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

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: