NEW YORK (AP) -- Shares of oil and gas explorer SandRidge Energy Inc. fell on Thursday, a day after it said it will sell its Permian Basin properties in Texas for $2.6 billion in cash.
THE SPARK: SandRidge said it will use the money to reduce debt and strengthen its balance sheet. However, the Texas property was generating cash, and shareholders were left to wonder what happens if SandRidge's remaining property in Oklahoma and Kansas doesn't make as much money as the company hopes.
THE BIG PICTURE: SandRidge is basically trading a profitable, well-understood asset — the Texas property — and swapping it for what it hopes will be a bigger payoff with the land it is working on in Kansas and Oklahoma. In effect the deal pays for another couple of years of development in the so-called Mississippian area, wrote KeyBanc analyst David Deckelbaum.
THE ANALYSIS: Deckelbaum wrote that he would view selling the Texas land "into a very receptive marketplace as a savvy and opportunistic move," especially in cases where the money can be used for projects with higher returns. But in this case, " we do not see (SandRidge) as being in such a position, as the ultimate returns and oil/liquids mix of the Mississippian remains an open question and generally is inferior" to the returns in Texas.
He downgraded the shares to "Hold" from "Buy" and said that shareholders should take profits from the company's recent share price recovery.
SHARE ACTION: Down 36 cents, or 5.5 percent, to $6.14 in afternoon trading. Shares have traded between $4.81 and $9.04 over the past year.