SandRidge Energy Inc. (SD): Performance Against Expectations

Mississippi Lime-focused oil and gas producer SandRidge Energy Inc. (NYSE:SD) is scheduled to report its first-quarter earnings on May 7 after markets close. It’s an important report for SandRidge as it could be the last one with CEO Tom Ward at the helm. The newly expanded board has until June 30 to make a decision on Ward’s future with the company. With that as a backdrop, let’s take a look three important areas to watch when SandRidge Energy Inc. (NYSE:SD) reports.

Performance against expectations
Analysts are expecting SandRidge Energy Inc. (NYSE:SD) to lose $0.06 a share this quarter. That’s reversing $0.04 of earnings last quarter. However, the company did just sell its cash-flowing Permian Basin assets which needs to be kept in context. SandRidge does have a plan to make up that sale, so its important to see how its doing against that plan. The plan includes spending $1.75 billion this year, a bulk of which will be spent on its Mississippian acreage, which should its production up to 34.3 million barrels of oil equivalent. Look to see if SandRidge Energy Inc. (NYSE:SD) has any updates to its production guidance for the year now that the company has another quarter under its belt.

An update on the Lime
The Mississippian Lime is incredibly important for SandRidge’s future. It’s planning to drill 581 wells into the formation this year after drilling 396 wells last year which brought its total in the play to 681 wells. What’s important for SandRidge Energy Inc. (NYSE:SD)is to find the most oil levered area of the play to drill new wells. Current production is just 45% oil and NGL; however, 80% of its cash flow is from oil so finding the oil sweet spot is important.

Overall, the industry has had mixed results from the play. Recent good news came from Devon Energy Corporation (NYSE:DVN) which reported solid results from its emerging Mississippian acreage. The company brought on 24 wells in the quarter which hit the company’s economic targets with significant oil and liquids-rich gas. On the downside, Chesapeake Energy Corporation (NYSE:CHK) reported a disappointing joint venture transaction on some of its Mississippian assets as it only was able to get $2,400 an acre after previously estimating its acreage in the play was worth many times that amount.

Aside from keying into what SandRidge Energy Inc. (NYSE:SD) has to say about the play, one number to watch here are its well costs. SandRidge is looking to get its drilling costs down to under $3 million per well. Getting those costs down will increase its rate of return and enable the company to drill more future wells with less money.

Finally, one specific area of the Mississippi Lime to pay close attention to is to SandRidge Energy Inc. (NYSE:SD)’s acreage in Kansas. The company is still delineating its acreage in the state and its early wells have been a rather mixed bag. Positives here will go a long way to securing SandRidge’s future.