SD - SandRidge Energy

[alertmeipp]

I would if I could. But I don't want to have too concentrated on oil and gas (although I believe O&G section is very cheap given the oil price)

 

Anyone read the prospectus for the new trust, only 53k acres allocated that and it values 1billions!

Anyone know how much SD used to developed that?

 

2013 funding gap is pretty much closed with the trust unit on the balance sheet.

[alertmeipp]

SandRidge Mississippian Trust II Announces Pricing of Initial Public Offering at The Top End of Price Range

 

http://finance.yahoo.com/news/sandridge-mississippian-trust-ii-announces-004500862.html

 

SandRidge Energy, Inc. Announces Closing of Acquisition of Dynamic Offshore Resources, LLC and Closing of $750 Million Offering of Senior Notes

 

Read more: http://www.digitaljournal.com/pr/668704#ixzz1sMCmj55q

 

 

Double icing on the cake

[Myth465]

Thanks for the interview Devon.

 

http://www.foxbusiness.com/news/2012/04/20/chesapeake-co-founder-ward-also-took-loans-on-well-stakes/

 

Ward is just a smoother operator and SD is a much easier company to follow / understand. I want to see what happens in the Gulf, Ward always has upside. He has proven to be a great value investor.

[Myth465]

New presentation online. Shows Ward is one of the best value investors in the oil and gas patch. If he let SD crash and started a new company the returns would have been amazing.

[PlanMaestro]

Have your views on Tom Ward changed in any way after the hedge fund revelation? At least, he seems to be very open.

 

As Heritage racked up stellar returns of between 15 to 25 percent a year, McClendon and Ward decided to open the hedge fund to outside investors, including friends and associates, Cirino said. When Ward left Chesapeake in 2006, he retained his stake in the fund.

 

By 2007, Heritage was managing around $200 million, Cirino said. That enabled Ward and McClendon to profit in another way: by charging outside investors a management fee equal to 2 percent of assets and pocketing 20 percent of the fund's profits. It's a typical structure in the hedge fund industry, known as "2 and 20."

 

Cirino and Ward's recollections differ on at least one point. Ward said he didn't interact with the fund's outside investors. Cirino recalled that "every investor I was involved with either met with McClendon and Ward or at least spoke with them by phone before investing." The hedge fund's healthy gains were a lure, but "the cachet of those two individuals certainly also helped," Cirino said.

 

In addition to weekly Monday conference calls and regular emails, the two owners met frequently with traders in New York and occasionally in Oklahoma, Cirino said.

 

In 2007, as the price of natural resources surged on booming demand from China and other fast-developing countries, commodity traders with a successful track record were popular on Wall Street. After three years of double-digit returns, the fund's traders told McClendon and Ward they wanted an equity stake, Cirino said.

 

But the executives weren't ready to cede control, Cirino said, and the traders left to open their own shop, Perennial Capital LLC, a $200 million fund that has no financial ties to McClendon or Ward. Cirino said the departure was amicable.

 

At Heritage, all of the money from external investors was returned by 2008, Cirino said. McClendon and Ward continued to operate the fund during that year, Ward said, but by 2009, Heritage traded no more.

 

What happened next to McClendon's commodity-trading ventures is unclear.

 

By June 2008 - as natural gas and oil prices were peaking, and just before the financial crisis - McClendon and Ward both held huge positions in natural-gas derivatives, according to confidential trading data disclosed last year by U.S. Senator Bernie Sanders, an independent from Vermont.

 

The trading information was assembled as part of a CFTC inquiry into derivatives markets and their impact on real-world energy prices. McClendon and Ward were among only a handful of individual investors identified by the CFTC. Most of the other players were big corporations.

 

The data indicated McClendon and Ward were betting that the rally of 2008 would continue. By purchasing derivatives, they controlled nearly identical positions in natural gas worth around $2.3 billion apiece, according to Reuters calculations based on closing futures prices as of June 30, 2008. McClendon held oil contracts worth another $240 million, the CFTC data showed.

[Grenville]

Does anyone know if they've disclosed the hedge fund or trading in commodities for Ward in the Proxy or 10-K?

 

 

[triedtestedand]

A picture tells a thousand words ... I hadn't checked the natural gas storage report in several months, but what a set of #'s (and pictures):

 

http://ir.eia.gov/ngs/ngs.html

http://ir.eia.gov/ngs/ngs.gif

[alertmeipp]

Unreal. looks like a 2pm margin call to me. Hope that's it.

[Myth465]

Unreal.  Conference call should be fun.

