3 Reasons Why SandRidge Energy is Still a Buy at $7 a Share

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While SandRidge Energy isn’t as diversified as Chesapeake Energy or Devon Energy, it’s still undervalued and just beginning to hit its stride.

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  • 3 Reasons Why SandRidge Energy is Still a Buy at $7 a Share

    1. 1. 3 Reasons Why SandRidge Energy is Still a Buy at $7 a Share Photo credit: SandRidge Energy
    2. 2. SandRidge Energy is off to a strong start in 2014.
    3. 3. 2014 Highlights:  Started 2014 by exiting the Gulf of Mexico.  Delivered a surprisingly strong first-quarter as earnings blew past Wall Street’s estimates.  New plan has the company doing the little things to create value.  Company continues to pursue a plan to unlock the value of its assets.
    4. 4. Despite the strong start to the year, SandRidge Energy still has plenty of growth left in its tank. Photo credit: SandRidge Energy
    5. 5. Reason to Buy No. 1: Actionable Growth
    6. 6. Simple growth formula: 1. Base decline rate begins to flatten. 2. $1.55 billion average annual capital spending plan on core focus areas. 3. Steady improvement in well costs. Reason to Buy No. 1: Actionable Growth
    7. 7. Results:  20-25% compound annual production growth rate through 2016.  Effectively doubles production in three years.  30%+ compound annual EBITDA growth rate through 2016.  Operating leverage yields higher EBITDA growth. Reason to Buy No. 1: Actionable Growth
    8. 8. SandRidge Energy also has compelling upside beyond it core focus areas. Photo credit: SandRidge Energy
    9. 9. Reason to Buy No. 2: Upsides
    10. 10. Up to six oily plays stacked underneath SandRidge Energy’s acreage: 1. Company currently developing the Upper, Middle and Lower Mississippian formations as part of its focused development plan. 2. Three additional areas are beginning to emerge: Marmaton, Chester and Woodford. Reason to Buy No. 2: Upsides
    11. 11. Results:  SandRidge Energy has added two new focus areas over the past two quarters.  Sumner County, KS added to focus area in fourth quarter of 2013.  10 townships in northern Garfield County, OK added in the first quarter. Reason to Buy No. 2: Upsides
    12. 12. Results:  SandRidge Energy is appraising the potential of the Marmaton, Chester and Woodford.  Drilled vertical appraisal well in the Marmaton.  30 day IP rate of 425 BOE/d.  Drilled five horizontal wells in the Chester.  Average 30 day IP rate of 337 BOE/d. Reason to Buy No. 2: Upsides
    13. 13. Results:  SandRidge Energy is appraising the potential of the Marmaton, Chester and Woodford.  Drilled nine appraisal wells in the Woodford.  First well set had avg. 30 day IP rates of 30 BOE/d.  Second well set had avg. 30 day IP rates of 143 BOE/d.  Company is refining its geologic model for next set of appraisal wells. Reason to Buy No. 2: Upsides
    14. 14. Competitor focus: Chesapeake Energy sees great potential in the Mid-Continent.
    15. 15. Competitor focus: Devon Energy sees a lot of potential in the Woodford.
    16. 16. Finally, investors are undervaluing SandRidge energy’s assets, growth potential and upsides. Photo credit: SandRidge Energy
    17. 17. Current CEO James Bennett sees shares worth upwards of $15.50 each. 1. Base value of the company’s proved reserves (PV-10). 2. Assigning a value to the company’s probable and possible reserves. 3. Assigning a value to the saltwater disposal system. Reason to Buy No. 3: Undervalued
    18. 18. Valuation 1 (Conservative): 1. Proved Reserves (PV-10)  = $4.1 billion 2. Probable and Possible Reserves (PV-15)  = $2 billion 3. Assigning book value to SWD assets  = $470 million Reason to Buy No. 3: Undervalued
    19. 19. Valuation 1:  Adjust for cash and the value of the three Royalty Trusts.  Under this conservative valuation Bennett sees the value of the company’s net assets being $6 billion.  That’s roughly $10 per share. Reason to Buy No. 3: Undervalued
    20. 20. Valuation 2 (Full Potential): 1. Proved Reserves (PV-10)  = $4.1 billion 2. Probable and Possible Reserves (PV-10)  = $6.2 billion 3. Assigning MLP EBITDA value to SWD assets  = $1.15 billion (at 9 times EBITDA) Reason to Buy No. 3: Undervalued
    21. 21. Valuation 2:  Again, adjust for cash and the Trusts.  Under this full potential valuation Bennett sees the value of the company’s net assets being $9 billion.  That’s roughly $15.50 per share. Reason to Buy No. 3: Undervalued
    22. 22. Investor takeaway Even at $7 per share SandRidge Energy still is a buy. It has actionable growth and untapped growth, both of which are being undervalued by investors. Photo credit: SandRidge Energy
    23. 23. Even SandRidge Energy wants to profit from this tax “loophole”

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