Sandridge 2q results

[Zorrofan]

I am wondering if  Prem & FFH added to their holdings. Volume was over 40 million shares yesterday so it would have been easy for FFH to buy a large chunk of shares. Does anyone know how quickly FFH has to file?

 

thanks

Zorro

[Guest Bronco]

That wasn't Prem, that was me buying.

 

Well, to be honest, it wasn't me responsible for all 40m shares.  But I am sure I was close to Prem in terms of volume.

[Grenville]

Sandridge's share price movement is scary the last few days. Not knowing much about the company, it reminds me of the liquidity pressure some of the banks faced during the financial crisis where it just fed on itself into a downward spiral.

 

It's also interesting to remember that FFH transferred their ownership to preferred from the common. If they need any additional financing, FFH has plenty of cash to invest in the form of an additional preferred offering.

[T-bone1]

agree that FFH should serve as a liquidity backstop, but I don't think they will have any liquidity problems. Bank of America downgraded them today causing today's drop in the stock price.

[Myth465]

I think Cramer also issued a sell.

 

Downgrades and Jim - Sure signs we are near a bottom.

[ShahKhezri]

Transcript was really helpful, this is nothing like the financials in '08.

 

They have adequate EBITDA (with oil hedges through 2013) that should take care of their issues.

They will have $139MM coming in 3Q10, and another $200-$400MM before FYE11.  (all from asset sales that have no EBITDA attached).  This should take care of some of the debt.

 

What's driving the stock down?

-Institution selling, with stock below $5, (it's not fundamentals, it's liquidity)

-A lot of people that owned thought they were getting a nat gas company, but now they are getting 70% (as a % of revenues) oil.

-They removed their nat. gas hedges (since then, nat gas has gone down +10%) and some of the investment community might be thinking they are speculating.  Ward explained that oil is in contango, and natty is in backwardization, and that removing hedges is not something they do often (the only other time was in 2006). 

-Costs were higher, someone here mentioned this was a kitchen sink quarter. 

 

Overall, I'm convinced this Company will report a lot of hairy results (just because of their movement from oil to gas, depending on the respective ROIC).  I'm not convinced that Ward is a great jockey, I'm indifferent on him; however, the Company does have assets.  I wasn't invested before Arena closed because of the debt issue, after Arena closed I purchased a small position because the debt issue was taken care of.  I look forward to adding, but I'm looking for some stability in the shareprice.

 

[BRK7]

FYI, Weitz & Co. shows holding of 4.66 million shares at end of 2Q, up from 0 at end of 1Q, according to Weitz's 13F that was just filed.

 

 

[alertmeipp]

Have couple large insider buys as well.

 

[ourkid8]

Hi guys,

 

Is anyone adding to their position? I just doubled down on my position...  :)

 

Thanks,

 

Shahed

[T-bone1]

Hi guys,

 

Is anyone adding to their position? I just doubled down on my position...  :)

 

Thanks,

 

Shahed

 

Shahad, I also have been adding to my position. I was discussing SD with a friend last night, and I'll just paste the email with my current thoughts:

 

"I think the stock has been hammered by uncertaintly and liquidity/solvency concerns, but I am convinced there is nothing to worry about. The ARD acquisition should ensure that they have no covenant issues at the end of next year, which was the short thesis prior to the ARD acquisition. They could only really get into liquidity trouble if they did something stupid and risky like trying to grow production too fast without hedging - and Tom Ward is the largest shareholder so I don't think there is much chance of him bankrupting himself (CHK history aside).

 

They have a cash-flow machine in their low-decline rate Pinion field - this is high CO2 natural gas that they treat at their Century Plant (ramping up now). They sell the CO2 to OXY and keep the gas, the economics are very robust, but the real key is the low decline rate (around 10%) - this means they don't need many rigs and wells to maintain production once they ramp it up, so this field will throw off a ton of cash.

 

I think investors are very upset that after waiting a few years for the Century Plants to be completed, SD has just now decided not to ramp up Pinion Field production as planned. The simple reason for this is that drilling Permian Oil wells is a higher IRR activity right now because of where gas prices are (they have to pay a $0.25/Mcf penalty for OXY for not producting CO2, but this doesn't effect this no-brainer decision).

 

They also had a number of one-time items this year. Water inclusion caused production declines at a legacy non-operated GOM well, and they needed to do $4MM in workovers on existing Permian wells. This raises costs and lowers production by a small degree and is temporary, but made them miss earnings.

 

In short, this is a very cheap collection of oil and gas assets (mostly oil), which doesn't use fancy rigs or technology, is all in the same place, and owns most of their own rigs and services (very little cost inflation). It is highly levered, but with such long maturities that the shareholders are basically PE investors.  I don't think they will have any problem with covenants or liquidity.

 

Some good stuff that no one cares about right now: they have 500k acres in the midcontinent which is non-core, has no associated production or reserves, and could probably be sold for somewhere around $1,000 an acre (some more, some less). They have 20k acres in the midland basin where CHK and others are very active and 30k in the delaware basin (these plays are on either side of their central basin platform "core" permian acreage). They should probably keep this stuff, but could probably sell it for $5k per acre if they needed to. They can also sell their Pinion midstream into the MLP space. They have extensive natural gas exploration targets (all field size) in their West Texas Overthrust acreage.

 

Also, in case the sh*t totally hits the fan, Fairfax Financial owns almost all of their preferreds. Fairfax brought Tom Ward to their own annual meeting to introduce him to shareholders. Their investment team refers to SD and their assets as "we" and "our".  Fairfax has $5-10 Billion in cash equivelents something unexpected happens and they need liquidity. They will be tough but fair and consider Tom a partner. I don't think this will ever matter, but I consider it a plus.

