Oklahoma City, Oklahoma, July 29, 2024 /PRNewswire/ – SandRidge Energy, Inc. (the “Company” or “SandRidge”) (NYSE: SD) today announced the entry into a definitive agreement to acquire certain producing assets and leasehold interests in the Cherokee play of the Western Anadarko Basin for cash consideration of $144 million, before customary purchase price adjustments. The Company also entered into a Joint Development Agreement (“JDA”) governing its participation in the future development of certain of the acquired leasehold interests.
Acquisition Highlights
• Net production of ~6 MBoed (~40% oil) focused in Ellis and Roger Mills Counties, Oklahoma
• Includes 42 producing wells in addition to 4 drilled uncompleted (“DUC”) wells scheduled to be turned to production in 2024
• Immediately accretive to key metrics, including production, EBITDA, and free cash flow(1)
• Oily PDP production and new development is projected to meaningfully increase SandRidge’s EBITDA and cash flow on a pro forma basis, all while maintaining its planned quarterly dividend(1)
• Leasehold interest in 11 drilling spacing units (“DSUs”), which add inventory of up to 22 two-mile lateral wells in the highly productive core of the Cherokee play
• Joint development of DSUs with a partner who has a demonstrable history of successful operations in the Cherokee play
• SandRidge will assume operatorship of new wells after they are producing
• Acquisition assets are located within the Mid-Continent region, where SandRidge currently operates. Additionally, the assets are in the vicinity of the Company’s ongoing leasing program, providing further optionality for future SandRidge-operated drilling projects
• July 1, 2024 effective date with anticipated closing in the third quarter 2024. SandRidge plans to fund the transaction with cash on hand.
Grayson Pranin, SandRidge’s President & Chief Executive Officer, commented on the acquisition:
“We’re excited to expand our footprint in the Mid-Continent by upgrading our inventory through the
Cherokee Shale play in the Western Anadarko Basin. These assets bolster our base production and cash flow
profile by immediately adding higher oil content while providing access to a successful drilling campaign through
joint development of the assets. We’re looking forward to participating in new high-return drilling and completion
projects and taking over operatorship of the new wells, allowing us to apply SandRidge’s low-cost lease operating
expertise to the new assets.
This transaction allows us to boost future production and cash flow levels, while preserving our strong
balance sheet and planned capital return program. The undeveloped assets are focused in a proven and highly
productive area in Roger Mills County, Oklahoma and are self-funding on a standalone basis.
Finally, the acquired producing assets and DSUs flange up with areas where we’ve been recently
investigating the potential for new SandRidge-operated drilling opportunities. As we operate and jointly develop
the acquired assets, our team will be well positioned to evaluate and execute on future organic growth
opportunities.”
Sandridge - western Anadarko acquisition
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Petroleum economist
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Petroleum economist
- Posts: 205
- Joined: Wed Aug 23, 2023 7:01 am
- Location: The Netherlands
Sandridge – Analysis of Western Anadarko Acquisition
Introduction
Sandridge operates 365,000 acres of conventional and light tight oil in Oklahoma and Kansas. For the last two years or so Sandridge has not developed any new resources, concentrating on optimizing its existing low decline production.
Sandridge has massive unused tax NOL’s ($ 1.6 B) and has been looking for acquisitions or a merger for an extended period. With western Anadarko Sandridge is finally successful.
Summary
Sandridge made a way overdue, but good acquisition. Impact on reserves is yet unknown, but production will increase substantially. Oil content will go up. Despite paying the acquisition with cash at hand, the balance sheet remains rock solid. Profitability is high and the PE in 2025 onwards will be low. Shareholder returns may dip in 2025, but will recover to high levels thereafter.
Reserves
• Late 2023 Sandridge had proven reserves of 55.7 M BoE (2023). Reserves are equivalent to 9.1 years of production, slightly below industry average of 9.5-10.0 years.
• The 2019-2023 Reserves Replacement Ratio was -1.68, indicating that on top of not replacing production, also reserves were de-booked. Sandridge was short of reserves,
• Although no reserves numbers were shared, the western Anadarko acquisition will be a welcome addition.
Production
• Sandridge production in 2024 was 14 K BoE/d and is in a steady decline.
• The western Anadarko acquisition will boost production in Q4 to 20 K BoE/d.
• With no further details available, I assume that production from 2025 onwards will stay on the path of the previous steady decline.
• The new Western Anadarko assets contain 40% oil. This will boost the oil in the mix in 2025 from 15% to 23%, making Sandridge less sensitive to fluctuations in gas prices.
