The Forensic Accountant
Research analyst, oil & gas, energy

SandRidge Mississippian Trust II: Don't Get Caught When The Music Stops

SandRidge Mississippian Trust II (NYSE:SDR) is an oil and gas trust that receives proceeds from wells operated by SandRidge Energy, Inc. (NYSE:SD) in the Mississippian formation of northern Oklahoma and southern Kansas. SDR recently announced its Dec-2013 distribution at $0.568/share and its shares have recently traded at $10/share, with a robust trailing yield of 22.7%.

However, SDR is an investment value trap. The high trailing yield hides significant flaws, including declining production, an upcoming share dilution, and expiring revenue sources. I estimate that SDR's current market price, which is off nearly 30% from 2013 highs, is still nearly double the trust's NPV-10. That's not to say that there aren't possible plays, but I suggest that investors...

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