Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



3 Reasons to Buy SandRidge Energy

Over the past few years SandRidge Energy (UNKNOWN: SD.DL  ) has undergone several transitions, which has dramatically altered the company and in some ways clouded its investment picture. In an effort to simplify the investment thesis, I've distilled everything down to three reasons why you'd buy shares of the company.

1. SandRidge is the top lease holder and most active driller in the Mississippi Lime formation. The central thesis to an investment in SandRidge is your belief in the company's Mississippian growth plan. While the company has operations in the shallow water of the Gulf of Mexico and the West Texas Overthrust, SandRidge is virtually synonymous with the Mississippian. It has twice the wells as its closest competitor, Chesapeake Energy (NYSE: CHK  ) . It's running three times the number of drilling rigs as Devon Energy (NYSE: DVN  ) . As you can see in the slide from a recent SandRidge Energy investor presentation below, the company is simply head-and-shoulders above its competitors in the play:

Source: SandRidge Energy Investor Presentation

The company has also spent nearly half a billion dollars to build out its own saltwater disposal system and it's even installed its own electrical grid. It's done all this in an effort to get its well costs down as low as possible. These wells, which produce on average 45% oil and natural gas liquids along with 55% natural gas, yield a very high rate of return for the company. That rate is increased thanks to the aforementioned infrastructure investments.

The rest of the energy industry is beginning to take notice of the play's potential. Phillips 66 (NYSE: PSX  ) recently signed a deal to get Mississippian oil shipped to a local refinery. When added to SandRidge's recent percent-of-proceeds natural gas liquids contract with Atlas Pipeline Partners (UNKNOWN: APL.DL  ) we're beginning to see some validation of the Mississippian's tremendous potential for SandRidge.

2. The company has improved its financial position and its capital plan is fully funded through 2014 with multiple options to fund its plan through 2015. Like most of the smaller oil and natural gas exploration and production companies, SandRidge has more potential for growth than it can fund through its current cash flow. That's forced the company to sell assets, including the recent sale of its Permian Basin acreage. That deal provided enough capital to enable the company to pay down its debt, while fully funding its capital plans through the end of next year. The company has a variety of options to access additional funding which puts it on very solid financial footing for the first time in years.

3. SandRidge grew its Mississippian production 131% year over year while also growing its oil reserves by 35%. The company's investments in the Mississippian are beginning to pay off with visible production growth. Last year the company more than doubled its production in the play. Meanwhile, it was also able to grow its overall oil reserves by 35%.

The company sees its Mississippian oil and liquids production jumping another 78% in the year ahead, with overall production up 72%. This liquids-focused growth is important given that 80% of its Mississippian cash flows come from oil production. However, if natural gas prices continue to rise, there is potential here for some significant upside given the natural gas production that is coming out of the Mississippian.

The bottom line here is that you're investing in SandRidge because you believe in the future of the Mississippian. While that is an important part of the story, it's by no means the whole story. 

If you'd like read more of the story and learn more about the future of this emerging oil and gas junior then check out The Motley Fool's premium research report detailing SandRidge's game plan. To get started, simply click here now!

Read/Post Comments (0) | Recommend This Article (16)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2353273, ~/Articles/ArticleHandler.aspx, 9/25/2016 12:17:01 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
SD.DL $0.00 Down +0.00 +0.00%
SandRidge Energy CAPS Rating: ***
APL.DL $0.00 Down +0.00 +0.00%
Atlas Pipeline Par… CAPS Rating: ***
CHK $6.63 Down -0.24 -3.49%
Chesapeake Energy CAPS Rating: ***
DVN $39.54 Down -2.34 -5.59%
Devon Energy CAPS Rating: ****