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SandRidge Forms $500M Mississippi Lime JV with Atinum

August 8, 2011
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SandRidge Energy will transfer a 13.2% interest in its Mississippian Lime play acreage in northern Oklahoma and southern Kansas to an affiliate of South Korean investment firm Atinum Partners Co. for $500 million, the Oklahoma City-based company said.

Through a joint venture (JV) agreement Atinum will pay $250 million at closing for a nonoperated working interest in about 113,000 net acres, and will pay the remainder in the form of a drilling carry over a three-year term, the companies said. Excluded from the agreement are wells and acreage within the associated spacing units spudded prior to the effective date, which is expected to occur in the fourth quarter, and all wells and acreage associated with SandRidge Mississippian Trust I.

The JV is another step in SandRidge's plan to raise capital needed "to accelerate and maximize the value of our assets," according to CEO Tom Ward.

"With this sale we will have monetized $580 million of cash and $250 million of additional carry interest on an initial investment of approximately $200 million and continue to own nearly 90% of our acreage," Ward said during a conference call with financial analysts Thursday. "The transaction further substantiates that the Mississippian carbonate play is considered one of the best areas to drill in the U.S. today."

SandRidge reported net income of $196 million (42 cents/share) in 2Q2011, compared with $45 million (21 cents/share) in 2Q2010.

SandRidge said it has increased its 2011 capital expenditure guidance to $1.8 billion from the previously announced $1.3 billion, reflecting an increase in Mississippian drilling activity and continued acreage purchases in both the Mississippian and Central Basin Platform. And after drilling 238 wells in 2Q2011 and increasing total production to 5.64 MMboe in 2Q2011 from 4.56 MMboe in 2Q2010, SandRidge said it was increasing its 2011 production guidance to 24.1 MMboe from the previously announced 23.3 MMboe.

"The execution of our 2011 and 2012 plans will move the company significantly toward our 2014 goal of a self-funding capital program, delivering double-digit annual production growth and a debt-to-EBITDA [earnings before interest, taxes, depreciation and amortization] ratio of less than two times," Ward said.

Earlier this year SandRidge filed for an initial public offering (IPO) for its stakes in SandRidge Mississippian Trust I to trade under the stock ticker "SDT." The filing indicated that it would sell up to $250 million in common units, or up to 12.5 million, which implied a unit price of up to $20/unit. The SandRidge trust owns perpetual royalty interests in oil and natural gas properties leased by the producer in the Mississippian formation in Alfalfa, Garfield, Grant, Major and Woods counties in Oklahoma, which allow the trust to receive 90% of the sales proceeds from 37 horizontal producing wells and half of the sales proceeds from 123 horizontal development wells to be drilled on 63,500 gross acres (42,600 net) held by SandRidge. Last month Chesapeake Energy Corp. launched a similar IPO for a royalty trust for properties in the Anadarko Basin (see Shale Daily, July 11).

Seoul-based Atinum said the JV builds on its prior investments in the U.S. energy sector, which include a JV with Gastar Exploration Ltd. to develop Marcellus Shale acreage in West Virginia and Pennsylvania (see Shale Daily, March 1; Daily GPI, Sept. 23, 2010). Atinum and Gastar are also minority partners in seven wells at the Grosick pad in Butler County, PA, operated by Rex Energy Corp. (see Shale Daily, May 9).

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