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SandRidge Mississippian Trust I (SDT -9.5%) is cut to Sell from Hold with a reduced $13 target...

SandRidge Mississippian Trust I (SDT -9.5%) is cut to Sell from Hold with a reduced $13 target price at Wunderlich, citing a weakening distribution outlook due to higher costs, lower production and a higher mix of natural gas being produced. Investors may be attracted to SDT's yield, but the firm says investors should focus on the trust's risk profile. SDR -4.9%, PER -2.5%.
Comments (34)
  • kcltaxman
    , contributor
    Comments (2) | Send Message
     
    Very perplexing. There seems to be irrational fear with this stock. Two quarters they are above estimates and the stock barely moves. One quarter they miss and the bottom falls out. Unless all the wells suddenly dry up, the valuation looks very attractive.
    5 Mar 2013, 12:28 PM Reply Like
  • Nahodny Okoloiduci
    , contributor
    Comments (147) | Send Message
     
    I've heard that SD have dumb CEO
    5 Mar 2013, 03:23 PM Reply Like
  • unclemike7849
    , contributor
    Comments (201) | Send Message
     
    Actually they have missed by a few cents the last two distributions......$.72 to $.68 to $.65
    What is strange is why SDR (Sandridge Trust II) wasn't downgraded (and "only" went down 5%).
    5 Mar 2013, 04:16 PM Reply Like
  • RogiAnorov
    , contributor
    Comments (63) | Send Message
     
    Yeh, a little confusing. Bought some at 16.50 and some at 15.50. Now it is 12 and changeā€¦
    5 Mar 2013, 05:03 PM Reply Like
  • SA Editor Stephen Alpher
    , contributor
    Comments (546) | Send Message
     
    Tom Ward selling his trust shares to buy SD so he has more stock to vote for himself?
    5 Mar 2013, 12:32 PM Reply Like
  • Zeus2012
    , contributor
    Comments (706) | Send Message
     
    This is actually the time of buy this trusts. They were ridiculously rich last summer. Now some are ridiculously cheap.
    5 Mar 2013, 12:38 PM Reply Like
  • kcltaxman
    , contributor
    Comments (2) | Send Message
     
    Interesting thought. There may be some validity to that. We have a good company, with really bad management.
    5 Mar 2013, 01:06 PM Reply Like
  • PhilippeFV
    , contributor
    Comment (1) | Send Message
     
    What effect are the SD lawsuits having on the SDT stock price?
    5 Mar 2013, 03:18 PM Reply Like
  • Zeus2012
    , contributor
    Comments (706) | Send Message
     
    Think the concern is about how the reliability the reserve data as presented by the management. They have revised the s curve for the Mississippi lime (which is what's backing SDT and SDR)
    5 Mar 2013, 03:25 PM Reply Like
  • unclemike7849
    , contributor
    Comments (201) | Send Message
     
    SDT has been getting beat up because of SD's problems with management. As a trust, SDT is almost bullet proof (if their wells don't dry up which all the analysis says won't happen for at least 20 years). Unfortunately, the market doesn't seem to get it.
    5 Mar 2013, 04:20 PM Reply Like
  • Zeus2012
    , contributor
    Comments (706) | Send Message
     
    You need to go over the earnings call from the last 2 quarters.

     

    It's not bullet proof. It depends on the expected proven reserve of the MS Lime play (which has come in gassier based upon the wells drilled).
    6 Mar 2013, 05:16 AM Reply Like
  • traderj44
    , contributor
    Comments (15) | Send Message
     
    don"t want to seem stupid but is all 3 of the above mentioned stocks cut their div or distrabution by 50% and the stocks fell by 25% the yield is still double figures i think this is a good company with horrible managerment I am correct in my thinking or not any throughts would be helpful and yes i know my spelling sucks trader joe
    5 Mar 2013, 03:37 PM Reply Like
  • unclemike7849
    , contributor
    Comments (201) | Send Message
     
