1 2011 Earnings Call Transcript

Transcript Call Date 05/06/2011

We have said that we can only hold approximately half of our projected 1 million acres over the next five years if we keep our CapEx flat at its current level. Therefore, we're now reviewing three ways to fund the doubling of our rig count next year. We can either sell a portion of our acreage or joint venture with another entity, form additional royalty trust or raise CapEx within SandRidge. We've not decided which way or ways that we will fund the drilling, but we are now planning for increased Mississippian rig count in 2012. We currently are spending approximately $300 million per year drilling in the Miss in our $1.3 billion budget. The Mississippian continues to gain traction as nine operators are now active in the play with 24 total rigs running. SandRidge has drilled 72 horizontal wells to-date and our average 30 day IP has been increased to 270 barrels a day versus the 244 barrels a day equivalent type curve that produces 409,000 barrels equivalent of reserves.

It is also important to note that our drilling now spans across an area greater than 100 miles East or West and the industry drilling has proven up the play beyond that distance. Vertical well performance suggests the western portion of the play to be statistically better, but we don't have enough horizontal well information to verify at this time. This is important as most of our acreage is in Grant County, Oklahoma and West. We also believe reservoir thickness is good and we have kept our acreage acquisition in the regions of play with anticipated gross thickness of 200 to 800 feet of Mississippian reservoir.

Most of these areas we drill in have tremendous rates of return because we drill for oil and because the costs are low due to the shallow reservoir depths. We continue to see very little pressure on overall costs in these plays due to the current availability of equipment in both drilling and stimulation services. We believe this is one of the distinguishing factors of our Company. Even though we do not see the potential for material increases in costs today, we believe there will be competition for drilling services in the next year as we anticipate a continued ramp-up of industry activity in the Mississippian play due to robust economics and strong oil prices.

Therefore, we are moving ahead aggressively to lock in rigs for our 24 rig program next year. Perhaps even more important than any slight increases in cost is that we want the assurance that we can accelerate drilling for each type curve well as a PV-10 of nearly $7 million its current oil and gas strip.

The other distinguishing factor is the development of our business units that have size and scale along with the shallow carbonate oil, and in the case of the Central Basin Platform, knowability to duplicate the assets that we have assembled. We have successfully integrated our Company into a business with high rates of return with very little pressure of cost inflation and very little reservoir risk.

We believe we are singular in our ability to make this claim. We also believe that if a Company has this ability, we should hedge to lock in rates of return and drill as aggressively as possible. So, you've seen us hedge nearly 25 million barrels through 2013 and we're now starting to hedge even further out and move forward with our plan to raise capital to meet the growing drilling schedule.

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