SandRidge Energy Inc. last week agreed to sell its Permian Basin portfolio for $2.6 billion in cash to privately held Sheridan Production Partners II, a sale that has been anticipated since early November.
Houston-based Sheridan Production Partners II is the second series of Sheridan funds established to manage and develop mature oil and natural gas properties.
“This is a great outcome for our shareholders,” said CEO Tom Ward, who had indicated the Permian properties would be sold in early November. “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 Permian Basin sale is considered key to SandRidge’s planned strategic transition from a natural gas producer to an oil explorer, much like Chesapeake Energy Corp., which was co-founded by Ward. Chesapeake sold its substantial Permian assets in September for $6.9 billion (see NGI, Sept. 17).
SandRidge’s management team also has been facing heat from shareholders to reduce its debt; investors in November had called for Ward to step down (see NGI, Nov. 12). The company’s liquidity was forecast to dry up by 2014.
“With these proceeds we will have a cash balance of almost $3 billion and liquidity of over $3.5 billion, which we intend to use to reduce debt and strengthen the balance sheet,” said Ward. “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.”
SandRidge is the second-largest leaseholder in the Mississippian with 1.85 million net acres. Late last year it created a joint venture in the play with Spain’s Repsol YPF SA (see NGI, Jan. 2).
“We are excited about focusing our efforts on the Mississippian, which encompasses parts of northern Oklahoma and western Kansas, an area we believe generates some of the highest rates of return for horizontal drilling in the U.S. today,” said Ward. “With 1.85 million net acres and 11,000 possible future drilling locations, the company is the industry leader in the region.
“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. With the sale of the Permian assets, we will significantly reduce our debt balances and, with our ample cash and liquidity, be very well positioned to fund our capital expenditures through 2014 and deliver significant value to stockholders.”
The Permian properties being sold were producing about 24,500 boe/d at the end of September, weighted 67% to oil, 18% to natural gas and 15% to natural gas liquids. The sale excludes properties associated with the SandRidge Permian Trust, the company noted.
The transaction is expected to close early next year and would have an effective date from Jan. 1. Revised 2013 operational guidance is to be issued when the sale closes. The buyer of the assets, Sheridan Production Partners II, is the second series of Sheridan funds established for the management and ongoing development of mature producing oil and gas properties.
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