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bfras921
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30 years in Finance/CFO. Individual investor focused on energy names
  • Sandridge Energy (SD), morphing into an oil company. 18 comments
    Jul 26, 2010 10:17 AM | about stocks: CHK, SD, HK, FST, SWN

    Sandridge Energy (NYSE:SD) is a land based E & P company that’s previous focus had been NG production. NG has been in a 2 year slide. SD has a leveraged Balance Sheet and has an excess of 2 b in debt. Sd has very nice NG hedges thru 2010, but is unhedged after 2010 for NG

    Many do not believe SD can manage its way thru this environment and it is one of the heaviest shorted energy names in the sector, more than CHK & HK or SWN combined

    Are the shorts right?? I think not.

    Sandridge is executing a strategy to increase oil production and will be reducing gas-drilling-related CapEx and shifting more capital to the Permian Basin and accelerating the development of their oil plays.

    SD had five oil rigs in January, to 13 today, drilling for oil. SD plans to be at 18 oil rigs by the fourth quarter without the impact of the new Arena acquisition. Therefore, oil production will be increasing rapidly. The majority of the wells take less than one week to drill, and the entire Permian Basin inventory has a rate of return of more than 80% based on today's oil strip.

    In addition, SD has made strategic investments by acquiring oil assets from Forest Energy and its recent Arena Acquisition.

    In Feb oil production for 2010 was forecasted to be 5.2 Mmbls rose to 5.8 Mmbls in May and should be raised again for 2010 to account for the Arena Acquisition to 7.3 Mmbls.  The company CEO is on record saying production will be 22,000 per day or over 8.0 Mmbls per year. At $80 per BBL , oil is 640 m in revenue just for the oil component.

    SD is well hedged for 2010 and is enjoying $9.15 per Mcfe prices on nearly 90% of its production this year. Earlier this year they added about 3.4 million barrels of oil hedged to $84.40 per barrel.

    SD will continue to develop the high CO2 Warwick Thrust reservoir in the Piñon Field with a 10-rig program. Finding cost is 1.00 per mcf and and the output will be processed by its new OXY Century Plant coming online later this summer.

    Sooner or later, the supply demand picture will get better on the NG side. Until then Sandridge will continue to focus on higher margin oil.

    SD stock has fallen more than 50 % YTD. Recent pressure in the price was due to selling by Arena holders who prefer to move on. This, coupled with the new focus on higher margin oil, has created a unique buying opportunity in my opinion. Most analyst’s have a $10 target which might be proven as too conservative.

     

       




    Disclosure: Long SD, other energy names
    Stocks: CHK, SD, HK, FST, SWN
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Comments (18)
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  • Devon Shire
    , contributor
    Comments (571) | Send Message
     
    Why do you think this is worth $10 ? You spend the entire article talking about the move to oil and the production ramp up but you don't use a sentence to explain why the company is worth $10 per share.

     

    Not saying I disagree with you. Just would like some thoughts on valuation rather than a reference to analysts.
    29 Jul 2010, 09:50 AM Reply Like
  • J. Crighton
    , contributor
    Comments (89) | Send Message
     
    The more precise question should be: Why, how, and at what specific valuation point should the stock be at in your opinion?

     

    I personally would like to see your reasonings and proof the math for myself. Other than that I'd say thank you for providing a decent starting point for my own research.

     

    ~J.
    29 Jul 2010, 11:59 AM Reply Like
  • bfras921
    , contributor
    Comments (220) | Send Message
     
    Author’s reply » I never said the company is worth 10, you said that.

     

    Funny you said atpg was worth 102, when it was at 23 , now trading at 10, lol

     

    For the rest of you, devon shire is the board pimp yes pimp not pump artist for atpg, he has many handles but goes by swizler on yahoo.

     

    I know one thing, sd is worth more than 6.

     

    Sd is trading as a ng stock when in fact 70 % of revenues will come from oil produced on land not the depised GOM

     

    Funny, they do share one common thing with atpg, they both have a chit load of debt. Unlike atpg, they can pay their bills and didnt have to sell rigs or ask for vendors to defer payments.
    30 Jul 2010, 10:46 AM Reply Like
  • bfras921
    , contributor
    Comments (220) | Send Message
     
    Author’s reply » ok crighton

     

    this year ebitda is 600 m
    next year 900 m

     

    put a multiple of 8 x on that 4.8b to 7.2 b say 7.0 b midpoint subtract 2.6 b debt you get 4.5 b 4.5 b divided by 450 m shares = 10

     

    now that with oil at 78 and ng at 4.80

     

    what your forecast for oil and ng

     

    I think both are going up

     

    I know its not as sexy as 102 but its rational
    30 Jul 2010, 10:51 AM Reply Like
  • Devon Shire
    , contributor
    Comments (571) | Send Message
     
    "put a multiple of 8 x on that 4.8b to 7.2 b say 7.0 b midpoint subtract 2.6 b debt you get 4.5 b 4.5 b divided by 450 m shares = 10"

     

    Why can't you answer a question without acting like a nutjob ?

     

    Can you find any similar companies that trade at an EBITA multiple of 8x ? Isn't 4x or 5x the norm ?
    30 Jul 2010, 12:20 PM Reply Like
  • bfras921
    , contributor
    Comments (220) | Send Message
     
    Author’s reply » i did answer the question...

     

    why cant you accept the answer?

     

    and btw, you are the nut job stalking me, go find a girlfriend or schlepp on the fool board

     

    >Can you find any similar companies that trade at an EBITA multiple of 8x

     

    yes , atpg..

     

    atpg multiple is 75 x or maybe 100 x that is if they have any cash flow
    30 Jul 2010, 03:15 PM Reply Like
  • bfras921
    , contributor
    Comments (220) | Send Message
     
    Author’s reply » Just checked atpg

     

    atpg debt 1217

     

    doesnt include 400 m in iou or lease payments or other commitments

     

    equity 538

     

    total ev 1745

     

    last yr ebitda 160

     

    atpg trading at 11 x+

     

    and they arent allowed to drill in the gom
    30 Jul 2010, 03:26 PM Reply Like
  • Devon Shire
    , contributor
    Comments (571) | Send Message
     
    Ok Turkey.

     

    Why the big selloff in SD ? I don't see anything that has changed the long term value per share. Just quarterly noise.

     

    What say you ? Please don't refer to ATP in your response. I'm trying to engage you on SD because I am interested.
    5 Aug 2010, 12:52 PM Reply Like
  • bfras921
    , contributor
    Comments (220) | Send Message
     
    Author’s reply » the only thing that changed is they lowered guidance a little and raised cap ex. The ceo has a habit of lowering guidance and wall street doesnt like it. A certain un named small cap gom player begining with A will get slapped around too if they lower guidance

     

    Back to Sd..Lets take the first issue 2010 production..

     

    >In Feb oil production for 2010 was forecasted to be 5.2 Mmbls rose to 5.8 Mmbls in May and should be raised again for 2010 to account for the Arena Acquisition to 7.3 Mmbls.

     

    Today they said production will be 7.0 m for oil. In the conference call they hinted that they could be conservative and do 7.2 m.

     

    On the NG side they cut production and reduced the rigs drilling for ng from 10 to 5. This makes sense when you consider the opportunities on oil with ng in the 4's

     

    Ards cap ex was 200 m for the year So if you were at 800 m adding 100 m would bring you to 900 m less the 25 m saved on the ng side you get 875m

     

    So the market is seeing a growth in cap ex from 800 to 875 and seeing a production decline from 120 to 130 bcf in May to 120 bcf now with ard and not liking it

     

    Add 1 time expenses for the acquistion to the mix and slightly higher production costs and the momentum crowd said sell.

     

    In response to an earlier question i said ebitda would be 600m this year..well im too low. They are at 350 now for 6 months and did almost 200 m in q2.. they should be able to do 175 m for each of the next 2 qtrs or 700 m for the year

     

    They are still viewed as a ng play and not an oil play. They hedged 3. b in oil sales over the next 14 qtrs. 70 % of their revenue wil be oil driven in 2011.

     

    That said. they have too much debt and too many assets, and they dont have money to exploit all their assets but yet they are costing 9 % a year to sit around.

     

    The ceo wants to hoard all these assets for a better day. It would be more prudent to sell off a billion worth and pay down debt, imho.

     

    I wouldnt chase it today. Id let the dust settle. IF NG continues to wallow or fall id avoid it. It doesnt matter where oil goes as they hedge at least 80 % of their output so the only upside now is on the ng area
    5 Aug 2010, 03:00 PM Reply Like
  • J. Crighton
    , contributor
    Comments (89) | Send Message
     
    Sadly, from the SA currents section:

     

    "Thursday 2:11 PM SandRidge Energy (SD -14.5%) shares are crushed after falling short of revenue estimates, and yes, a 52-week low after a merger (Arena Resources) is never viewed favorably by shareholders or analysts. But Jon Ogg believes the situation has moved from simply oversold to "obscene," viewing SandRidge as "a huge opportunity ahead after all the dust settles." "

     

    I think you have a point about SD and it's transition to more of an oil player in the near future and the value that would bring (I don't expect natural gas to be able to do very much in the future, imho). That being said, I expect SD will take a pummelling for a while given the current news. Eventually to recover and hopefully to advance.

     

    On a side note: when the two of you aren't hurling insults at one another I do find value in your posts.

     

    ~J
    5 Aug 2010, 03:47 PM Reply Like
  • bfras921
    , contributor
    Comments (220) | Send Message
     
    Author’s reply » >On a side note: when the two of you aren't hurling insults at one another I do find value in your posts.

     

    i am able to admit im wrong. Im also willing to evaluate risks in my long holdings. Others like to pump just because they are long. Thats not an insult , its a fact.

     

    sd has alot of risks

     

    I dont like its debt level. Ward has a ton of assets thats costing the company money with no ebitda be thrown off and he wont part with them as he is waiting for a better day.

     

    Well after 2 years, he (ward) has to admit he has been wrong and find a jv partner to exploit the pinon or sell off a billion in assets and pay down debt. otherwise this stock will keep going lower and lower
    6 Aug 2010, 12:08 PM Reply Like
  • J. Crighton
    , contributor
    Comments (89) | Send Message
     
    Frankly I don't think it's all that bad a stock to keep an eye on. It's got potential. I'm not thinking of making it the bulk of any portfolio, but it might have a space in it as a good spec play.

     

    I'm not wild about debt (which makes me wonder why I would ever think of investing in any oil/ng company, but whatever) , maybe more so than others. But the potential benefits of a post ng to oil transition could be worthwhile.
    6 Aug 2010, 01:51 PM Reply Like
  • bfras921
    , contributor
    Comments (220) | Send Message
     
    Author’s reply » One ep company with no debt is contango. Its a ng play small cap. Dont buy it until they release earnings. An oil ep with no debt is oasis oas in the bahken
    6 Aug 2010, 04:39 PM Reply Like
  • hard head
    , contributor
    Comments (4) | Send Message
     
    very interesting thoughts....i've backed up the truck....just about every analyst thrown in the towel here....put a few bucks per mcf, and it's worth a whole lot more than 5 and sentiment couldnt be worse thats for sure w/ ng in the crapper......if ward can get dollar one of value for land/undeveloped or ng trades up a few bucks or heaven forbid or blows out a q, all of a sudden got nowhere to go but up.......i'm sure they've got the asset sales lined up which should close the cash flow gap and given the oil hedges and low risk drilling, the cash flow growth should be fairly easy to make=i hope so, i took a 20pct position
    11 Aug 2010, 12:19 AM Reply Like
  • BigTimeJack
    , contributor
    Comment (1) | Send Message
     
    Just wanted to thank the author so much for writing about this garbage company. I saw you had 30 years of investment experience as a CFO and thought you must have half a clue. Obviously not. Just a paid pumper lying about who he is. If I'd read this comment section first and saw what a jerk you are I would have known better. Thanks for the worst investment advice I've ever seen. Warning to others this guy is a paid pumper.
    12 Aug 2010, 08:16 AM Reply Like
  • bfras921
    , contributor
    Comments (220) | Send Message
     
    Author’s reply » BIGTIMEJACK

     

    If you want my best picks you have to pay me.

     

    You get what you pay for
    13 Aug 2010, 11:17 AM Reply Like
  • bfras921
    , contributor
    Comments (220) | Send Message
     
    Author’s reply » and sir what was hype..

     

    i didnt even recomend buying it

     

    i said:

     

    SD has a leveraged Balance Sheet and has an excess of 2 b in debt.

     

    Many do not believe SD can manage its way thru this environment

     

    SD stock has fallen more than 50 % YTD

     

    you read what you wanted to read
    13 Aug 2010, 11:19 AM Reply Like
  • Falconflight
    , contributor
    Comments (162) | Send Message
     
    Thx for your article
    19 Aug 2010, 02:08 PM Reply Like
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