As the prices of oil and natural gas become more volatile, the only way to survive in the industry is to make sure exploration and production costs are kept at minimum levels. SandRidge Energy Inc. is applying this approach to its recently purchased plays in the Texas Permian Basin, where operational efficiencies go hand-in-hand with production predictions so SandRidge Energy can maximize the return on its assets.
“SandRidge is focusing on hitting metrics that are economic-based,” explains Shad Frazier, vice president of operations for SandRidge Energy. “We want to hit our production targets, but in an economic way.”
SandRidge Energy is an oil exploration and production company with headquarters in Oklahoma City. Its drilling activities are focused on oil properties in the Mid-Continent and Permian Basin. The company also maintains production in West Texas, the Gulf Coast and the Gulf of Mexico. SandRidge’s wholly owned subsidiary – Lariat Services Inc. – owns and operates a drilling rig fleet and other related oil field services, as well.
SandRidge Energy was formed in the summer of 2006 when CEO Tom Ward bought a controlling interest in Riata Energy. After Ward, former co-founder and COO of Chesapeake Energy Corp, moved the company headquarters to Oklahoma City, he changed the name of the company to SandRidge, and acquired National Energy Group (NEG). The acquisition of NEG not only gave SandRidge a higher working interest in their West Texas Overthrust assets, but also included some Permian Basin oil assets.
The company went public in 2007 as a natural gas company with assets in the Gulf Coast, East Texas and West Texas. As the price of gas began to decrease in late 2008 and oil prices steadily rose, SandRidge decided to transition into an oil company.
“In 2008, the company was looking at natural gas prices shrinking and oil prices climbing,” Frazier says. “It became clear that oil would provide a more reliable revenue stream, so we made the shift to oil.”
This is when the company pursued drilling targets in the Permian Basin. SandRidge Energy held a small position in the Goldsmith Adobe field, which was an old, underdeveloped legacy field stuck between two major operated oilfields, according to Frazier.
“Two majors (Apache and Exxon) left acreage between their two fields that had become uneconomic to drill,” Frazier says. “We started drilling based on the increasing oil prices and found a great, economic field.
“We have worked diligently with our land owners and working interest partners to put together acreage that was once deemed uneconomic and turned it into highly profitable field,” he adds.
In 2009, SandRidge made its first major purchase in the Basin buying Forest Oil’s Permian Assets. Then in 2010, the company acquired Arena Resources to expand its position in the play. SandRidge Energy has experienced a high rate of return in the Permian Basin with these properties. Today, the company is producing more than 30,000 barrels of oil equivalent per day, with 13 active rigs drilling today.
SandRidge Energy has focused on economic-based metrics to improve upon lifting costs in the Permian Basin. Frazier says the company has always been diligent in monitoring expenditures in order to improve its margins. The evidence of the company’s success can be found in its financials.
Instead of an all-out focus on growing production, company employees now work to maximize profit from attained production while continuing to grow production economically.
Frazier says the new initiative is working. Lifting costs have dropped to less than $12 per barrel – 16.5 percent decrease since the third quarter of 2011.
“The main thing we do is look at how we’re spending money,” he says. “When we spend money now, we have a laser focus to dive into what is driving our costs and what can we do to improve.”
To meet this goal, superintendents now are responsible for tracking every dollar spent. All expenditures are reviewed to determine if it is absolutely necessary for operations. The closer review of the costs helps track where inefficiencies are in the system.
“Our relationship with our vendors is closely scrutinized to make sure we are receiving what we ordered,” Frazier says. “We review all work projects to ensure they are completed on time and under budget.”
While SandRidge continues to increase its efficiency in the Permian Basin, the company is developing its leading position in the Mississippi Lime play of Northern Oklahoma and Western Kansas. The Mississippian, once considered uneconomical to produce, has become hugely economic with the advancement of horizontal drilling technology. The company currently has 26 rigs operating in the area with an average 90 percent rate of return per well.
“We’ve gone horizontal in that play, which has allowed the Mississippian to become highly profitable,” Frazier says. “We’ve done this by applying horizontal technology in an old field that was known. We like to minimize risk and maximize our return on investment.” EMI