2/5/13: Sandridge Mississippian Trust II No Longer a Buy
Shares of Growth Portfolio holding Sandridge Mississippian Trust II (NYSE: SDR) were dragged through the mud and discounted nearly 15 percent Friday after the trust announced a disappointing quarterly distribution. Sandridge will pay just over 53 cents a share to holders of record as of Feb. 14, down from nearly 60 cents a share the prior quarter and 11 percent shy of its targeted distribution. Those distribution targets were set last spring based on Sandridge’s evaluation of reserves on trust properties as well as actual output during the first three months of last year. Raymond James downgraded the trust from Outperform to Underperform after the miss and drew a troubling inference about the future. The analyst noted that production declined 7 percent, and more than that for crude oil, despite a big increase in drilling by Sandridge. “We can only conclude that these wells are either not achieving the initial production results that we were expecting or are declining at a much faster clip than previously anticipated,” the analyst wrote. We have changed our rating on the trust to Hold and will have a further update in the next issue of The Energy Strategist. Hold Sandridge Mississippian Trust II.