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Ideal acquisition is Amplify. .5 shares or 18.5 million new shares. Debt is 185 million so our cash pays off the debt and maybe use some cash to pay off their really bad hedges. Natural gas production doubles, natural gas liquids production increases by 50 percent, oil triples ! That doesn't include some California production that was involved in a spill -Mostly not ampys fault. As I said before Oklahoma fields are close to ours so some definite cost savings also. I think the reserves of the combined company would at least triple. Not bad for 330 million in stock and paying down 185 million in debt. Ampy is 6 so I think around 9 is quite a good offer!
Sandridge has done well. The earnings have come through but the multiple on those earnings has not! Seems unlikely this will change before October 4. The bull market in energy is just starting and that will be seen next year. I have started buying those Tide water warrants that expire 7/31/23 and 11/24/24.
1. I think the change of auditors is making a mountain out of molehill. Last year the big worry was why did Geisler quit and it must mean something (dragged the stock down in July 2021). Yet there was nothing there. Deloitte said there was nothing they disagreed with, Sandridge just wants to save money.
2. I don't understand this process, but don't overlook Sandridge's possible rotation into the Russell 2000. It's claimed that Sandridge is entering at the open on Monday June 27. However ,all week a bunch of stocks that were entering went down and ones that were leaving went up (exactly the opposite of one would expect). Seems yahoo finance claims a bunch of hedge funds were caught on the wrong side of a trade. Note the huge volume on Friday in Sandridge shares.
Sorry for the same topic, but I would be thrilled to know that Icahn is even thinking about the warrants! If Icahn even thinks along your line of thought, then Sandridge stock is probably around 37-40 and the warrants are at least 1.5.
On Friday the October 35 calls were around 1.5 bid and our warrants were only .15 bid. They are way below the radar, and there are tons of other things to worry about before were even on Carl Icahn's radar. On days like today, I am sure Carl Icahn has a lot on his mind other than Sandridge Energy!
1. Okay, I am picking up some frustration in your tone from the length of the argument.
Exactly what will happen when you have to bargain with that car dealer in your previous example. You are thinking, why are you wasting valuable time on something that really is a fraction of your net worth. The economist in me would be thinking the marginal cost of my time is not worth whatever benefit I can get out of winning.
2. There are costs to Icahn from your scheme to lower the price of the stock. First , as Cree stated he could be accused of stock manipulation by the Sec. Valuable time is lost which could be used to work on a more lucrative deal worth far more than 5-8 million considering his 20 billion net worth. Like in example #1 , the marginal costs are not worth the marginal benefits.
3. Icahn is highly motivated to increase his net worth, however he is equally interested in being seen as pro shareholder and anti corporate boards that get large pay packages for inferior performance. When he was criticizing Oxy's board , one of the responses I saw was look how lousy your running of another energy company (Sandridge) has been.
4. The next proxy fight Icahn is involved (over much more dollars than his Sandridge position) , the rivals could easily use any manipulation controversy etc.
An example is your suggestion that fake bad news would be leaked , such as waste of money on drilling and then after the warrants expire it would be taken back . The potential damage to his reputation would be countless multiples of the 5-8 million he would gain from the warrants expiring worthless.
5. I never said the exercise of the warrants would make the company more valuable per share!
I said the cash would almost compensate for the dilution. I did say the current cash already on hand would make the company a takeover target , if warrants were about to expire worthless.
6. As an example, suppose Southwest Gas decided to control some of their energy supplies and offered to takeover Sandridge for $50 in stock right before the warrants expired. They would have at least 7 million shares on their side, just for doing that. Adjust the p/e ratios for cash, the deal is quite accretive even with 7 million more shares outstanding. They could then use the 490 million cash they acquired to reduce debt or buy back stock. In the proxy fight with Icahn, you think they might mention Carl's little scheme?
7. Thanks for an interesting and intelligent exchange of views on this subject. One more point. Icahn's interest in Sandridge goes back to his having a business relationship with Tom Ward. He was given shares in the Sandridge Ipo (2007? or 2008). He complained about Ward's over spending at Sandridge and before that at Chesepeke with Aubrey McClendon. There is a discussion about this in the excellent book (The Frackers) by Gregory Zuckerman.
Seems quite logical to me. As an old chess player, Icahn is willing to sacrifice a few pawns to win the game. His goal is to maximize net worth and he doesn't waste valuable time working on saving 8 million at most!
The dilution is almost compensated by the cash obtained about 290 million dollars.
Icahn cares about this company because he wants to show that he hires mangers who are pro shareholder. He doesn't scheme to keep a stock price down that he own shares in. How does that fit in with fighting for shareholder value at Oxy, Southwest Gas etc.
