SD - SandRidge Energy

[alertmeipp]

On Miss Lime. A good read.

 

http://www.worldoil.com/March_2013_mississippi_lime.html

[CorpRaider]

Bought some Jan '14 LEAPS so I can share in the fun with you guys. 

[Cunninghamew]

Bought some Jan '14 LEAPS so I can share in the fun with you guys.

 

Ditto but common stock.... Put a starter in this morning. Thanks guys for doing all of the hard work

[tombgrt]

On Miss Lime. A good read.

 

http://www.worldoil.com/March_2013_mississippi_lime.html

 

Thank you.

 

Bought some Jan '14 LEAPS so I can share in the fun with you guys. 

 

Which one did you buy? I bought the $3 strikes. Still decent leverage, lower transaction costs and time value is quite low.

[CorpRaider]

The $5 and $7 strikes; largely because those seem fairly liquid with the volumes and outstanding contract figures.  I'm probably very unsophisticated in my analysis of options pricing, but I don't believe that past volatility is really all that relevant to likely future volatility, especially if we're talking about special situations.  Its probably just an easy way to justify avoiding the computations.

[luck]

i remember reading dinakhar singh's rise at goldman was related to him being their top trader.  not sure exactly what he traded.  listening to this guy's interviews, it is clear he's going to flip it, but if you're buying at these prices, it should be fine as a double.  what i like about singh is he thinks like a pissed off shareholder and he seems incredibly intelligent - not the sort of guy who is going to make a bunch of capital allocation mistakes.

[muscleman]

i remember reading dinakhar singh's rise at goldman was related to him being their top trader.  not sure exactly what he traded.  listening to this guy's interviews, it is clear he's going to flip it, but if you're buying at these prices, it should be fine as a double.  what i like about singh is he thinks like a pissed off shareholder and he seems incredibly intelligent - not the sort of guy who is going to make a bunch of capital allocation mistakes.

 

So his style is to trade stocks in and out, instead of holding long term?

I am a bit confused here. He has held SD for at least half a year now, so that doesn't seem like a quick flipper. More of an activist style.

[A_Hamilton]

i remember reading dinakhar singh's rise at goldman was related to him being their top trader.  not sure exactly what he traded.  listening to this guy's interviews, it is clear he's going to flip it, but if you're buying at these prices, it should be fine as a double.  what i like about singh is he thinks like a pissed off shareholder and he seems incredibly intelligent - not the sort of guy who is going to make a bunch of capital allocation mistakes.

 

So his style is to trade stocks in and out, instead of holding long term?

I am a bit confused here. He has held SD for at least half a year now, so that doesn't seem like a quick flipper. More of an activist style.

 

Six months is long term?

[Parsad]

i remember reading dinakhar singh's rise at goldman was related to him being their top trader.  not sure exactly what he traded.  listening to this guy's interviews, it is clear he's going to flip it, but if you're buying at these prices, it should be fine as a double.  what i like about singh is he thinks like a pissed off shareholder and he seems incredibly intelligent - not the sort of guy who is going to make a bunch of capital allocation mistakes.

 

So his style is to trade stocks in and out, instead of holding long term?

I am a bit confused here. He has held SD for at least half a year now, so that doesn't seem like a quick flipper. More of an activist style.

 

He's not a trader.  Like most fund managers, including investors on here, they buy below their estimate of intrinsic value and sell closer to it.  If a company's management is not doing their job, they will become active, but while they want to maximize shareholder value, they also don't want to be running the business day in, day out.  So I suspect they will look at all alternatives, but the most likely scenario is they find a buyer/strategic partner that actually ends up developing the assets.  Cheers!

[muscleman]

i remember reading dinakhar singh's rise at goldman was related to him being their top trader.  not sure exactly what he traded.  listening to this guy's interviews, it is clear he's going to flip it, but if you're buying at these prices, it should be fine as a double.  what i like about singh is he thinks like a pissed off shareholder and he seems incredibly intelligent - not the sort of guy who is going to make a bunch of capital allocation mistakes.

 

So his style is to trade stocks in and out, instead of holding long term?

I am a bit confused here. He has held SD for at least half a year now, so that doesn't seem like a quick flipper. More of an activist style.

 

He's not a trader.  Like most fund managers, including investors on here, they buy below their estimate of intrinsic value and sell closer to it.  If a company's management is not doing their job, they will become active, but while they want to maximize shareholder value, they also don't want to be running the business day in, day out.  So I suspect they will look at all alternatives, but the most likely scenario is they find a buyer/strategic partner that actually ends up developing the assets.  Cheers!

