Wondering What To Do With Your SandRidge Energy Stock?
SandRidge Energy Stock: What Now?
No doubt about it, owners of SandRidge Energy Stock have been taken to the woodshed the past year. Shares of the Oklahoma City based oil and natural gas explorer are down 70% in the past twelve months.
Take a look…
Of course, the enormous downturn in SandRidge has everything to do with the 55% collapse in WTI crude and the 42% slide in natural gas since April 1, 2014.
Despite the wretched performance, SandRidge is still a widely owned stock.
In fact, according to the most recent 13F filings, big name institutions like Riverstone Holdings, Carlyle Group, Fairfax Financial, Omega Advisors, and Vanguard Group still own over 200 million shares of the name.
All told, institutions hold 95% of SandRidge’s 483 million outstanding shares.
Ouch.
If you’re holding $SD along with these unfortunate institutions, you may be wondering what to do.
Should you buy, sell, or hold?
Let’s do a quick rundown of the situation…
In Debt Up To Their Eyeballs!
If you’re holding SandRidge Energy Stock, you likely already realize the company is a leader in the Mid-Continent region of Kansas and Oklahoma, which is home to the Mississippian Lime.
Trouble is, drilling in the area is not even close to profitable with oil prices where they are. As a matter of fact, energy analysts at Baird Equity and UBS peg Mississippian Lime breakeven oil prices at the mid-$80 a barrel range.
Thankfully, SandRidge has a robust hedging program. According to the company’s investor presentation, 92% of 2015 liquids production is hedged. Of that, over half is hedged at $92 a barrel. The rest is hedged with collars in the $76 to $103 range.
Another thing SandRidge has going for it is ample near-term liquidity…
The company has as $900 million borrowing base, of which $100 million has already been drawn. What’s more, SandRidge doesn’t have any long-term debt due until the year 2020.
With this information in mind, SandRidge has the means to survive the rest of 2015.
But that’s where the good news ends…
SandRidge has total long-term debt to the tune of $3.2 billion- a heck of a lot for an $861 million market cap company. With that debt comes interest expense, which has to be paid come hell or high water.
The company’s total interest expense for 2014 was a whopping $244 million. No doubt about it, SandRidge has some very expensive debt to keep up with.
But like most US oil and gas producers, SandRidge reduced their 2015 capital expense plan to $700 million from $1.6 billion in 2014.
What’s more, the company is taking big steps to increase their efficiency with well-cost reductions. They’re doing all they can to survive the current low price commodity environment.
However, the survival of the company comes down to this…
A Game Of Chicken With Oil And Natural Gas Prices
Since the majority of their hedges expire at the end of 2015, there’s no question SandRidge needs the oil and gas markets to rally back to higher prices. If prices rise, the company may be around to survive 2016- and possibly give new SandRidge Energy stock investors outsized gains from current prices.
But the longer oil and natural gas prices stay in the gutter, the higher the bankruptcy risk becomes for SandRidge.
In my opinion, it’s a flip of a coin if SandRidge makes it through 2016 without going under or getting bought out at a fire sale price.
That said, what do you do with the company’s shares?
Let’s look at a few scenarios:
- If you’re sitting on shares from much higher prices, whatever you do, don’t average down into SandRidge Energy Stock. The company has too much debt for this to be a safe strategy.
For a refresher on investing in cheap energy stocks, read this article. I hate to say it, but your best bet is to pray for a rally so you can unload your position at higher prices.
- If you don’t yet own SandRidge, there’s solid upside profit potential if the price of oil and natural gas rally into mid- and late-2015. At best, shares of the company are lottery tickets with a 50/50 chance of hitting a nice winner.
- Whether you’re a bag holder or a new investor, it’s a good idea to set a stop loss under the recent 52-week low at $1.25. Remember, the only price that SandRidge is guaranteed not to go any lower is, you guessed it… $0.
Bottom line…
Not long ago, SandRidge was a promising exploration company with a bright future. But now it’s an overleveraged time bomb, whose timer is clicking steadily towards zero.
Until Next Time,
Justin Bennett
Commodity Trading Research
BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at http://commoditytradingresearch.com/free-sign-up.
Category: Commodities
