Got Gas? Yes Please!!
SandRidge Energy (SD) focuses on exploration, development, and production of oil and gas primarily in the Permian Basin and the West Texas Overthrus. Of the company's estimated reserves of 1,312.2 Bcfe, approximately 52% is natural gas.
In Q2 2012, SandRidge reached record oil generation levels amounting to 4.6 million barrels of oil and a total of 8.2 million boe. SandRidge revenue has therefore been growing at a rapid rate over the last five years. At the end of 2011, SandRidge's five-year annual average revenue growth rates were at 29.52 percent. Meanwhile, the year-over-year growth rate was 51.89 percent at the end of 2011.
Not only is SandRidge making intelligent investment decisions, generating greater revenue. Furthermore SD has been efficient in improving its balance sheet with current and debt-to-equity ratios of 1.19 and 1.3 respectively. As such SD is generating 13.96% return on invested capital.
Part of what has caused the price action to stall a bit over the last year outside of the current market conditions has been the yearlong plummet in the price of natural gas that has finally come to and end. Since late spring of this year prices have trended up, boding well for SD’s own future price action.
SandRidge has made its confidence in the company's potential for the future abundantly clear as it has significant production potential that has not been close to being fully tapped. With increased cash flow and a stronger balance sheet, SD will be extremely well positioned in a rebounding natural gas sector. However, that being said, it is extremely important for SandRidge to continue with its present responsible manner of debt reduction and capital investment.
With its most recent closing price of $7.00 trading above its 50 day moving average of $6.89 and the 200 MA of $6.85, a quick technical check would seem to verify the fundamental outlook. Furthermore, with a short ratio of 5.20, look for a significant bounce before the end of the year as short sellers cover in order to take capital gains losses for tax purposes.
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I...don't....really understand the impetus for you posting this, but I can never help myself when it comes to giving my opinion on anything E&P related.
1) Some of these stat's don't sound right. SD reports in barrels of oil equivalent, their resource potential is 4,400 MMBoe (26 Tcfe) and have 533 MMBoe (3.2 Tcfe) of proved reserves. Not sure where the 1.3 Tcfe is coming from.
2) Having worked on SD shit before, I can say those guys (granted it's a big company) suck. Unbelievably cocky / demanding and a lot of the time they panned out to be more talk than results. They're a ~$7 bn company trading at ~$8.0 bucks, where is APA is around $90 w/ only ~100 MMBoe more in 1P reserves. Staying with the APA comparison and why I think SD are somewhat a bunch of phony's, APA got $5.05 for their gas at the wellhead in the Permian while SD was getting $4.12; post net backs. SD's cap structure is awful, they keep on trying the archaic model of levering up during high commodity environments and trying to delever through low commodity pricing and there shouldn't be any reason this company isn't at 8.0x historically. Again, back to APA, they're .8x levered. My suggestion is stop using your PV-10 to put out more notes to bailout all the shitty wells you're drilling in Kansas.
3) If an E&P could have ADDHD, SD would be the case study. The heavy weighting of financial masterminds on their board and in management - IMHO - have gone way over board with the financial engineering and trying to monetize everything under the sun that spits out a lil' bit of hydrocarbon. Large scale production operations in four major resource plays, three separate royalty trusts (2x in Mississippian, 1x in Permian), a services company and midstream ops all under one roof. This company lacks focus (although I am a big Mississippian fan (OK only), and like what they're doing there (OK only)) and needs to put less emphasis on IRR; SD has 8 active rigs in the Kansas portion of their Mississippian asset out of 69 drilled, getting 317 boepd IP's. Seriously, just buy some W. MT Bakken and get some real 30 day avg.'s if you're going to drill wells like that. Their lifting costs are well above their peers in the same basins / fields, and what makes that worse is they have their own services company and own many of their rigs. One more time, what I think what makes APA such a great E&P is that they're great engineers, scientists (it's almost impossible to land a quality gig w/ them without a BSE) and landmen first and finance honkey's second. Whether it's directly related to that or not, I think the markets reward that model. Be outstanding wildcatters first and hire your IB dopes to do all the other fancy stuff for you.
3) What I do like about SD: their website is hands down, the most badass site in the whole game. HTML5?! Go watch the video on the front page and try not cry due to the sheer American-is of it. Moving stuff.
4) Stringer says look elsewhere for your PA: SYRG, QEP, REN, HK, CXPO, XEC (take over's going to happen here, before I left IB we were saying ~38% premium for base case..but you didn't hear that from me) and am way overweight on IPI (not E&P I know, but gotsa love dat potash bitch)
PS: Someone plz kick me some sympathy SB's for all the time I wasted writing all that bullshit. Thx.
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