 

There is a lot of uncertainty right now, 2010 is crappy, and they haven't put out guidance for 2011, 2012.

 

I own a bunch of stock and have been buying more down here. I'd be interested to hear your thoughts."

[T-bone1]

Jordan Daniel, the SD Director who bought 75k shares last week bought another 50k shares yesterday

[Guest Bronco]

The Jan 2012 $2.50's are cheap if you think this will rebound.

[Myth465]

I am raising tax losses and selling the 7.50s to buy the 5s for 2012. If this continues I will raise more losses and sell the 2012s for the 2013.

 

I hope to see rapid production growth on the oil side, hedges to match this growth and eliminate the risk in price fluctuation, and non core asset sells to raise capital and pay down debt.

 

They need to start funding production capex with cash flow, and need to pay down all high yield debt. The stock will take care of itself if they can execute.

 

[alertmeipp]

I have also added.

It's not super cheap if NG price stucks at current range.

The recent acquisitions allow the company to stay alive while NG price recover.

I guess what the market missing is the same volume of oil will generate significant more cash flow than the same volume of NG.

 

Not sure why Ward doesn't provide some sort of CF guidance.

 

 

[Myth465]

Honestly I think the market is being fair with ATPG and SD.

 

They both need to execute. Both are cheap based on assets and future production, but the production is what the market wants.

 

Us value guys are lucky we get, 2 birds in the hand with the assets, and have a shot at 3 birds in the bush if they can get the production up and running. SD now just needs to focus on drilling. With 30 rigs and enough cash for the startup we should do just fine.

 

On the flip side everyone invested in SD has been burned so far.

 

 

[alertmeipp]

I disagree.

 

ATPG has real risk as they are focus on GOM.

 

SD is not in risk.

[Myth465]

With regard to ATPG, I think the risks are overblown.

 

Let me try to clarify my statements. The recent sell off in ATPG and SD are both due to the market being tired of the lack of performance, and empty promises. INMO the market is saying put up or shut up, we are tired of hearing about assets and want to see it in the bottom line. I think both selloffs were deserved, when you look at it from the context of traditional investors.

 

ATPG will be partially revalued once the moratorium ends, and wont see intrinsic value unless they handle the debt and ramp up production. SD is the same minus the moratorium.

[gaf63]

Tom Ward just sold 6 million shares at 5.86, and is now down to 21mil shares. 

 

Not a great endorsement for SD

 

I own a small position and was looking at increasing it to a much larger %

 

 

[Myth465]

Tom Ward just sold 6 million shares at 5.86, and is now down to 21mil shares. 

 

Not a great endorsement for SD

 

I own a small position and was looking at increasing it to a much larger %

 

Very unfortunate news. Hopefully it was sold for personal reasons.

 

http://investors.sandridgeenergy.com/phoenix.zhtml?c=196066&p=irol-EventDetails&EventId=3409054

 

I feel very good about SD. Each presentation gets better and better regarding the new play. They seem to be executing. Tom sounds a bit beat up though. I would be if I bought at  + $15.

 

Debt can be a scary thing, but it seems as though Ward has learned quite a bit from watching the cycle. He basically put together a great gas company, and then the bottom fell out with natural gas. He has now done the exact same thing with oil (1 big area, no people, low costs, own services) and is hedging out to protect on the downside. The business model is very simple - sell assets, drill holes, increase cash flow, hedge, and watch. Oil price or gas price increases are kickers and if gas comes back (more like when) then things really get interesting.

 

He seems to really be watching risk these days.

[CONeal]

Tom Ward just sold 6 million shares at 5.86, and is now down to 21mil shares. 

 

Not a great endorsement for SD

 

I own a small position and was looking at increasing it to a much larger %

 

 

 

The shares were sold by a Family Partnership Trust where Ward has a minor ownership stake.  Could be for tax reasons or diversification reasons who knows. 

 

I don't think this sale says anything about SD or it future.

[gaf63]

Only a small portion of the shares were held by the trust, from what I gathered from the SEC filing

However he still owns 5% of shares outstanding which is nothing to sneeze at, just a worrisome trend

 

As to SD,I like that they are adding to their oil production at low cost, but are spending more than they are making at current prices

They will have a $400 mil cash burn next yr, and must sell the wolfberry and bonespring acreage to maintain the $875 mil capex.

If they reach their goal of 40000 bpd next yr. they will still need more cash to maintain level of capex.

So they will need more sales or more debt or more dilution of shareholders, or a cutback in capex, or higher oil and gas prices

 

SD has capable people running it, great reserves that are undervalued on the balance sheet, low cost production, and Prem and FFH are investors in the co.  My worries are the level of debt and the time frame of bringing on production to pay down this debt.  At my present level of investment I am comfortable with these risks.  But am unable to pull the trigger on a larger investment at moment and the CEO selling over 20% of his shares gives me pause.

 

[CONeal]

Sorry, when the previous message was posted it was just a quick glance at the filing while watching the ball game.

 

Hopefully within the next couple of days he mentions why he sold the shares. 

[alertmeipp]

Interesting. Probably for personal reason. or Maybe just tax loss selling.

The trades was done at Oct 6, he would probably get a better place if he spreads his sales across.

[CONeal]

It might be related to this

 

 

Kaiser also obtained five-year warrants that grant his charitable trust future rights to buy about 6.7 million SandRidge shares from Ward for $5.62.

 

Read more: http://newsok.com/sandridge-chairman-tom-ward-secures-50-million-through-stock-sale/article/3335612#ixzz11vwiRDJP

 

The warrants were granted back when Kaiser bailed out Tom in early 2009. 

 

 

[alertmeipp]

poor guy.

 

http://www.form4oracle.com/insider-transactions?cik=0001038276

 

He is losing tons of money on his NG call.