Bankrupted SANDRIDGE ENERGY INC (OTCMKTS:SDOCQ) Under Intense Scrutiny from Shareholders Following Allegations

A bankruptcy deal with its lenders faces an uncertain future following accusations by a group of SANDRIDGE ENERGY INC (OTCMKTS:SDOCQ) shareholders that the oil and gas producer has grossly understated its value.

The shareholders’ court filing late on Wednesday comes before a hearing next week, when the company will ask a judge to approve the Oklahoma City company’s reorganization plan.

Shareholders are hoping to prove SandRidge may be the rare bankruptcy where a company’s assets are valuable enough to repay creditors and have money left over for stockholders, according to their filing with the U.S. Bankruptcy Court in Houston.

SandRidge filed the prepackaged bankruptcy pact in May to restructure roughly $4 billion of debt, joining a long list of oil-and-gas producers hit by a deep crash in U.S. energy prices.

The company’s financial adviser, Houlihan Lokey, estimated the reorganized company’s enterprise value, generally a measure of market capitalization plus debt minus cash, at $1.0 billion to $1.3 billion. The shareholders said an analysis by energy consultant SSR put the value at almost three times that amount.

SandRidge, which was founded in 2006 by former Chesapeake Energy Corp <CHK.N> executive Tom Ward, did not immediately respond to requests for comment. Houlihan Lokey declined to comment.

SSR could not provide a full report on its evaluation because it was running against an Aug. 31 deadline with insufficient information from SandRidge, the shareholders said.

SandRidge had estimated its assets were worth $7 billion as of March 31, according to its Chapter 11 filing in May.

In a court filing, Sunil Gupta, an attorney working with shareholders, said he was aware of a U.S. Securities and Exchange Commission investigation of a former SandRidge employee who was fired for protesting the company’s improper reporting of its reserve values. Gupta said he tracked down the SandRidge whistleblower, a former director of reservoir engineering, and opponents of the plan wanted to depose him.

A Texas school district that is a SandRidge creditor indicated it wanted the whistleblower to turn over all documents he provided to the SEC as well as information regarding SandRidge reserves.

Shares of SandRidge have generally traded below 2 cents in recent months. They had dropped to about 6 cents the day before the company filed for bankruptcy from more than $7 when commodity prices began falling in mid-2014.

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Those interested in shares of SANDRIDGE ENERGY INC (OTCMKTS:SDOCQ) should take a look at the current and historical short data in order to get a glimpse of where the market believes the stock might be headed.  According to the most recent information, there are 15902800 total short interest.  Given the stock’s average daily volume of 8110000, this results in 2.5 days to cover.  In looking at the total shares short in respect to the total outstanding share total of 698500000, yields a 0.02277% of total shares are short.  Compared to last month, this is a 0.11 change in total short interest.

When investors engage in short selling or “shorting a stock”, they actually borrow shares from an existing owner, sell the borrowed shares at market price, and take the cash.  The short sellers then promise to replace the stock in the future and makes dividend payments out of their own pockets to cover the dividend income that is no longer exists on the original, now borrowed and sold, shares.

They hope that the stock price will fall or that the company will fail and go bankrupt, leading the equity holders to ruin.  The short sellers will then buy the stock back at a much lower price and replace the borrowed shares, pocketing the difference.

Shorting a stock can be very risky if the price doesn’t decline like planned and, in fact, increases.  It’s important for any investor to understand the dangers and potentially catastrophic financial losses of short selling.

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SANDRIDGE ENERGY INC (OTCMKTS:SDOCQ) shares closed the most recent session at 0.0221 moving  from the previous open or $-0.0024.  This is compared to the stock’s 52-week high of 0.56 and 52-week low of N/A.  Is now the right time to take stake in the 15900000 market cap company?

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Disclaimer: The views, opinions, and information expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any company stakeholders, financial professionals, or analysts. Examples of analysis performed within this article are only examples. They should not be utilized to make stock portfolio or financial decisions as they are based only on limited and open source information. Assumptions made within the analysis are not reflective of the position of any analysts or financial professionals.

 

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