SD did not need to grab $1,080.50 Million New Cash from Bond Float less $350 million retired = $730.5 Million Cash going on the books as of 8/20/12.
At least not right now. It will not be good for the Income Statement Short Term having all that cash yielding little yet being liable for high interest rates on the spread. The Revolver is readily available, yet SD went further in Debt.
So why did they do it?
Will Ward start picking off assets from CHK, ATPG or others?
Did SD just grab the money while it was available in order to fund future CAPEX?
Will the play book change again?
I'm all in favor of "Bolt On" acquisitions that can be purchased for 1.0 times Cash Flow like the Hunt acquisition. ATPG has some GOM assets, maybe another GOM purchase here?
The plot thickens, SD did not need to float the bonds at present for CAPEX unless they thought capital markets would dry up.
"New Cash from Bond Float less $350 million retired = $730.5 Million Cash going on the books as of 8/20/12. "
Not nearly 730.5 Million in Cash, They have accrued interest that has to be paid out as well when the 2012 binds are retired. How much is that?
Da new plan is to spend $300 Million extra this year drilling an extra 90 wells, resulting in the stock hitting new lows, afterwhich a stock buy back plan of $400 Million will be consummated.
Not double. Grow 25%. My bad on the first read. Point remains the same, just toned down a bit. They're not doing a buyback. Why pay > 7% to retire float that's costing basically nothing when capital is scarce? Just to throw short term oriented shareholders a bone by bumping PPS 50-cents?
Is this completely off the cuff? Must be because it's really off-base. It's easy to just make crap up. Spend a little extra time making crap up that's operationally feasible. This competes with the "we're going to gap up at the open" call as leaders in the clubhouse.
I think the excess is capex for 2012 and 2013 and the revolver will be used off and on to fill in the gaps.
Also, it is more unlikely that Ward will sell any Miss acreage in the near future.
It also adds a bit of security in an uncertain macroeconomic climate.
I normally don't like SD adding debt, but this one looks OK to me after thinking about it for a while.
More debt is quite harmful to the share price and if Ward buys more "stuff" he will certainly issue more shares somewhere along the line, which is very harmful to share price.
Ward gives not a chit about shareholders or share price. He is so greatly over paid that he could care less about his 245 million shares because he is getting filthy rich while driving the share price down down down and causing unbelievable financial grief to untold numbers of long term share holders.
Watch the mans moves. He is out to build a company bigger then CHK so he can out do his buddy McClendon. It is his only goal IMO. He could care less about anything else.
If he fails and SD goes under somewhere down the road he will have gotten filthy rich in the process. It will not be a financial burden on him. So such an ending is not a financial worry or concern to him.
Full speed ahead, debt be damned, shareholders be damned and throw caution to the wind as there is but one goal. Look out Aubrey, Tom is chasing you.
Nice post, Rainbow. I would bet that Ward will but something. Perhaps of of the CHK assets. Two things to note here...1) The ease at which SD raised $1 billion. Obviously, the banks have a much different view of SD's prospects than the Street does 2) The cost of this deal is not immaterial and will hit EPS.
Of the $730.5 Million extra I would like to see the $355 Million Sr Notes due 2016 at 9.875% paid off. With the $375.5 Million left I'd like to see a $300 Million SD stock buyback. With the $75.5 Million after that drill 80 additional wells in areas of existing saltwater disposal systems. If CHK has existing wells close to our Mississippian systems for sale at a great price I'd forgo paying off the 2016 debt.
Any ideas on how the drought is effecting Our Mississippian drilling and fracking?
What if SD buys back 100M shares at $7. That by itself could raise share price 20-25%. Then, when share price gets to $10.50 SD could issue the shares back into the market, pay off the $700M and have $350M left over. This would be better than another Royalty Trust.
The severe drought in Kansas and Oklahoma has slowed the drilling IMHO. But most of the water for a fracking well must come from the acquifer - which is another problem. (It takes 6000 years to replace water drawn from the acquifer. I don't have that many years left.) Keep this quote in mind:
"What is the impact of ground water withdrawals used for fracking?
“Based on current wells in Michigan, an average of 5 million gallons of water are used to fracture each well. Using fresh water to fracture a well is an unsustainable use of water resources, and its impact upon our fresh water supply must be carefully evaluated. By law, surface water withdrawals are prohibited for drilling operations and are discouraged for fracking operations. Therefore, the source of water used in fracking is typically ground water. Immediately, the DEQ responded to one of our concerns regarding water withdrawals and begin requiring deep high-volume hydraulic fracturing operators to use a Water Withdrawal Assessment Tool as part of the permit process to ensure that adverse impacts from the water withdrawal will be avoided. Additionally, at our request, they provided an explanation of the process they use evaluating water withdrawals and site specific reviews. Click here to see the Water Withdrawal Analysis for High Volume Hydro-fracturing by the DEQ Office of Oil, Gas, and Minerals.”
My source was a google search. If I can get back to it, I'll show on the next reply.
If your going to give away your companys assets,you give it to friends first.Tom got a offer he couldnt refuse from Aubery.As to the not saying anything chk is still selling assets so they dont want anyone to know price untill all is sold.This goes both ways, Ihope TOM got the better of the deal.
TW has diluted the share count to such a point that its is simply a repeat of the CHK model.
While I own stock I certainly don't want to see much more of this.
Last year at least when he took on the Mississippi Lime he took on jv partners, etc.
Fwiw, this process can be dangerous so I'm dying to know why he borrowed all this money without even making an announcement on its purpose.