SandRidge Energy Inc. (SD), the energy producer that has been fighting shareholder calls to break up the company, agreed to sell assets in the Permian Basin to Sheridan Production Partners II for $2.6 billion.
Sheridan, a closely-held producer based in Houston, will pay cash, SandRidge said today in a news release. SandRidge, based in Oklahoma City, produces about 24,500 barrels of oil equivalent a day from 225,000 acres in the Permian’s Central Basin Platform.
The sale price exceeds an estimate from John Gerdes, a Canaccord Genuity analyst based in Houston who said in a Dec. 17 note to clients that the acreage might fetch $2.5 billion.
“The sale of the Permian assets at this time has allowed us to capitalize on current strong valuations for mature, conventional Permian assets,” SandRidge Chief Executive Officer Tom Ward said in the statement.
The transaction is expected to close in the first quarter of 2013. SandRidge will use the proceeds to pay debt and fund drilling at its Mississippian Lime fields in Oklahoma and Kansas, according to the statement.
The deal makes SandRidge “more of a bet on the Horizontal Mississippian,” said Jason Wangler, an analyst at Wunderlich Securities Inc. in San Francisco.
“If that play works, so does SandRidge,” he said. Wangler rates SandRidge a buy and doesn’t own any of its shares.
SandRidge announced the sale after the close of regular trading in New York. SandRidge rose 8.8 percent to $7.07 in late trading after closing at $6.50 in New York.
SandRidge’s managers believe “all shareholders should conclude that this is a great outcome for them,” Greg Dewey, a spokesman, said in response to e-mailed questions. “We are simply doing what we said we would do, staying true to our brand and doing things quickly and efficiently and once again making a move that creates tremendous value for the Company and its shareholders.”
SandRidge shares have fallen this year as shareholders including TPG-Axon Capital Management LP and Mount Kellett Capital Management LP call for the company to put itself up for sale.
TPG-Axon, the hedge fund run by former Goldman Sachs (GS) banker Dinakar Singh, has called for a shareholder vote on replacing SandRidge’s board of directors. TPG owns 6.5 percent of SandRidge, and Mount Kellett owns 4.5 percent, according to data compiled by Bloomberg.
SandRidge should avoid “any hasty strategic actions, such as the precipitous sale of the Permian assets,” until a new board can be seated, Mount Kellett Chief Operating Officer Jonathan Fiorello said in a Nov. 15 letter. He estimated the Permian acreage may be worth $4 billion.
Wangler said the sale may help SandRidge win over shareholders, since it will allow the company to reduce its debt.
Other analysts have criticized the sale because it would increase SandRidge’s reliance on lower-profit natural gas.
“Regrettably, a Permian sale does not improve SandRidge’s long-term financial standing,” Gerdes wrote in his note.
Selling the assets at $2.5 billion would have funded the company through through 2014, and SandRidge would outspend its cash flow by $1.2 bilion a year from 2014 to 2017, Gerdes wrote. He said in an interview he hasn’t had time to review his calculations based on SandRidge’s higher sales price.
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