 

Yes indeed. I see this as a none issue.

[FFHWatcher]

That was crazy at the end of the day.  Seeing this makes me better understand why CEO's suck as much value as possible from shareholders.  What I am essentially saying is that why would a CEO give a crap about shareholders if they sell at the drop of a hat, if they demand steady earnings and growth every single quarter, and if you miss by a penny they sell.  Way too many want to trade for a quick 5-10% gain and then move on.  In most cases, shareholders are not partners, at all.  If the stock price hits a high or low number, as Cramer says, SELL SELL SELL.

 

Most companies are just ticker symbols and CEO's know it.  I saw the frustration on Tom Ward's face and heard them in his words on a recent conference call when responding to analysts.  Don't get me wrong,  I think he  is guilty of excessive personal compensation from SD and excessive personal financial risk (leverage).  On the other hand he has created a significant amount of value in SD but I would rather see him participate via regular old common share appreciation (does he really need to be selling all the time to make ends meet?) over the long term like me, versus making millions and millions of dollars today, pocketing it now, and if his plan doesn't come to fruition, still walk away with millions and millions. 

 

I wish there were more Prem's and FFH/WEB and BRK, etc., and I wish more CEO's followed their lead.  I wonder if FFH is going to start a FRPP (Founders Risk Participation Program) where Prem invests directly in insurance policies underwritten by Odyssey, Crum, Northbridge, FFH Asia, etc.  where Prem pays his portion of the expenses to write the policies and in return Prem get's his portion of the underwritting profit/loss PLUS his portion of investment gains/losses on portfolio.  That scenario almost sounds dumb unless the CEO doesn't really see himself as a shareholder?  Just buy the common shares.  Sorry for rambling....

 

<Edit : I retract my comment where I said Ward was always selling.  There was the 2008 and 2010 incidents but since then, it looks like all or most selling was just to settle his tax liability when he received his annual restricted stock grants that vested. Looks like he is sitting tight with his 24-25M shares>

 

[Myth465]

FFHWatcher we all know with FFH's underwriting that program wouldnt be worth investing in....  :)

 

Now a Founders Co Portfolio Investment Scheme, that's a whole other story.

[AZ_Value]

So what exactly did this story do to the assets SD is sitting on?

The move was just crazy.

 

At last week's value investing conference organized by the Ivey school right before the Fairfax meeting I got to ask Ward a question.

I basically asked him what he thought about the main criticism thrown at him, namely that his heart as a guy who knows how to recognize value won't allow him to pass on super cheap assets  (the Dynamic acquisition being the latest one) even though he still has a lot of work to do on his balance sheet.

He basically said what we all know by now, that acquiring assets was one thing but that SD had to get creative in funding the drilling because of the gap between their cash flows and the capex needed to exploit those assets, hence the JVs, asset sales, trusts etc...

However he also told us that in his mind SD was now positioned to harvest the benefits of what they've been planting and he told his employees as much, I think he used the same term he uses in his latest presentation "positioned for years of harvest".

He also mentioned that he believed his critics would begin to be proven wrong this year as the drilling ramps up according to plan and metrics start improving across the board.

 

In summary, I think I will open my wallet and buy more; I'm thinking 2014 LEAPS.

[CONeal]

Did Tom Ward happen to address anything in the press during the dinner last week?

[FFHWatcher]

FFHWatcher we all know with FFH's underwriting that program wouldnt be worth investing in....  :)

 

Now a Founders Co Portfolio Investment Scheme, that's a whole other story.

 

I almost wrote that but I added PLUS just to be clear.  Technically Prem has invested along side FFH but anyone can do that as they are public companies (SD). 

 

Question, What if Prem were to invest alongside FFH into their non-public companies? That would be similar to the FWPP, wouldn't it?  What if Hamblin Watsa employees set up it's own investment account, funded it with their personal capital, did a good job and then recruited outside investors and charged a fee?  Wait, didn't they used to do that?

[alertmeipp]

I was just thinking, for argument sake - WB and PW bought shares their companies also bought - is that a conflict? Why they spend out looking out for their own investments outside the companies'?

 

 

[FFHWatcher]

From 2009 SD Proxy...

 

During 2008, Mr. Ward was invoiced $40,631,771 for his share of costs for his interests in Program Wells, and received oil and gas revenues from his interests in Program Wells totaling $15,701,363.

