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An Update On SandRidge Energy Inc (OTCMKTS:SDOCQ)

An Update On SandRidge Energy Inc (OTCMKTS:SDOCQ)
Written by
Alex Carlson
Published on
August 29, 2016
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To say SandRidge Energy Inc (OTCMKTS:SDOCQ) has been a disappointing investment is an understatement. In our opinion, what the company's management and board have done is borderline criminal. Supporting this claim is the recent SEC lawsuit alleging that SandRidge fired an employee who reported that the company didn't accurately state its oil and natural gas reserves. On June 16, the SEC filed a $1.2 million claim in SandRidge's pending bankruptcy case. The claim doesn't offer much detail other than “violations of the federal securities laws.”How this benefits common shareholders is that it has caught the attention of the U.S. Bankruptcy Court Judge. Because if what the whistleblower claims is true, then SandRidge substantially undervalued its reserves in the reorganization plan the company submitted to the Bankruptcy Court. SandRidge's shareholders have asked the court to extend its discovery deadline to give their consulting petroleum engineer time to evaluate the energy company's reserves data, which they called in a court filing "critical to his analysis." This bit of hope is why shares have come off the lows on almost $500k in volume.SandRidge Energy is an oil and natural gas exploration and production company headquartered in Oklahoma City, Oklahoma with its principal focus on developing high-return, growth-oriented projects in the U.S. Mid-Continent and Niobrara Shale. At the end of the third quarter, SandRidge had $790 million in cash and $361 million in operating cash flow.The biggest overhang on SandRidge besides the price of oil is its debt load. However, its first maturity is not until 2020. The company was able to issue $1.25 billion in senior secured notes with an interest rate of 8.75% maturing June 1, 2020. This was a well-timed financing and gives SandRidge 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.In a filing, SandRidge management laid out its plan on screwing over common shareholders. SandRidge leadership plans to reorganize nearly $4.4 billion in debt and bring the company out of bankruptcy. The plan includes the cancellation of all common stock and certain preferred stock, the creation of a $425 million credit facility, and a $35 million, 5-year mortgage on the company's downtown headquarters building. Also, senior debtholders would get stock in the reorganized company. The plan must now be confirmed by the Bankruptcy Court. A hearing is currently scheduled to begin September 6.This month, SandRidge said it recorded a net loss of $516 million, or 73 cents a share, in the second quarter. That compares to a loss of $1.6 billion, or $2.78 a share, in the second quarter of 2015. Revenues were $99.4 million, down from $230 million one year ago. The company produced an average of 54,700 barrels of oil equivalent per day in the second quarter, down from 89,000 equivalent barrels in the year-ago period. The sales price dipped to $45.64 per barrel of oil and $2.25 per thousand feet of natural gas, down from $57.95 for oil and $2.74 for natural gas in the second quarter of 2015.No doubt management will say the firing of the whistleblower was related to overall corporate downsizing rather than being due to the employee questioning the reserve analysis. SandRidge this year has announced two rounds of layoffs totaling 440 jobs. The company now has 717 employees, including 376 in Oklahoma City. The count is down from 1,157 company-wide and 548 in Oklahoma City at the end of 2015.Currently trading with a market cap of just under $14 million, SDOCQ is a lottery ticket on the OTC Markets. The good news is that the Bankruptcy Court Judge is starting to pay attention thanks to the SEC's lawsuit. It's too early to tell if common shareholders will recover anything. SandRidge management along with debt holders are looking to block common shareholders at every turn. We will be updating our subscribers as soon as we know more. For the latest updates on SDOCQ, sign up below!Disclosure: We have no position in SDOCQ and have not been compensated for this article.

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