 

http://newsok.com/two-more-sandridge-energy-executives-will-leave-in-may/article/3803783

 

Two more people leaving the company.

 

 

Any thoughts on the SD's trusts' performance?

http://seekingalpha.com/article/1376651-sandridge-could-be-further-negatively-impacted-by-poor-trust-well-performance?source=google_news

[ourkid8]

Since March 13 settlement, we have lost 3/5 execs with TWs departure around the corner.  These execs have a deep understanding of the Mississippian formation and is a huge loss to the organization.  Let's hope a sale of the company is around the corner...

 

tks,

S

 

i remember reading dinakhar singh's rise at goldman was related to him being their top trader.  not sure exactly what he traded.  listening to this guy's interviews, it is clear he's going to flip it, but if you're buying at these prices, it should be fine as a double.  what i like about singh is he thinks like a pissed off shareholder and he seems incredibly intelligent - not the sort of guy who is going to make a bunch of capital allocation mistakes.

 

So his style is to trade stocks in and out, instead of holding long term?

I am a bit confused here. He has held SD for at least half a year now, so that doesn't seem like a quick flipper. More of an activist style.

 

He's not a trader.  Like most fund managers, including investors on here, they buy below their estimate of intrinsic value and sell closer to it.  If a company's management is not doing their job, they will become active, but while they want to maximize shareholder value, they also don't want to be running the business day in, day out.  So I suspect they will look at all alternatives, but the most likely scenario is they find a buyer/strategic partner that actually ends up developing the assets.  Cheers!

 

http://newsok.com/two-more-sandridge-energy-executives-will-leave-in-may/article/3803783

 

Two more people leaving the company.

 

 

Any thoughts on the SD's trusts' performance?

http://seekingalpha.com/article/1376651-sandridge-could-be-further-negatively-impacted-by-poor-trust-well-performance?source=google_news

[BG2008]

I've been getting up to speed on this.  I'll post a back of the envelope sum-of-the-part valuation later on today.  Please feel free to attack, criticize, etc.  One thing that still bugs me is the cash-on-cash return of the Cap Ex for 2013?  We're losing some Rev and OCF through the sale of the Permian asset.  We would imagine that Cap Ex will be at least $1.0bn.  What will be the incremental revenue and cashflow on that $1.0 of cashflow.  This ties back into what is the IRR on the Mississippian wells.  If we do not have a clue, then should we really be in this name (despite TPG's intention to sell and Fairfax's backing of the value in the "rocks").  I think the BMO and Canacord report does challenge us to think about the cash-in and cash-out for the Mississippian assets. 

[PhatKing]

Posted by: ourkid8

« on: April 28, 2013, 11:58:33 AM »

 

Since March 13 settlement, we have lost 3/5 execs with TWs departure around the corner.  These execs have a deep understanding of the Mississippian formation and is a huge loss to the organization.  Let's hope a sale of the company is around the corner...

 

I don’t think that these management changes are unexpected. Reducing overhead is one of the strategic objectives. So you have to reduce some personnel at the Executive VP level – always start at the top. They already have a replacement leader in Reservoir Engineering.  IMHO these changes indicate that the new management is working rapidly and deliberately to set SD on the road to financial stability, and ultimately to profitability. 

[ourkid8]

I could not agree more.  None of us really want a large exodus of individuals who understand this play JUST IN CASE we cannot find a buyer who is willing to pay $9-$12/share at this time.  I am perfectly fine with continuing to develop the Mississippian formation until we get a good offer.

 

Tks,

S

 

Posted by: ourkid8

« on: April 28, 2013, 11:58:33 AM »

 

Since March 13 settlement, we have lost 3/5 execs with TWs departure around the corner.  These execs have a deep understanding of the Mississippian formation and is a huge loss to the organization.  Let's hope a sale of the company is around the corner...

 

I don’t think that these management changes are unexpected. Reducing overhead is one of the strategic objectives. So you have to reduce some personnel at the Executive VP level – always start at the top. They already have a replacement leader in Reservoir Engineering.  IMHO these changes indicate that the new management is working rapidly and deliberately to set SD on the road to financial stability, and ultimately to profitability.

[PhatKing]

Thanks S. I concur with your sentiments of patience required to get the right price for the company. What we are witnessing is David Lawler, our new COO, putting his team in place.  The press release mentions the promotion of Lance J. Galvin to senior vice president of corporate reservoir engineering. He worked with David Lawler at Postrock Energy. David Lawler was the Chairman and CEO at Postrock. Both are talented, have lots of experience, and our new management is recognizing their talent and entrusting them with the core operations. Reservoir  Engineering is important to get a solid handle on our proven and proved developable reserves. Those reserves are important to get proper values for asset sales, and are likely to make the difference between getting $9 or $10, or $11 or $12 for SD. We seem to in good hands, so far. Lots more to happen. 

