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 (UNKNOWN:SD.DL). These are the three areas, in my opinion, are where the current risk is the highest.
The following discussion on SandRidge'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'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.
- The boardroom battle continues. CEO Tom Ward could be let go this June if the board deems him not to be the right man for the job. If that happens, it could lead to another significant alteration of its strategy. The risk is that the boardroom drama would continue to drag on and become a bigger distraction for the company.
- Commodity prices are a risk for any exploration and production company. Given SandRidge's limited resources, a prolonged decline in energy prices, particularly oil, could affect its returns and impair its ability to grow.
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.