SD - SandRidge Energy

[SmallCap]

There was a good thread going on SandRidge in the general section but instead of putting an update there I decided to put it into the investment ideas section.

Here is the link to the old discussion

http://cornerofberkshireandfairfax.ca/forum/index.php?topic=3270.0


SandRidge came out with a new presentation updated through Nov 1st.

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjkxMDN8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1

[Zorrofan]

I am wondering if FFH bought more on November 15th & 16th?

Nov 16, 2010 FAIRFAX FINANCIAL HOLDINGS LTD/ CAN
Beneficial Owner (10% or more) 2,381,000 Indirect Purchase at $5.08 per share. 12,095,480
Nov 15, 2010 FAIRFAX FINANCIAL HOLDINGS LTD/ CAN
Beneficial Owner (10% or more) 929,300 Indirect Purchase at $5.15 per share. 4,785,895
Nov 12, 2010 FAIRFAX FINANCIAL HOLDINGS LTD/ CAN
Beneficial Owner (10% or more) 1,590,500 Indirect Purchase at $5.15 per share. 8,191,075
Nov 10, 2010 FAIRFAX FINANCIAL HOLDINGS LTD/ CAN
Beneficial Owner (10% or more) 1,250,000 Indirect Purchase at $5.17 per share. 6,462,500
Nov 9, 2010 FAIRFAX FINANCIAL HOLDINGS LTD/ CAN
Beneficial Owner (10% or more) 230,200 Indirect Purchase at $5.15 per share. 1,185,530
Nov 8, 2010 FAIRFAX FINANCIAL HOLDINGS LTD/ CAN
Beneficial Owner (10% or more) 1,000,000 Indirect Purchase at $5.15 per share. 5,150,000
Nov 5, 2010 FAIRFAX FINANCIAL HOLDINGS LTD/ CAN
Beneficial Owner (10% or more) 14,203,600 Indirect Statement of Ownership N/A
Nov 5, 2010 FAIRFAX FINANCIAL HOLDINGS LTD/ CAN
Beneficial Owner (10% or more) 14,203,600 Indirect Statement of Ownership N/A

The total holdings, including the converts, must be well over 10% now....

cheers
Zorro

[Myth465]

Ward eluded to having the asset sales done during the last presentation. He said it would close Q1.

Here is the first announcement.

http://www.tradingmarkets.com/news/press-release/egn_sd_energen-unit-buys-bone-spring-acreage-in-permian-basin-1359304.html

[Packer16]

Has anyone looked at GMX Resources versus SD?  SD has good gas exposure but appears to have paid a high price to get Arena's oil.

Packer

[Myth465]

People keep saying that but SD would likely be taken under had they not switched to oil. Look at their production costs on gas and then look at the current price of gas. Then factor in the high debt load and limited hedges.

I think Ward should get a kudos for saving the company. Gas inmo has suffered a paradigm shift it just isnt worth what it used to be....

[Myth465]

It looks like they are monetizing the Mississippian asset. Very interesting. I wonder how this will effect my leaps. I would love to get leaps on the spinoff. I predict production and distributions will grow rapidly (given the 100 wells coming online). If so, so should the SP and options value  .

If they can get $250 million for 43k net acres then .............

In connection with the offering, SandRidge will convey to the trust certain royalty interests in exchange for the net proceeds from the offering and units representing approximately 50% of the beneficial interest in the trust. The royalty interests will entitle the trust to a percentage of the proceeds received by SandRidge from the production of hydrocarbons from currently producing wells and development wells to be drilled by SandRidge on approximately 42,600 net acres in the Mississippian formation in northern Oklahoma.  SandRidge intends to use the net proceeds from the offering to repay borrowings under its bank credit facility and for general corporate purposes.

http://www.prnewswire.com/news-releases/sandridge-energy-files-registration-statement-for-initial-public-offering-of-royalty-trust-112967074.html

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http://www.sec.gov/Archives/edgar/data/1349436/000119312511002142/ds1.htm

The 650,000 net acres held by SandRidge in the Mississippian formation represent one of its core assets. SandRidge has grown its position in the Mississippian formation during the last three years based on its belief that the formation can provide significant returns on invested capital and will likely be a key asset in growing its oil and gas production over the next several years. SandRidge estimates that it will have ten rigs operating in the Mississippian formation in the first quarter of 2011. Because of its significant net acreage position in this area, SandRidge expects to focus on developing the Underlying Properties quickly to support the further development of its overall position in the Mississippian formation.

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I thought the plan was to stop at 500k. Very Interesting indeed. So far I like it. I think Ward has found a very interesting way to raise capital with regard to the asset. I am really excited about the IDRs. If they can ramp up drilling, the IDRs will mint money. I wonder who came up with the monetization plan. That next presentation on the 11th or so will be rather interesting.

[Myth465]

Tom Ward is a Genius. Prem Watsa is even smarter for betting on him.

Tom is selling 50% (retaining half of the entity) of less than 10% of the Miss Play for $250 - $300 million.

If 100% of the play is the same thats a value of more than $6 billion for Miss.
If this is the best patch of the play but the other acres are half as good we get $3 billion.

Look at SDs market cap, then keep in mind this is only Miss  ......

More importantly we get a platform. They can ramp up drilling (not sure if possible, he said it would be a logistical problem), prove out the reserve, and sell to the new entity. The new entity can keep selling shares to buy more bits of the play. Production should grow rapidly, dividends will grow rapidly, and eventually we will mint money from IDRs and Dividends. We will still own 50% of the entity.

I am hoping for a flat day and really considering buying deep out of the money 2013 calls.

When it rains - It pours. I am due for a bad day soon, portfolio up 16% in 2 weeks.

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Much better than CHK. Note the sale was for cold hard cash, no farm in BS.

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I owe T Bone a cut of coffee (well perhaps much more than that). He was the first to really recognize the value in this play. His valuation for 250k acres was spot on.  Shame, I didnt buy more based on his first analysis.

http://cornerofberkshireandfairfax.ca/forum/index.php?topic=2825.msg25583#msg25583

[Tim Eriksen]

Myth

While I haven't looked at the details, I would be careful comparing the value for a royalty interest with the value for the whole property.  If it was a working interest your math would make sense, but a royalty interest gets a percentage of revenue without any associated cost, so it is much more valuable. 

[Myth465]

Thanks for the tip Tim, you have a good point. I guess the main difference would be we have to develop / prove up those reserves and they get 90% and 50% of the revenue at with no associated costs outside of the $250 million.

I am excited because as they prove up the position they should be able to sell the additional non related production into the platform along similar terms. We retain 50% of the platform, and then get IDRs worth 50% after what I presume will be a very low hurdle rate.

INMO we have retained access to the cash flow, but found a fairly ingenious way to monetize the assets. They also get (my guess here) - The costs of the land, the cost to develop / prove up the land, and a small return all up front. INMO this is the best outcome available and it allows Ward to maintain control without a Major / Semi Major looking over his shoulder.

Thanks again though, you learn a bit each day, and I will have to noodle on this one.

[Myth465]

Thanks again for your thoughts Tim. Very helpful.

Here is our much awaited for presentations.

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDA5NDU3fENoaWxkSUQ9NDE5MzA4fFR5cGU9MQ==&t=1

Ward swings with a big bat. 650k in acre. I wonder when he will stop.