SD - SandRidge Energy

[cemadh]

These are legitimate concerns. But one must also consider the natural gas upside that is currency NOT built into SD's share price.. In terms of BTU , NG price with respect to oil should be around 1:6. In other words, $90 per barrel of oil translates to about $15 per MCF of NG. NG is around $4 (FAR below $15) and is much closer to historical lows than historical highs. Nobody knows how long this mispricing will continue. But the chances of NG going higher are greater than the chances of NG going lower.

 

News like this only helps the case for higher NG prices in the near term (2 to 5 years)

http://www.csmonitor.com/Environment/Energy-Voices/2013/0518/US-eases-natural-gas-glut-with-second-export-terminal-video

 

[valueorama]

In terms of BTU , NG price with respect to oil should be around 1:6. In other words, $90 per barrel of oil translates to about $15 per MCF of NG. NG is around $4 (FAR below $15) and is much closer to historical lows than historical highs. Nobody knows how long this mispricing will continue. But the chances of NG going higher are greater than the chances of NG going lower.

 

The historical NG price to oil price ratio you quote is just that historical. You have to realize that prior to 2005 there was NO shale NG.  Now it is not like that. That ratio will not hold true going forward as we have abundant supply of NG.

[muscleman]

These are legitimate concerns. But one must also consider the natural gas upside that is currency NOT built into SD's share price.. In terms of BTU , NG price with respect to oil should be around 1:6. In other words, $90 per barrel of oil translates to about $15 per MCF of NG. NG is around $4 (FAR below $15) and is much closer to historical lows than historical highs. Nobody knows how long this mispricing will continue. But the chances of NG going higher are greater than the chances of NG going lower.

 

News like this only helps the case for higher NG prices in the near term (2 to 5 years)

http://www.csmonitor.com/Environment/Energy-Voices/2013/0518/US-eases-natural-gas-glut-with-second-export-terminal-video

 

I had some bad results before, and I now understand why MoS is the number one concern when I initiate a position.

If you have to rely on some rosy projections in the future to justify the current investment, then usually you are taking too much risk that you haven't realized and the current investment will likely perform poorly if something bad happens. (But your subconscious did realize these risks. Otherwise you don't have to hope something rosy will happen in the future in order to justify the current investment).

 

Just my 2 cents.

I don't have very long investing experience and my cummulative return is still in the red, so I could be wrong. :)

[ourkid8]

Our friends TPG and Mount Kellette added to their position:

 

http://www.nasdaq.com/symbol/sd/institutional-holdings/increased

[cemadh]

First things first - the 107 MBbl is just oil. Gas EUR is 1387 MMcf, NGL EUR is 60 MBbl

So EUR if you use BOE is 369 MBoe for the Mississippian!!

All this is from Page 11 of SD's May 2013 presentation on their website

 

Also - these results do not include the monster wells from SD's new stacked pay drilling program that looks very promising.

 

I do not buy based on rosy future hopes. But ALL investments are based on EXPECTATIONS for the future. And some good investments look hairy. I agree that SD does look hairy. SD may turn out to be a bad investment for me. But higher NG prices are not factored into the current stock price. And given, the LNG plant approvals (2015, 2016, 2017), summer demand (2013), dropping dry gas rig count and many other factors such as historically low NG prices, I am bullish on NG pricing. And no - I do not expect NG to follow historic 1:6 BTU pricing and jump to $15Mcf. I am simply saying that all signs point to higher NG prices (maybe $6, very likely $5+)

And TPG is making many of the right moves so far

So I have a significant sum invested in SD. Only time will tell.....

[muscleman]

First things first - the 107 MBbl is just oil. Gas EUR is 1387 MMcf, NGL EUR is 60 MBbl

So EUR if you use BOE is 369 MBoe for the Mississippian!!

All this is from Page 11 of SD's May 2013 presentation on their website

 

Also - these results do not include the monster wells from SD's new stacked pay drilling program that looks very promising.