 

On October 9, 2008, we entered into a purchase and sale agreement with Mr. Ward and certain of his affiliated entities to acquire all of Mr. Ward’s interests under the WPP. We paid approximately $67.3 million in cash for the interests, and in connection with the transaction, Mr. Ward and the Company agreed to terminate the WPP in its entirety. The purchase of Mr. Ward’s interests under the WPP was made effective as of September 30, 2008. The terms of the purchase and sale agreement were reviewed and approved by the disinterested members of our Board of Directors, and we believe the purchase of Mr. Ward’s interests was on terms not materially less favorable than those that might reasonably have been obtained in a comparable arm’s length transaction with an unaffiliated third party and are fair to us from a financial point of view.

[twacowfca]

From 2009 SD Proxy...

 

During 2008, Mr. Ward was invoiced $40,631,771 for his share of costs for his interests in Program Wells, and received oil and gas revenues from his interests in Program Wells totaling $15,701,363.

 

On October 9, 2008, we entered into a purchase and sale agreement with Mr. Ward and certain of his affiliated entities to acquire all of Mr. Ward’s interests under the WPP. We paid approximately $67.3 million in cash for the interests, and in connection with the transaction, Mr. Ward and the Company agreed to terminate the WPP in its entirety. The purchase of Mr. Ward’s interests under the WPP was made effective as of September 30, 2008. The terms of the purchase and sale agreement were reviewed and approved by the disinterested members of our Board of Directors, and we believe the purchase of Mr. Ward’s interests was on terms not materially less favorable than those that might reasonably have been obtained in a comparable arm’s length transaction with an unaffiliated third party and are fair to us from a financial point of view.

 

Let me see if I understand this.  About the time management determined to exit natural gas E&P because they thought it likely that  natural gas prices would tank because of the looming production glut, they buy back the Chairman's interest in that production. 

 

Well that's one way to reward him for seeing the future clearly.

[alertmeipp]

Q is out and it's not bad at all.

[Myth465]

Earnings out.

 

http://www.sec.gov/Archives/edgar/data/1349436/000119312512208476/d342295dex991.htm

 

Key take aways for me. More acreage, increased production. Not sure about the cost, but if Ward can buy for $200 - $400 and sale for $4k then we have a winner. SD is the preferred driller and will probably get the highest IRR, and will be the preferred JV due to how they deal with water and keep cost down.

 

Regarding the hedge fund. I dont like it, Ward has always been Aubrey light, and appears to simply just overpay himself now. It looks like all the other side activities have been curtailed or stopped. He is always a much better investor than Aubrey.

 

[alertmeipp]

How would you explain the sharp increase in April production in Miss?

[Myth465]

It looks like production moved up by 2000. Not sure about why, could be the way the completions were done. Maybe some were drilled in March, but hooked up in April. Another idea could be better IP rates in April. Maybe some really high rate wells came on-line at the end of April.

 

They spent $70 million on 200,000 acres, and still have $70 million. They may be buying acreage at around $350 and planning on selling it for $4.4k. Very interesting. We could have 400,000 more acres for 2012, and then give up 250,000 for $1.1 billion.....

 

I think very little of that $145 budget will be spent on seismic. Most will go towards acreage.

[biaggio]

From 2009 SD Proxy...

 

During 2008, Mr. Ward was invoiced $40,631,771 for his share of costs for his interests in Program Wells, and received oil and gas revenues from his interests in Program Wells totaling $15,701,363.

 

On October 9, 2008, we entered into a purchase and sale agreement with Mr. Ward and certain of his affiliated entities to acquire all of Mr. Ward’s interests under the WPP. We paid approximately $67.3 million in cash for the interests, and in connection with the transaction, Mr. Ward and the Company agreed to terminate the WPP in its entirety. The purchase of Mr. Ward’s interests under the WPP was made effective as of September 30, 2008. The terms of the purchase and sale agreement were reviewed and approved by the disinterested members of our Board of Directors, and we believe the purchase of Mr. Ward’s interests was on terms not materially less favorable than those that might reasonably have been obtained in a comparable arm’s length transaction with an unaffiliated third party and are fair to us from a financial point of view.

 

Let me see if I understand this.  About the time management determined to exit natural gas E&P because they thought it likely that  natural gas prices would tank because of the looming production glut, they buy back the Chairman's interest in that production. 

 

Well that's one way to reward him for seeing the future clearly.

 

I know Mr Ward is well respected on this board and by FFH.

 

Why would he do that? Crazy to do it only for the money. He was trained by the guy at CHK, no?

 

I would not even wasting your time with "the Q" no matter how good it is. How can you trust him with your hard earned money (or more importantly your clients money)

[alertmeipp]

Some one asked the same question in the CC.

