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Midstates Proposing Merger With SandRidge, With Mississippian Lime Focus

Less than six weeks after SandRidge Energy Inc. ditched plans to purchase Bonanza Creek Energy Inc., the Oklahoma City-based independent has a new suitor to consider: Midstates Petroleum Co. Inc.

On Tuesday, Tulsa-based Midstates proposed an all-stock merger with SandRidge to create an exploration and production (E&P) company valued at about $1 billion, and the largest E&P focused on the Mississippian Lime play. Midstates sent a letter to SandRidge's board expressing a "strong desire" to negotiate a successful merger.

"We are ready to move forward immediately to negotiate a merger agreement to form a stronger, more formidable company," said Midstates CEO David Sambrooks. "The combined company will have zero net debt, strong liquidity, and forecasted free cash flow generation of up to $480 million over the next five years."

The merger would create a "strategic fit and geographic overlap of both companies' assets" in the Mississippian Lime and the northwest part of Oklahoma's STACK, aka the Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties.

Specifically, Midstates said a combined company would control 456,000 net acres in the core of the Mississippian Lime, with production of more than 53,000 boe/d. It would also own more than 75,000 net acres in the northwestern STACK.

Under the proposed merger, SandRidge shareholders would own about 60% of the combined company, receiving 1.068 shares of Midstates for each of their existing SandRidge shares. Midstates shareholders would own the remaining 40% stake. The combined company would be led by Sambrooks, with shareholders providing input on a new board.

Midstates made the proposal public to generate support from shareholders. It added that a merger would generate more than $70 million in annual synergies and projected annual free cash flow of more than $100 million. Midstates and SandRidge each emerged from voluntary bankruptcy protection in late 2016.

Midstates said Fir Tree Partners and Avenue Capital Group (ACG), its largest shareholders, support the proposed merger. Management also noted there is about a 40% overlap in shareholders that own stakes in Midstates and SandRidge. Fir Tree and ACG hold a combined 40% of Midstates' equity.

Last November, SandRidge announced plans to purchase Bonanza for $746 million, creating an E&P that would build in the Midcontinent and Colorado's Denver-Julesburg Basin. But SandRidge's plans began to derail after hedge fund billionaire Carl Icahn became its largest shareholder and the company's board adopted a shareholder rights plan (aka a poison pill). Despite assurances from SandRidge executives that the merger with Bonanza was a sound business decision, the company dropped its plans on Dec. 28.

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