SandRidge Energy Inc. is buying the Pinon Gathering Co. LLC from EIG Global Energy Partners for $48 million cash and $78 million in senior secured notes. Pinon owns 370 miles of gathering lines supporting SandRidge natural gas and carbon dioxide production from the Pinion field in West Texas.
Through the deal, Midcontinent-focused SandRidge will eliminate minimum volume commitment payments of $40 million per year, forecasted to continue until 2021, and additional contractual fees thereafter. Oklahoma City-based SandRidge said the gathering lines would be a "strategic asset."
"By eliminating payments related to contractual volume commitments, this transaction will immediately increase annual EBITDA [earnings before interest, taxes, depreciation and amortization] by approximately $40 million by lowering our overall lease operating and gathering expense," said SandRidge CEO James Bennett. "This transaction is also consistent with our stated goals of reducing existing contractual liabilities related to legacy operations."
The notes to be included in the deal have a rate of 8.75% and are due in 2020. The deal is expected to close during the fourth quarter, subject to antitrust clearance.
SandRidge owned the Pinon assets previously but sold them in 2009 for $200 million to an entity formed and financed by TCW Asset Management Co. (see Daily GPI, July 2, 2009).
Last month, SandRidge said it was suspending payment of its $3.50/share semi-annual dividend on shares of its 7% convertible perpetual preferred stock. "Preservation of liquidity and prudent capital allocation are key issues for SandRidge in the current environment," Bennett said at the time. SandRidge shares have traded below $1.00 since late June (see Shale Daily, July 27). Monday morning SandRidge shares were trading around 40 cents.