To Ward's points, someone think he paid too much or too little... it's whether the BoD and shareholders want him to go or not. He said he create billions of value to shareholders.

 

I agree with his points above although waiting for the value to reflect on pps has not been fun.

 

Re: the jump in April - Looks like they got couple wells with 2k oil (yes 2000)... but doesn't mean it's all over the acres. :) the IRR is amazing on those, pay back period is 10 days.

 

Another questions I found interesting were:

 

1) Someone ask why they can keep buying the acres cheap while selling it so high. It's about scale and those water disposal systems again.

2) Someone ask what happen if NG storage is full. I feel Ward doesn't want to answer it as he wants distance the company from NG. 80% revenue coming from oil.

 

Same play book as CHK, just smaller scale and couple years further.

 

 

 

[FFHWatcher]

Earnings out.

 

http://www.sec.gov/Archives/edgar/data/1349436/000119312512208476/d342295dex991.htm

 

Key take aways for me. More acreage, increased production. Not sure about the cost, but if Ward can buy for $200 - $400 and sale for $4k then we have a winner. SD is the preferred driller and will probably get the highest IRR, and will be the preferred JV due to how they deal with water and keep cost down.

 

Regarding the hedge fund. I dont like it, Ward has always been Aubrey light, and appears to simply just overpay himself now. It looks like all the other side activities have been curtailed or stopped. He is always a much better investor than Aubrey.

 

There is almost certainly lots of side activities.  That is just my opinion based on the character of the executives in the O&G industry and on Wards, McClendon's past. The side activities aren't necessarily with McClendon. They aren't regular investors or risk takers.  They found/create companies and then lever the crap out of their holdings to buy more and more and more, historically at the top.  They create (is anybody suggesting BOD created Founders Well Programs?) incentives for themselves in their compensation that are stunning for most, only outdone by investment bankers.  I will say that Ward made a good point in saying that he created Billions of value in just the Mississipian play alone, why doesn't he deserve 10's of millions?  Just because the share price hasn't moved up?  Hard to blame him for that. 

 

Myth: why do you say that Ward is a better investor than McClendon?  Just because Aubrey was able to get a margin call on shares of a company he founded 20 years earlier?  Ward did it on a company he founded but not quite to the magnitude of Aubrey.  We can only assume that Ward left with hundreds of millions from his shares in CHK yet all his SD shares are held as collateral for loans. Where is his equity?  As far as the fund goes, they should have received equal returns :-)

 

 

[Myth465]

Ward is a value investor. His personal finances are his thing, but he is a better Investor as a Manager, because he covers the risks. Look at what he does, listen to what he says, look at how he designed the company, and look who he hangs out with (Prem Watsa). Ward / Aubrey were 1 in the same with Ward being a better operator and less of a risk taker. Aubrey was the marketing / promotions guy and is a much better speaker. I would say they were more similar then alike.

 

But look at Ward post 2008. He put money into a natural gas company, then scored a big win when prices hit $13. Then slightly break even at $8 gas. Him and his team saw that gas would continue to go down due to shale. They had to lever the company up to switch to oil, but the alternative would have been a take under or bankruptcy due to low gas prices.

 

Post 2008 I would say they are very different because Ward has learned from his mistakes. I see no downside to SD except for oil going to $40 and staying there for 5+ years. Ward picked assets which were dirt cheap, had no exploration risk, cheap wells to drill, high IRRs. He saw the problem (water), and spent time figuring out how to deal with it. Even now with the homeruns they are still focused on getting well costs as low as possible which creates a moat. Anyone can buy acreage, but the IRRs comes from bringing cost down. Who would you JV with, someone with 200,000 acres but no experience in the Miss or SD. The one risk over the next 5 years that I can see is oil prices dropping, and Ward is hedging out production for 5 years. He has taken a beating on those hedges, but he is eliminating the one main short term risk he faces. Looks smart with Europe popping up again.

 

Look at Dynamic, its a platform to acquire the cheapest oil in the world. The Permian was the cheapest oil in the world, then the miss acreage was dirt cheap, and now offshore assets are going for 2x CF. Ward goes where the value is, and inmo is a value investor. Aubrey's strategy appears to be to pray for a hot summer / cold winter, and now the markets (stock, debt, and natural gas) are forcing his hand. He just seems to be behind the curve to a degree, instead of ahead of it. Reacting instead of acting. I love the assets at CHK ,but its just a mess trying to get your hands around all of the JVs, forward asset sales, trusts, and aceage. Too may moving parts, and a Management that isnt focused inmo.