    Your thoughts are correct, however if the stock's demise happened, you would need to hold it longer to get back to even and then start making money again. I started buying SDT at $21 per share down to $16 and have no regrets to speak of even though it's down to $13 today. As long as the yield holds up (and it should) I can manage.
    Buy the way, I keep a pocket dictionary with me at all times (home and office).
    5 Mar 2013, 04:26 PM Reply Like
  • IncomeYield
    , contributor
    Comments (2060) | Send Message
     
    How does your dictionary explain "Buy" in "Buy the way"? :)
    5 Mar 2013, 11:42 PM Reply Like
  • Zeus2012
    , contributor
    Comments (706) | Send Message
     
    Can't look at it as a yield as some of the cashflow is really a return of principal. Look at it like an asset backed security (like a mortgage CMO) whereby the cashflow is secured by the underlying oil and gas in the well.
    5 Mar 2013, 03:42 PM Reply Like
  • TFCAB
    , contributor
    Comments (1977) | Send Message
     
    I am going to become an analyst; i will be great at prognosticating...easier than picking stocks
    5 Mar 2013, 04:43 PM Reply Like
  • ChrisJArsenault
    , contributor
    Comments (120) | Send Message
     
    All of these SD trusts represent a bad investment when overpriced (as they were last year) and a good investment when they are sold indiscriminately, like they are now. Of all the brokerage "sell" recommendations I've seen, I really haven't seen a decent analysis of the cash flow from the trust, and how the price affects the IRR.

     

    If you buy SDR at $12.25 (or whatever price you get) or SDT at $12.75, you get cash flow protected by subordinated units for awhile, and then you are exposed to commodity pricing. Gas at $3.50/mcf isn't the end of the world, and this could increase (maybe to $4) if we get normal weather patterns and enough shut ins and capx reductions directed towards gassier plays. And remember, LNG exports should start around 2015, and it will be interesting to see if this provides a "floor" for NG..

     

    All I'm saying is model the cash flows, using both the subordinated cash flow levels and the target levels. You might be surprised.

     

    By the way, I thought that the trust bore expenses for only the gathering, marketing and taxes related to the production. Why do some brokerage houses cite "rising costs" when they are relatively fixed?
    5 Mar 2013, 04:51 PM Reply Like
  • ethanjatx
    , contributor
    Comments (2) | Send Message
     
    Chris, are you saying we should buy SDT and SDR now? I am so confused because I don't understand how the trust really works.
    6 Mar 2013, 04:40 AM Reply Like
  • ethanjatx
    , contributor
    Comments (2) | Send Message
     
    Hi Chris, are you saying we should buy this stock now? I am so confused now since I don't really understand how the trust works.
    6 Mar 2013, 04:43 AM Reply Like
  • CaladesiKid2
    , contributor
    Comments (271) | Send Message
     
    Chris, if we were to model the cash flows, how might we be surprised? Would SDR and SDT be more or less attractive as investments?
    5 Mar 2013, 07:47 PM Reply Like
  • ChrisJArsenault
    , contributor
    Comments (120) | Send Message
     
    I focused on SDR because it is the newest trust and has the most wells remaining to be drilled. I'll answer your question in that context, if that's OK.

     

    If you use the subordinated payments as a floor (25% of the units are subordinated), then you are set to receive a minimum of $2.17 in '13, $2.36 in '14, $2.55 in 2015 and (maybe) $2.43 in 2016. Let's disregard 2016, as SD has accelerated their development well drilling program. That's still around $7 for the next three years, at a minimum.

     

    Gas prices have been pretty solid at around $3.50/mcfe lately. SDR produced 1758 mmcfe last reporting quarter and sold the gas production at an average price (hedged) of $2.64/mcfe. Total funds available for distribution totaled $26.481mm.

     

    If you use the $3.50 price instead of $2.64, this jacks up funds available for the unitholders by about $1.5 million. This does not offset the loss of 50 thousand barrels of liquid production (a $5 million loss when compared to last quarter), but this should be considered as the development wells get gassier.

