Risk is something that no one really talks about until its too late. That’s why I want to stay ahead of the game and take a look a three of the specifics risks facing SandRidge Energy Inc. (NYSE:SD). These are the three areas, in my opinion, are where the current risk is the highest.
The following discussion on SandRidge Energy Inc. (NYSE:SD)’s risks is part of our recently updated premium report on the company. Below is an excerpt from the report, laying out three risks investors need to watch in the coming years along with some commentary to provide some additional context. We hope you enjoy.
Kansas acreage is still being appraised by the company. While the performance of the wells is comparable to SandRidge Energy Inc. (NYSE:SD)’s Oklahoma wells, they have lower initial production with correspondingly lower decline rates. While this will yield favorable overall rates of returns, those returns will take longer to be realized. Given the company’s financial situation, this isn’t an ideal situation. The risk is that the Kansas acreage would slow down the company’s ability to grow production and profits fast enough to make an impact.
While 80% of the company’s cash flow from the Mississippian is derived from oil, just 45% of the production coming out of the Mississippian is oil. That means that the company would see some nice upside to its cash flow if natural gas prices continue to go higher. On the other hand, if oil prices continue to head lower, it could really impact the company’s oil-levered cash flow. While it has some hedges in place, the risk from commodity prices remains.
The article What Are the Risks Facing SandRidge Energy? originally appeared on Fool.com is written by Matt DiLallo.
Motley Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy.
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