SandRidge Energy Inc. has inked a deal to sell the bulk of its holdings in west Texas' oil-rich Permian Basin for $2.6 billion, the company announced Wednesday.
SandRidge amassed its Permian acreage in 2009 and 2010 as it shifted its focus to oil production, but the Oklahoma City-based company now is concentrating on the emerging Mississippian oil play in northern Oklahoma and southern Kansas.
CEO Tom Ward said the sale of about 212,000 acres to Houston-based Sheridan Production Partners II is a “great outcome” for the company's shareholders.
“The sale of the Permian assets at this time has allowed us to capitalize on current strong valuations for mature, conventional Permian assets and generate a very strong return on our investment there,” he said in a statement issued by the company.
Ward said the sale will give SandRidge a cash balance of nearly $3 billion to reduce debt and strengthen the company's balance sheet.
“This will also allow us to fund development of our acreage position as well as future opportunities in the highly scalable, high-return Mississippian play,” he said.
SandRidge, which first raised the possibility of selling its Permian holdings during a Nov. 8 earnings call, is being pressured by two of its largest shareholders to shake up its management team.
Investment firm TPG-Axon has identified the “sudden” move to sell the company's Permian assets as one of the key reasons for its push.
“If these sales represented a newfound commitment to realizing and delivering value for shareholders, we would not be having this dialogue,” CEO Dinakar Singh wrote in a Nov. 30 letter to the SandRidge board. “Instead, they are yet another symptom of a management team that has had reckless disregard for transparency, for prudence, and for the shareholders.”
Analyst Neal Dingmann said the deal is a good one for SandRidge, if the company uses proceeds to deleverage the company a bit.
“I think this makes a lot of sense,” said Dingmann, an analyst with SunTrust Robinson Humphrey.
He said some observers may question why SandRidge is selling its Permian assets so soon after acquiring them, but the company did not know about the potential of the Mississippian play, one Ward obviously likes.
“He's proven that the returns are not just good, but they're better than his Permian returns,” Dingmann said.
Morningstar Inc. analyst Mark Hanson said SandRidge's Mississippian assets seem to have more growth potential than its Permian holdings, making the play more likely to grab headlines for the company.
He said the Permian acreage is set to draw more money than he had estimated for SandRidge.
“It gives them some pretty badly needed cash,” Hanson said.
Ward has compared the potential of the emerging play to the productive Bakken Shale in North Dakota and Montana.
He said SandRidge believe the Mississippian “generates some of the highest rates of return for horizontal drilling in the U.S. today.”
“With 1.85 million net acres and 11,000 possible future drilling locations, the company is the industry leader in the region,” Ward said. “We also have a unique advantage because of extensive investments in critical infrastructure that make our operating costs there among the lowest in the industry.
He said the sale, which does not include assets tied to the SandRidge Permian Trust, will help the company fund its capital expenditures through 2014.
The Permian properties being sold were producing about 24,500 barrels of oil equivalent a day at the end of the day, SandRidge said.
The deal was announced after the market closed Wednesday, with SandRidge's stock up 2 cents to $6.50. It rose to $6.95 in after-hours trading.
Second lawsuit filed in a month
A Florida man filed a securities lawsuit Wednesday against SandRidge Energy Inc.'s board of directors, accusing the Oklahoma City oil company's leaders of engaging in reckless business practices.
SandRidge shareholder Arthur I. Levine accuses the directors of approving transactions that benefitted them, not the company.
Levine's 30-page lawsuit echoes many of the complaints leveled by investment firm TPG-Axon Capital, one of SandRidge's largest shareholders.
It is the second such lawsuit involving SandRidge filed this month in federal court in Oklahoma City.