SD - SandRidge Energy

[plato1976]

:)

 

btw, not sure what's the "min" capex for SandRidge so that it can continue the oil production from its existing wells, and also

not to lose the drilling rights for most of its acreage (b/c I believe for most lease there will be such a requirement). Also, does anyone know how long is SandRidge 's lease in Miss ?

 

In fact I am also not sure what's the "min" capex for Chesapeake

The "min" capex will decide how long these folks can hang on, keep the value of its assets, and fight another day.

 

Cancord's target of $1 per share is quite brave

 

No idea if they have a valid reason (didn't read). But usually analysts tend to give a target pretty close to the current trading price to lower their career risk. So to give a $1 target is at least a brave move if they are honest to their own analysis

 

Couple of interesting sell side notes on SD's valuation.

 

The Canaccord analyst, John Gerdes, had upgraded Sandridge to a target price of $6 last June when it's financial footing wasn't nearly as strong, and there was no oversight on capex, compensation, conflicts of interest or anything else.

 

http://m.theglobeandmail.com/globe-investor/investment-ideas/features/eye-on-equities/canaccord-slashes-price-target-on-fortress-paper/article2434801/?service=mobile

 

Now he suddenly drops it to $1 after they are in the strongest financial position ever, with a brand new board, almost guaranteed reduction in capex, and natural gas prices rising.  He's a retard! 

 

I don't know of any analyst that had predicted, suggested or opined that Sandridge could have gotten $2.6B for the Permian assets...do you think they have any idea what the remaining assets are really worth?  Cheers!

[plato1976]

ok. I do find very clear capex (drilling & lease maintenance capex) info for CHK in its latest presentation at

http://media.corporate-ir.net/media_files/IROL/10/104617/Latest_IR_Presentation.pdf

slide 17

 

not sure about SD though

 

:)

 

btw, not sure what's the "min" capex for SandRidge so that it can continue the oil production from its existing wells, and also

not to lose the drilling rights for most of its acreage (b/c I believe for most lease there will be such a requirement). Also, does anyone know how long is SandRidge 's lease in Miss ?

 

In fact I am also not sure what's the "min" capex for Chesapeake

The "min" capex will decide how long these folks can hang on, keep the value of its assets, and fight another day.

 

Cancord's target of $1 per share is quite brave

 

No idea if they have a valid reason (didn't read). But usually analysts tend to give a target pretty close to the current trading price to lower their career risk. So to give a $1 target is at least a brave move if they are honest to their own analysis

 

Couple of interesting sell side notes on SD's valuation.

 

The Canaccord analyst, John Gerdes, had upgraded Sandridge to a target price of $6 last June when it's financial footing wasn't nearly as strong, and there was no oversight on capex, compensation, conflicts of interest or anything else.

 

http://m.theglobeandmail.com/globe-investor/investment-ideas/features/eye-on-equities/canaccord-slashes-price-target-on-fortress-paper/article2434801/?service=mobile

 

Now he suddenly drops it to $1 after they are in the strongest financial position ever, with a brand new board, almost guaranteed reduction in capex, and natural gas prices rising.  He's a retard! 

 

I don't know of any analyst that had predicted, suggested or opined that Sandridge could have gotten $2.6B for the Permian assets...do you think they have any idea what the remaining assets are really worth?  Cheers!

[PhatKing]

Well it looks like progress is being made rather swiftly in reducing costs - planes sold!!!!!. Appointment of David Lawler as COO seems to ensure that the Operations of drilling in the Mississippian play do not suffer or slacken. Since the future of SD (and its ultimate value) is highly dependent on the Mississippian play, ensuring that operations remain stable while the high level drama plays out is a smart move. First steps towards a reasonable outcome of this activism seem promising. 

 

http://phx.corporate-ir.net/phoenix.zhtml?c=196066&p=irol-newsArticle&ID=1804069&highlight=

 

 

 

[PhatKing]

From now-on the future of SD depends on the development and execution of a/the strategic plan. So the principals/players making these decisions are important.

 

I also like the fact that there is Jim Brewer and Jeff Serota from SD in the Strategy and Planning committee. Jim, a geologist, seems to be one of the few members of the SD Board with direct experience that are relevant to the activities that SD will likely undertake as they get ready to grow and/or sell the company.

 

He is the founder of EnergyNet which offers "an easy-to-use oil and gas auction service that facilitates the sale of producing working interests (operated and non-operated), overrides, royalties, mineral interests, and non-producing leasehold", accoridng to the EnergyNet website (see below)

 

http://www.energynet.com/page/About_Us

 

Jeff Serota is a partner at the "Ares Private Equity Group " which  pursues opportunistic majority or shared-control investments, principally in under-capitalized middle market companies. We seek strong business franchises that have attractive growth opportunities, but are capital constrained in some way.", according to their website. So presumably he would have views on recapitalizing the debt at lower costs.

 

From the proxy, David Lawler appears very qualified.

 

"David C. Lawler. Mr. Lawler joined us as Executive Vice President – Operations in August 2011. Prior to joining the Company, Mr. Lawler served as Chief Executive Officer and President of PostRock Energy Corporation and its predecessor entities since August 2008 after having served as Chief Operating Officer of PostRock Energy Corporation’s predecessor entities from May 2007 through August 2008. Prior to that, Mr. Lawler was employed by Shell Exploration & Production Company from May 1997 to May 2007 in roles of increasing responsibility, most recently as Engineering and Operations Manager for multiple assets along the U.S. Gulf Coast. Mr. Lawler graduated from the Colorado School of Mines in 1990 with a Bachelor of Science degree in Petroleum Engineering and earned his Master of Business Administration degree from Tulane University in 2003".

 

These look like some reasonable moves in about 3 weeks, made by the new directors.

[muscleman]

http://www.thestreet.com/_yahoo/video/11886606/buy-sandridge-at-5.html?cm_ven=YAHOOV&cm_cat=FREE&cm_ite=NA&s=1

 

 

At the end, it says don't put more than 5%... Sanjeev, you are way over-weighted on this speculative stock.  ;D

 

I am over 5% for sure.  8)

 

Btw, I added some today.

 

We are WWAAAAYYYY over 5%!  Should I reallocate?  ;D  Cheers!

 

I added last week and now I have a 12% position.

I am a newbie investor and I am curious how you value junior oil companies like SD. Do you value it based on the NAV?

What I am thinking is that with the Permian sale, they get $1.6 bn net cash. They said drilling in Missisipian will likely get 40%-80% ROR. So if we have 60% * $1.6bn, we should get $0.96 bn per year from the drilling, so that give a PE of 2.5. Is this math right? Actually, I am thinking, if they do get this kind of ROR, it is not bad to draw the credit line  to do it. The credit line is just like 7% a year for interest, right?

[muscleman]

From now-on the future of SD depends on the development and execution of a/the strategic plan. So the principals/players making these decisions are important.

 

I also like the fact that there is Jim Brewer and Jeff Serota from SD in the Strategy and Planning committee. Jim, a geologist, seems to be one of the few members of the SD Board with direct experience that are relevant to the activities that SD will likely undertake as they get ready to grow and/or sell the company.

 

He is the founder of EnergyNet which offers "an easy-to-use oil and gas auction service that facilitates the sale of producing working interests (operated and non-operated), overrides, royalties, mineral interests, and non-producing leasehold", accoridng to the EnergyNet website (see below)

 

http://www.energynet.com/page/About_Us

 

Jeff Serota is a partner at the "Ares Private Equity Group " which  pursues opportunistic majority or shared-control investments, principally in under-capitalized middle market companies. We seek strong business franchises that have attractive growth opportunities, but are capital constrained in some way.", according to their website. So presumably he would have views on recapitalizing the debt at lower costs.

 

From the proxy, David Lawler appears very qualified.

 

"David C. Lawler. Mr. Lawler joined us as Executive Vice President – Operations in August 2011. Prior to joining the Company, Mr. Lawler served as Chief Executive Officer and President of PostRock Energy Corporation and its predecessor entities since August 2008 after having served as Chief Operating Officer of PostRock Energy Corporation’s predecessor entities from May 2007 through August 2008. Prior to that, Mr. Lawler was employed by Shell Exploration & Production Company from May 1997 to May 2007 in roles of increasing responsibility, most recently as Engineering and Operations Manager for multiple assets along the U.S. Gulf Coast. Mr. Lawler graduated from the Colorado School of Mines in 1990 with a Bachelor of Science degree in Petroleum Engineering and earned his Master of Business Administration degree from Tulane University in 2003".

 

These look like some reasonable moves in about 3 weeks, made by the new directors.

 

I am just curious how many planes are sold and how much proceeds they got from it? TPG said the planes are worth like $100 M in total.

[PhatKing]

We will never know what they realized from selling the planes, as they are not likely to disclose it. But perhaps they may. But if TPG-Axon said $100 million, and, if they got only say $70 - $ 80 million, it is still a nice amount of change, allowing them to drill 20-25 more wells (at $3.1 million per well). With a ROR of 40%, than translates to $28 to $32 million earnings. Additionally the savings on pilot salaries, hanger fees, vacation use of corporate jets by CEOs etc will reduce the G&A line of the income statement. 

 

In a well run E&P company, NAV is a good proxy for value. And of course converting that NAV into revenues requires that wells be drilled. While the NAV for SD is higher than $5, using it to value for SD is a bit tricky. This is because the company is likely to change its strategy drastically from the one presented on the recent Analyst day (March 7th).  The current cash flow is so low that the new strategy is likely to reduce Capex, reduce rig count (below 82 rigs), and reduce the number of wells that are drilled (below the guidance given on the March 7th analyst day). This in turn will shrink the company; reduce revenues, income and cash flow. They have to get G&A under control so that the company generates more cash flow and allows more wells to be drilled and returns to profitability quickly. As to today’s value, I can come up with any number that I want. Even analysts are all over the lot – from $ 1 at Canaccord, $4 at BMO and $6.30 at Credit Suisse.

 

In my opinion, this is an investment whose rationale is really a bet on the jockey (Activist TPG-Axon and Mount Kellet), realizing that the horse is not “Secretariat” (Kentucky’s legendary thoroughbred – see the movie of the same name …. it is good one with Diane Lane).  The bet is that the jockey will stop the horse from bleeding, allowing the horse to continue to walk and gallop, instead of making the horse into a thoroughbred capable of winning the Triple Crown. If the horse walks then you can get $8-$10. If the horse can gallop then perhaps $10- $12 may be possible.  Of course this presumes that our jockey is really as capable as the resumes of the Prinicipals indicate.

 

[fareastwarriors]

looks like fellow board memeber, MeVsEMT also established a position

 

http://www.mevsemt.blogspot.com/

[muscleman]

looks like fellow board memeber, MeVsEMT also established a position

 

http://www.mevsemt.blogspot.com/

 

Wow this guy disclosed so much about his portfolio. I think he is trying to establish a track record to start a fund in the future, right?

[alertmeipp]

I don't see much insider selling recently..

[craigatk]

I haven't looked at SD until today. Let me see if I understand the investment thesis correctly with this summary.

 

- Margin of safety is found in the discount between market price and estimate of NAV

- Hedge fund has taken control of board (TPG-Axon) and promises change

- Current mgmt is starting to change as a result, although still uncertainty around TW

- Asset wise, TPG-Axon in 1st letter, gave well researched valuation ~ $13 / sh.

- Asset wise, VIC nav calc from Feb 3 2012 shows similarity to TPG-Axon estimates.

- Asset wise, Permian Land sale has proven value to the upside ($2.6B achieved while $1.5B was estimated value by TPG-Axon, $3B estimated on VIC but I believe this includes cash-flow from production which was excluded? Fuzzy for me here.)

 

The activist funds being TPG-Axon (and Mount Kellet supporting) give me a positive impression. TPG-Axon is very sharp, so are the people's reputations behind Kellet. I believe they have put pretty conservative numbers into their NAV calc and you can see this in the Permian sale.

 

- finally in addition to the discount to NAV, there is the long-term estimate of the future value of the Mississipian Lime lands. What could they be worth if they can be drilled and put into economical production... that's more of a question mark but some estimates are quite high.

- Clarity on these numbers will rely on the new board as they push for cost controls and better capex.

 

 

Any thoughts? Am I starting to get the full picture?

