I am as disappointed as anybody with SD’s PPS. But I must say for SD to be punished for a good quarter because of the analyst’s overreaction, and obvious misunderstanding, of the increase in the CAPEX budget really surprises me. They should be applauding Ward. Ward is an excellent oil and gas operator, probably one of the best.
Here’s what I mean. Water is obviously a huge issue in the Miss. Disposing of production water can be very expensive. SD had two options: 1) Pay expensive trucking companies to come out and truck the water away and take it to a third party disposal well. This option is probably 2-3 times more expensive as what SD is doing. And guess what?…these costs show up as higher OPEX and lower EBITDA. 2) Build the infrastructure to pipe (not truck) water to your own disposal wells. This option costs much less and doesn’t impact EBITDA as these costs are amortized into DDA.
Guess which option Mr. Analyst preferred? The more expensive one! If $100 million of the $250 million CAPEX increase is for disposal wells and water issues, SD is probably saving 2-3 times that amount. That adds up to $200-$300 million more in EBITDA over time.
While from an operational viewpoint it was smart, Tom Ward ignores debt. He is the guy in huge debt who buys a Prius to save on gas. If he had paid down debt even 200 million the stock would have taken off. His management direction is more debt so he can be CEO of a very large company. Screw the share holder.
Thanks, Okie. Nice to hear from you. It's been awhile.
We have both been in this one a long time. I thought we'd be mid-teens by now. When I look back a couple of years, I wished things would have played out exactly as they have...finding gold in the Miss...monetizing assets with some huge gains...lower leverage ratio...and here we sit at $6. Hard to believe!
I thought about lightening up my position some but have been adding. I have to admit that my patience is wearing. Stocks are funny, though. They can turn on a dime...