 

I do not buy based on rosy future hopes. But ALL investments are based on EXPECTATIONS for the future. And some good investments look hairy. I agree that SD does look hairy. SD may turn out to be a bad investment for me. But higher NG prices are not factored into the current stock price. And given, the LNG plant approvals (2015, 2016, 2017), summer demand (2013), dropping dry gas rig count and many other factors such as historically low NG prices, I am bullish on NG pricing. And no - I do not expect NG to follow historic 1:6 BTU pricing and jump to $15Mcf. I am simply saying that all signs point to higher NG prices (maybe $6, very likely $5+)

And TPG is making many of the right moves so far

So I have a significant sum invested in SD. Only time will tell.....

 

I had a significant sum in SD too, but I got out with a very small loss last week, as soon as I start to feel their type curve is a bit fishy.

Bruce said that we should never play Russian roulette, even if the odds are very favorable. I think without more data from their ESP wells and stacked pay wells, it is very hard to say if the IRR is good or bad.

If the IRR is confirmed to be 40%, estimated by a conservative engineer, I will get back in even if price jumps from $5.2 to $6, because this will be a very good investment. But right now I am watching on the side. I am very concerned about their current 40% number, because in the presentation they said gas is 56% and oil is 44%, and then there is a little star after the 44% number, and then at the bottom of the page, there is a very small annotation saying that when we say 44% oil, we actually meant oil and NGL. Oil is 28%. This makes me very uncomfortable because TW wanted to give people the impression that the pure oil is 44% and gas is 56%.

 

Regarding nat gas, a $6 gas or $4 gas won't have too much impact on the IRR.  :)

 

By studying the type curves, I can almost hear TW talking to his engineers like this:

TW: "We need a nice 40% IRR for the road show. You guys make it up for me."

Engineers:"Sorry sir, we cannot. The 1st year decline rate is 76% and it is confirmed by a lot of our wells' data."

TW: "Fuck you! Can't you assume a very small decline rate after 1st year? There is no data to prove this to be either right or wrong yet, so we can assume whatever we want!"

Engineers: "Ok..... We assume a 5% per year decline rate from year 2 to 10, and we got.......30% IRR. Let's assume a higher % of oil recoverable, oh, it is finally 40%."

TW: "Good boy! Daddy takes you out for dinner!" ;D

 

Anyway, this is just my fun joke. Can any oil expert please weight in and let us know if the type curve looks ok or it looks fishy?

I think the type curve will change a lot after they build a lot of the ESP wells, so it is still hard to say if this investment will be a good or bad one.

[valuecfa]

So, I've been looking at Sandridge since i let go of MBIA a few weeks ago...

 

how many think that Tom Ward will stay on board, and TPG gets control of the board majority as per the settlement agreement with a decision on June 30, and the company starts soliciting bids?

 

Given TPG's prior letters urging for a sale:

http://www.rigzone.com/news/oil_gas/a/122493/TPGAxon_Calls_Again_for_SandRidge_Restructuring_Sale

 

and given that TPG will likely get a majority on the board of directors at the end of next month giving them the ability to pursue a sale:

http://www.rigzone.com/news/oil_gas/a/125041/SandRidge_Agrees_to_Either_Fire_CEO_or_Give_TPGAxon_Control_of_Board

 

how is a sale not imminent in the second half of the year?

----

 

Between a seemingly very likely sale (even Fairfax's annual meeting notes claim Watsa thinks TPG will flip the company):

http://blog.newsok.com/energy/2013/04/16/sandridge-energy-shareholder-expects-company-to-be-sold-after-proxy-fight/

 

and the Rig count nearly getting cut in half over the past year, helping to offset the use it or loose it leases that have forced drilling at uneconomical prices:

http://gis.bakerhughesdirect.com/Reports/StandardReport.aspx

 

and the possibility of exports expanding to close the US vs World price differential:

http://www.bloomberg.com/news/2013-05-13/obama-seen-expanding-natural-gas-exports-on-production-records.html

 

and the fact that US Gaap has prevented Sandridge from reversing impairments...and given the large Deferred tax assets that are currently off balance sheet...the story is compelling.

