phil_Buffett Posted December 5, 2013 Share Posted December 5, 2013 we have the Ms Lime Play 1,85mio acres with 3000$ worth 5,55b.$ cash 1,7b.$ salt walter disposal system 0,5-0,6b$ Golf of Mexico Asset 1-1,2b.$ Trusts xx (i say here only 0) = 8,75b$- debt and liabilities around 4b$ 4,75b$/500mio shares=9,5$ per share just my thoughts. valuation can be higher as 9,5$ or lower. Link to comment Share on other sites More sharing options...
CorpRaider Posted December 5, 2013 Share Posted December 5, 2013 Just another piece of data for the valuation discussion: management strongly indicated they are projecting 20% + annualized EBITDA growth for the next several years. Of course, that's just a projection, but they do seem pretty good at the "blocking and tackling" so far. Link to comment Share on other sites More sharing options...
T-bone1 Posted December 5, 2013 Share Posted December 5, 2013 Most small E&Ps have seen declines from 10-50% over the last few months. If you compared SD to a small cap oil and gas ETF, I think they'd be worse than average but certainly not alone. XOP and IEO are probably too big to be a good comparison. T-bone-1 -- I think your point bears listening to from SD bulls. Carbonate formations are NOT the same as shale. Saltwater disposal is a huge cost. Obviously, SD had to spend millions to build out the infrastructure to handle all this saltwater. Stacked plays is the new industry lingo for lots of good formations on top of each other and is being used in the Permian to some great effect in terms of valuations. So it's not surprising for SD to pick up on that too and talk up how they can target upper, middle and lower Mississipian as well as Chester and Woodford. Quite simply, I think Sandridge is full of shit about their "stacked plays". In the Permian Basin, no one bothered to evaluate the shale that was the source rock underlying the producing conventional formations until now because all the land was HBP'd and the conventional formations provide good returns at these prices. The Permian is also unique in that it was a huge inland sea for a very long time and genuinely has a number of disparate geologic intervals that have produced huge amounts of oil and gas over millions of years. Now that they have drilled down to the source-rock, primarily the Wolfcamp shale, they have realized they probably have the second biggest oil field in the world on their hands - and that is just in the Midland Basin. Because these formations are deposited over millions of years, every formation can be separated into distinct geologic intervals ("iupper, lower and middle Bakken" for example). This makes sense in some of the shale plays where one interval might have less clay or more silica, which can have serious implications for how successful a frac job is. In contrast, the miss lime and other formations Sandridge is looking at are reservoir rocks, not source rocks. They DO NOT have a stacked play here. These are not stacked intervals that produce oil and gas, this is just a bunch of "shitty rock" (Tom Ward's words according to a number of people) which oil from the Woodford shale has migrated into. None of these "intervals" are likely to be good and it is disingenuous in my opinion to call this a stacked play. Almost all rocks have some oil and gas that has migrated into them. Sandridge is basically saying "there is more crappy rock above and below what we are currently drilling" . . . it isn't really different and there is no reason to expect better results. In fact, the results must be worse if they aren't drilling it right now. Similar to Buffet's argument that no one can prospectively pick 10 hedge funds that will outperform the S&P for ten years after fees, I don't believe that Sandridge can point to ten wells that will produce an economic return before they drill them. Some are good and some are bad - they are basically wildcatting. I spent an afternoon with a BP geologist who spent a ton of time on the Miss Lime and he flat our refused to say where he thinks you could drill an economic well in the Miss Lime. Another geologist picked one bright spot off the 3D seismic maps of the A,B,C benches of the Miss Lime and said he would drill there (but probably not with his own money), but he couldn't pick a second spot. If Sandridge said: here are the 100 wells we are going to drill in Q1, and here is what we expect from them, and every quarter for the next year we will show you all 100 and how they are performing, I would consider investing if these wells lived up to expectations. Link to comment Share on other sites More sharing options...
T-bone1 Posted December 5, 2013 Share Posted December 5, 2013 we have the Ms Lime Play 1,85mio acres with 3000$ worth 5,55b.$ cash 1,7b.$ salt walter disposal system 0,5-0,6b$ Golf of Mexico Asset 1-1,2b.$ Trusts xx (i say here only 0) = 8,75b$- debt and liabilities around 4b$ 4,75b$/500mio shares=9,5$ per share just my thoughts. valuation can be higher as 9,5$ or lower. I agree with your basic sum-of-the-parts methodology, but this valuation is entirely dependent on the Miss Lime being worth $3,000 an acre. I don't think this is true, but more importantly, I don't think there is any way to actually get a figure like this (in shale plays you can back into this based on discounted cash flow, development plans, and regional analysis of well results). Shell and others have walked away from huge amounts of Miss Lime leases, and Sandridge is doing the same with its northern Kansas leases (that it paid as much as $2,500 an acre for). I think the correct amount of acreage is the amount they will still have in five years (probably closer to 500k acres) and if we had confidence in the "statistical type curve" (a concept Sandridge seems to have made up to describe the average of all wildcat wells) we could back into a value for those ~500k acres. I would also subtract out the net acreage they have already drilled, and use the year end PV10 values for their interest in the trusts (minus any potential liabilities for defrauding investors in the trust IPOs). I would add back the PV10 of their current production in the Miss Lime. Link to comment Share on other sites More sharing options...
T-bone1 Posted December 5, 2013 Share Posted December 5, 2013 Just another piece of data for the valuation discussion: management strongly indicated they are projecting 20% + annualized EBITDA growth for the next several years. Of course, that's just a projection, but they do seem pretty good at the "blocking and tackling" so far. This is true and things are definitely improving, but I am concerned about visibility for the future. They were previously investing a lot in exploration and infrastructure. They have turned these expenditures off and have moved to pad-drilling in the areas that were most successful in the past. This is a good idea if you want to dress up the company for a sale, but what happens in a few years when you have to build new infrastructure and drill in new areas? They could raise and lower EBITDA just by raising an lowering Capex and making assumptions about the decline curve and EURs of a well. Given enough cash on hand (which Sandridge has right now), I could raise or lower the EBITDA of any oil and gas company to hit a target or show growth. Even if Sandridge achieves this target and the well results are good enough that they achieve it through positive ROI capex, I still think it puts them in a very tough position a few years from now - even before taking into account their debt load. Like I said before, I am not saying this company is overvalued or should be shorted. I just can't value it . . . and I suspect no one else can. Link to comment Share on other sites More sharing options...
rogermunibond Posted December 5, 2013 Share Posted December 5, 2013 Agreed stacked play is basically a marketing thing. And pretty much the Miss expansion is worthless too. What do you think about geology to the east of the SD acreage along the Nemaha Ridge in Kay County? This seems to be the area that DVN and Range are getting much higher production results than SD in the counties to the west. Link to comment Share on other sites More sharing options...
phil_Buffett Posted December 5, 2013 Share Posted December 5, 2013 @t-bone1 t-bone do you have a opinion about exco? would be interesting to hear ;) Link to comment Share on other sites More sharing options...
alertmeipp Posted December 5, 2013 Share Posted December 5, 2013 I guess no one can if we can't assume the result is predictable at all. It becomes pointless. Link to comment Share on other sites More sharing options...
alertmeipp Posted December 5, 2013 Share Posted December 5, 2013 Most small E&Ps have seen declines from 10-50% over the last few months. If you compared SD to a small cap oil and gas ETF, I think they'd be worse than average but certainly not alone. XOP and IEO are probably too big to be a good comparison. T-bone-1 -- I think your point bears listening to from SD bulls. Carbonate formations are NOT the same as shale. Saltwater disposal is a huge cost. Obviously, SD had to spend millions to build out the infrastructure to handle all this saltwater. Stacked plays is the new industry lingo for lots of good formations on top of each other and is being used in the Permian to some great effect in terms of valuations. So it's not surprising for SD to pick up on that too and talk up how they can target upper, middle and lower Mississipian as well as Chester and Woodford. But what about YTD? Link to comment Share on other sites More sharing options...
oldye Posted December 5, 2013 Share Posted December 5, 2013 Wow you guys have some very strong sounding opinions for some reason, I've been guilty of this in the past when they were acquiring some of this stuff using stock so I understand the harsh sentiment but it really is not supported with facts. First off Net Debt /Cashflow is not 3 (yet) and even when it does get there, they will have plenty of options, listen to the last conference call.. there is no funding gap with Ebitda growing at ~20% a year at sustainable levels of capex. They still have 2 rigs that are drilling trust wells next year, once these are complete it'll help boost production without any incremental increase in costs. It's not wild catting (in the core) if they can drill 400 wells and get 30 day IP's north of 300 boe, sure you don't know which one will produce but they've drilled enough wells to prove that these are not cherry picked wells. Even with EOR their cost of drilling these wells is less than 3 million. From what I've read Shell was paying more than twice that which is why they left. Go listen to their last conference call if you think the stack play is a marketing gimic, they're having solid results in various counties. Once they get the 3d seismic, they should have solid results from the Woodford as well (listen to the Devon conference call if you doubt this.) To assume the land outside the core is currently worth 3k/acre is plain wrong, with Shell selling their land anyone can pick up the same land for much less. Likewise it is wrong to say that is worthless, just listen to the last call. They have some very high IP wells coming online just outside their core area and I'm pretty sure they will find ways to expand the core both vertically and horizontally. There is also upside in the GOM (from the 1 billion dollar valuation) if they can find a partner to do the drilling for them. As far as catalysts go, they can sell the entire company at any time, my guess is as good as yours but we've heard Fairfax and TPG both say that this was the likely outcome. Its a buyers market now and they are doing a lot to increase the value of their fields so just give them some time. Also another possible catalyst is a revision in PV 10, since they've started using EOR their results have improved and decline rates should be lower. Link to comment Share on other sites More sharing options...
bmichaud Posted December 5, 2013 Share Posted December 5, 2013 Attached is the most recent 10Q and a Stifel note. The 10Q shows net debt of $4.43B, while the Stifel note shows 2014E EBITDA of $1.3B....for net debt/EBITDA of 3.4X. Net Debt LTD: $3.2B Preferred Stock: $.75B Minority Interest: $1.4B Cash: $.92B Net Debt = $4.43B SD_10Q.pdfSD_Stifel_Note.pdf Link to comment Share on other sites More sharing options...
rogermunibond Posted December 5, 2013 Share Posted December 5, 2013 Go listen to their last conference call if you think the stack play is a marketing gimic, they're having solid results in various counties. Once they get the 3d seismic, they should have solid results from the Woodford as well (listen to the Devon conference call if you doubt this.) Comparing Woodford results from DVN and others may be very misleading. Devon's position is most east of the Nemaha anticline and is much more oily than SD acreage. This is geology and location seems to be more important than some on this board are accepting. Kay, Logan, Noble counties in OK are where the high 500-800 bpd wells are being reported. See the attached from an EPM presentation. Link to comment Share on other sites More sharing options...
oldye Posted December 5, 2013 Share Posted December 5, 2013 Attached is the most recent 10Q and a Stifel note. The 10Q shows net debt of $4.43B, while the Stifel note shows 2014E EBITDA of $1.3B....for net debt/EBITDA of 3.4X. Net Debt LTD: $3.2B Preferred Stock: $.75B Minority Interest: $1.4B Cash: $.92B Net Debt = $4.43B Why are you counting preferred stock and minority interest when calculating net debt? As far as the woodford, they own acreage right next to Devon's in Grant county so the possibility is there. Devon didn't have much luck with their woodford wells without the help of 3d seismic, which is why I think the 3 that Sandridge drilled were duds. They are planning on drilling 9 more using 3d, if it pans out this could be a homerun because of the initial high oil cut/payback. If not, they still have a lot of other potential drilling locations in their stacked zones. Link to comment Share on other sites More sharing options...
rogermunibond Posted December 5, 2013 Share Posted December 5, 2013 Most small E&Ps have seen declines from 10-50% over the last few months. If you compared SD to a small cap oil and gas ETF, I think they'd be worse than average but certainly not alone. XOP and IEO are probably too big to be a good comparison. T-bone-1 -- I think your point bears listening to from SD bulls. Carbonate formations are NOT the same as shale. Saltwater disposal is a huge cost. Obviously, SD had to spend millions to build out the infrastructure to handle all this saltwater. Stacked plays is the new industry lingo for lots of good formations on top of each other and is being used in the Permian to some great effect in terms of valuations. So it's not surprising for SD to pick up on that too and talk up how they can target upper, middle and lower Mississipian as well as Chester and Woodford. But what about YTD? If you compare YTD with KWK, FST, CRK, XCO then they're about where the should be for lagging oil-focused growth compared to PVA, GDP, BCEI. Slower oil-focused growers like SN and ROSE are up 20-40% ytd compared to SD but lag the high fliers. At least they're not XCO or KWK. Link to comment Share on other sites More sharing options...
Cardboard Posted December 5, 2013 Share Posted December 5, 2013 "Same goes with SD. The impression I get is that the general attitude is, "TPG and Cooperman say it's worth X, so now we can just focus on results that fit that conclusion"." Why would I put more weight behind some anonymous poster that has discussed with some geologists of unknown competencies vs three fund managers with great reputations backed by a team of solid analysts and whom have all invested a significant sum in said company? Which one has more analytical value? Cardboard Link to comment Share on other sites More sharing options...
phil_Buffett Posted December 5, 2013 Share Posted December 5, 2013 "Same goes with SD. The impression I get is that the general attitude is, "TPG and Cooperman say it's worth X, so now we can just focus on results that fit that conclusion"." Why would I put more weight behind some anonymous poster that has discussed with some geologists of unknown competencies vs three fund managers with great reputations backed by a team of solid analysts and whom have all invested a significant sum in said company? Which one has more analytical value? Cardboard great post cardboard!! :) iam 100% going with the fund Managers here! Link to comment Share on other sites More sharing options...
fareastwarriors Posted December 5, 2013 Share Posted December 5, 2013 "Same goes with SD. The impression I get is that the general attitude is, "TPG and Cooperman say it's worth X, so now we can just focus on results that fit that conclusion"." Why would I put more weight behind some anonymous poster that has discussed with some geologists of unknown competencies vs three fund managers with great reputations backed by a team of solid analysts and whom have all invested a significant sum in said company? Which one has more analytical value? Cardboard great post cardboard!! :) iam 100% going with the fund Managers here! But the whole point of this forum is to discuss the merits of an investment. Just because some managers own it doesn't mean they can't be wrong. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted December 5, 2013 Share Posted December 5, 2013 "Same goes with SD. The impression I get is that the general attitude is, "TPG and Cooperman say it's worth X, so now we can just focus on results that fit that conclusion"." Why would I put more weight behind some anonymous poster that has discussed with some geologists of unknown competencies vs three fund managers with great reputations backed by a team of solid analysts and whom have all invested a significant sum in said company? Which one has more analytical value? Cardboard Maybe it's me, but I would go with the geologists here. Many fund managers have no idea what they're doing (ignoring nonsense like insider trading). I think that oil and gas should largely be avoided. Analyzing these assets are difficult without: A- Access to data. Flow rates, pressure data, volume data, 3-D seismic, etc. B- A background in oil and gas engineering. You also need to be up-to-date with the latest technology and actual data from analogy wells because shale technology has evolved so much. It is unlikely that these famous fund managers have done their due diligence... in my cynical opinion anyways. 2- Tom Ward clearly lacks integrity. Integrity is extremely important in oil and gas because it is so easy to hire overly optimistic engineers to inflate reserves. Link to comment Share on other sites More sharing options...
bmichaud Posted December 5, 2013 Share Posted December 5, 2013 How can you not count minority interest and preferred stock? If you want full access to that ebitda number then you have to pay those owners off. Again, who cares who owns the stock? It is trading at 5.7x ebitda - that is no different than the entire space. EOG trades at that and is actually a real company. What do these special owners know that we do not that justifies owning sd at 5.7x? I will continue to repeat - DVN trades at 3.4x ebitda. There is no debate which is the better buy, unless of course sd is about to get taken out at a premium multiple for a piss poor operator. Not gunna happen. Link to comment Share on other sites More sharing options...
phil_Buffett Posted December 5, 2013 Share Posted December 5, 2013 "Same goes with SD. The impression I get is that the general attitude is, "TPG and Cooperman say it's worth X, so now we can just focus on results that fit that conclusion"." Why would I put more weight behind some anonymous poster that has discussed with some geologists of unknown competencies vs three fund managers with great reputations backed by a team of solid analysts and whom have all invested a significant sum in said company? Which one has more analytical value? Cardboard great post cardboard!! :) iam 100% going with the fund Managers here! But the whole point of this forum is to discuss the merits of an investment. Just because some managers own it doesn't mean they can't be wrong. thats right! but if i compare the insight from a unknown geologist or some really good fund Managers, then i go with the fund Managers. fareastwarriors you are right that even fund Managers can be wrong, but the Odds are higher that the fund Managers are right. i trust leon cooperman and dinakar Singh very much! Link to comment Share on other sites More sharing options...
