SD is a complicated stock to figure out. The company has two J/V's, 3 Trusts, and a never ending plan towards its 3 year goal. Permian assets are being sold for 2.6 Billion on 24,500 boed flowing production: this equates to $106,000 per flowing barrel of Oil equivalency and its about 85% Oil. The company will be left with somewhere between 80,000 and 85,000 boed production after the sale, and its heavily weighted towards NG - Post sale of Permian assets.
So what is this company worth?
I figure the remaining 80K flowing boed to be worth around 60,000/boe or say 5 Billion on the production. This does not include the Midstream Assets, or excess acreage in the Mississippian Play. Excess acreage in the Miss is easily worth $500 per acre on say 1,500,000 acres so = another 750 million. Midstream another 500 million or more. Lariat, office complex, jets, misc assets another 250 - 500 million. So a liquidation value somewhere in the 6 to 6.5 Billion range, plus the 3 Billion in Cash (400 Million on the Balance Sheet now plus the 2.6 Billion from Permian) we are looking at 9 billion gross. Subtract out the debt, and divide by shares outstanding, looks like stock should be worth well north of $8.00, maybe as high $10, on a break up or liquidation basis.
But there is a big discount associated with the Pinon field and penalties to OXY for lack of delivery of CO2 to the Century Plant. There is a good poster that occasionally shows up on this board: (Indebt_thxlobr) was a contractor for a bunch of work that was done on the Century Plant (I had dinner with him and Longstrong a while back), and he has provided the only recent figures on production out there (why doesn't SD give production figures in the WTO?) He stated it was at 168,000 mcfd a couple of months ago. The plant has two trains each with a capacity of 400,000 mcfd, for a total capacity of 800,000 mcfd. So SD is clearly under delivering on its contract, is getting penalized as a result thereof, and the penalties will grow as the production is in decline, and SD hasn't drilled a well there in over 2 years.
What do those penalties amount to? SD has not been transparent about this at all and has lumped them into their lifting costs for the company as a whole. I'd sure like to see more transparency in this area, as it is significant. Anybody got a take on what OXY is paying to get the CO2 elsewhere? I've tried to find out the market price for CO2, and there is not much out there, maybe around .50 per mcf? How much does SD have to pay for lack of delivery on an mcf basis to OXY. This is a heavy anchor and is dragging the share price down.
But then again, I am a NG Bull and don't think that the current depressed prices for NG will last more than another year or two. However, SD is in trouble on the Century Plant at present and the penalties will not go away until SD fulfills its obligations. OXY spent over a billion on the plant and wants their money back. The OXY/Century Plant contract is a very large piece of the puzzle that Ward and Senior management have been less than transparent about, and they generally avoid any questions about it by saying that the terms of the contract are confidential.
So lets just sum this up and say that the Pieces of the Puzzle, at present have a gross value of 9 Billion, less the Centrury Plant obligations of around 1 Billion, around 8 Billion at present, subtract out 5 Billion of Debt and Prefered Shares and we are at 3 Billion value on 500 Million shares outstanding, or around $6 per share on a liquidation basis. Rough numbers for sure, but the stock is trading very close here compared to liquidation value. Not much down side here at all folks, and plenty of upside, SD has drilled out lots of different areas in the Miss, both original and extension, production numbers will go up substantially as the company focuses its efforts on the proven high yield areas.
And - NG is going to rise significantly in the not too distant future. Watch what happens on NG storage this summer, forget about the winter draw (its been a lot better than last year), the power burn in the summer is going to send NG storage to well below 5 year averages approaching next winter if we have anything close to last year's summer temperatures. This phenomena happened last summer (I posted numbers on this previously), and the Injection numbers moved the storage numbers down more significantly than winter draws - yet this has been largely ignored by the markets.
Thought I'd bump this post once again as investinservices asked what my base case scenario amounted too, my base case is that the synergy of keeping the company in tact is worth more than the sum of its parts but that true value and appreciation of SP won't be realized until the new execs and BOD members implement the plan by streamlining the company. It's going to take awhile and I don't see a sale for anything less than 8 bucks.
The DOR production figures are included in this and the price per flowing boe is discounted to account for NG content. I did not subtract out royalty and tax payments so production is likely not worth as much as originally stated, but its also grown since that time.
Also, NG injections are becoming a serious problem. Production remains stubbornly high and power burn lower than last summer.
On a different note, there is a new bill that has just been introduced by two US Senators that will effect NG. It's not as good as the NAT GAS ACT, but better than nothing. CLNE and WPRT up nicely on the news.