     

    My point (which is not a buy recommendation) is that at $12.25 (today's close for SDR), if you subtract three year's of subordinated payments ($7), then you are paying a $5.25 remainder for royalty payments lasting 15 years and that may average over $1/year.

     

    Other factors to consider is how much you trust Ward, does Iran rattle the energy markets, and how long the steep price discount that NG bears to oil will last. Remember NG has sold for over $10/mcfe in the past, and on an energy equivalency this equates only to $60 oil. (6:1)

     

    Even the worst investments become attractive at the right price!
    5 Mar 2013, 09:39 PM Reply Like
  • IncomeYield
    , contributor
    Comments (2060) | Send Message
     
    There are significant environmental and regulatory risks, and a potential shift from oil to NG at least for commercial transportation.
    Just like the Apple story. How do you invest in uncertainty?
    5 Mar 2013, 11:46 PM Reply Like
  • RM13
    , contributor
    Comments (810) | Send Message
     
    Chris,
    Don't let the cat out of the bag yet. These are my back of the envelope calculations.

     

    SDR with current prices of oil and gas pay out $18 dollars plus $2 at the time of termination, roughly about 5% return per year, inflation hedged.

     

    PER story is even nicer, since this is mostly an oil related trust, in slow declining assets. My back of the envelope says north of $20 plus at least $2 at termination at current oil prices, I'm guessing more than that.

     

    So, yes, market overvalued these before, now it's undervaluing them. Still think PER is safer out of SDT/SDR - the decline curves are much more certain.
    5 Mar 2013, 11:06 PM Reply Like
  • ChrisJArsenault
    , contributor
    Comments (120) | Send Message
     
    I really enjoy SA somedays - it gives me insight to what real buyers/sellers/investors are thinking (I'm serious).

     

    The SD trusts seem to be driven by fear at the present. Yes, there are production mix issues, and I'd rather own oil than gas. (BTW - Did you hear that China is now the number one importer of oil, displacing the US?). But there are also some interesting trends surfacing - Westport up, Ford announcing big increases in NG fueled vehicles, as well as an improving economy. I don't think NG will be as cheap in the future as it is now - in some ways (esp. environmentally) it is more valuable than the black gooey stuff.

     

    The analysts are issuing sell recommendations for the royalty trusts the same way they are dealing with JC Penny - i.e., they are selling low. But they also bought high - where were these analysts when SDT was $33?

     

    Which brings me to my conclusion - be sure to sell these trusts when they are overvalued. It might be a political scare (Iran), or they (SD) might jack up production (they still have a lot of wells to drill), or it just might be price related as world wide demands firms. I'd sell north of $20 unless the price deck changes dramatically.
    6 Mar 2013, 10:10 AM Reply Like
  • Zeus2012
    , contributor
    Comments (706) | Send Message
     
    Chris - you bring up a great point. The market is so inefficient right now it's not even funny.

     

    This is just plain old herd mentality.

     

    Look at everyone downgrading AAPL. Where were they when AAPL was trading at $700?

     

    With respect to PER, SDR and SDT, I've been buying this thing up every day for the last 2 days. Doing the same with JCP today.

     

    Look at BBY. 3 months ago, the stock traded below $12 a share. Currently, it's over $19 a share. Has that much really changed?

     

    Look at GRPN, it took less than one week and the firing of its CEO.
    6 Mar 2013, 11:01 AM Reply Like
  • ChrisJArsenault
    , contributor
    Comments (120) | Send Message
     
    BBY?? Boy, that was a hard one to figure market sentiment on.

