Why did SandRidge sell assets it just bought a few years ago? (Part 4 of 4)
Given the asset sale, SandRidge Energy provided updated guidance.
Prior 2014 production guidance was 36.3 million barrels of oil equivalent (47% natural gas, 11% natural gas liquids, and 42% oil)—a 12% increase over 2013 estimated production of 32.5 million barrels of oil equivalent.
Pro forma for the sale of the Gulf of Mexico properties, SandRidge believes its 2014 production will be 28.3 million barrels of oil equivalent (47% natural gas, 13% natural gas liquids, and 40% oil)—a 26% increase over 2013 ex–Gulf of Mexico production of 22.4 million barrels of oil equivalent. While SandRidge is losing the benefit of production from its Gulf of Mexico assets, the company states that its pro forma growth rate will be higher as it accelerates drilling in its onshore properties with cash from the sale.
Prior to the Gulf of Mexico sale, SD had expected to spend ~$115 million over 2014 on the Gulf of Mexico assets. Following the sale, SandRidge has allocated most of the Gulf of Mexico capex budget towards Mid-Continent or Mississippian assets, with $1.04 billion planned to be spent in the area now versus $965 million before the announcement of the sale. Other minor differences in the allocation of capex make up the difference. The increased capex spending in the Mid-Continent will add three rigs to SandRidge’s 2014 drilling program there, adding an additional 30 gross wells.
The new cost guidance shows lower lifting costs per unit, higher production taxes per unit, lower total DD&A per unit, and higher G&A costs per unit. The Gulf of Mexico properties had higher lifting costs, so divesting them lowers average lifting costs for the full company. On the other hand, general and administrative costs are generally fixed, and selling some production means fewer units to spread the G&A cost over. Overall, total cash costs per barrel are lower ex–Gulf of Mexico sale.
Prior to the Gulf of Mexico sale, SandRidge expected to receive oil prices of ~$1 below WTI (West Texas Intermediate, commonly used as the U.S. benchmark) crude oil. After the Gulf of Mexico sale, SandRidge expects to receive oil prices of ~$2.50 below WTI. Offshore U.S. crude generally sells for a higher price than crude produced inland, which is where SD will now be focusing its activity. Also, SD now expects to receive natural gas prices $1.00 per mcf below Henry Hub (the U.S. benchmark of natural gas prices), compared to ~$0.70 per mcf below Henry Hub before.
Browse this series on Market Realist: