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. SandRidge also has 8 rigs drilling in the West Texas Overthrus, 4 in the Permian Basin, 1 in the Mid-Continent, and 2 in East Texas.
Although the company pays no dividend, investors may well be rewarded in terms of the company's share growth. Despite the decline in oil prices, along with depressed natural gas prices, SandRidge has done just fine. While the company has a market capitalization of just under $3.25 billion, analysts clearly feel that SandRidge is poised for significant share growth, starting with a 2013 earnings per share estimate of $0.23 versus $0.13 for 2012.
Tom Ward, company President, along with others in the management team, have proposed a three year plan of achieving $2 billion in EBITDA by the year 2014. However, with SandRidge's profitable Mississippian acreage, this number is really not all that far fetched.
Recently, SandRidge also announced the pricing of a $1.1 billion private placement senior notes offering, consisting of $825 million in senior notes at 7.5% due in 2023, and $275 million of senior notes at 7.5% due in 2021. The company intends to use its net proceeds from this notes offering for the purpose of funding the firm's tender offer for up to $350 million in aggregate principal amount of its Senior Floating Rate Notes due in 2014. This also includes payment of the accrued, unpaid interest on such notes in connection with the tender offer.
How Other Players Are Faring
One other oil and gas company to keep an eye on is American Electric Power (AEP). The company recently received a positive order from Ohio's Public Utilities Commission regarding its modified Electric Security Plan (ESP). The ESP grants many of the components that are necessary for addressing the reliability of energy distribution as well as for energy efficiency and economic development. While there are still some issues to be resolved, the news was enough to prompt analysts at ISI and Bank of America/Merrill Lynch to upgrade the company's shares.
For FirstEnergy (FE), though, things are not looking so bright. This company recently announced an 8% decline in company profit for the second quarter. This is due primarily from lower revenue at the firm's regulated distribution segment, as well as from lower sales margins from competitive operations, increased depreciation expenses, and a reduction in the company's investment income. This also prompted FirstEnergy to reiterate its adjusted earnings estimates for the quarter from $0.69 to $0.59 per share, and its fiscal 2012 earnings from its original estimate of $3.60 to $3.30 per share.
Even with the continued challenges, however, FirstEnergy's President and CEO Anthony Alexander stated that the company remains confident in their long-term strategies and will continue to position its competitive business for the eventual recovery in the economy.
The news is much better for CenterPoint Energy (CNP). With second quarter earnings up nearly 6%, the company raised its annual per share earnings estimate to between $1.13 and $1.23, up from $1.08 to $1.20 earlier this year. In addition, for the period that ended June 30, 2012, CenterPoint posted a profit in excess of $125 million, or 29 cents per share. This figure is up from the same period one year ago where profit was closer to $119 million, or 28 cents per share. I feel that investors who are seeking growth would be wise to consider adding - or adding to - shares in CenterPoint.
Recently, CenterPoint purchased some natural gas gathering and processing assets from Martin Midstream Partners L.P. for $275 million, which includes a 50% operating interest in the Waskom Gas Processing Company, and the Woodlawn gas processing plant and gathering system. These purchases are expected to boost the firm's earnings growth even further.
Another potential bargain in this sector is Apache (APA). The U.S. only makes up about 40% of its annual production, while Canada, Egypt, Australia, Argentina, and the North Sea make up the remainder. Due in large part to its balanced management style, Apache typically keeps its capital expenditures well below the amount of incoming cash that the firm generates. Because of this, the company has far less debt than others in this niche.
It is this same balance that has allowed Apache to achieve an annualized production of 13% for approximately the past twenty years. For 2012, the firm is estimating sales growth of just under 4.5%, with profits in the range of $10.70 per share.
The Bottom Line
Given the up and down energy market, investors should still be cautious when considering this sector. And while SandRidge's three year plan of achieving $2 billion of EBITDA by 2014 may seem a bit excessive, the goal is realistic - especially due to the company's profitable operations of late.
SandRidge possesses great potential both now and in the future for cash generation - and this, coupled with little or no need for external financing - can offer the company's investors nice short- and long-term share growth potential.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.