6 Reasons Why SandRidge Energy Inc is Heading Higher

A refined business model has SandRidge Energy heading in the right direction.

Mar 17, 2014 at 10:10AM


Photo credit: SandRidge Energy

SandRidge Energy (NYSE:SD) has undergone a lot of changes over the past year. At its recent investor and analyst meeting the company spent several hours going into the details of its refined business plan. The company's plan detailed the six reasons why it now believes it's in a much better position to create value for investors. Let's take a quick overview of these six areas.

SandRidge Energy has spent a good part of the last year focusing its strategy solely on what it does best and that's develop its acreage in the Midcontinent. This is yielding really strong results as the company is drilling more wells for less money. For example, last year the company grew production 35% despite a 30% reduction in its rig count. In addition to that the company is improving the results of the wells it drills as it has seen an 8% improvement to its first year production. Another example of how focus is paying off is in its new lower cost saltwater disposal system, which is detailed in the following slide. 

Sd Focused

Source: SandRidge Energy Investor Presentation (link opens a PDF)

Competitive advantage
The focus on the Midcontinent has become a very strong competitive advantage for the company. SandRidge Energy was early in developing the saltwater disposal and electrical systems that are critical for developing the water filled and rural Mississippian Lime formation of Kansas and Oklahoma. The company's system is unmatched as it spent $610 million to drill 153 disposal wells and lay 865 miles of produced water pipelines as well as 781 miles of power lines and 5 operated substations. This advantage enables SandRidge Energy to make strong returns from the area while well-funded peers like Royal Dutch Shell (NYSE:RDS-A) (NYSE:RDS-B) cannot and are forced to give up developing the play.

Actionable growth
SandRidge Energy has a very strong multi-year drilling program in place. Over the next three years the company expects to grow production by 20%-25% annually even with keeping its capital spending static. That growth will come at even better internal rates of return as the company expects to continue improving its costs. This has the company's returns improving from the current 59% rate to 79% at current commodity prices. One of the reasons why Royal Dutch Shell doesn't have a future in the Mississippian is because it simply couldn't get its returns as high as those enjoyed by SandRidge.

One of the reasons SandRidge Energy is able to get its costs down is because it's focused on using innovation to improve returns and add to its growth potential. This has included its appraisal program which recently added another 100,000 acres to its focused drilling program. In addition to that the company has added options to its playbook that enables it to develop its acreage in the most capital efficient manner. These options include three prototype projects that will enable it to drill the most effective wells. These could enable the company to tap 34% more of a reservoir section with 26% less capital as the following slide shows.

Sd Innovation

Sources: SandRidge Energy Investor Presentation

SandRidge Energy has compelling upside potential outside of its core focus area. For example, the company has a number of additional layers above and below the Mississippian Lime that hold producible oil and gas. This include the Marmaton, Chester and Woodford, which are under much of the company's acreage. Initial well results from either SandRidge or the industry are promising that these new areas offer future growth potential.

For years the biggest worry for investors was how SandRidge Energy was going to pay for its growth potential. The combination of asset sales, growing cash flow and improved results now have the company fully funded. In addition to that there is funding upside from a potential monetization of the saltwater disposal system. With the overhang of liquidity concerns removed, SandRidge Energy can focus on creating the most value from its asset base.

Investor takeaway
SandRidge Energy has made some big changes over the past few years. These changes have led to a refined business model that has the company focused on value creating growth for its investors. As the company delivers on this new plan its shares should head much higher.

Does this make SandRidge Energy our top growth stock of 2014?

There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Matt DiLallo owns shares of SandRidge Energy. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers