Why did SandRidge sell assets it just bought a few years ago? (Part 1 of 4)
SandRidge’s Gulf of Mexico assets
On January 7, 2014, SandRidge Energy (SD), an upstream oil and gas company, sold its Gulf of Mexico business for $750 million in cash and the assumption of $370 million of abandonment liabilities (future costs SandRidge would have to incur in order to work on offshore well sites when drilling and production has finished). The buyer is Fieldwood Energy LLC, a private company backed by Riverstone Holdings. SandRidge noted that it will reinvest the proceeds from the sale in its Mid-Continent drilling projects (mostly located in Oklahoma and Kansas in the company’s Mississippian play). Fieldwood’s CEO is Matt McCarroll, who founded Dynamic Offshore (another Riverstone-backed company), the company that SandRidge bought a few years ago to get access to the very Gulf of Mexico assets that it’s now divesting. SD had announced that it would buy Dynamic Offshore in February 2012 for $1.28 billion in cash and stock.
The Gulf of Mexico assets had proved reserves at December 1, 2013, of 29 million barrels of liquids (oil and natural gas liquids) and 168 billion cubic feet of natural gas (~50% liquids and ~50% natural gas). Daily production from the assets was ~23 million barrels of oil equivalent per day over the past month. As a frame of reference, SandRidge produced 89.6 million barrels of oil equivalent per day during 3Q13, so the divested assets represent just about a quarter of the company’s total production. The transaction is expected to close in 4Q13.
SandRidge stock remained little changed on the day, closing at $5.74 per share on the day of the announcement as compared to $5.82 per share the day prior.
Continue to the next part of this series to see how this could positively affect the company.
Browse this series on Market Realist:
- Part 2 - Why SandRidge might be better off selling its Gulf of Mexico assets
- Part 3 - Why SandRidge’s CEO says “I consider us to now be funded”
- Part 4 - SandRidge’s 2014 guidance shows 25%+ pro forma production growth
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