Permian Sale Not an Issue to Trust. SandRidge Energy (SD) announced during its 3Q12 earnings release plans to sell Central Basin Platform assets in the Permian Basin and to reduce activity in that region, which is the location of the AMI shared with PER. Investor concerns regarding the potential impact to trust development plans were subsequently met with a later press release indicating that no properties included in the AMI would be included in the sale, and therefore there would be no impact to the trust. Management intends to meet its drilling obligations; however, given the commentary regarding a likely reduction in activity, we believe the AMI properties are not insulated from a deceleration in drilling, and a potential slowdown is very possible. We are modeling a reduction to a 4 rig program.
Reducing PT to $19 from $23; Adjusting Estimates. Based on revised production assumptions in 2013, we are reducing PER's price target by 17% to $19. We are decreasing FY 2012 DPU by 3.2% to $2.44.
SD has drilled nearly half (401) of the 888 infill wells they are required to drill in the PER AMI area by March 31, 2016. I'd like to see someone downgrade PER to $2, so I can afford to buy a truckload of shares.