[craigatk]

Upon further investigation, I also would like to add to my summary:

 

- 80% IRR promised by TW, faded into 40% IRR due to higher nat gas content in production wells (which are still very good numbers)

- TPG-Axon lowered NAV estimate due to this new info in second letter, closer to $10+

- CHK sold similar land at much lower prices than their mgmt estimated value, and lower than comparable SD transactions, meaning market is likely depressed with few buyers

- Sale was initially considered most likely outcome, considering SD's high cost of funding and the scale of capex required to fulfill 5 year land terms

- Full Sale may realize most value, but with depressed market, there may be a lack of buyers at acceptable prices

- Other options will likely be explored and strategic plans developed in next several months, could be part of the reason a deal was struck with TW

- Market dissatisfaction with TW and uncertainty around where this company is going (regardless of TPG-Axon proxy win) is pushing the price down

- Any announcements of positive news, resolution of TW situation, new strategic plans around funding, capex, expenses, and drilling wells profitably, could really push the stock up.

 

Quite an interesting idea. I'm also trying to envision the downside from here. What kind of news would make the stock go even lower? What kind of surprises are possible.

 

[riju_easow]

Dataroma indicates that there were a few insider sales (including a few millions by Mr Ward) in March.

SD.bmp

[fareastwarriors]

Dataroma indicates that there were a few insider sales (including a few millions by Mr Ward) in March.

 

 

insiders transaction from capIQ, last 3 mo

SandRidge_Energy_Inc_NYSE_SD_Public_Ownership_Insider_Trading1.xls

[zippy1]

Dataroma indicates that there were a few insider sales (including a few millions by Mr Ward) in March.

 

 

insiders transaction from capIQ, last 3 mo

I wonder whether this list give the picture of who plan to stay and who plan to leave?

[Cardboard]

"Quite an interesting idea. I'm also trying to envision the downside from here. What kind of news would make the stock go even lower? What kind of surprises are possible."

 

Lower oil prices. Considering also how many people on this board have expressed concerns about the economy and the market, it seems that if the S&P drops that oil will get hammered. This would result in revised NAV to the downside.

 

I am actually considering selling some if not my entire position. The upside appears limited, it is not like a triple or more. They keep finding more oil in the U.S. while the economy has shifted away from it with more renewables, cheap nat gas and much more attention to gas mileage on new cars. Even a degradation in the Iranian situation might not change things much since it seems we are seeing a decline in demand for oil globally.

 

The activists were really the driver to get quickly closer to NAV, but I don't know anymore. Selling a few planes won't do the job. They need to sell assets at high prices and the market is simply not there. CHK is a prime example. So, if it just becomes an oil play through the drill bit, then you have other choices in oil such as Suncor and trusts that pay big dividends.

 

It feels like a weak market will cut the price of this thing in half while a sale or some major positive surprise may give you a 50% pop from here. So it is kind of worrisome to sell because you are afraid to miss this potential gain, but on the other hand you could get a much better price once the market bubble pops.

 

Cardboard

[PhatKing]

Thanks for the Insider trading summary. If we invert the question and ask if "the insiders are still holding a lot of shares?". Then I am surprised (and pleasantly so), that the 4 people (Rodney Johnson, Randall Cooley, Todd Tipton, Tom Ward) who sold after the Board and TPG-Axon signed the memorandum on March 13/14, still hold a vast majority of their shares. And a 5th person Wayne Chang actually purchased 10,000 shares at $4.99. So I conclude that insiders are still holding and presumably have the same views of the company today, as they held on March 12th, before the settlement with TPG-Axon.

 

As I said before, I believe that this is a bet on the jockeys led by TPG-Axon. Based on 13-F filings as of Dec 2012. Joining TPG-Axon is Leon Cooperman, Mount Kellett and Wally Weitz. Also Riverside/Carlyle holds lots of shares. If you look at the Riverside website, you can see that they have investments in many O&G companies. So they have domain knowledge in the O&G industry. Most of these guys manage pools of money with low turnover of holdings, and so it is likely that they will be holding their positions when we get the SEC filing reports for March 31st. All of the SD story (from March 12th) is still intact, unless there is further change in the "type curve" reflecting more gas and less oil, from wells drilled in the Mississippian play. In that case it will take longer for this story to play out, in my opinion. But based on the current expectations of oil/gas combination per well, 12-24 months is likely to be needed for this story to deliver robust returns. But meanwhile I feel I am in good company at a party that is yet to begin :)

 

Does anybody have any insights from based on questions/comments by the Oracle of Toronto during the the Fairfax Annual meeting held today, as to if, and why, Fairfax is holding their position in SD?

Thanks.

 

[compoundinglife]

Does anybody have any insights from based on questions/comments by the Oracle of Toronto during the the Fairfax Annual meeting held today, as to if, and why, Fairfax is holding their position in SD?

