SandRidge Energy Inc.’s CEO said Wednesday the company will use $258 million in proceeds from two transactions to strengthen its balance sheet and to fund more natural gas exploration in its prized Pinon Field in the West Texas Overthrust.
In one transaction the Oklahoma City-based driller sold its Pinon Field midstream assets in Pecos and Terrell counties for $200 million to an entity formed and financed by TCW Asset Management Co. SandRidge would continue to operate the assets.
Separately, SandRidge received $58 million from a privately owned producer for drilling rights in East Texas below the depth of the Cotton Valley gas trend formation. The transaction includes 22,000 acres in Gregg, Harrison and Rusk counties.
“These transactions were part of a plan we laid out several months ago to further strengthen our balance sheet, allowing us to redeploy this capital to our best reservoir, the Warwick Thrust in the Pinon Field,” said CEO Tom Ward. Ward, incidentally, cofounded Chesapeake Energy Corp. with Aubrey McClendon 20 years ago.
SandRidge has a leasehold of more than 260,000 acres in the Pinon Field, and last year the field accounted for 319 MMcfe, which was more than half of the company’s total annual production (see Daily GPI, June 12). Last month private equity firm U.S. Drilling Capital Management LLC said it would invest up to $75 million in SandRidge to develop gas prospects in the field.
The midstream assets acquired by TCW include 370 miles of gas gathering lines with throughput capacity of more than 400 MMcf/d. Plans are to expand the system to more than 1 Bcf/d over the next several years, said TCW.
“We believe that the Pinon Field is poised for significant growth and that the gathering system owned by Pinon is the critical piece of infrastructure that will enable this growth to occur,” said Kurt Talbot, chief investment officer of TCW’s energy business. “We’ve had a relationship with Tom Ward…since 1990 and this will be the third major investment we will have made in support of businesses associated with Tom. We look forward to having SandRidge as our largest customer.”
The West Texas Overthrust is similar to the Rocky Mountain Overthrust, according to geologists. Along with SandRidge, several other operators are exploring prospects in the play, including Chevron Corp., Chesapeake, Williams, Quicksilver Resources Inc., Newfield Exploration Co., Occidental Petroleum Corp. and EnCana Corp.
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