Mark McGoldrick’s Mount Kellett Boosts Its Stake in SandRidge Energy Inc. (SD)

We can compare SandRidge Energy Inc. (NYSE:SD) not only to Chesapeake- which, as we’ve noted, has been suffering from similar management and industry problems but is at least expected to turn a profit in 2014- but also to oil and gas producers Apache Corporation (NYSE:APA), Devon Energy Corp (NYSE:DVN), and EOG Resources Inc (NYSE:EOG). EOG has been in the best shape of these three companies, and its stock has actually risen in line with market indices over the last year while Apache and Devon are down 20% or more. EOG also experienced a 16% increase in revenue last quarter compared to the fourth quarter of 2011, while Devon’s sales slipped and Apache’s were about flat. Market valuations are accounting for this to some degree: EOG trades at 16 times forward earnings estimates, and even that figure assumes a significant improvement in net income over the next two years. Meanwhile, Apache had seen a sharp decline in earnings to go with its flat top line; it carries trailing and forward P/Es of 15 and 7, respectively, so analysts are expecting a recovery there. Expectations for Devon imply a forward earnings multiple of 11 for that company.

Mount Kellett’s additional purchases of a stock which was already one of the fund’s largest holdings demonstrate that the investment team believes that the situation with SandRidge will be resolved in a manner which will be beneficial for the stock price. Still, we don’t like the company’s current financial situation and would think that even if an investor was interested in committing capital to a recovery in natural gas prices they might be better served by looking at peers such as Chesapeake and Apache.

Disclosure: I own no shares of any stocks mentioned in this article.