oldye Posted December 5, 2013 Share Posted December 5, 2013 How can you not count minority interest and preferred stock? If you want full access to that ebitda number them you have to pay those owners off. Again, who cares who owns the stock? It is trading at 5.7x ebitda - that is no different than the entire space. EOG trades at that and is actually a real company. What do these special owners know that we do not that justifies owning sd at 5.7x? I will continue to repeat - DVN trades at 3.4x ebitda. There is no debate which is the better buy, unless of course sd is about to get taken out at a premium multiple for a piss poor operator. Not gunna happen. Because preferred stock is equity (in this case convertible into shares) and will never be paid back. If times get tough they don't have to even pay the dividend. With minority interest, you have trusts etc that own some % of Sd's wells, they don't pay interest on it or ever have to pay it back. I think you might be confusing enterprise value and net debt. Based on what metric are you calling them a "Piss poor operator" as far as I know they have the lowest cost wells in the play. I don't value Sd based on EBITDA, I was just saying that they don't have a 3x net debt to ebitda as you were implying. The main reason I own it is because the're almost completely hedged, and the operators have explicitly said that they will maximize the value of each asset and sell them. I have 0 long term interest in the oil/gas business. Link to comment Share on other sites More sharing options...
T-bone1 Posted December 5, 2013 Share Posted December 5, 2013 Agreed stacked play is basically a marketing thing. And pretty much the Miss expansion is worthless too. What do you think about geology to the east of the SD acreage along the Nemaha Ridge in Kay County? This seems to be the area that DVN and Range are getting much higher production results than SD in the counties to the west. I agree the acreage over there seems to produce more oil and less water, which would make sense being up-dip on a ridge. I don't know much more than you do though. Link to comment Share on other sites More sharing options...
T-bone1 Posted December 5, 2013 Share Posted December 5, 2013 @t-bone1 t-bone do you have a opinion about exco? would be interesting to hear ;) I think people are likely to make money at these prices and I assume Doug Miller bids for the company next year with the backing of FFH and Ross . . . . . . but I have never understood value investor's fascination with this company. It's never been cheap (until now), it's never been good, it's never been conservative . . .XCO is basically a smaller, sh***er, more expensive version of CHK. Whatever all these value guys see in XCO, I've never seen it and I don't get it. Disclosure - I own some in-the-money leaps on it now, because I do think it gets taken out and is finally cheap-ish. Link to comment Share on other sites More sharing options...
T-bone1 Posted December 5, 2013 Share Posted December 5, 2013 "Same goes with SD. The impression I get is that the general attitude is, "TPG and Cooperman say it's worth X, so now we can just focus on results that fit that conclusion"." Why would I put more weight behind some anonymous poster that has discussed with some geologists of unknown competencies vs three fund managers with great reputations backed by a team of solid analysts and whom have all invested a significant sum in said company? Which one has more analytical value? Cardboard I agree with you. Caveat emptor . . . but I will note that Cooperman's E&P guy put them into GMXR when it was a blatant fraud that anyone who understood the business could see. This went to zero, then he put them into LINE which was overvalued based on a tax arbitrage and had obvious accounting issues with their disengenous hedging program. Fairfax doesn't have a great track record in energy either. I have the utmost respect for these investors and in no way am I saying I am better, know more, or even know what I'm talking about. What I am saying is "I don't get it" . . . and until those great investors, their analysts, or someone on this board convinces me otherwise, I won't invest. Link to comment Share on other sites More sharing options...
cubsfan Posted December 6, 2013 Share Posted December 6, 2013 "Same goes with SD. The impression I get is that the general attitude is, "TPG and Cooperman say it's worth X, so now we can just focus on results that fit that conclusion"." Why would I put more weight behind some anonymous poster that has discussed with some geologists of unknown competencies vs three fund managers with great reputations backed by a team of solid analysts and whom have all invested a significant sum in said company? Which one has more analytical value? Cardboard I agree with you. Caveat emptor . . . but I will note that Cooperman's E&P guy put them into GMXR when it was a blatant fraud that anyone who understood the business could see. This went to zero, then he put them into LINE which was overvalued based on a tax arbitrage and had obvious accounting issues with their disengenous hedging program. Fairfax doesn't have a great track record in energy either. I have the utmost respect for these investors and in no way am I saying I am better, know more, or even know what I'm talking about. What I am saying is "I don't get it" . . . and until those great investors, their analysts, or someone on this board convinces me otherwise, I won't invest. That's an excellent point about GMXR, which I owned for a while, sold - and then saw it implode. Have lots of respect for Cooperman, but Tom Ward fooled a lot of people up to now. SD is a tough one to figure out. With the activists involved, you would have thought it would be in the clear - as they have control and execute on their plan. Link to comment Share on other sites More sharing options...
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