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SandRidge Energy (NYSE:SD) goes with a relatively limited capital expenditure price range in 2023 in response to weaker commodity costs. This was largely anticipated since SandRidge’s belongings require fairly sturdy costs to supply stable improvement economics. With service price inflation, it could in all probability take sustained $80s oil and $5 gasoline for SandRidge to place a big quantity of capital in the direction of extra improvement.
SandRidge appears to be like prone to fall a bit wanting my earlier expectations that it could finish 2023 with $9 to $10 per share in web money. This is because of weaker commodity costs, with SandRidge principally unhedged for 2023 and present strip at round $70 oil and $3 pure gasoline now.
SandRidge nonetheless appears to be like able to getting near $9 per share in web money by the tip of 2023 although. Based on steerage it can ship a bit underneath $2 per share in free money move in 2023, helped by rising curiosity earnings.
I view a high-teens value for SD stock as being cheap for a long-term $70 oil and $4 pure gasoline atmosphere.
2023 Development Plans
SandRidge just isn’t anticipating to do a lot new drilling in 2023. It presently plans to drill two wells and full 4 wells in 2023, whereas additionally doing 28 synthetic carry conversions and 12 nicely reactivations. This is predicted to lead to $14 million to $19 million in D&C capex and $12 million to $16 million in non-D&C capex in 2023.
At steerage midpoint, that is round $30.5 million in whole capex for 2023, down from $49 million capex in 2022 (together with $38 million in D&C capex).
SandRidge drilled eight new wells in 2022 and accomplished six of them. It initially deliberate to drill and full 9 new wells in 2022 after which elevated its plans to twelve wells. Some of its 2022 improvement program ended up getting shifted into 2023, whereas it additionally seems that SandRidge is stopping its improvement at ten whole new wells because of the commodity pricing atmosphere.
The extra restricted improvement plans for 2023 are anticipated to lead to a excessive single-digits decline fee in manufacturing for SandRidge in comparison with This autumn 2022 ranges.
2023 Outlook
SandRidge has a comparatively extensive steerage vary for 2023 manufacturing, starting from 5.3 MMBOE to six.5 MMBOE (roughly 14,500 to 17,800 BOEPD) in whole manufacturing. There is a few uncertainty about SandRidge’s 2023 manufacturing ranges because it has a good variety of current new wells. SandRidge accomplished three new wells in Q3 2022 and three new wells in This autumn 2022 and is aiming to finish 4 extra wells in 2023. SandRidge might want to see how these wells monitor over time.
The present strip for 2023 is roughly $70 WTI oil and $3 Henry Hub pure gasoline. At the midpoint of SandRidge’s steerage, it’s projected to generate $146 million in oil and gasoline income earlier than hedges.
SandRidge’s hedges contribute round $6 million in optimistic worth. It has pure gasoline hedges for Q1 2023 overlaying 1,044,000 MMBTU at $8.39.
SandRidge’s massive money place plus elevated rates of interest implies that it could possibly generate a significant quantity of curiosity earnings in 2023. It generated $2 million in curiosity earnings in This autumn 2022, and could possibly generate round $10 million in 2023.
| Type | Barrels/Mcf | $ Per Unit | $ Million |
| Oil | 1,000,000 | $69.00 | $69 |
| NGLs | 1,900,000 |
$22.75 |
$43 |
| Natural Gas | 18,000,000 | $1.88 | $34 |
| Interest Income | $10 | ||
| Hedge Value | $6 | ||
| Total Revenue | $162 |
SandRidge has $93 million in projected money expenditures in 2023, leading to expectations for $69 million in free money move throughout the yr at $70 oil and $3 pure gasoline.
| $ Million | |
| Lease Operating Expense | $43 |
| Production Taxes | $9 |
| Cash General & Administrative | $10 |
| Capital Expenditures | $31 |
| Total | $93 |
SandRidge had $257.5 million in money and money equivalents on the finish of 2022, so this free money move would increase its whole to $326.5 million on the finish of 2023 (or roughly $8.85 per share in money).
Estimated Valuation
SandRidge’s proved reserves (all proved developed) elevated by 3 MMBOE in 2022, though that was principally on account of larger SEC costs. At my long-term value assumptions of $70 WTI oil and $4 Henry Hub gasoline, SandRidge’s proved reserves would have in all probability gone down by mid-single digits in comparison with 2021.
SandRidge’s Reserves (sandridgeenergy.com)
SandRidge’s proved developed reserves had a PV-10 of $433 million on the finish of 2021 with $66.56 oil and $3.60 gasoline. I’m going to imagine that its proved developed reserves on the finish of 2023 would have a PV-10 of roughly $400 million at $70 oil and $4 gasoline.
At a 0.9x a number of to PD PV-10, that will worth its reserves at $360 million. Added to its projected year-end 2023 money stability, that will give SandRidge a price of roughly $18.60 per share in a long-term $70 oil and $4 pure gasoline atmosphere.
Using a extra conservative 0.7x a number of would lead to an estimated worth of $16.45 per share for SandRidge.
Conclusion
Weaker commodity costs have decreased SandRidge’s projected money place on the finish of 2023 to a bit underneath $9 per share. However, SandRidge continues to be capable of generate near $2 per share in free money move at $70 oil and $3 pure gasoline in 2023 by limiting its improvement actions and producing curiosity earnings on its important money stability.
At $13.60 per share, SandRidge is just valued at round $4.75 per share web of its projected year-end 2023 money place. Although SandRidge’s belongings have restricted improvement potential at present strip costs, it ought to nonetheless be capable to harvest a good amount of money move from its belongings over the following few years. Thus I view a value within the high-teens to be extra cheap for a long-term $70 oil and $4 gasoline atmosphere.