Thanks.

 

The question came up at the dinner and meeting. In summary they reiterated support for Tom and said he was the reason they invested in SD. They said that TPG (did not mention by name) is short sighted and will end up with a decent gain over the short term but are walking away from the greater upside that could be achieved in the long term with Tom.

 

Prem said at the meeting today that if Tom were to start new ventures they would look forward to investing with him in his future endeavours.

 

At the dinner Sam said something to tune of "we will make money on this but not as much as we would have with Tom". So it sounds like they are not getting out anytime soon, unless maybe there is a big move in the price.

 

If someone else who was there notices any inaccuracies of my account please point them out.

[plato1976]

Tom may be a talent to identify oil assets with long term value,

but did ANYONE ask in the dinner or in the meeting how could FFH possibly tolerate all the crazy things (private jet, numerous family transactions, etc. etc.) Tom did in SD ?

 

quote author=compoundinglife " data-ipsquote-contentapp="forums" data-ipsquote-contenttype="forums" data-ipsquote-contentid="3427" data-ipsquote-contentclass="forums_Topic" 112135#msg112135 data-ipsquote-timestamp=1365721332]

Does anybody have any insights from based on questions/comments by the Oracle of Toronto during the the Fairfax Annual meeting held today, as to if, and why, Fairfax is holding their position in SD?

Thanks.

 

The question came up at the dinner and meeting. In summary they reiterated support for Tom and said he was the reason they invested in SD. They said that TPG (did not mention by name) is short sighted and will end up with a decent gain over the short term but are walking away from the greater upside that could be achieved in the long term with Tom.

 

Prem said at the meeting today that if Tom were to start new ventures they would look forward to investing with him in his future endeavours.

 

At the dinner Sam said something to tune of "we will make money on this but not as much as we would have with Tom". So it sounds like they are not getting out anytime soon, unless maybe there is a big move in the price.

 

If someone else who was there notices any inaccuracies of my account please point them out.

[PhatKing]

Tom may be a talent to identify oil assets with long term value,

but did ANYONE ask in the dinner or in the meeting how could FFH possibly tolerate all the crazy things (private jet, numerous family transactions, etc. etc.) Tom did in SD ?

 

 

I would love to hear about the question raised by plato1976, since this is the mystery to me as well (and many others, I suspect). PW's reasons for overlooking the obvious ethical lapses, self-dealing, are a bit mystifying to say the least. A similar situation was present at CHK and no less than Lou Simpson was on the Board there, when Aubrey and Co were self-dealing with well interests etc etc.  Subsequently LS has been quite aggressive as Chair of the Nominating Committee in dealing with the situation and, AM is gone. Even WEB has said that he did not pipe up when he should have, at Coca Cola Board meetings. But subsequently he and Herb Allen went to Doug Iverson and essentially fired him (old 2004 story). But PW is an investor in SD, and so perhaps he thinks that TW's "visionary" attributes outweigh his lack of managerial skills. SD's performance since coming public raise questions about managerial competence as well.

 

The answer by FFH/PW that "we will make money on this but not as much as we would have with Tom" . In my opinion, this indicates that in their view, there is money to be made by holding at these prices (since FFH purchases are at prices higher than today's).

[PhatKing]

Sorry I messed up the way the post was posted ! Need to be careful!

[compoundinglife]

Tom may be a talent to identify oil assets with long term value,

but did ANYONE ask in the dinner or in the meeting how could FFH possibly tolerate all the crazy things (private jet, numerous family transactions, etc. etc.) Tom did in SD ?

 

To the best of my knowledge no one asked that directly. Sam did say that they had some issues with "compensation" and that Tom it seemed like those could be resolved.

[Packer16]

Did any of you find it strange when Prem said Tom W. was in attendance at the meeting? 

 

Packer

[Parsad]

Did any of you find it strange when Prem said Tom W. was in attendance at the meeting? 

 

Packer

 

I was outside by the book table during the entire Q&A, so was Tom actually present?  Cheers!

[compoundinglife]

Did any of you find it strange when Prem said Tom W. was in attendance at the meeting? 

 

Packer

 

I was outside by the book table during the entire Q&A, so was Tom actually present?  Cheers!

 

Prem said he was there and motioned towards the audience area where the managers were sitting. I did not see him but I have only seen a picture of him so not sure I would recognize him in the flesh.