 

I've been trying to value the company, but am having a difficult time, as it is not really in my circle of competence...but the rest of the story is compelling for several near term tailwinds/catalysts.

 

[Cardboard]

It does smell like a sale will occur and add to the list you mentioned that TPG and Mount Kellet must be feeling some pressure to "help" the value of this investment for their funds with the S&P up 16% YTD.

 

The big question is what price can they obtain? CHK has not been a great seller and there are all kinds of deals currently not being made in the oil patch due to low prices. Although, there is an advantage here since debt remains a large part of enterprise value, so the upside on the shares can be quite large on a buyout.

 

I own a full position and would be quite happy to see any sale above $7.50 a share with bargains that may soon abound. I actually envision more upside to MBI than SD at around $14. The timing to realize value is what keeps me in SD right now. Some global economic weakness worries me a lot with this one and what it could do especially with the oil price.

 

Cardboard

[muscleman]

So, I've been looking at Sandridge since i let go of MBIA a few weeks ago...

 

how many think that Tom Ward will stay on board, and TPG gets control of the board majority as per the settlement agreement with a decision on June 30, and the company starts soliciting bids?

 

Given TPG's prior letters urging for a sale:

http://www.rigzone.com/news/oil_gas/a/122493/TPGAxon_Calls_Again_for_SandRidge_Restructuring_Sale

 

and given that TPG will likely get a majority on the board of directors at the end of next month giving them the ability to pursue a sale:

http://www.rigzone.com/news/oil_gas/a/125041/SandRidge_Agrees_to_Either_Fire_CEO_or_Give_TPGAxon_Control_of_Board

 

how is a sale not imminent in the second half of the year?

----

 

Between a seemingly very likely sale (even Fairfax's annual meeting notes claim Watsa thinks TPG will flip the company):

http://blog.newsok.com/energy/2013/04/16/sandridge-energy-shareholder-expects-company-to-be-sold-after-proxy-fight/

 

and the Rig count nearly getting cut in half over the past year, helping to offset the use it or loose it leases that have forced drilling at uneconomical prices:

http://gis.bakerhughesdirect.com/Reports/StandardReport.aspx

 

and the possibility of exports expanding to close the US vs World price differential:

http://www.bloomberg.com/news/2013-05-13/obama-seen-expanding-natural-gas-exports-on-production-records.html

 

and the fact that US Gaap has prevented Sandridge from reversing impairments...and given the large Deferred tax assets that are currently off balance sheet...the story is compelling.

 

I've been trying to value the company, but am having a difficult time, as it is not really in my circle of competence...but the rest of the story is compelling for several near term tailwinds/catalysts.

 

So you got out of MBIA? I thought you said you only took profit on the options.

Regarding sale of SD, I am not sure if it is still doable now, given the price CHK got in their Mississippian acres.

Developing SD entirely depends on its IRR per well, which is still non-proven. I highly suspect that their traditional wells are making money at all, but they started to talk about stacked pay load and ESP wells, which could be a game changer.

If anyone could help me understand that their IRR is 40%, estimated conservatively, I will jump back on to the boat immediately.

How do you know the company is undervalued? I recently realized that PV-10 and NAV is not sufficient to value one E&P company, because there are always more acreages that they could lease, drill, and they don't need to have a large PV-10 number.

TW said in the recent CC that they have good infrastructure in this area, they will let the areas outside of the infrastructure expire, and they will always be able to lease more acres within the infrastructure for $400 per acre. If Mississippian Lime is really so good, and their wells are performing well, why would other E&P companies not come to bid for the acreages adjacent to theirs, and push the price well beyond $400?

 

The other interesting question that one of the analyst asked in the CC was "You spent a lot of money to lease those 1.8 million acres, only to let half of those expire and spend more money to lease other areas?"

[valuecfa]

So, I've been looking at Sandridge since i let go of MBIA a few weeks ago...

 

how many think that Tom Ward will stay on board, and TPG gets control of the board majority as per the settlement agreement with a decision on June 30, and the company starts soliciting bids?

