SandRidge Energy (OTCMKTS:SDOC) didn't find any love on the NYSE and has found itself trading on the OTC markets. NYSE investors might not have loved SandRidge, but OTC investors certainly do. Shares of SandRidge got delisted from the NYSE after its stock price hit 15 cents. The NYSE said that "NYSE Regulation has now determined that the company is no longer suitable for listing based on 'abnormally low' price levels."The reason for the low price is that SandRidge is struggling under the weight of depressed oil and natural gas prices as well as a crushing debt load. However, that isn't to say the company is without hope. This is something that sophisticated penny stock investors caught on to as soon as SandRidge hit the OTC markets.The fact is that SDOC is not like many other oil and gas companies. It is not on the verge of bankruptcy. It has high quality assets with a seasoned management team. As the company said:
"While the delisting of our stock from the NYSE is certainly not an outcome we desired, it's important to note that this action does not affect our day-to-day operations. SandRidge continues to have ample liquidity, and we remain focused on navigating the current commodity downturn and extending our capabilities, including developing our recently acquired Niobrara assets."
While SDOC may have $3.9 billion in debt on its balance sheet, its first debt maturity is not until 2020. The company has four years for oil prices to recover and get back on track. In the meantime, the company is generating cash from the sale of oil and natural gas to keep operating. This is what smart penny stock investors picked up on and why SDOC shares are undervalued at current levels.At the end of the third quarter, SDOC had $790 million in cash and $361 million in operating cash flow. This is quite impressive for a company with a market cap of less than $100 million. Furthermore, this is the company's financial position with crude oil at $33 a barrel. Any rebound in the price of crude and it goes straight to SDOC's bottom line. We are of the opinion that oil is close to a bottom and that a rebound will happen in 2016. This is why we still see shares of SandRidge as being awfully cheap.The real potential for SDOC is like management said, their Niobara assets. So far the results have been positive and SandRidge has drilling giant Baker Hughes (NYSE:BHI) testing its new LEAP adaptive production system on SandRidge wells. According to the first test:
"Baker Hughes’ first field trial of its LEAP adaptive production system, installed on Dec. 12 at a depth of 5,200 ft in the Mississippi Lime play in Woods County, Oklahoma, for SandRidge Energy, is delivering 300% greater oil production and 200% higher natural gas production compared to the previous artificial lift solution. In continuous operation since its installation, the system was seamlessly deployed through the deviated section of the wellbore and started on its first attempt with no issues."
With this new technology, Niobara production could really take off for SDOC. However, that isn't to say SDOC is not without its challenges. The latest being that the company is going to court with the state of Oklahoma. The Oklahoma Corporation Commission, which regulates energy companies, has been clamping down on wastewater disposal, asking operators to voluntarily pull back on their use of disposal wells in earthquake-prone areas. Last year, those requests resulted in the shutting down or curtailing of operations of about 300 wells. SandRidge defied the regulator's recent request to shut down six wells used to dispose of wastewater, despite fears they may be contributing to earthquakes. It remains to be seen what the outcome will be.
Get the inside scoop on SDOC by signing up to Insider Financial right now
by entering your email in the box below
We Have a Monster Pick Coming Soon!
Don't Miss Out!
Sign Up Below!
The best way to look at SDOC is from a risk/reward perspective. The upside could be tremendous if oil prices recover. We look at SDOC as a lotto ticket and one which investors need to take a close look at. We'll certainly be updating our subscribers with the latest on SDOC. Be sure to sign up and get all of our updates on SDOC and our other hot stock picks!
Disclosure: We have no position in SDOC either long or short. We have not been compensated for this article.
Discover Hidden Gems
Don't miss the next big opportunity. Subscribe for timely alerts on potential market movers.