 

David Lawler biodata from PostRock filings in 2011

 

David C. Lawler , age 43, has served as our Chief Executive Officer and President and director since the closing of the recombination. Prior to the recombination he served as QRCP’s Chief Operating Officer from May 2007 until May 2009 and became President of QRCP, the general partner of QELP (Quest Energy GP, LLC or “QEGP”) and the general partner of QMLP (Quest Midstream GP, LLC or “QMGP”) in August 2008 and served as Chief Executive Officer of QRCP, QEGP and QMGP from May 2009 to March 2010. He has worked in the oil and gas industry for more than 20 years in various management and engineering positions. Prior to joining our company, 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 B.S. in Petroleum Engineering and earned his M.B.A. from Tulane University in 2003. The board of directors is nominating Mr. Lawler because, in addition to valuing his significant operating experience, the board believes that having his perspective as the Chief Executive Officer of our company enhances the board’s focus on and contribution to our growth and development and is in the best interest of our stockholders.

 

Lance J, Galvin biodata from PostRock filings in 2011

 

Mr. Galvin has served as our Vice President — Engineering and Operations — Appalachia since the closing of the recombination. Prior to that he served as Vice President of QRCP from October 2009 to March 2010. He became Vice President — Engineering and Operations — Appalachia of QRCP, QEGP and QMGP and served in that capacity from December 2009 to March 2010. Mr. Galvin has over 25 years of reservoir engineering experience. Prior to joining QRCP, from February 2008 to June 2009, Mr. Galvin served as Chief Operating Officer for privately-held Windsor Energy, where he managed all aspects of the company’s oil and gas asset portfolio including engineering and operations for properties in Oklahoma, Texas, Colorado, Wyoming and North Dakota. Prior to this role, from 2002 to February 2008, Mr. Galvin served as a consulting engineer for Pinnacle Energy Services, LLC, where he was responsible for preparing reserve reports, reservoir engineering evaluations, and field studies for numerous public and private clients. Mr. Galvin earned a B.S. in petroleum engineering from Colorado School of Mines in 1980 and is a registered professional engineer in the State of Oklahoma.

[PhatKing]

Press release from Postrock Energy when David Lawler left. As I said before, we seem to be in good hands, moving forward. 

 

 

June 10, 2011

PostRock to Select New President

 

OKLAHOMA CITY, June 10, 2011 (GLOBE NEWSWIRE) -- PostRock Energy Corporation (Nasdaq:PSTR) announced today that David C. Lawler has resigned from his position as the Company's President and Chief Executive Officer effective July 15th. He will be leaving to join SandRidge Energy Inc. as Executive Vice President of Operations. At the Board's request, Mr. Lawler has agreed to remain CEO until he departs. Duke R. Ligon, the Chairman of PostRock's Board, and Thomas J. Edelman, White Deer's Managing Partner responsible for the Fund's investment in PostRock, will lead the Board committee charged with identifying and recruiting the new CEO.

 

Commenting, Mr. Ligon said: "David made an invaluable contribution to PostRock in the course of his four years with the Company.  He played the key role in resolving the numerous challenges inherited from prior management. Just as importantly, he has helped position the Company to pursue a strategy of consistent growth and profitability from this point forward. While we are sorry to lose David, he simply received an offer we could not prudently match. The Board joins me in thanking David for his devoted service and in wishing him the greatest possible success."

[zippy1]

The 10K addendum(?) is out. Executive compensation is being addressed. Below are some of the quotes:

2013 Executive Compensation Program Changes

During 2012 and the first several months of 2013, our Compensation Committee received input from stockholders regarding the design,

competitiveness, and function of our executive compensation programs. In response to this input and as part of a comprehensive review of all of the

Company’s compensation and governance practices, the Compensation Committee and the Board of Directors are in the process of implementing substantive

changes to our executive compensation program for 2013 and beyond in order to enhance the linkage between compensation and Company performance, and to

better align the process with best practices. Measures the Compensation Committee intends to implement are reconstituting the peer group to which the

Company’s compensation is compared; linking annual incentive compensation to the objective performance criteria; and tying a meaningful portion of longterm

incentive compensation to stock price performance. The Company expects to disclose information regarding these measures and the revised executive

compensation program once they are finalized.

The following actions have already been taken by the Compensation Committee in connection with its recent and on-going evaluation.

Clawback Policy

In April 2013, the Compensation Committee adopted, and the Board approved, a clawback policy that will be administered by the Compensation

Committee. Under the policy, the Company, at the Board’s discretion, may recover incentive compensation that has been erroneously paid, in the event of a

material restatement or misconduct.

Stock Ownership Guidelines

In April 2013, the Compensation Committee adopted, and the Board of Directors approved, stock ownership guidelines for executive officers and

independent directors of the Company. The policy generally requires executives to own stock in the Company equal to the following guidelines:

Executive Level

Percentage

of Salary

Required

CEO 500%

EVP 300%

Other Officers 100%

In addition, outside directors will be required to own stock equal to 500% of their annual retainer. Executives and outside directors will have five years to

fulfill this requirement. Until they are in compliance with the guidelines, they will be required to hold a specified amount of net shares associated with equity

awards (after tax and/or exercise price) in the following amounts: CEO – 60% of net shares; EVPs, other officers, and outside directors – 50%.

Anti-Hedging, Anti-Pledging Policy

The Compensation Committee adopted, and the Board of Directors approved, a policy that will apply to stock granted or acquired after the effective date

of May 1, 2013. The policy will prohibit executives and independent directors from entering into agreements in which Company shares are pledged as security

for a loan. It also prohibits executives and outside directors from engaging in hedging transactions involving Company stock.

Review of Tally Sheets

Beginning in 2013 and going forward, the Compensation Committee has adopted a practice of reviewing compensation tally sheets to provide the

Committee with a detailed view of total compensation delivered to named executive officers, including direct and indirect compensation.

 

[muscleman]

The 10K addendum(?) is out. Executive compensation is being addressed. Below are some of the quotes:

2013 Executive Compensation Program Changes

During 2012 and the first several months of 2013, our Compensation Committee received input from stockholders regarding the design,

competitiveness, and function of our executive compensation programs. In response to this input and as part of a comprehensive review of all of the

Company’s compensation and governance practices, the Compensation Committee and the Board of Directors are in the process of implementing substantive

changes to our executive compensation program for 2013 and beyond in order to enhance the linkage between compensation and Company performance, and to

better align the process with best practices. Measures the Compensation Committee intends to implement are reconstituting the peer group to which the

Company’s compensation is compared; linking annual incentive compensation to the objective performance criteria; and tying a meaningful portion of longterm

incentive compensation to stock price performance. The Company expects to disclose information regarding these measures and the revised executive

compensation program once they are finalized.

The following actions have already been taken by the Compensation Committee in connection with its recent and on-going evaluation.

Clawback Policy

In April 2013, the Compensation Committee adopted, and the Board approved, a clawback policy that will be administered by the Compensation

Committee. Under the policy, the Company, at the Board’s discretion, may recover incentive compensation that has been erroneously paid, in the event of a

material restatement or misconduct.

Stock Ownership Guidelines

In April 2013, the Compensation Committee adopted, and the Board of Directors approved, stock ownership guidelines for executive officers and

independent directors of the Company. The policy generally requires executives to own stock in the Company equal to the following guidelines:

Executive Level

Percentage

of Salary

Required

CEO 500%

EVP 300%

Other Officers 100%

In addition, outside directors will be required to own stock equal to 500% of their annual retainer. Executives and outside directors will have five years to

fulfill this requirement. Until they are in compliance with the guidelines, they will be required to hold a specified amount of net shares associated with equity

awards (after tax and/or exercise price) in the following amounts: CEO – 60% of net shares; EVPs, other officers, and outside directors – 50%.

Anti-Hedging, Anti-Pledging Policy

The Compensation Committee adopted, and the Board of Directors approved, a policy that will apply to stock granted or acquired after the effective date

of May 1, 2013. The policy will prohibit executives and independent directors from entering into agreements in which Company shares are pledged as security

for a loan. It also prohibits executives and outside directors from engaging in hedging transactions involving Company stock.

Review of Tally Sheets

Beginning in 2013 and going forward, the Compensation Committee has adopted a practice of reviewing compensation tally sheets to provide the

Committee with a detailed view of total compensation delivered to named executive officers, including direct and indirect compensation.

 

This is a much needed change! I think TPG is heading in the right direction!

[Parsad]

I agree!  Outstanding change to the compensation plan.  I wish more companies did this.  Cheers!

[BG2008]

I went through the log graphs of various wells drilled during SD's analyst day presentation.  I'm not a O&G expert, but at a certain point, there is a back of the envelope aspect for the wells. 

 

I used bmichaud's model from post page #60 to run a simple IRR analysis.  Some of the key assumptions are 60% Year 1 decline rate, $90 oil and $3.50 gas, Oil to gas weighting of 45/55%, and $10/BOE for LOE and $2/BOE in production taxes.  The key take away in this analysis is that to get to a pre-tax and pre-infrastructure IRR of 40%, we need about a 30-day IP of 300 BOE per day.  By extrapolating the log graphs from the Analyst day presentation, we have wells drilled in Kansas that have IP-30 of 58, 122, 126, 296, 209, 335 for an average of 191 BOE per day.  This is a small sample size and will likely distort the true average.  But this does alarm me in that I can't independently verify the 40% IRR.  If we take the average of these Kansas wells, then the IRR is closer to 13.6%.  When netting out infrastructure cost (salt water disposal, G&A, etc), I think that we're probably breaking even or slightly losing money.  This is very concerning because incremental cap ex in essence does not create any value in the long run.  So the $1.75bn in cap ex in 2013 really isn't going to create any intrinsic value.  The way for us to win is either we find acreages with average BOE/Day over 300 or some sucker comes along and pays us a good price for the Mississippian Lime. 

 

Please criticize/attack/comment on the data points below. 

 

The IRR analysis is in the simple IRR tab and the well data is in the well data tab 

 

 

Simple_Sandridge_Well_IRR_Analysis.xls

[Nnejad]

The company states that Kansas wells have lower decline rate, and so the IRR's are close to Mississippian numbers even despite lower IPs because of this.

 

I myself spent a lot of time verifying the type curve, and got fairly comfortable with it without getting too complex in my analysis. I guess at the end of the day though, IMO it was a waste of time as the type curve is independently vetted and represents the overall results of what's been done to date. It takes into account higher Mississippian IP vs Kansas, and also slightly takes into account slower Kansas declines. But overall, I think it sticks to the wells that have been drilled to date. As for future wells...

[BG2008]

Nnejad,

 

Given the rapid declines in the well production, can you provide high level commentary on your analysis?  From the 6 Kansas wells, I've seen first year declines of 50-80%.  They do not seem to be materially lower than the OK wells.  Given that IRR figures has been revised downward over time...

[muscleman]

Nnejad,

 

Given the rapid declines in the well production, can you provide high level commentary on your analysis?  From the 6 Kansas wells, I've seen first year declines of 50-80%.  They do not seem to be materially lower than the OK wells.  Given that IRR figures has been revised downward over time...

 

From their March 5th presentation, it didn't go into the details of how much less the decline rate is in KS compared to OK.

However, I wouldn't worry too much about this. I think they don't even have enough money to fully develop the OK area, and TW was being impractical. Now that TPG took this over, they will likely focus on the OK area, and try to sell the KS leases. I vaguely remember that they talked about this during the proxy fight.

[PlanMaestro]

mmm … I am very familiar with Lawler's efforts at Postrock aka Quest. He was not directly responsible for the mess, that was the crazy CEO and his imperial ambitions pre-2008. However, I do hold him responsible for some transactions as President and CEO that raised more than an eyebrow.

 

The most outrageous one was timing the pricing of the warrants for a new capital injection to coincide with the forced sale of whole position of one the largest shareholders (Alerian I think). The stock is very illiquid and it dropped from around $5 to below $3 for only a couple of days when the price of the warrants was set.

 

While I voted for the merger of all the Quest entities into Postrock, some of the facts regarding the state of the private pipeline business were not clear at the time. It had some influential large shareholders, like Alerian, that wanted a way out. They got an outsized share of the pie sold on the benefits of a large entity to raise capital, only to sell their shares as soon it was clear that the pipeline business was losing one of its two large clients. Those sales from the former private pipeline business set the stage for the heavy dilution just mentioned with the promised capital raise.

 

Both non-pipeline entities that were merged into Postrock would have recovered much more in liquidation, without going through this whole mess pushed by Lawler.

 

And the Postrock team post capital injection (White Deer) continues to dilute the company using capital injections at preferential conditions for the controlling shareholders. Sad story, and the only reason why I have not bought again despite it being very cheap. I was lucky to emerge unscathed on that one thanks to a very cheap initial price.

 

The operations of Postrock are Cherokee basin coalbed methane, so I don't think much of Lawler's past experience is really aplicable to Sandridge.

[Nnejad]

Ya, just pulled it from a call. I believe the slower decline in KS has more to do with the tail and not so much year 1.

 

Also, if you're looking at just the 6 wells from the investor day presentation, those were specifically chosen by the company to illustrate a point. I.e., they showed one well in KS with an IP30 of ~60, but which will earn IRR of 40% because it's almost all oil and because its declining slowly. I think they were trying to highlight that investors should look at more than just IP in order to understand the well economics of some of these areas.