GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Insiders Sent Me a Signal – But I Missed the Boat on Sandridge Energy

March 23, 2011 | About:
CanadianValue

CanadianValue

210 followers
On August 19 of last summer I wrote about Sandridge Energy for gurufocus.com:

http://www.gurufocus.com/news.php?id=105087

I saw a lot to like in company as it made a very large transition to oil. And I also noticed that insiders were buying in meaningful amounts. I liked the valuation and there is only one reason for insiders to buy, and that is because they like the valuation too.

But despite looking at the company for quite a while I didn’t buy enough shares to make much of a difference to my financial well being. I just couldn’t convince myself that I fully understood the company.

What I should have done was pay more attention to what the insiders were doing because they knew more than I did. And what they seem to have known was that Sandridge was quickly amassing a huge position in a new play. Over the course of 2010 Sandridge acquired over 780,000 acres in a horizontal Mississippian oil play that appears to be extremely profitable. It is big enough to be a company maker.

By the time I picked up on what they had accumulated the share price had moved well off of its lows around $4 where I originally had bought a few shares. Today the share price is $11.48 almost triple where I was seriously interested in buying in just a few months.

Yesterday I noticed some interesting insider buying at a company that I already own and no pretty well. The company is Petrobakken which has sold off from over $35 in late 2009 to $18.30 today. Petrobakken has not produced the expected production growth since late 2009 and shareholders have taken the stock to woodshed because of it.

What I find interesting about the insider buying at Petrobakken is that it comes at a time when the company is experimenting with two things. One is a new fracking method which the CEO has suggested has shown extremely encouraging results thus far. The other is an enhanced oil recovery technique that they are taking to the pilot stage in 2011. Initial results from an EOR experiment in 2010 showed an initial double in production from stimulated wells and production 10 months later that is still 50% higher than it was before the experiment.

I don’t know if either of these have impacted the decision of insiders to make some significant purchases, but I do know that I regret not paying more attention when I received a similar message from Sandridge insiders. So this time I’m listening.

Here were the open market transactions:



PetroBakken Energy Ltd. (PBN)



As of March 22nd, 2011


Filing Date


Transaction Date


Insider Name


Ownership Type


Securities


Nature of transaction


# or value acquired or disposed of


Unit Price


Mar 21/11


Mar 15/11


Lothian, E. Craig


Direct Ownership


Common Shares


10 - Acquisition in the public market


20,000




Mar 21/11


Mar 15/11


Lothian, E. Craig


Indirect Ownership


Common Shares


10 - Acquisition in the public market


25,000




Mar 21/11


Mar 15/11


Lothian, E. Craig


Indirect Ownership


Common Shares


10 - Acquisition in the public market


20,000




Mar 21/11


Mar 16/11


LaPrade, Rene


Direct Ownership


Common Shares


10 - Acquisition in the public market


450


$17.770


Mar 21/11


Mar 17/11


Scott, Peter D.


Direct Ownership


Common Shares


10 - Acquisition in the public market


4,000


$17.800


Mar 18/11


Mar 18/11


Themig, Daniel


Direct Ownership


Common Shares


10 - Acquisition in the public market


300


$18.300


Mar 18/11


Mar 18/11


Themig, Daniel


Direct Ownership


Common Shares


10 - Acquisition in the public market


100


$18.300


Mar 18/11


Mar 18/11


Themig, Daniel


Direct Ownership


Common Shares


10 - Acquisition in the public market


1,000


$18.300


Mar 18/11


Mar 18/11


Themig, Daniel


Direct Ownership


Common Shares


10 - Acquisition in the public market


500


$18.300


Mar 18/11


Mar 18/11


Themig, Daniel


Direct Ownership


Common Shares


10 - Acquisition in the public market


400


$18.290








About the author:

CanadianValue
http://valueinvestorcanada.blogspot.com/

Rating: 3.2/5 (11 votes)

Comments

superguru
Superguru - 3 years ago
I guess there will always be misses. I got into SD but missed on BP.
acreatn
Acreatn - 3 years ago
Just a curious question, would you then load up on Petrobakken where all the insider actions are? Or, would you load up more on the parent, Petrobank, in which you are essentially getting 60% of petrobakken upside, plus all the technology and vast resource base for free.
mevsemt
Mevsemt - 3 years ago
Mistakes of omission... the curse of the value investor. I got lucky on SD and bought LEAPS at the bottom, but unfortunately I also sold too early (another curse of the value investor). Anyway, since I referenced canadianvalue's excellent articles in my blog post, I thought I'd attach the links here:

http://mevsemt.blogspot.com/2010/08/fool-me-once.html

and

http://mevsemt.blogspot.com/2011/02/sold-sd-call-options.html

-mevsemt
CanadianValue
CanadianValue - 3 years ago


"Just a curious question, would you then load up on Petrobakken where all the insider actions are? Or, would you load up more on the parent, Petrobank, in which you are essentially getting 60% of petrobakken upside, plus all the technology and vast resource base for free."

Hi, yes definitely the parent. You have to get very comfortable with Petrobakken though as it still accounts for most of the intrinsic value.

rgarga
Rgarga - 3 years ago


I did not understand SD and hence had a hard time convincing myself to buy... I wish I got it!!! Same is true now for ABH???
superguru
Superguru - 3 years ago
At any given time I do one speculative buy and SD was one such. I had no clue what its IV is and I knew it was Las Vegas style gamble.

in last 3 years I did 3 speculative trades with less than 5% of my porfolio

1. FACT - made very good profit on it. Following Klarman.

2. RHIE - Lost everything. Again following Klarman. Learned some very good lessons.

3. SD - So far doubled money. Following Watsa. But read a great deal about it before investing.

Cannot do another one till I close out SD position. For rest 95% of my portfolio I follow pure value style.
superguru
Superguru - 3 years ago
SD - For those who missed the boat first time, the boat is back. LOL

Lesson learned - If I miss an opportunity, just let it go, do not chase it. Same opportunity or another better one always comes again much sooner than you would think.

Buy n Hold - buy cheap and hold till fair value or good profits and then get out as fast as you can. Wait in cash till next great opportunity.

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK