• Energy and Income Advisor
  • Conrads Utility Investor
  • Capitalist Times
  • Twitter
  • Seeking Alpha
  • Roger S. Conrad

A Deep Dive into SandRidge Permian Trust

By Elliott H. Gue on Jan. 5, 2013

Predicting future production levels involves making assumptions about the complex interplay between the decline rate of existing wells and the number of development wells drilled in a particular quarter.

To generate our updated forecast for SandRidge Permian Trust’s future hydrocarbon output, we first had to reverse engineer the trust’s original production estimates based on its stated assumptions about commodity prices, target distributions, hedges, taxes and expenses that were outlined in the prospectus.


Source: SandRidge Permian Trust, Prospectus

We then updated these figures to reflect actual production from the AMI thus far and revised future output to reflect a three-rig drilling program and a modified decline rate.

Through Aug. 31, 2012, SandRidge Energy had brought 381.5 net developmental wells onstream and had another 20.2 net wells awaiting completion. At this point, the trust’s sponsor is about six months ahead of schedule on its drilling plan. With SandRidge Energy reducing the rig count to the three units originally outlined in the prospectus, we can extrapolate future production based on the growth rate modeled in SandRidge Permian Trust’s prospectus.  

The original production curve called for output to increase by roughly 4 percent sequentially in the second quarter of 2013. As the trust had drilled the same number of total wells at the end of the fiscal third quarter of 2012, we assume that production grew by 4 percent sequentially in the fourth quarter of last year.

This graph depicts the production forecast by applying this adjustment to each remaining year through the trust’s termination date. Although this approach has its drawbacks, this back-of-the-envelope calculation should be sufficient for our purposes.


Source: Energy & Income Advisor estimates

In our update model, the trust’s annual production achieves a higher peak than outlined in the prospectus. However, this inflection point also occurs in the first quarter of 2014, as opposed to the third quarter of that year.

Energy & Income Advisor

Your complete guide to energy investing, from growth stocks to high-yielders.

In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.

Subscribe today to receive a sample issue of EIA
  • Live Chat with

    Elliott and Roger on Jul. 27, 2017

  • Portfolios & Ratings

    • Model Portfolios

      Balanced portfolios of energy stocks for aggressive and conservative investors.

    • Coverage Universe

      Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.

    • MLP Ratings

      Our assessment of every energy-related master limited partnership.

    • International Coverage Universe

      Roger Conrad’s coverage of more than 70 dividend-paying energy names.

    Experts

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Peter Staas

      Managing Editor: Capitalist Times and Energy & Income Advisor