SandRidge Energy Inc. agreed to sell its oil and natural gas assets in the Gulf of Mexico to Riverstone Holdings LLC-backed Fieldwood Energy LLC for $750 million, shedding offshore wells to concentrate on drilling in Oklahoma and Kansas.
Closely held Fieldwood will also assume $370 million of abandonment liabilities, Oklahoma-City based SandRidge said in a statement. SandRidge will retain a 2 percent royalty interest in two exploration prospects. Fieldwood executives, who formerly led Dynamic Offshore Resources LLC, are essentially buying back many of the assets they sold to SandRidge when it acquired that company two years ago.
Today’s sale shows Chief Executive Officer James Bennett reversing the strategy of SandRidge founder Tom Ward, who was fired as chairman and CEO in June. The mostly land-based energy company faced investor criticism for expanding into the Gulf when it acquired Dynamic Offshore in 2012, a deal that was called “strategically incoherent,” by hedge fund TPG-Axon Capital Management LP.
The region proved to be high-risk and volatile for earnings, Bennett told analysts today on a conference call. “We’re selling an asset that had declining production and declining cash flow and taking that capital and redeploying it in areas where we have some clear competitive advantages and are a better operator.”
Offshore production was expected to decline as much as 15 percent compared with last year, Bennett said. With higher plug-and-abandonment obligations on old wells and “significant” upfront capital investments, SandRidge had lower free cash flow from the offshore business than originally anticipated.
Proceeds from today’s sale and capital planned for the Gulf will be diverted to onshore drilling, SandRidge said, as it more than doubled forecast output growth for 2014 to 26 percent.
SandRidge fell 1.4 percent to $5.74 at the close in New York. The stock has declined 16 percent in the past year.
Fieldwood, formed to acquire assets on the Gulf Coast and Gulf of Mexico, is buying proved reserves equivalent to 57.2 million barrels of oil, of which 51 percent are crude, with daily net production in excess of 25,000 barrels, the Houston-based company said today in a separate statement. In July, the company bought Gulf assets from Apache Corp. for $3.75 billion.
‘Knew it Well’
Fieldwood is led by CEO Matt McCarroll, who founded Dynamic Offshore, the Riverstone-backed company SandRidge bought for $1.28 billion.
“The fact that we knew it so well made it easier on us than others,” McCarroll said in a phone interview today. “With the assets we bought earlier last year from Apache, it’s a great fit operationally.”
Riverstone, a New York-based private-equity firm, also has a 10.5 percent stake in SandRidge, according to data compiled by Bloomberg.
RBC Richardson Barr advised SandRidge on today’s transaction.