Friday, August 5, 2011

SandRidge ropes in Korean partner, Atinum, to exploit Mississippian Play in a $500 Million JV. Chesapeake offers $1.5 Bn-Mississippian parcel for sale.

Slow M&A activity in the first week of August has ended with SandRidge Energy's $500 million JV with Atinum.
SandRidge Energy has entered into a joint venture with an affiliate of Atinum Partners Co Ltd, a leading investment firm located in South Korea. The JV area of mutual interest (AMI) covers, substantially, all of SandRidge's original Mississippian Play area, located in Northern Oklahoma and Southern Kansas, other than wells and acreage within the associated spacing units spudded prior to the effective date and all wells and acreage associated with SandRidge Mississippian Trust I.

As per the terms of the agreement, SandRidge will transfer an undivided 13.2% non-operated working interest in approximately 860,000 acres, or approximately 113,000 net acres to Atinum for a total transaction value of $500 million. Atinum will pay $250 million in cash at closing. Atinum has also committed to a drilling carry obligation to pay 13.2% of SandRidge's share of drilling and completion cost for wells drilled in the AMI up to a total amount of $250 million, which is anticipated to occur over a three year period.

Mississippian Oil Play- A new comer to the Unconventional Sector
The Mississippian Oil Play is an emerging horizontal play that has the potential to become one of the most profitable domestic onshore oil plays. This play is led by Chesapeake Energy, SandRidge Energy, Range Resources, Devon Energy and Eagle Energy of Oklahoma LLC. SandRidge Energy is the most active driller in this play with 3,400 drilling locations and 12 horizontal rigs.

The interesting fact about the Mississippi horizontal wells is the rate of return, when compared to other areas being drilled in the industry. The IRR for a Mississippi horizontal well is 120% and better than the average Bakken Shale well at 92%.

Economics of Mississippian Oil Play
  • The Mississippian play exists in the shallow depths of less than 6000 feet.
  • The cost to drill and complete a well is $3 million.
  • The EUR for a well in this play ranges between 300 and 500 Mboe (52% crude oil).
  • Low horsepower rigs (< 1,000 hp) and low pressure pumping (~12,500 hp).
  • With the availability of extensive existing infrastructure and high IRR, as compared to the Bakken and Eagle Ford oil plays, the exploitation and development of Mississippian play is feasible and profitable.
The following table illustrates the comparison of single well economics of the unconventional oil plays-

SandRidge has made a good deal with Atinum. Chesapeake to follow.
SandRidge had accumulated the Mississippian acreage over a period of 3 years at an average cost of ~$200/acre or ~$170 million. However, the current transaction returns a value of $4,425/acre to SandRidge Energy and $/acre is increased by more than 20 times. This value of the acreage should also be attractive for Chesapeake who holds approximately 1.1 million net acres in this play. Chesapeake, in May 2011, had initiated a joint venture process for the same play. The highlights of Chesapeake holdings in the play are as follows- 

Chesapeake’s Mississippian play:
-- ~1.1 million net acres.
-- As of May 2011, Anadarko Basin had total of 1,990,000 net acres; Proved reserves of 2,184 Bcfe; Unrisked unproved resources of 33,500 Bcfe; April 2011 daily net production of 510 MMcfe.
-- As of October 2010, Mississippian play completions: ~230,000 net acres; 21 MMBOE of Proved reserves; ~145 MMBOE of risked unproved resources; ~385 MMBOE unrisked unproved resources; Net production in October 2010 was 3 MBOE/d.
-- To date, Chesapeake has drilled 53 operated Mississippian horizontal wells and has participated in the drilling of 36 non-operated Mississippian horizontal wells.
-- Currently drilling with five operated rigs.
-- Plans to increase its operated drilling activity in the Mississippian to seven rigs by the end of Q4-2011.
Source: Derrick Petroleum "Deals in Play" Database


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