After enduring a weak oil pricing environment for over eight months, upstream and midstream energy operator SandRidge Energy Inc. (SD) has decided to significantly lower its rig count in Kansas and Oklahoma this year, going by a Reuters report. Following the news, share price of SandRidge Energy nosedived over 10% on the NYSE.
Since last June, West Texas Intermediate (WTI) crude price has plummeted more than 50%. This was primarily owing to plentiful supply of the commodity especially in the face of lackluster global demand. On top of that, most of the analysts are predicting oil price to remain low in 2015 as well.
SandRidge Energy decided to lower its rig count by nearly 75% as its upstream business is positively correlated to oil price. From the 28 rigs that it has been using for drilling in the northern Oklahoma and southern Kansas based Mississippi Lime formation, the company will reduce its count to only 8 by March end and early April.
Investors should note that SandRidge Energy has been suffering considerably in the low oil pricing era as its debt has recently ballooned and the cost of producing oil from the Mississippi Lime has shot up significantly from the other shale plays. The huge amounts of water in the rocks of the Mississippi play that need to be hauled out first raise expenditures.
SandRidge Energy is also considering a cut in its capital expenditure following soft market conditions. Other major energy players also walking the same path of 2015 capex cuts include ConocoPhillips (COP), Suncor Energy Inc. (SU) and BP plc (BP).
Oklahoma City-based SandRidge Energy currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market in one to three months.
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