The longer they (Sandridge) hold on to the cash, the greater the chance of a hostile bid. Waiting for the warrants to expire is being penny wise and pound foolish. If a Icahn fought such a bid , he would look like a hypocrite. Icahn is not busy worried about the warrants climbing into the money. I will concede your point that management is worried, but they should about their jobs in takeover also.
How much does Icahn's net worth decrease if the warrants are in the money?
Yes there is a 20 % increase in shares outstanding but there is also 280 million increase in cash. I doubt if the stock goes down more than 5%. Icahn loses worst case around 7-8 million dollars since he owns 13%. Icahn's net worth is 20 billion, so I doubt he is spending time worrying about those warrants one way or other! The quicker and more rapidly the stock moves up, the more Icahn can promote himself as an advocate for shareholder value. This helps his case for the next takeover he is thinking of doing.
Glad to see you following Gorozen blog. A deep perspective on the energy crisis is provided by Horizon Kinetics. I also follow Josh Young, his research at Bison interests, hkuppy, contrarian888 etc. Any idea how natural gas liquids are doing?
Sandridge produces a lot of ethane, hopefully it's done as well as natural gas has the last month or so!
I am late to this interesting exchange, because I didn't see it.
Just a few points in response to days of posts:
1. I am not worried about Carl Icahn caring about the warrants exist. His whole position is a fraction of his net worth. Icahn wants to be seen as pro shareholder. If sd lags the move in other oil companies, it weakens his case as a shareholder advocate.
2. I think the Warren profit tax(as proposed in our country) targets larger oil companies than Sandridge. This is ironic , since Sandridge has a lower price earnings ratio adjusted for cash and debt then any other peer oil company I can find.
3. We are long way from demand destruction for both oil and natural gas. Short term oil demand is highly inelastic. On a btu basis oil is almost as cheap as coal and is much cheaper than World Natural Gas. Domestic Natural Gas is cheaper than anywhere else so Plastics , Fertilizer will be produced more in the US.
4. I am worried about management incentive to keep the warrants from being in the money. I think that could be the reason for them to not clarify what they are going to do with the cash. That maybe the reason the 35 October calls which expire October 21 are bid at 2 , while the warrants which expire October 4 at 41.3 are only bid at 10 cents. ( Is there an arbitrage opportunity?).
5. I think management is being pennywise and pound foolish if that (#4) is their thinking. Adjusting for cash and no debt sd is the cheapest company in terms of forward price earnings. They might get a hostile bid soon if they continue to sit on the cash.
6. I encourage everyone to check Josh Young's material on Sandridge. For macro views read the Gorozen Blog and Horizon Kinetics. These sources have been right about calling this market from back in 2020 , when not many were bullish. They are
smarter than me, so why not read them instead of my attempt at poorly paraphrasing their points.
It's a hedge transaction. Of course if Carl offers to buy out the company at 41 cash, they lose 6 per option but hopefully someone else offers a higher amount and it's a stock transaction. In the 1960's and 70's Ed Thorp (Beat the Dealer) specialized in buying warrants and shorting the stock or vice versa.
How long before someone sells or writes(not sure terminology) the 35 calls for 2(using a million dollars) and buys 1/2 a million warrants at under 20 cents. I am sure the 35 calls have no liquidity constraints but the warrants are another story.
Thanks for the response to my previous post. Actually if I knew the earnings 9 months ago and what oil and natural gas prices would be today, I would have said sd would be near 40 and the warrants would be at least $2. I think the warrants should be at least 35 cents bid, probably double that compared to the 35 calls example I gave. The problem is liquidity. I think there are people with money that can see the warrants are undervalued, however how much can they buy without moving the price to 50 cents or a dollar.
The following are the bid prices for call options that expire only 17 days after the warrants expire: 25's- $3.9, 30's-$2.2, 35's $1.4!. So the right to buy sandridge at 35 till October 21 is bid at $1.4. Too me , I think the right to buy Sandridge at 41.3 before October 4 should be worth more than 14 cents based on call options prices. Does that mean you should not sell some ? no . If I owned the 35 calls though, I would sell every one to buy the 41.3 warrants.
Creede, it's not the exact equivalent, however the July 15 expiration 20 calls are bid at 2.20 and even 22.50 calls are bid at .90 cents. If the underlying price goes up a little more the options maker may start listing 40 calls. Some hedge fund might even try to arbitrage between the warrants and the options by either buying 30 dollar puts or selling 40 calls and buying the warrants. Flaw in that plan would be the lack of liquidity in the warrants. Anyone can check the prices by googling sandridge energy option chain yahoo.
Something interesting that might be negative short term but positive long term.
