SandRidge Energy: Corporate Whack-a-Mole?
Board: SandRidge Energy
I hardly know where to begin, so I’ll begin at the beginning.
I’ve been a SD shareholder for roughly two and a half years and this board has ended up being a bit of an investment journal for my experience. A snip from my first post….
Just who is Tom Ward? OK, I know he is the ex-COO and co-founder of Chesapeake but that isn’t exactly what I meant.
Is he, as I previously thought, the guy who provided the yin to Aubrey’s yang? Or, is he just another version of Aubrey that is intent (in my mind at least) on empire building, while taking huge risks with other peoples money, based on his belief he is the smartest guy in the room and secure in the knowledge that his lackey board and their shameful compensation policies will have his back even if/when the sh#t hits the fan.
I’ve got to say, so far, Tom seems to be acting an awful lot like you would expect Aubrey to act with the acquisitions, capital raising and dilutions and after reading stuff like this it doesn’t get any better.
Well then, after two and a half years, I guess I can finally put that question to bed. I think it is safe to say, that beyond their hair, when it comes to what is important to me as an investor there isn’t a nickels worth of difference between the two.
We humans are a funny bunch; “there is a fine line between genius and insanity” comes to mind. In the case of business CEOs I’m inclined to substitute psychopath for insanity but the general concept otherwise fits for far too many of them IMO. Harsh? Well maybe, but I’m hardly the first to notice.
So is there a sweet spot? I suppose you could argue there is, but for me I have come to believe in the absence of empathy, which is the definition in psychology of a psychopath, you will always get malevolence..
To be sure a lot of money can be made riding the coattails of CEOs that straddle this line (see Larry Ellison among others) but the question you have to ask when you look at the successes is if your perception isn’t being clouded with a healthy dose of survivorship bias as well i.e. no one remembers the hundreds (thousands?) of investments that underperformed or blew up where the CEO might not have reached the same level of prominence (notoriety?).
Suffice to say that I can no longer blame Tom for having these traits any longer. I know it and if I decide to remain invested in this company I have no one to blame but myself if things don’t work out as I hoped.
But should I remain an investor? Let’s assume I’m willing to continue to put up with the compensation part where Tom wins no matter what happens with the company or my investment. This still leaves me with the question of whether I’m willing to continue with Tom’s version of corporate whack a mole where every six months or so the company I thought I was investing in is abruptly transformed into something entirely different.
In the beginning (before I invested) SD was a pure play conventional natural gas producer, then came the Permian purchases and the transition to oil, next the Mississippian, then the New Miss, then, look over there, it’s the GOM and now bye, bye to the Permian?
I’ll grant you that the extraordinary changes of the last decade in the oil & gas industry have forced many companies to adapt in what might otherwise be viewed as an extraordinary manner, but this is truly getting ridiculous. At some point you have to ask if this hasn’t changed from being a company that desperately needed to change based on events that were largely beyond its control (collapsing ng prices) into a story about a CEO that is simply reeling out of control.
Although it wasn’t the only reason I got into SD my experience with Aubrey and CHK certainly played a role. After several years of owning CHK I had finally come to realize that Aubrey simply couldn’t be trusted. Best case his stated “plans” were only good for a quarter or two before he would roll the dice again, worst case I couldn’t help but wonder if his version of “whack a mole” might not actually be closer to 3 Card Monte or a ponzi scheme and I simply wasn’t willing to tolerate it any longer.
Talk about déjà vu. :<(
Speaking of déjà vu , this is starting to remind me of ATPG. No I don’t expect SD to suffer the same fate as ATPG, but like ATPG where I came to despise T Paul for his repeated refusal to accept any responsibility for their mess and I still managed to stick around using one rationalization or another to justify not getting completely out I feel SD is also sucking me in in much the same way. This isn't about losing money for me ( I think even now I'm slightly positive with SD overall)that is simply part of the deal IMO, but losing it because I am violating the rules I claim to believe in is simply not a story I want to repeat. I normally consider it a great advantage to invest in companies that I have followed for a year,two or more even when the investment may not be profitable but when this risk reducing familiarity includes a belief that the management team is a major risk itself then it's not really much of an advantage.
WTF moments from the CC.
For starters no presentation and they have removed the older ones as well. WTF is with that? It makes it look like they are shredding the evidence or something. What Tom doesn’t think anyone hangs onto any of them or is he simply determined to create as much fog as possible to keep investors (me) in the dark as we (I) try to get my mind around this mess.
On the news the Mississippian is producing more gas and less oil. WTF? Several months back you pulled this same crap with the Permian but at least then we had some hard numbers to compare. This time, although it sounds like something may have been provided to the analysts (who aren’t in most cases even shareholders) actual investors (cough owners) get squat beyond trying to scavenge tidbits from listening and taking notes during the CC. The 10Q doesn’t have anything to help; so WTF are us individual investors supposed to do just bend over and take it?
On the New Miss. When an analyst questions you about “company concentration risk” you explain that this doesn’t apply because it covers such a large geographic area. Next up you ask us to trust you that you expect the same results all over even though you don’t have the evidence to prove this. WTF is with that? You do realize you just got done telling us that after two years of drilling you suddenly discovered that things weren’t quite as good as you have been reporting don’t you?
On the Dynamic/Gulf coast acquisition Tom finally admits that it “was about financing” . In other words his decision to go completely unhedged with ng combined with the collapse of ng prices blew such a hole in their metrics and 3 year plan that we were forced to buy something with less bad metrics to help make things look a little better and the part about cheap assets was simply unadulterated BS. (Which most of us had figured all along.)
Oh and about that 3 year plan the “cash flow positive by the end of 2014 is likely off the table due to oil prices”? WTF is with that? 90% hedged and your blaming oil prices already? Give me a break!
Recent 30 day results? No comment
Share price collapse? No comment
The really sad thing IMO is there may have been some quite positive news buried in this release. (Down spacing and ESPs) but that assumes you can trust Tom when he moves his lips and quite honestly I don’t believe I can anymore.
That said, like gleaper, “I’m out”. Not yesterday and not likely next week, instead I plan on seeing what the winter has in store for ng prices. But at some point, hopefully into some strength, I’m a seller and I have a real hard time imagining anything causing me to change my mind short of Tom & the Board leaving.