SandRidge Energy (UNKNOWN:SD.DL) is one of those companies that you either love or you loathe. It bears striking resemblance to Chesapeake Energy (NYSE:CHK), which probably should come as no surprise as its current CEO Tom Ward was a co-founder of Chesapeake. This history could play a key role in SandRidge's future.
While we can learn a lot from history, it's still not as accurate an indicator of future success or failure as we'd like. That's why as investors we need to be ever vigilant about those companies that make their way into our portfolios. To help current and future SandRidge investors stay on top of what's happening at the company, I recently updated a premium report on the company. Given all the changes the company has undergone this past year, and the changes likely ahead of it, it's important to stay up to date.
Below is an excerpt from the report, laying out four areas investors need to watch in the coming years. We hope you enjoy.
The Four Areas You MUST Watch
- SandRidge is in the best financial shape of its history, but while the Permian sale helped to shore up the balance sheet and fund its capital plan though 2014, SandRidge still has a steep road ahead. The company has a significant amount of debt, with $1.4 billion in net debt and a leverage ratio of two. It plans to allow its leverage ratio to drift closer to three times, which will happen naturally as it spends its $2.4 billion in liquidity to drill in the Mississippian over the next two years.
- In order to meet funding gaps over the past two years, SandRidge entered into a number of joint ventures and asset sales as well as monetized acres in the Mississippian and the Permian Basin through three royalty trusts. SandRidge still holds between 30% and 40% of total units outstanding in the trusts, but it did trade valuable drilling acres to shore up its funding gaps. While the company's capital plan is funded through 2014, expect it to again trade current value to fund future growth.
- The company's acquisitions in the Gulf of Mexico bring a new dimension of both risk and cash flow. For 2013, SandRidge expects to spend $200 million to maximize the asset's cash flow. However, SandRidge will spend another $120 million to abandon 170 of its more than 600 non-producing wells. Investors need to watch how much capital SandRidge spends to build its position in the Gulf.
- One of SandRidge's top shareholders had been engaged in a very public proxy battle with the company. The two sides agreed to expand the board of directors by four and conduct an extensive review of the company's operations. This could include the termination of current CEO Tom Ward. A final decision is to be made by June 30.
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. 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.