SandRidge Energy Inc. (NYSE:SD) announced that in an effort to counter failing wholesale oil prices it is lowering its rig count Kansas and Oklahoma. The news caused the stock to lose 10% of its value. Western Texas Intermediate crude has fallen more than 50% since last summer and that caused the company to take action to protect assets. Supplies are out pacing demand by too large of an amount to keep the rigs profitable. Most analysts are predicting the over-supply to continue through 2015.
The reduction will amount to 75% of the company’s rigs to be removed from operations and the company is heavily affected by wholesale prices so it makes sense. SandRidge Energy Inc. (NYSE:SD) at one time had 28 rigs fully operational in the region. By the end of April it expects to only have 8. The current conditions have punished the company’s balance sheet and with no relief in sight the last resort is to cut assets and lower operational expenses. They have taken on too much debt trying to work through this event and costs in the region have swelled up. The rocks in the region have large water deposits and removing the water is expensive and adds to the company’s dilemma.
The company is also considering a cut to capital expenditures. Most company’s in the industry are facing the same issues and have to resort to drastic measures also. SandRidge Energy Inc. (NYSE:SD) also announced it had appointed a new Executive Vice President and Chief Operating Officer. Steve Turk will assume both roles for the company effective March 2nd. Turk was the Vice President of Operations for the company’s competitor at the southern division at Chesapeake Energy.
The stock had sold off on the rig news but it is now forming a clear cup and handles formation. If it can move off the current position at the end of the handle it is very bullish and can signal a return of investor confidence.