SandRidge Falling to Compelling Levels

 | Apr 01, 2013 | 6:00 PM EDT  | Comments
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SandRidge Energy's (SD) stock is starting to get to a level where I think it is irresistible, despite the many woes it faces. If SandRidge nudges closer to $5 a share, I believe it provides a great opportunity to buy.

SandRidge Energy was the province of Tom Ward, a previous partner of another banished energy CEO, Aubrey McClendon of Chesapeake Energy (CHK). The parallels between the two men and the way they ran their companies couldn't be more similar. Both are exceedingly smart and have learned the oil business through their similar histories of asset purchases, joint ventures and leveraged sales. Both have had stellar moments of success in the early part of the 2000 decade, as natural gas prices ratcheted higher and as shale gas technologies had just begun to show the promise of prolific natural gas from previously untappable sources.

But both have also run their organizations like self-owned fiefdoms, choosing partnerships, sales and asset buys without regard to shareholders. In the case of McClendon, some of his excesses were so outrageous and obvious that he was slowly forced out by the media onslaught of bad press and the pressure of large shareholder and activist Carl Icahn. Tom Ward didn't engage in much personal excess, but his numerous big asset sales and other perplexing buys, particularly in the Gulf of Mexico, gave another big activist fund, TPG-Axon, a chance to force a board change and Ward's dismissal.

Tom Ward spent fortunes on the proxy fight, and in the end, the vote wasn't close. TPG is now in charge, and it seems to me that Ward is obviously livid and is in the process of dumping his enormous holdings in SandRidge and dropping shares again close to that $5 threshold.

This seems to me to be an opportunity. There have been numerous reports, both during the proxy fight and afterward, of the ultimate opportunity in the Mississippi Lime, where SandRidge is really playing most of its cards. There are reports of faster degeneration of wells than what was first promised by SandRidge, and the recent sales in the Miss Lime by Chesapeake to Chinese player Sinopec did not deliver anywhere near the kind of premium that most thought that opportunity represented.

But Chesapeake's sales need to be seen in the context of Chesapeake, which is desperate to restructure and raise cash through asset sales. It would be a mistake, I think, to assess the entire Miss Lime in the context of the Chesapeake sales -- the Chinese just got a great fire-sale value here.

It is the fear of shareholders who wonder whether TPG-Axon is competent at running an oil company, combined with the angered sale of Ward's shares and the misreading of the Chesapeake Miss Lime sales, that has the stock swooning. All three of these factors are, in my view, temporary and mostly wrong knocks on the SandRidge shares.

At $5 or even a bit below that, they are a tremendous value and a buy. 

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