     

    Anyway, I dipped my toes today in AT. For an electric ute to drop 60% without a power plant meltdown brings out the sharks. I didn't like AT at $15, but it seems like the 7% divvie s/b covered by cash flow now ;)
    6 Mar 2013, 11:39 AM Reply Like
  • xahne
    , contributor
    Comments (119) | Send Message
     
    I own SDT- so out of the Sandridge family, which is the most attractive buy ? _ I just discovered SDT last year- I like the big dividend ( who doesn't) but really knew next to nothing about it except it was in OK ( Ironic) but the formation is Mississipian..gotta love geology.
    anyway, I agree with alot of the posts- the 'analyst' usually fail to analyze anything until it has already happened...Ihad one young broker lose about $40k of my money before I realized he knew less than I did- but he cleaned up well and someone knew his dad.
    6 Mar 2013, 05:40 PM Reply Like
  • Zeus2012
    , contributor
    Comments (706) | Send Message
     
    The best bargain in all of royalty trusts right now is PER. This thing is crazy cheap right now.
    7 Mar 2013, 04:14 AM Reply Like
  • ChrisJArsenault
    , contributor
    Comments (120) | Send Message
     
    PER is mostly oil, and the geology is more mature (i.e., less reserve risk) than SDR and SDT.

     

    SDT and SDR are both Mississippian (which refers to the geologic period of the hydrocarbon formation, such as Devonian, Pennsylvanian, etc., and not the location. These wells are in Kansas and Oklahoma). SDR and SDT have both sold off dramatically as the actual well performance from newly drilled wells has disappointed - not enough oil for the economics. But, if natural gas is the future, then NG prices should rally, and they have increased from a bottom of $2/mcfe to around $3.50/mcfe today. Also, most of the sell off for the trusts has been based on one quarter's results.

     

    These royalty trusts represent a hedge against inflation and last until the 2030's, so they are long term in nature.If you have doubts against fiat currency and think that we are looking at inflation in the future, these trusts should at least keep up with inflation. They will/should pay at high levels (compared to their current prices) until the subordination period expires, and then you are fully exposed to commodity price risk. The trusts were originally priced around $20, and SDT rose to over $33, but then receded.

     

    I think these trusts were sold to the public without everyone understanding the production risks. At least the wells aren't producing water (yet ;)). The risks were outlined in the SEC filings, but not everyone reads those docs.

     

    I can't recommend any buy/sell decisions, but I do recommend understanding the subordination scheme in place during the development phase of the trusts and watching the production profile of oil/NGL's/NG. Economic decisions should be based on today's price (the past is water under the bridge) unless you need a tax loss.
    6 Mar 2013, 06:22 PM Reply Like
  • ChrisJArsenault
    , contributor
    Comments (120) | Send Message
     
    PER up almost 5% this morning, SDR around 3.5%. SDT 8%. Can't find any news on any of these trusts. CNBC says financials and energy are up due to the Bernake (sp?) Draghi put. Okay...

     

    This, to me, is an example of market inefficiency. But, yes, I'll enjoy it.
    7 Mar 2013, 11:43 AM Reply Like
  • Zeus2012
    , contributor
    Comments (706) | Send Message
     
    There were large sellers in the morning on PER over the last 3 days (the stock usually recovered in the afternoon). Think the selling is done. Rumor is that the seller is Tom Ward - swapping PER for SD.
    7 Mar 2013, 01:13 PM Reply Like
  • ChrisJArsenault
    , contributor
    Comments (120) | Send Message
     
    I guess we will start seeing Tom Ward on inside edition soon :)
    7 Mar 2013, 01:40 PM Reply Like
  • snolan
    , contributor
    Comments (9) | Send Message
     
    why is nothing being done about tom ward....he is a proven crook..look into his past...why isn't the sec involved.....i was put into these trusts by oppenheimer who had at the time full knowledge of what was going on (OR SHOULD HAVE)..i was told this was a good investment..now, i have lost over $10.000. who is responsible for this
    12 Mar 2013, 03:12 PM Reply Like
  • tom64
    , contributor
    Comment (1) | Send Message
     
    things don't look to good now, trust in the 8.00 + range. i think the deal was a scam and management should be investigated
    18 Dec 2013, 05:12 PM Reply Like
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