SandRidge Energy, which reported last month it was exploring the sale of Permian Basin assets, will sell its Permian Central Platform Basin assets to Houston-based Sheridan Production Partners II for $2.6 billion in cash.
The sale will bring the Oklahoma City-based company's cash balance to nearly $3 billion and give SandRidge liquidity of over $3.5 billion, the company said in a statement late Wednesday. SandRidge will use the sale proceeds to reduce debt and strengthen its 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," said SandRidge Chairman and CEO Tom Ward in a statement.
The sale announcement came last month on the heels of shareholder calls for a restructuring of the company's board and management and for the CEO to resign.
New York-based investment firm TPG-Axon had attributed the dramatic decline in SandRidge's stock price to the company's "incoherent, unpredictable and volatile" management strategy, which amplified uncertainty regarding the company's future course. Poor strategic planning and reckless spending also had resulted in repeated financial emergencies and caused massive dilution, soaring cost of capital and unnecessary risk.
Private investment firm Mount Kellett Capital Management also called for the company's board of directors to make changes to improve the company's financial performance and for CEO Ward to step down.
Last month, the company's board adopted a stockholder rights plan aimed at discouraging a takeover and amended the oil and gas company's bylaws to require a majority shareholder vote to approve any changes in certain requirements, including provisions related to the composition of the board, Dow Jones Newswires reported.
The Permian assets being sold were producing approximately 24,500 barrels of oil equivalent per day at the end of this year's third quarter. Sixty-seven percent of that production was oil, 18 percent natural gas and 15 percent natural gas liquids. The sale excludes assets associated with SandRidge Permian Trust.
Ward noted that sale is a key part of SandRidge's planned strategic transition from a natural gas producer to an oil-rich exploration and production company.
"This is a great outcome for our shareholders," Ward commented. "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."
The sale is expected to close in the first quarter of next year.
"Given the crowded market for Permian Basin assets, we expected this sale to fetch $2.0 billion, despite our estimate that on a fully developed basis the assets could be worth considerably more to SandRidge than the sale price," said GHS Research analysts in a Dec. 20 research note.
Following the close of the deal, the company's remaining assets will be focused on the Mississippian oil play and offshore Gulf of Mexico, said GHS Research. SandRidge has estimated it has 11,000 potential drilling locations in its Mississippian assets in northern Oklahoma and Kansas. Company officials also believe significant synergies exist in the play due to its capital investment in infrastructure.
While the cumulative present value returns of the Mississippian are larger due to the much larger number of potential future drilling opportunities, the percentage returns of the Central Basin Platform assets appear far larger in its analysis than do the Mississippian returns, GHS noted.