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Trust Test: Updating Our Valuation Models

By Elliott H. Gue on Feb. 9, 2013

Whereas SandRidge Mississippian Trust II’s production mix and volumes disappointed in the fourth quarter, the 7 percent sequential decline in hydrocarbon output attributable to SandRidge Permian Trust didn’t reflect subpar well performance.

Oil and natural gas liquids–a group of hydrocarbons that includes ethane and propane–accounted for about 96 percent of production in the trust’s AMI, in-line with prior results and the detailed model that we laid out two issues ago. Moreover, the trust’s fourth-quarter oil output came in only 1,000 barrels shy of the 375,000 barrels that we predicted in A Deep Dive into SandRidge Permian Trust.

Why did the trust’s oil production decline from the preceding quarter? SandRidge Energy scaled back its rig count in the AMI to three rigs by year-end from a high of six units. As a result, the sponsor sank only 43 developmental wells in the fourth quarter, compared to more than 80 in each of the prior two quarters.

Meanwhile, the inventory of drilled wells awaiting completion climbed to a record 30, up from about 20 wells at the end of the third quarter.

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