SD - SandRidge Energy

[undervalued]

^{Repurchases of Common Stock. During October 2014, the Company repurchased 23,911,000 shares of its common stock for approximately $93.8 million, excluding fees of $0.5 million, in open market transactions pursuant to the share repurchase program approved by the Company’s Board of Directors and announced in September 2014. As of December 31, 2014, approximately $88.7 million may yet be repurchased under the share repurchase program.}

 

It'll be interesting to see when they will use the rest of the $88.7 mil when oil is at $50 per barrel.

[Matson125]

Below is a quote from the press release from the CEO

 

"We have an enviable hedge position on the vast majority of our liquids production"

 

I have read this thread back and forth and there was talk about a 3 way collar as a hedge which is apparently not the best way to hedge.  Is the above statement just CEO speak?

 

Any thoughts?

[undervalued]

Below is a quote from the press release from the CEO

 

"We have an enviable hedge position on the vast majority of our liquids production"

 

I have read this thread back and forth and there was talk about a 3 way collar as a hedge which is apparently not the best way to hedge.  Is the above statement just CEO speak?

 

Any thoughts?

 

That statement is probably true but the hedge is not good enough in hindsight.. Here is an SA article talking about SD's hedge position http://seekingalpha.com/article/2803145-sandridge-energy-can-it-survive

[undervalued]

Why is SD down -0.41% when oil price went up 4.5%? I am probably the only guy still holding this, it's already too late to get out. Is it crazy to be adding at these levels? Throwing good money after bad? Buffett said it's actually less risky to be adding after a stock went down. What do you think?

[Liberty]

Buffett said it's actually less risky to be adding after a stock went down. What do you think?

 

Only true if you are confident that the value is still there.

 

Are you sure you can predict what will happen in this case?

[thepupil]

Why is SD down -0.41% when oil price went up 4.5%? I am probably the only guy still holding this, it's already too late to get out. Is it crazy to be adding at these levels? Throwing good money after bad? Buffett said it's actually less risky to be adding after a stock went down. What do you think?

 

The stock is not moving because it is an option that is so far out of the money that oil going up 4% doesn't bring its delta up enough for the stock to care. 

 

Bonds in the $60's, preferred at $37. By purchasing the common you are saying you need to make more than 170% in the common to prefer it over the preferred (unless you have some weird view on cap structure). Is a 2.7X not enough?

 

As long as your base case downside is -100% and you size appropriately and know you are not investing with a margin of safety but instead are buying optionality, have at it, buy options on the option for even more leverage.

 

If you think there's a margin of safety and that this is a "traditional value investment", because the stock is down, I suggest you reevaluate.

[undervalued]

Looking back with what we know now, at what price did SD become an option like (not looking for exact answer, just guesstimate)? Did it occur when oil price fall below $80 (because we assumed that SD can't make money with oil below $80) and when SD is unable to cover its debt payment?

 

Why is SD down -0.41% when oil price went up 4.5%? I am probably the only guy still holding this, it's already too late to get out. Is it crazy to be adding at these levels? Throwing good money after bad? Buffett said it's actually less risky to be adding after a stock went down. What do you think?

 

The stock is not moving because it is an option that is so far out of the money that oil going up 4% doesn't bring its delta up enough for the stock to care. 

 

Bonds in the $60's, preferred at $37. By purchasing the common you are saying you need to make more than 170% in the common to prefer it over the preferred (unless you have some weird view on cap structure). Is a 2.7X not enough?

 

As long as your base case downside is -100% and you size appropriately and know you are not investing with a margin of safety but instead are buying optionality, have at it, buy options on the option for even more leverage.

 

If you think there's a margin of safety and that this is a "traditional value investment", because the stock is down, I suggest you reevaluate.

 

I am still not understanding how the bond, preferred and common all relates to each other when you say I need to make more than 170% in the common. At this point, my base case downside is -100%.

 

Do you think it's a mistake selling now after taking 80% loss? I feel like I am a mistake by exiting now. It's like playing a lotto and when the winning numbers are about to be announce you sell the lotto to the next guy for 20% of the price. So you still lose 80%, but now you also have no chance of winning. What do you guys think?

[lincolnc]

Dear undervalued,

Let me first say that I feel for you.  It never feels good to be down.

I'm not sure I'd add to a position unless you would be buying it as a brand new position on a stand alone basis AND the total position on an aggregate basis is appropriately sized.

I hope this is helpful.

Best,

[CorpRaider]

Looking back with what we know now, at what price did SD become an option like (not looking for exact answer, just guesstimate)? Did it occur when oil price fall below $80 (because we assumed that SD can't make money with oil below $80) and when SD is unable to cover its debt payment?

