Investor skepticism about SandRidge Energy intensifies

Deckhands on an oil rig operated by SandRidge Energy change out a drill pipe on their rig. (Feb 7, 2012)
Deckhands on an oil rig operated by SandRidge Energy change out a drill pipe on their rig. (Feb 7, 2012) File photo

SandRidge Energy – one of the largest oil and gas producers in the state – reported a loss of $17.8 million in the second quarter as well as a 37 percent decline in revenue from the year before.

The results didn’t reassure skeptical investors, who drove the company’s stock down to 50 cents a share on Wednesday.

SandRidge Energy, based in Oklahoma City, has been hammered by the sharp decline in prices, as have all oil and gas production companies. But the markets view it as particularly likely to go bankrupt because of the large amount of debt on its books.

In 2014, SandRidge was the largest oil producer and the second-largest gas producer in Kansas. It is heavily concentrated in drilling horizontal wells in Harper County, southwest of Sedgwick County, as well as a few neighboring counties in Oklahoma.

The company has embarked on a multipronged plan: drastically cut drilling and other expenses, lower the cost of the wells it does drill and increase liquidity to keep the company afloat. The hope is that if the company has enough cash and slows spending enough, it can last until oil prices rebound.

The company also hedged much of its 2015 production and in the second quarter was able to sell its oil for an average price of $79.65, far above the market price. The price of natural gas is far lower.

The company’s average price for all of its hydrocarbon products combined – called a barrel of oil equivalent – was $35.68, still $9 per barrel over the market price.

In its Wednesday release, the company said it has actually produced more than it predicted and has continued to lower the cost of its wells, to $2.4 million per well. The company was also successful in issuing new notes in June and ended the quarter with $1.5 billion in liquidity, $984 million of that in cash.

But skeptics note that much of its price hedging expires at the end of the year – meaning the price for its oil and gas will be far closer to the market price – and the debt load is only getting bigger; it’s now $4.4 billion.

The fall in stock price reflects that investors increasingly doubt the company’s long-term prospects if oil and gas prices remain so low.

Reach Dan Voorhis at 316-268-6577 or Follow him on Twitter: @danvoorhis.