SandRidge Energy Q3 2010 Earnings Call Transcript

SandRidge Energy (SD)

Q3 2010 Earnings Call

November 05, 2010 9:00 am ET

Executives

Kevin White - Senior Vice President of Business Development

Dirk Van Doren - Chief Financial Officer and Executive Vice President

Tom Ward - Chairman of the Board, Chief Executive Officer and President

Matthew Grubb - Chief Operating Officer and Executive Vice President

Analysts

Brian Singer - Goldman Sachs Group Inc.

Gary Stromberg - Lehman Brothers

Philip Dodge - Stanford Group Company

Jeffrey Robertson - Barclays Capital

Devin L. Geoghegan

Neal Dingmann - Wunderlich Securities Inc.

David Kistler - Simmons & Company

Rhett Bruno - BofA Merrill Lynch

Michael Breard - Hodges Capital Management

Joseph Allman - JP Morgan Chase & Co

Duane Grubert - Susquehanna Financial Group, LLLP

Richard Tullis - Capital One Southcoast, Inc.

Scott Hanold - RBC Capital Markets Corporation

Mitchell Wurschmidt - KeyBanc Capital Markets Inc.

Kenneth Carroll - Johnson Rice & Company, L.L.C.

Presentation

Operator

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Previous Statements by SD
» SandRidge Energy Q2 2010 Earnings Call Transcript
» SandRidge Energy Q1 2010 Earnings Call Transcript
» SandRidge Energy, Inc. Q4 2009 Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to be 2010 Third Quarter SandRidge Energy Earnings Conference Call. My name is Modesta, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Dirk Van Doren, Chief Financial Officer. Please proceed, sir.

Dirk Van Doren

Thank you, Modesta. Last night, the company issued a press release detailing SandRidge's financial and operating performance for the third quarter of 2010, and we'll file the 10-Q on Monday. If you do not have a copy of the release, you can find a copy on the company's website, www.sandridgeenergy.com.

Now for the forward-looking statement. Please keep in mind that during today's call, the company will be making forward-looking statements, which are subject to risks and uncertainties. Actual results might differ materially from those projected in these forward-looking statements. Additional information concerning risk factors that could cause such differences is detailed on the company's filings with the SEC. Today's presentation will include information regarding adjusted net income and adjusted EBITDA and other non-GAAP financial measures. As required by the SEC rules, a reconciliation of the most directly comparable GAAP measures are available on our website under the Investor Relations tab.

Now let me turn the call over to Chairman and CEO, Tom Ward.

Tom Ward

Thanks, Dirk, and welcome to all of you to our third quarter conference call. I want to start by telling Dirk that we wish him all the best as he moves on from SandRidge. I've known Dirk since 1994, and I worked with him over the last four years on a daily basis. I'll miss his wit and tireless work ethic. However, I fully understand that there are changes in all of our lives that we have to be prepared for. In this case, Dirk is leaving us with a transformed company that is focused on a high-priced commodity with fantastic rates return.

I am personally more enthusiastic about our company now than any time since June of 2008. Over the last two years, we've made some strategic changes that has separated us from many of our previous gas-weighted peers. We decided to significantly change our company by enhancing our exposure to oil. We did not focus on tight shale plays with high land cost, but instead focused on low-risk, high permeability oil carbonates in proven producing regions.

We've made our first move into the Permian Basin at a time when adding conventional oil assets was out of favor. The resulting Forest and Arena acquisitions closed just eight months apart have transformed our company and positioned us to excel in the current environment.

Just in the last 12 months, our oil production has grown from about 8,000 barrels a day to over 28,000 barrels of oil per day. Keep in mind, this production is a high-grade mix of 83% crude oil and only 17% natural gas liquids. The natural gas liquids space is obviously crowded and potentially faces future process and capacity issues, or worse, an oversupply of natural gas liquids. We're therefore not relying on a market that may remain depressed for some time. We have a very straightforward strategy of drawing low-risk, high rate of return oil wells and stable service cost environments, and we lock in those returns with hedges. We currently have more than 22 million barrels of future oil production hedged at over $87 per barrel or more than $2 billion of future revenues from plays that will generate between 50% to 100% rates of return.

Company-wide, oil and liquids production has grown from less than 8,000 barrels a day in the third quarter of 2009 to over 24,000 barrels a day for the third quarter of this year. We now produce just over 28,000 barrels per day. The rapid growth in our oil production is primarily the result of acquiring great assets and then executing on them. Production from our forced asset is up from 7500 barrels equivalent per day at acquisition to about 11,000 barrels equivalent today. We believe that we will have similar success with the Arena assets as we move over the next few quarters.

With that said, Arena produced a little over 9,100 barrels equivalent per day in Q2, and we're now up over 10,000 barrels of oil equivalent per day. Our timely move to oil is now expanding with the Horizontal Mississippian play in the Mid-Continent. This oil plays fits us perfectly, as it's in an area we know well, it's large, shallow, inexpensive to drill and has a tremendous amount of vertical well control. We've been quietly and patiently building our acreage position, and we have now amassed over 400,000 acres with the goal of leasing at least 500,000 acres by the end of the year.

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