Investing to Wealth

SandRidge Energy Inc. (NYSE: SD)

SandRidge Energy Inc. (SD) is an independent natural gas and oil company concentrating on exploration, development and production activities. The Company is focused on the exploration and exploitation of its holdings in the West Texas Overthrust (WTO), a natural gas prone geological region. The Company owns related gas gathering and treating facilities, a gas marketing business and an oil field services business, including its drilling rig business, Lariat Services Inc. The Company’s Drilling and Oil Field Services segment drills wells for other oil and natural gas companies, primarily in the west Texas region. This segment’s oil field services include providing drilling rigs, pulling units, mud logging, trucking, rental tools, location and road construction, and roustabout services to third-parties. Its Midstream Gas Services segment provides gathering, compression, processing, and treating services of natural gas in west Texas. The Company also captures and transports CO2 to the Permian Basin for use in tertiary oil recovery operations, as well as operates interests in the Mid-Continent, the Cotton Valley Trend in east Texas, the Gulf Coast, and the Gulf of Mexico. As of December 31, 2008, it had estimated proved reserves of 2,158.6 Bcfe, of which 88% were natural gas. The company also had 2,059 gross producing wells, as well as had oil interests in 1,655,956 gross leased acres. In addition, it had 29 rigs drilling in the WTO, 5 rigs drilling in east Texas, 3 rigs drilling in the Mid-Continent, and 3 rigs drilling in other areas.

SandRidge Energy Inc. was formerly known as Riata Energy Inc. and changed its name to SandRidge Energy Inc. in December 2006.

SD was founded in 1984 and is headquartered in Oklahoma City, Oklahoma.

Source: Reuters.com, SEC Filings.

Financial Summary

• Adjusted net income available to common stockholders (which excludes non-cash asset

impairments, unrealized gains or losses on derivative contracts and gains or losses on the sale of

assets) of $28.0 million, or $0.16 per share, in third quarter 2009 compared to adjusted net

income available to common stockholders of $27.1 million, or $0.17 per share, in third quarter

2008;

• Adjusted EBITDA of $130.9 million compared to $178.2 million in third quarter 2008;
• Operating cash flow of $85.6 million compared to $137.2 million in third quarter 2008;
• Net loss applicable to common stockholders of $104.1 million, or $0.58 per share fully diluted,

compared to net income available to common stockholders of $230.3 million, or $1.40 per share

fully diluted, in third quarter 2008; and

• No borrowings outstanding under credit facility at September 30, 2009.

SD reported a net loss applicable to stockholders during the third quarter and first nine months of 2009 as a result of depressed natural gas and crude oil prices. Natural gas and crude oil revenue for the third quarter of 2009 decreased 59.7% compared to the same period in 2008. Natural gas and crude oil revenues for the first nine months of 2009 were 56.6% lower than the comparable period in 2008. Also contributing significantly to the loss applicable to stockholders during the first nine months of 2009 was a first quarter $1.3 billion non-cash full cost ceiling impairment.

Natural gas and crude oil production for the third quarter and first nine months of 2009 was 25.2 Bcfe and 80.6 Bcfe, respectively, compared to 25.3 Bcfe and 73.6 Bcfe, respectively, for the comparable periods of 2008. Lower average commodity prices received during the 2009 periods resulted in natural gas and crude oil revenues of $104.3 million for the third quarter of 2009 compared to $259.1 million for the same period in 2008. Revenues for the first nine months of 2009 declined to $328.6 million from $756.8 million for the first nine months of 2008.

The average price received, excluding the impact of derivative contract settlements, for natural gas decreased 68.8% to $2.82 per Mcf for the third quarter of 2009 compared to $9.04 per Mcf for the third quarter of 2008 and 64.5% to $3.23 per Mcf for the first nine months of 2009 compared to $9.09 for the same period in 2008. Additionally, average prices received, excluding the impact of derivative contract settlements, for crude oil production in the third quarter of 2009 decreased 44.1% to $62.76 per barrel compared to $112.24 in the third quarter of 2008, and decreased 51.3% to $51.02 per barrel for the first nine months of 2009 compared to $104.73 for the first nine months of 2008.

Total production expense increased slightly to $41.4 million for the third quarter of 2009 from $41.1 million for the third quarter of 2008 and to $128.4 million for the first nine months of 2009 from $115.5 million for the first nine months of 2008. The increase in expenses for the nine-month period was due to an increase in the number of wells operated and volumes produced during the 2009 period compared to the 2008 period.

Source: Reuters.com, SEC Filings.

Analyst Consensus

No chart available.

Source: www.ft.com

Source: http://www.reuters.com/finance/stocks/estimates?symbol=SD.N

Investment Highlights

SD last week announced that it is no longer pursuing the acquisition of Crusader Energy Group Inc. As contemplated by the bid procedures approved by the Bankruptcy Court, additional bidders have submitted proposals to acquire Crusader. SD does not intend to participate in the auction triggered by those proposals. The Company expects to receive payment of the agreed upon break-up fee of $7 million.

SD on mid October announced that its bank group recently reaffirmed its $985 million borrowing base and $1.75 billion commitment amount as part of the regularly scheduled semi-annual redetermination. The company remains in compliance with all debt covenants and there were no changes in covenant ratios. The company’s bank group consists of 27 financial institutions with no single bank holding more than 6.3% of the total commitment. The next redetermination of the borrowing base is scheduled to be in the second quarter of 2010. This shows SD having great ability to borrow against its assets from several lenders, implying the Company has a sound balance sheet, sustainable revenue, and the ability to spread its borrowing over a large area, greatly decreasing the possibility of one bank closure wreaking havoc on SD’s borrowing strategies.

SD announced in late September, the appointment of Everett R. Dobson as one of seven members of the Company’s board of directors. The appointment of Dobson fills a vacancy in the class of directors who stand for reelection in 2012. Dobson founded Dobson Communications Corp. and served as its chairman and CEO until the company was sold in 2007. He currently serves as chairman of the board for Dobson Technologies, a private landline, fiber optic, and data storage business based in Oklahoma City. Dobson holds a Bachelor of Arts degree in Economics from Southwestern Oklahoma State University.

Source: sandridgeenergy.com

Technical Analysis

SD is significantly below its 50 day moving average. This bearish sign is even more significant because the moving average is also trending lower.

SD’s recent volatility has been greater than normal. This is evidenced by the increased width between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility. Additionally, SD is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

The MACD for SD currently indicates a strong bearish signal for two reasons. First, the MACD is below the signal line, a 9day moving average. Second, the MACD is below the critical level of 0, which implies that the underlying moving averages are trending lower.

Comparative Analysis

Source: Thomson Financial

http://www.thomson.com/financial/financial.jsp

Insider Trading Activity

http://www.thomson.com/financial/financial.jsp

Source: Yahoo Finance

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