 

Given TPG's prior letters urging for a sale:

http://www.rigzone.com/news/oil_gas/a/122493/TPGAxon_Calls_Again_for_SandRidge_Restructuring_Sale

 

and given that TPG will likely get a majority on the board of directors at the end of next month giving them the ability to pursue a sale:

http://www.rigzone.com/news/oil_gas/a/125041/SandRidge_Agrees_to_Either_Fire_CEO_or_Give_TPGAxon_Control_of_Board

 

how is a sale not imminent in the second half of the year?

----

 

Between a seemingly very likely sale (even Fairfax's annual meeting notes claim Watsa thinks TPG will flip the company):

http://blog.newsok.com/energy/2013/04/16/sandridge-energy-shareholder-expects-company-to-be-sold-after-proxy-fight/

 

and the Rig count nearly getting cut in half over the past year, helping to offset the use it or loose it leases that have forced drilling at uneconomical prices:

http://gis.bakerhughesdirect.com/Reports/StandardReport.aspx

 

and the possibility of exports expanding to close the US vs World price differential:

http://www.bloomberg.com/news/2013-05-13/obama-seen-expanding-natural-gas-exports-on-production-records.html

 

and the fact that US Gaap has prevented Sandridge from reversing impairments...and given the large Deferred tax assets that are currently off balance sheet...the story is compelling.

 

I've been trying to value the company, but am having a difficult time, as it is not really in my circle of competence...but the rest of the story is compelling for several near term tailwinds/catalysts.

 

So you got out of MBIA? I thought you said you only took profit on the options.

Regarding sale of SD, I am not sure if it is still doable now, given the price CHK got in their Mississippian acres.

Developing SD entirely depends on its IRR per well, which is still non-proven. I highly suspect that their traditional wells are making money at all, but they started to talk about stacked pay load and ESP wells, which could be a game changer.

If anyone could help me understand that their IRR is 40%, estimated conservatively, I will jump back on to the boat immediately.

How do you know the company is undervalued? I recently realized that PV-10 and NAV is not sufficient to value one E&P company, because there are always more acreages that they could lease, drill, and they don't need to have a large PV-10 number.

TW said in the recent CC that they have good infrastructure in this area, they will let the areas outside of the infrastructure expire, and they will always be able to lease more acres within the infrastructure for $400 per acre. If Mississippian Lime is really so good, and their wells are performing well, why would other E&P companies not come to bid for the acreages adjacent to theirs, and push the price well beyond $400?

 

The other interesting question that one of the analyst asked in the CC was "You spent a lot of money to lease those 1.8 million acres, only to let half of those expire and spend more money to lease other areas?"

 

Re:MBIA - I sold the options first, then a big chunk of common, with only around a small position remaining. Would likely begin to add again below 14.

 

 

[cemadh]

All good points valuecfa and cardboard

I am in it for most of the same reasons you are

As for oil prices crashing, my take is that the hedges will protect the revenues for about a year

I do not see a high likelihood of a prolonged sub $60 oil price even if an oil price crash were to occur

I could be wrong of course ( nobody knows) but my opinion is that a significant oil price correction if it were to occur would last 6 months to a year at most.

 

With QE3, recovery in US housing and other near term catalysts, I think TPG may be able to pull it off

In any case, a reworking of the debt and an asset(s) sale - GOM, SWD and/or other Midtsream may push up the share price

Did I forget to mention a recovery in NG prices?  :-)

 

 

[cemadh]

Natural gas exports to Mexico have been steadily increasing

http://stateimpact.npr.org/texas/2013/05/24/natural-gas-exports-to-mexico-skyrocket/

 

[CorpRaider]

Agreed.  I think TPG is focused on the window dressing of showing some performance from the sweet spots to clean it up for a sale. Likely this year. 

[valuecfa]

Agreed.  I think TPG is focused on the window dressing of showing some performance from the sweet spots to clean it up for a sale. Likely this year.

 

That's what i gathered from the latest call. TPG's plan is to cut capex by focusing on the sweet spots...prepping it for good economics prior to a sale.