 

Why is SD down -0.41% when oil price went up 4.5%? I am probably the only guy still holding this, it's already too late to get out. Is it crazy to be adding at these levels? Throwing good money after bad? Buffett said it's actually less risky to be adding after a stock went down. What do you think?

 

The stock is not moving because it is an option that is so far out of the money that oil going up 4% doesn't bring its delta up enough for the stock to care. 

 

Bonds in the $60's, preferred at $37. By purchasing the common you are saying you need to make more than 170% in the common to prefer it over the preferred (unless you have some weird view on cap structure). Is a 2.7X not enough?

 

As long as your base case downside is -100% and you size appropriately and know you are not investing with a margin of safety but instead are buying optionality, have at it, buy options on the option for even more leverage.

 

If you think there's a margin of safety and that this is a "traditional value investment", because the stock is down, I suggest you reevaluate.

 

I am still not understanding how the bond, preferred and common all relates to each other when you say I need to make more than 170% in the common. At this point, my base case downside is -100%.

 

Do you think it's a mistake selling now after taking 80% loss? I feel like I am a mistake by exiting now. It's like playing a lotto and when the winning numbers are about to be announce you sell the lotto to the next guy for 20% of the price. So you still lose 80%, but now you also have no chance of winning. What do you guys think?

 

He's saying if you want to just give him the money and have him kick you in the junk rather than double down, he is willing oblige you.  haha.  I kid because I love. 

 

I think he's saying the upside is similar and downside is probably nearly identical, so why not move up in the capital structure?  Also, if you think its priced like a lottery ticket, you should probably consider selling.  Research shows lottery tickets are systematically overpriced relative to the expected value based on the probabilities.  Selling them is probably a pretty great business. 

[kfh227]

Buffett said it's actually less risky to be adding after a stock went down. What do you think?

 

Only true if you are confident that the value is still there.

 

Are you sure you can predict what will happen in this case?

 

Ya, but buffet also says to invest in comapnies that you can go away for 10 years and come back and not be worried.

 

ALot of what he says is relevant but people need to understand that they are not rules.  They are guides.  ANd some guides liek hte one quoted need to be used in conjunction with other guides.

[kfh227]

When a stock is down 50%+ it is not reason to dollar cost average.  It is time to reinvestigate and make sure that your assumptions were correct.  after new due diligence it is time to sell or buy more.  I don't think anyone thought $40-$50 oil would ever happen again so I'd imagine that most should be honest with themselves and do some new due diligence.

 

I personally did what time permits nad DCAd in my Roth-IRA.  The good news is that it took almost nothing to double my position in my Roth-IRA.

 

It is also a good time to look at significantly similar companies to DCA in which acts as a sort of hedge.  SD might die but others (PWE for example) may not die or visa versa.  So, if not comfortable with all your eggs in one place consider taking your individual stock and turning it into a sector investment and then DCAing as appropriate.

 

I have 3 different small oil companies.  I DCAed into two of them (one via stock and one via call options)

[undervalued]

Up 70% in 5 days..oil up 13% over the same period..

[undervalued]

Cutting rig count by 75% http://finance.yahoo.com/news/exclusive-sandridge-cutting-rig-count-183115420.html

[undervalued]

Watsa added 50% to his SD holding.

[Cardboard]

Is it true addition or is it shares that he got upon the forced convertible conversion recently?

 

Cardboard

[kfh227]

On Feb 11, I bought some call options for 9 cents!  I did the $5 strikes to Jan 15, 2016.  Today's news makes me smile.

 

Even better, I DCAed at $1.15 on Jan 20.

 

Also have some XCO call options.  Tried getting some in PWE also but no luck in filling the order.

[txlaw]

Quarter is out:

http://investors.sandridgeenergy.com/files/doc_news/2015/LM-022615-Q4%2714-Final-ER.pdf

[ourkid8]

Hi all,

 

In reviewing Sandridge's latest presentation, I am wondering why the company has not announced a mandatory conversion of their 8.5% Convertible Preferred ($265mm) which is convertible after Feb 20, 2014?  I am a bit puzzled as that's a $22.5mm/year savings.

 

TKs,

S 

[benhacker]

Ourkid:

 

In reviewing Sandridge's latest presentation, I am wondering why the company has not announced a mandatory conversion of their 8.5% Convertible Preferred ($265mm) which is convertible after Feb 20, 2014?  I am a bit puzzled as that's a $22.5mm/year savings.

 

Are you referring to SDRXP?  This isn't "mandatorily" convertible... it's "callable" in Feb 20, 2014... callable at $100 / share. 

 

It's "convertible" only at the holders option right now...

 

I don't follow SD closely, so feel free to correct, but that is my understanding.

[ourkid8]

ah! Thanks for the clarification...

 

Ourkid:

 

In reviewing Sandridge's latest presentation, I am wondering why the company has not announced a mandatory conversion of their 8.5% Convertible Preferred ($265mm) which is convertible after Feb 20, 2014?  I am a bit puzzled as that's a $22.5mm/year savings.

 

Are you referring to SDRXP?  This isn't "mandatorily" convertible... it's "callable" in Feb 20, 2014... callable at $100 / share. 

 

It's "convertible" only at the holders option right now...

 

I don't follow SD closely, so feel free to correct, but that is my understanding.

[alertmeipp]

Down 10%,  company issued some shares at a discount,  to pay off small amount of debt and interest.

 

Probably more pain to come unless oil rebounds significantly.

 

 

 

 

[jwelborn93]

Right now, my thinking is that there is an opportunity to buy the preferred (SDRXP) yielding ~25% and short the common. I'm not going to pretend to know what is going to happen, but if you break it down into possible outcomes, it seems like a potential large return and little risk trade.

 

If sandridge goes bankrupt, you don't lose anything (assuming both preferred and common get no payout from bankruptcy)-and if this happens after 6 month/year or later, you make a nice return from the dividend.

 

In one of the recent investor calls, the management team talked about the distinct possibility of paying the dividend for the preferred in common stock, which would put further downward pressure on the common like paying off some debt in common did today. The preferred and common have traded relatively closely in the past year, but in this scenario I see the common declining more than the preferred.

 

The scenario in which oil rallies significantly and the SEC allegations turn out to be nothing is the most difficult to predict. If this were to happen, the common would most likely rise more than the preferred, but my timeframe for this trade would most likely be <1 year and it is not long-term. In addition, the high yield of the preferred seems to mitigate the potential loss from this scenario.

 

Overall, this trade seems nice to hedge out the company risk and collect a nice dividend for patience.

 

 

[TwoCitiesCapital]

Right now, my thinking is that there is an opportunity to buy the preferred (SDRXP) yielding ~25% and short the common. I'm not going to pretend to know what is going to happen, but if you break it down into possible outcomes, it seems like a potential large return and little risk trade.

 

If sandridge goes bankrupt, you don't lose anything (assuming both preferred and common get no payout from bankruptcy)-and if this happens after 6 month/year or later, you make a nice return from the dividend.

 

In one of the recent investor calls, the management team talked about the distinct possibility of paying the dividend for the preferred in common stock, which would put further downward pressure on the common like paying off some debt in common did today. The preferred and common have traded relatively closely in the past year, but in this scenario I see the common declining more than the preferred.

 

The scenario in which oil rallies significantly and the SEC allegations turn out to be nothing is the most difficult to predict. If this were to happen, the common would most likely rise more than the preferred, but my timeframe for this trade would most likely be <1 year and it is not long-term. In addition, the high yield of the preferred seems to mitigate the potential loss from this scenario.

 

Overall, this trade seems nice to hedge out the company risk and collect a nice dividend for patience.

 

Let's just assume for arguments sake that gold goes back to where it was in mid-2014. How much do you lose by shorting the common relative to the gains in preferred? Without hedging the downside risk of a meteoric rise in the common this seems like it could be a bad idea. Things like this can turn on a dime - I started a portfolio of low P/B stocks that was heavily concentrated in energy back in early March. It was down 10% in the first week and two months later is up 26%. Some of those stocks have doubled from their lows in as little as two months. I wouldn't want to short anything that has the ability to double or triple in such a short amount of time.

[kfh227]

US dollar:

 

Pray it keeps dropping!

http://www.marketwatch.com/investing/index/dxy

 

Then we'll get higher oil prices.  I'm learning the hard way that if you want to invest in oil, you need to understand the macro-economics of all major world currencies.  If anyone knows a famous investor that is good at predicting currency values, please let me know so I can learn from the best.

[investor-man]

US dollar:

 

Pray it keeps dropping!

http://www.marketwatch.com/investing/index/dxy

 

Then we'll get higher oil prices.  I'm learning the hard way that if you want to invest in oil, you need to understand the macro-economics of all major world currencies.  If anyone knows a famous investor that is good at predicting currency values, please let me know so I can learn from the best.

 

I believe Drunkenmiller said he sees the euro dropping to .80 vs the dollars as a possibility, and he's the mastermind behind the currency bet Soros is famous for. So there's that :)