The pending Midstates (NYSE:MPO) and Sandridge (SD) merger looks to have synergies, but we are not as bullish. The very large Mississippi Lime footprint may have little to no value, and there are headwinds for the play. This could be different if the play had better production per foot. It is a low-cost, shallow play that produces low percentages of oil. The Mississippian also produces significant volumes of water. This additional cost and increasing earthquakes looks to be an issue for both names. We think it is better to stay away from both names given the risk/reward.
We pulled the production data from 68 horizontals from January of 2016 to the present. SD data was pulled from Colorado and Oklahoma. Twenty locations are two-mile laterals.
Thirty-three locations are in Oklahoma, with the remaining 35 in Colorado.
Source: Welldatabase.com
Jackson County has the largest number of wells. This is followed by Major and Alfalfa.
Source: Welldatabase.com
Jackson produces the bulk of the oil, with Alfalfa second.
Source: Welldatabase.com
SD’s Colorado locations produce 84 MBO and 54 MMcf over the first 16 months of well life.
Source: Welldatabase.com
Oklahoma horizontals have outperformed. On average it produced 102 MBO and 1,133 MMcf. The NW STACK has provided much better results and has pushed production higher. This is offset by higher D&C.
Source: Welldatabase.com
The upcoming merger is interesting given the NW STACK and North Park asset in Colorado. While North Park produces more oil, we haven’t seen a breakthrough result. This does not mean it will not happen, but it looks as though this geology is a low-cost asset and lower production. The STACK has a much higher bar, and while it produces less oil as a percentage, the ROR is better. MPO has the geology, and SD has the know how. The question is what to do with the Mississippi Lime as its value is ambiguous at best. A merger would be centered around the STACK. The risk to this investment is high, and we don’t see the reward of other operators.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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