Oil and natural gas company, SandRidge Energy Inc. (SD) recently announced the sale of its Gulf of Mexico (GoM) assets to Fieldwood Energy LLC for a cash consideration of $750 million, along with an abandonment liability of $370 million. The company would however retain a 2.0% overriding royalty interest in exploration prospects in the deep Miocene properties in Green Canyon 65 and in the South Pass 60 blocks. Closure of the transaction is expected in the first quarter of 2014.
The sale is a strategic move by SandRidge to shift focus to its lucrative Mid-Continent business where it already has a strong presence. The proceeds from this divestment are expected be incorporated in the company’s mid-continent drilling projects in due course. The move would also give a boost to the company’s financials, bringing home more than $2.0 billion pro-forma liquidity and a leverage ratio less than 3.0x.
The 2014 capital expenditure allocated to the GoM business would be transferred to the Mid-Continent assets. SandRidge expects its mid-continent acreage to hold promise for growth and development and plans to introduce three additional rigs in second quarter 2014. SandRidge intends to have 29 rigs in operation in these areas by the end of the year and to drill about 30 more gross wells than previously planned.
The company also revised its 2014 guidance in view of the GoM divestiture. SandRidge increased the production growth guidance from 12% to 26%. The company expects 2014 production of 29.3 million barrels of oil equivalent (MMBoe). This reflects a 26% organic production growth year over year after making necessary adjustments for the GoM and Permian divestitures. SandRidge projects 2014 capital expenditure of $1.475 billion. On redeploying the offshore capital, Mid-Continent assets are expected to see 2014 production growth of 23.2 MMBoe, up 37% year over year.
Energy exploration and production-focused SandRidge Energy currently holds a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can consider better-ranked players like Athlon Energy Inc. (ATHL), Harvest Natural Resources Inc. (HNR) and Legacy Reserves LP (LGCY). All these stocks currently sport a Zacks Rank #1 (Strong Buy).
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