SandRidge Looks to Permian Sale to Fund Drilling, Repay Debt
SandRidge Energy is looking to sell Permian Basin assets to fund its Mississippian play drilling program and repay debt, company officials said in SandRidge's earnings announcement Thursday.
The potential sale announcement comes on the heels of shareholder calls for a restructuring of the company's board and management and for the CEO to resign.
The Permian assets being considered for sale produce approximately 24,500 barrels of oil equivalent per day (boepd); oil comprises 67 percent of that production, natural gas 18 percent and natural gas liquids 15 percent. These assets are not associated with the SandRidge Permian trust. Sale proceeds would be used to fund the company's Mississippian play CAPEX program.
"Our acquisitions and development of properties in the Permian Basin over the last four years have been integral to our conversion from a natural gas company to an oil rich enterprise," said SandRidge Chairman and CEO Tom Ward in a statement.
"Now, we believe there is an opportunity to capitalize on current strong valuations for mature, conventional oil assets in the Permian Basin and convert the proceeds of a sale into development of our industry leading position in the high growth, high return Mississippian play," Ward commented.
The transaction would also strengthen SandRidge's balance sheet and provide liquidity that, together with cash flow, would fully fund capital expenditures through 2014, Ward noted.
The company drilled 214 wells in the Permian Basin during this year's third quarter, bringing the total wells drilled during the first nine months of 2012 to 602 wells. SandRidge plans to operate 10 rigs in the Permian in the fourth quarter and drill approximately 740 wells in 2012.
SandRidge produced approximately 31,000 boepd in the Permian in the third quarter, including production from the SandRidge Permian Trust.
The company reported a net loss applicable to common stockholders of $184 million in its third quarter 2012 earnings report, versus net income available to common shareholders of $561 million in the third quarter of last year. Third quarter 2012 production expenses grew to $14.47/barrel of oil equivalent from $14.01/ barrel of oil equivalent primarily due to additional costs related to SandRidge's offshore properties acquired in this year's second quarter.
Additionally, the company's debt net of cash balances grew by approximately $500 million primarily due to August senior notes offering and funding the company's drilling program.
In 2013, SandRidge expects to spend $1.75 billion, the majority of which will fund the company's Mississippian program. SandRidge plans to drill approximately 580 horizontal producers and 74 disposal wells in the Mississippian play next year. The remaining 2013 drilling capital will be used to maintain the company's offshore properties, where it plans to spend approximately $200 million. The company also estimates 2013 production of approximately 39.2 million barrels of oil equivalent.
TPH Energy Research analysts noted that it was hard to rationalize the strategy of selling high margin oil to fund Mississippi Lime development. The company's 2013 outlook is also disappointing on $1.75 billion capital expenditures for flat oil volumes versus the fourth quarter of 2012.
Proceeds from a Permian asset sale could amount to as much as $1.2 billion, according to an analyst note from GHS Research. GHS noted it was encouraged to see another solid operational quarter from SandRidge, adding that the reduction in estimated 2013 capital expenditures will likely encourage investment, especially in light of the potential catalysts created by an activist pushing for the sale of the company, solid Kansas Mississippian results, and a prospective Permian asset sale.
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