[valuecfa]

Interesting coincidence that the next shareholder meeting is on July 1, 2013 (according to today's notice), and that under the deal reached in March, the board has to let go of Ward by June 30 or give TPG-Axon a controlling number of seats.

 

Should be an interesting meeting either way.

[valueorama]

Interesting coincidence that the next shareholder meeting is on July 1, 2013 (according to today's notice), and that under the deal reached in March, the board has to let go of Ward by June 30 or give TPG-Axon a controlling number of seats.

 

Should be an interesting meeting either way.

 

My view is  that  TPG will be given controlling seats and Ward remains as CEO. Path of least resistance and damage.

[CorpRaider]

Interesting to see the breakdown of the ownership in the proxy materials.  Carlyle and FFH both hold a lot more than TPG.  I suppose they're content to let them drive the bus.

[valuecfa]

Interesting coincidence that the next shareholder meeting is on July 1, 2013 (according to today's notice), and that under the deal reached in March, the board has to let go of Ward by June 30 or give TPG-Axon a controlling number of seats.

 

Should be an interesting meeting either way.

 

My view is  that  TPG will be given controlling seats and Ward remains as CEO. Path of least resistance and damage.

 

Despite being no oil & gas expert, i opened a small speculative position today, partly on the expectation that the company will have a for sale sign on it in the second half of year, as a result of the hedge funds' activism.

[CorpRaider]

Interesting to see DVN's plan to spin its midstream assets met with a yawn.  I kind of figured that would be an easy and obvious potential step for SD. 

[negative alpha]

Anyone have a copy of the TPG presentation? I think their shareholdersforsandridge site might be shutdown.

[Guest FFHfan]

Yes, the account has been suspended.

 

 

How about these links?

 

http://www.sec.gov/Archives/edgar/data/1349436/000090266413000199/p13-0187exh1.htm

http://www.sec.gov/Archives/edgar/data/1349436/000090266413000199/p13-0187exh2.htm

[muscleman]

Does anyone have insights into the type curve and IRR of their ESP wells?  ;)

[alertmeipp]

Two events coming up in next couple weeks that will be significant to Sandridge, with the recent weakness of pps, I wonder people will start questioning TPG's ability.

 

 

The Board of Directors will complete a review by an independent firm of the related-party transactions that have been outlined by TPG-Axon, and expects the results of that review to be completed no later than June 15, 2013.  Mr. Ward will remain Chairman and CEO while the Board completes its review.

 

 

The Board of Directors will decide by June 30, 2013, whether or not to terminate Mr. Ward's employment.  If the Board does not terminate Mr. Ward by June 30, 2013, three current directors will resign, and one additional TPG-Axon nominee will be elected to the Board, resulting in a majority of the Board being TPG-Axon nominees.

[alertmeipp]

Interesting to see DVN's plan to spin its midstream assets met with a yawn.  I kind of figured that would be an easy and obvious potential step for SD.

 

Anything SD can do to lower the cost its capital structure will help.

[ourkid8]

I am honestly not sure where stockjunkie26 is obtaining the well data (he mentioned Tulsa World and News OK ) as I was not able to find it BUT if there is truth to it SD is looking extremely interesting. 

 

http://finance.yahoo.com/mb/SD/#mbt=Second%2520Qtr%2520Wel%25u2026&mbl=http%253A%2F%2Ffinance.yahoo.com%2Fmbview%2Fthreadview%2F%253B_ylt%253DAivMFrwub2E2ZyDuMcIyzF_eAohG%253B_ylu%253DX3oDMTB2dWRlcHBhBHBvcwMyOARzZWMDTWVkaWFNc2dCb2FyZHNYSFJVbHQ-%253B_ylg%253DX3oDMTBhYWM1a2sxBGxhbmcDZW4tVVM-%253B_ylv%253D3%253F%2526bn%253D926e680f-e49f-36ec-a6c6-d255227d3e38%2526tid%253D1371047264692-0191a11c-77e6-4f9b-8552-a00de4e2a198%2526tls%253Dla%25252Cd%25252C3%25252C3&mbtc=mb-tab-topic