Sandridge and Amplify have scheduled conferences calls at the same time on Thursday. Sd could pay 120 million for ampy's Oklahoma properties. This would increase production by 50% and reserves by 100%. Ampy is under a cloud because of California spill, too much debt and hedging. Cash from Sd would solve that problem. Problem is Andrei from yahoo will surface and say he told us Sandridge would blow the money on an acquisition. Still increasing production by 50% plus they can save on Administrative costs (same area of Oklahoma) , so they earn maybe 6-7 per year. 8 * 6.5=52 and the warrants are 11. Okay too much caffeine, I am delusional! I am sure I must be imagining things.
Sorry not good at linking. Just go to yahoo finance and then get a quote on sd. Click on conversations. See the replies to someone named Helen. Follow Andrei who is trapped in 2019 when Sandridge wasted a lot of money in Colorado. Hope there is plenty of big money that is far more logical!
Exactly, Exactly!!!! These people are trapped in the past and have a grudge against the company. You are way too logical !!! I encourage anyone to go to Yahoo and read for yourself the emotionalism.
If you really want to be frustrated, just read the last week of posts on the yahoo board concerning Sandridge. Look how much money they lost in 2019, I will never invest.
They went bankrupt in 2016, I will never invest ! etc etc.
30 calls expiring oct 21 are bid at 1.1, if sd goes up 50% from here the warrants should be 1.1 also! The problem is the Robin hood generation knows option and don't know the warrants exist!
Google option chain sand ridge energy October calls.
October 30 calls which give you the right to buy sd at 30 until october 21 at 30 are bid at 90 cents! Now are warrants give you the right to buy at 41.3 until only 10/04/22 but still are bid .04 and ask .104. I get that warrants are not widely known , but what happens if the warrants become less of a secret.
Yes, unfortunately we are trading at a forward multiple minus cash of about 3. The warrants would be almost in the money if the company had a p/e ratio like eog or dvn. Detractors keep harping on no clear plans for the huge cash position!
Higher gas prices in Europe have no earnings effect as Europe is already using every bit of us export capacity. The gas prices should suggest a higher multiple on future earnings as clearly no one is going to rely on the Russians in the future. The problem is no one thinks that far ahead.
That was not my point as the warrants are a better buy at now .06.
If you were hedge fund and there were call options listed at 40 (some day) that were triple the price of the warrants then you could in theory do a riskless arbitrage selling the naked calls and long the warrants. My bet is any body trying that would drive up the price of the warrants and so that would not work. Again we have inefficient market where a stock sd is undervalued and it's warrants are also undervalued relative to the underlying stock. To top it off the sector is undervalued!
So can anybody answer my question?
I can buy the april 20 calls for 1.5. Okay the stock jumps from 13.5 to 27
as result of great earnings q3, the call options are in the money plus a premium for so they go to 9 bid. So from 1.5 to 9 not bad. On the other hand, I can buy the warrants for 8 cents. Now if the warrants get to the same price as the 20 calls they go to 1.5! That's what 19 times my investment versus 6 times my investment!
Yes of course there are many scenarios where those call options work and the warrants don't, but as you see it doesn't take an options genius to see the warrants are a better buy! If this continues someone is going to buy the warrants and then sell offsetting calls.
I am referring to the A warrants. If you have td ameritrade , I get the price by putting tdw+a. These a warrants are the closest comparison since they have shortest time to expiration of all the tidewater warrants.
Call options are similar to warrants, of course there are also puts that bet on the price to go down. Look at a call option as shorter term warrants but they are usually closer to expiration. The reddit, robinhood crowd is more familiar with call options and doesn't even know warrants which tend to be on more obscure securities. For Sandridge the 25 call option give you the right to buy Sandridge at 25 before April 14, 2022. They are .80 bid and yet the warrants are .07 bid. Yes 80% higher price but 6 months more time to expire. It's not even close which ones are the better buy to me.
tidewater water a warrants are .91. expiration july 2023, strike price = 57.
also April 2022 25 call options ARE 80 CENTS. DOES THAT mean if sd gets into the 20's the warrants will be anywhere near that lets say by January.
no , but I bet October 40 calls will be .80, but not the warrants because whose heard of them.
I was looking at Tidewater to diversify if Sandridge has higher service costs. Now , Tdw is 12 and the warrants don't expire until july 2023 compared to Sd's october 2022. The strike price though is higher at 57 compared to sdrww 's 41.3. So what's the cost of the Tdw warrants? Would you believe 89 cents!? I don't get it! I guess that proves the sdrww 's are a bargain that Mr market is still asleep on. Can anyone explain the 89 cents that Tidewater's warrants trade at?
Negative surprise: sharp increase in costs or fees reduce natural gas revenues like last quarter. Prices are much higher now though than last quarter.
Positive surprise: Josh Young thinks ethane prices are are already going up. Sandridge produces 500K natural gas liquids. If they have gone up half as much as natural gas that would add maybe 5 million per quarter in revenue.