Google: Alternative Fueled Vehicles Competitiveness and Energy Security Act of 2013
Move up in NG prices has nothing to do with penalties for Century Plant. Penalties are based upon production or lack thereof. The plant is designed for delivery of up to 800,000 mcfd and is now at 168k per day. A huge number of wells need to be drilled and brought on line to offset penalties. The Piñon wells cost around 2.2 million to drill and are competitive with most of the other plays, not as good as sweet spots in Marcellus, but overall quite good. There is a lot of upside in the Magnolia Field, The Big Canyon Ranch Field (SD bought this whole Ranch and owns the vast majority of the minerals) and the Kothman Ranch field. The NG outside of the Piñon heading eastward may prove to be some of the most profitable finds in the country, but SD hasn't developed them yet, largely because of infrastructure problems and the need to develop the Piñon so as to satisfy the CO2 problem/contract.
East side of WTO is pure methane, could prove to be one of the best plays in the country as its vertical, naturally fracked and cheap to drill. SD shot 750,000 acres of Seismic trying to find the sweet spots in the WTO, and they found them, but the NG market collapsed, hence they abandoned the play, have let a lot of
their leases expire, thinking nobody would pick them up in a depressed NG environment, and so far they have been right on that call.
But they are playing with fire, the Magnolia Field was widely publicize when they hit it, the logs are available on the Big Canyon and the Kothman Ranch finds. SD has the acreage wrapped up in the Big Canyon Ranch, but they don't in the other two fields. These other two fields probably have 3 to 5 tcf of NG and they are a lot cheaper to drill than horizontals with multi-stage fracking, at least theoretically. Very early on in developing the eastern portion of the WTO\Pinon area. There is a lot of value there and SD should be able to unlock it if NG prices continue to move forward.
OXY will likely be the buyer if SD decides not to develop it.
Thought I should give this post a bump. NG has moved a bit since I posted it last. Piñon may soon become an asset as opposed to a liability. Don't sweat the Miss extension. SD has plenty of good drill sites in prime areas. E&P companies routinely lease out large acreage positions, figure out the sweet spots and toss the rest away.
I am still adding down here and am looking at some 3 dollar calls if this thing sinks to the low 4's. I was pessimistic about NG, but Watford at UPL, and a few other guys might be right. No drilling equates to a shortfall, and quickly, with the depletion rates seen around the country. I will be watching the EIA report on Thursday.
My liquidation value without discounts is about $6 per share. At liquidation you never get full value so it's actually less than this.
Your numbers do not account for the fact that after the Permian sale , about 60% is NG Boe. SD is not an oil company anymore.
The pps could easily hit the $4 level or lower. The only way to play this stock is to stay away or hedge your bets.
Sentiment: Strong Sell
I don't think Oxy has signed off on either train, there for sd has not been funded in full, if any. And the #s now have got to be close to 2 billion and climbing. It was to be up and running full steam 3 years ago and still has 150 men at work
Hows that Indebt, it wasn't completed 3 years ago?? Phase one was completed after i was here. Phase two i remember hearing something about it not too long ago, i maybe wrong but, i thought they were stateing that is was near completed. so you sound as if you maybe pushing the #'s too. Oxy has nothin to approve in the make up of who runs SD are those 150 men at work subcontractors put in the finishing touches at the plant or what??
Here's my take on how they can get more than 500per ac Ward has said several times there drilling in various parts of the ms. It is a wide and spread out area.some leases in close proxsimity to others. If a well was drilled and it came in good,it wood increase the value of the bordering leases also Co's will pay a premium for those leases. Possible to get 1000-1500 per ac but the production of that well will go in the sale i would assume. Drilling 500 wells in 2013 will go a long way in proving out these leases.You take the leases bordering a well that game in producing 2000 aday for 30 days like sd has. You will have Co. offering 4000-5000+ an ac.Thats why i think SD is way under valued I still believe the Mis is worth 4-fold what the co is valued today. These leases were not bought in one chunk and won't be sold that way. Maybe Jv'd that way but not sold.whats worse than being full of it ,better than just an emty suit at times.
Yes, i was saying something about needing to stick a rig out there. We have got nothing on production #s in 2yrs. that i can remember. I also thought SD may Co2 inj themselves someday in the permian. But i'd wait till the PER ends now. 17,000acre lease. what i read it reverts back to SD Doesn't it?? maybe instead of sending the last rigs drilling out the PER, they will send them to the WTO instead of the Ms. I don't ever see articals ever refering to it, you state it drags us down. Nobody seems to know we have it. I can see NG going to 5 but not much past it for any lenth of time. But 5.25 give or take 25 should be a good stable trading range someday, and the sooner the better. Thanks Rainbow i needed that.
Based on your numbers above and what I have been able to find out i have been buying the stock at present prices and selling the 7 calls in the out months. This only is the only way i can see that makes sence to play this price volatility. As I said a while back, I'm not a hero but i don't like trading with the crowd. Best of luck to all of you who are short this thing.