SandRidge Energy’s exit from the Permian’s Central Basin Platform was a part of two transactions worth a total of roughly $40 million, which the company recently closed. (Source: Hart Energy/Shutterstock.com)
[Editor's note: This story was updated at 3:22 p.m. CST Nov. 5 to include buyer of SandRidge’s Central Basin Platform assets.]
SandRidge Energy Inc. (NYSE: SD) said Nov. 5 it exited the Central Basin Platform in the Permian Basin in a recent sale as the Oklahoma City-based company tackles operational efficiencies through A&D dealmaking.
The divestiture was a part of two recently closed transactions worth a total of roughly $40 million and follow the conclusion of SandRidge’s strategic review process which attracted multiple potential buyers earlier this year.
First, SandRidge on Nov. 1 sold substantially all of its oil and gas properties, rights and related assets in the Central Basin Platform region of the Permian Basin to Avalon Energy LLC for $14.5 million. The sale also included roughly 13.1 million common units of the SandRidge Permian Trust (NYSE: PER).
Next, SandRidge said it acquired certain oil and gas properties, rights and related assets in the Mississippi Lime and Northwest Stack areas of Oklahoma and Kansas in the Midcontinent region on Nov. 2 for $25.1 million. The seller wasn’t disclosed.
“These are small but important next steps that help demonstrate our ability to improve profitability and create shareholder value,” Bill Griffin, president and CEO of SandRidge, said in a statement.
SandRidge’s Central Basin Platform position largely consists of shallow, low net revenue interest wells burdened by a substantial overriding royalty interest conveyed to the trust. Lease restrictions and trust limitations on these properties significantly constrain any additional development beyond existing wellbores, according to the company press release.
The company expects the sale will simplify its operations with the removal of a large population of low-rate and shut-in wells, collectively averaging 1 barrel of oil equivalent per day (boe/d) per well and with direct lifting costs of $30.50 per barrel.
The Central Basin Platform divestiture, which includes of almost 1,500 wells, will also eliminate roughly 32% of SandRidge’s total asset retirement obligations, the company said.
Griffin said the Central Basin Platform properties accounted for more than 12% of SandRidge’s total operating expenses, while contributing only 4% of the production during the first half of 2018.
“The sale price of these properties represents an attractive valuation, particularly considering their minimal growth potential and royalty interest burden, which requires SandRidge to cover 100% of operating costs but only receive 34% of revenues,” he said.
Griffin continued that the company’s exit from the Central Basin Platform simplifies SandRidge’s portfolio and operations, allowing it to increase focus on executing its long-term development and growth strategy in the Northwest Stack and North Park Basin.
In its Midcontinent acquisition on Nov. 2, the company purchased interests in assets additive to existing SandRidge ownership positions in the Mississippi Lime and Northwest Stack areas of Oklahoma and Kansas.
“The Midcontinent transaction consolidates working interest in acreage and properties currently held by the company, requiring no additional staffing to operate,” Griffin said.
SandRidge operates roughly 80% of the subject wells and holds an existing working interest in most of the remaining wells operated by others in its acquisition. As of September, the properties had monthly net production of 3,775 boe/d and monthly net operating income of $1.5 million, the release said.
In addition to well and lease rights, SandRidge said it also acquired an additional 13.2% interest in its produced water gathering and disposal system.
The transaction is accretive to cash flow and net asset value per share, and the company estimates an associated payback period of fewer than three years, according to the SandRidge press release.
Griffin said, pro forma for the two transactions, SandRidge expects a net increase in current production of 2,615 boe/d, reduced direct lease operating expenses of $0.67 per boe and incremental proved PV-10 value of roughly $38 million.
Emily Patsy can be reached at epatsy@hartenergy.com.
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