Robin hood crowd only knows options, they don't know about warrants.
We are going to learn a lot more about our fate , around the second week of November. I am figuring sd doubles soon after that. Soon after that we should be close to 25-30 cents on the bid. This is where one could sale enough to double your money, then ride the rest to change one's life. Once the earnings are out, it's going to be more difficult to do a takeover under the strike price. Even at 6 cents the total value of the warrants is only 420k. Some rich may know about this, but too small value for that to get in.
Finally. Even more logical there is no difference between sdrww and sdrdw as of now!
I think we are a long way from that. I think some time after q3 earnings , you will be able to sell enough to double your money and keep the other 75% to ride into q1 and q2 earnings. These warrants could be life changing investments. As I have shown earnings at $4 per share are quite possible!
We have to remember that natural gas was much lower at the start of q3. We might be positively surprised by ethane prices which are not a widely quoted market so that could be a positive surprise. Josh Young did a presentation to a value investing club about that.
Market is worried in the short run about Evergrande in China.
Funny how that hits commodities but the real bubble Fang stocks in our sp500 and of course Tesla , Bitcoin etc. - Well no problem for those markets.
So how do we get to 4-5 annual earnings? Sd has guided production cost of about 80 million per year. Make it 85 to be on safe side.
22 bcf nat gas produced. Move nat gas price to 5.5 hhub but then subtract regional price differences and midstream fees so they get 4.5*22=
100 million natural gas revenue
50 million natural gas liquids( 2.5 million production * 20 $
prices)
Lets use 1 million barrels produced * 75 price.
75 million for oil.
Revenues are 225 million -85 million/33 million shares out=
140/33= about 4.2 earnings per share
I think at current prices Sd will be earning at least .8 per quarter.
The real question is the market's reaction to those earnings in terms of earnings multiple. If they earn 4-5 per year ,will the market value it as cylical pe <8. Eventually the market will see this as sustainable. The problem is they will not come to their senses before October 2022 and expiration. We will be right but too early!
Arguments for a higher multiple of 12:
1. Only unhedged producer
2. Only debt free producer
3. buyback program
4. possible production growth
5. Europe, Asia lng shortage chronic
more capacity will be built , long them nat gas prices high single digits multi years.
6. short term fuel switching natural gas back to propane, butane , heating oil drives up every hydrocarbon fuel.
7 oil is 70 , and business , leisure travel is very depressed. What if it comes back, combined with #6 than triple digit oil will be sustainable
8. 1.4 billion in tax loss carryforwards.
If the stock gets to 25 by a week after November q3 earnings , I would figure these things have to take off or definitely by q4 in late February.
You sell 1/4 or 1/3 of your position at 300% profit locked in even if they go to zero later. Earnings should by .75-.90 for q3- run rate of 3.50 hence 25 stock price. Sell enough at .25-.35 to triple your money and then ride the rest to 10. Some time soon ,I will do estimate of what the earnings will be. Keep in mind q2 had gas prices of 1.63 and ngl prices of 17 and they still earned .4 per quarter! They get probably .25-.30 less than Henry Hub plus pay fixed fee to midstream company of 75 cents so at 5.2 hhub then maybe we are at 4.15. 4.15-1.63*22/4= 14 million more per quarter plus higher prices on ngls so maybe as much as .9 for q4.
This article seems to be computer generated. Carl Icahn's position in Sandridge is widely known as he had a long relationship with Tom Ward going back to his days at Chesepeake Energy. Carl bought sd at 17 in 2018 when oil , nat gas prices were lower than today. Carl even owned Sandridge during the ipo in 2007 but sold out when it when up too much.
The other big shareholder was forced to sale some when he bought too much.
Seems that position was too big not to violate the section 382 tax loss regulations on change of ownership.
I may have infected you with my thinking. You have found your way to Josh Young. For macro thinking go to Gorozen blog or some of the old Horizon kinetics reports form last year.
As for sdrww vs sdrdw , I think Earnie's opinion not logical. Somehow in 2016 one debtor group that got warrants has some secret adjustment planned in 2022. It's really less supply of sdrdw's. If these warrants and sd are so far off the radar, then it's quite possible for this mistaken evaluation to exist also.
so what. THE STRIKE price is actually 30 cents less for sdrww, so it should be worth a tiny bit more!
yes, its an example. A big company that would seize the value and holders would be tempted by short term gains. This would put an end to a potential ten bagger and for the warrants a potential 1000 bagger.
Flaw with sd warrants is a big company sees the value and offers below the strike price before q3 earnings. Say eog resources offers 27 per share in their own stock. Warrants even continue but with much less leverage now that they are eog warrants. Can't wait for q3 earnings and much higher floor for Sandridge.
Sdrdw are twice the price of sdrww and they are slightly inferior in strike price. Crazy!