Why SandRidge Energy Inc. (SD) Is Not a Dud

Page 1 of 2

Friend and Fool blogger Robert Zimmerman recently wrote a post entitled, “A Proven Winner, a Likely Winner and a Dud.” While I agree wholeheartedly with his two winners, I have some issues with his calling SandRidge Energy Inc. (NYSE:SD) a dud. Let’s drill down into his thesis and why I think he, and investors like him, are letting the company’s spotty past cloud its future potential.

Topping the list of criticisms is CEO Tom Ward and the eerily similar “shenanigans” (as Bob calls them) to Chesapeake Energy Corporation (NYSE:CHK)‘s CEO Aubrey McClendon. Now, I’ll be quite honest with you, I have my questions, too, and after hearing about McClendon’s early retirement I wondered if Ward might be next. SandRidge Energy Inc. (NYSE:SD), with Ward at the helm, has made many of the same mistakes as Chesapeake in taking on too much debt and betting that borrowed money too heavily on a volatile commodity.

SandRidge Energy Inc. (NYSE:SD)Both men have profited wildly, and in some cases questionably. It is hard to justify how Chesapeake’s Founder’s Well Program and SandRidge’s conflicted related-party transactions were completely aligned with shareholders. Meanwhile, investors have suffered as shares of both companies have crumbled.

However, the value in the company goes much deeper than management’s ability to destroy it. Bob points out that the all-in strategy to develop the Mississippian Lime will likely be the wrong one. I don’t think the numbers would agree with that.

Sure, given the recently reported poor results from SandRidge’s two royalty trusts, Sandridge Mississippian Trust I (NYSE:SDT) and SandRidge Mississippian Trust II (NYSE:SDR) there is reason to be concerned. It’s hard to spin the numbers as SDT’s sales volumes increased just 1% due to higher natural gas production and slightly lower oil production. This led SDT to produce a 10% lower distribution per unit than was targeted. Over at SDR, sales decreased 7% due to lower oil production along with slightly higher natural gas production. That caused SDR to produce an 11% lower distribution per unit than was targeted. The key takeaway on both, oil volumes were down and gas was up, not exactly the mix you want to see on what’s supposed to be an oil-levered play. However, it is still very early in the play and, more importantly, the key metrics being reported by SandRidge are a bit more positive.

This is a company that delivered 20% reserve growth, with its oil reserves growing even faster at 35%. Further, its proved reserve replacement was up 454%. Reserves are the lifeblood of an oil and gas company, so growth here is important. Production was also up and the company expects its Mississippian Lime production to jump 72% in 2013. If you can find a company growing both production and reserves, then you’ve found a potential winner, even better if that growth is in oil and liquids.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!