Balance sheet
• Sandridge had in April 2024 208 M of cash/cash equivalents. As such the $ 144 M acquisition price can be paid with cash at hand.
• Solvency in April 2024 was a very high 79.6%.
• Assuming that the new assets are placed on the balance sheet at purchase price, the solvency will not change. If not, solvency may reduce by a small percentage but will remain high.
• Sandridge has no long-term debt and debt/EBITDA is thus meaningless.
• The balance sheet allows shareholder returns.
Profitability
• Sandridge has minimal staffing. Consequently, unit costs are extremely low ($ 18.45/BoE).
• Being self-funding with no debt, Sandridge does not pay interest.
• Sandridge has NOLs of $ 1.6 B and does not pay cash income tax.
• Sandridge currently has no drilling department and will rely on others to help them drill wells in the new assets.
• With WTI in H2 at $ 75-80/bbl, 2024 net profit will be $ 53-56 M (eps=$ 1.49-1.57, PE=8.4-8.8).
• In 2025, with the new assets included for the whole year, the eps increase with $0.80 to $ 2.48-2.68 (PE=4.9-5.3).
• Sandridge is a very profitable company.
Shareholder returns.
• In the last few ears Sandridge has paid a fixed dividend of $ 0.44.
• Sandridge also paid a special dividend of $ 2.00 (Feb 2023) and $ 1.50 (Feb 2024).
• Due to the acquisition, assume there will be no special dividend in Feb 2025.
• The special dividend can restart in Feb 2026. I assume at a level of $ 1.30/year.
• Yield in 2025 should be 3.3%, going up to 13.2% on 2025.
• Sandridge may choose to dampen out the difference in returns between 2025 and 2026.
Conclusions
Sandridge made a way overdue, but good acquisition. Impact on reserves is yet unknown, but production will increase substantially. Oil content will go up. Despite paying the acquisition with cash at hand, the balance sheet remains rock solid. Profitability is high and the PE in 2025 onwards will be low. Shareholder returns may dip in 2025, but will recover to high levels thereafter.
With the acquisition implemented, Sandridge jumps in my oil and gas companies ranking from 19th to a high 12th position (out of 81). Listen to coming Fridays webinar to see what this means
Sandridge operates 365,000 acres of conventional and light tight oil in Oklahoma and Kansas. For the last two years or so Sandridge has not developed any new resources, concentrating on optimizing its existing low decline production.
Sandridge has massive unused tax NOL’s ($ 1.6 B) and has been looking for acquisitions or a merger for an extended period. With western Anadarko Sandridge is finally successful.
Summary
Sandridge made a way overdue, but good acquisition. Impact on reserves is yet unknown, but production will increase substantially. Oil content will go up. Despite paying the acquisition with cash at hand, the balance sheet remains rock solid. Profitability is high and the PE in 2025 onwards will be low. Shareholder returns may dip in 2025, but will recover to high levels thereafter.
Reserves
• Late 2023 Sandridge had proven reserves of 55.7 M BoE (2023). Reserves are equivalent to 9.1 years of production, slightly below industry average of 9.5-10.0 years.
• The 2019-2023 Reserves Replacement Ratio was -1.68, indicating that on top of not replacing production, also reserves were de-booked. Sandridge was short of reserves,
• Although no reserves numbers were shared, the western Anadarko acquisition will be a welcome addition.
Production
• Sandridge production in 2024 was 14 K BoE/d and is in a steady decline.
• The western Anadarko acquisition will boost production in Q4 to 20 K BoE/d.
• With no further details available, I assume that production from 2025 onwards will stay on the path of the previous steady decline.
• The new Western Anadarko assets contain 40% oil. This will boost the oil in the mix in 2025 from 15% to 23%, making Sandridge less sensitive to fluctuations in gas prices.
Balance sheet
• Sandridge had in April 2024 208 M of cash/cash equivalents. As such the $ 144 M acquisition price can be paid with cash at hand.
• Solvency in April 2024 was a very high 79.6%.
• Assuming that the new assets are placed on the balance sheet at purchase price, the solvency will not change. If not, solvency may reduce by a small percentage but will remain high.
• Sandridge has no long-term debt and debt/EBITDA is thus meaningless.
• The balance sheet allows shareholder returns.
Profitability
• Sandridge has minimal staffing. Consequently, unit costs are extremely low ($ 18.45/BoE).
• Being self-funding with no debt, Sandridge does not pay interest.
• Sandridge has NOLs of $ 1.6 B and does not pay cash income tax.
• Sandridge currently has no drilling department and will rely on others to help them drill wells in the new assets.
• With WTI in H2 at $ 75-80/bbl, 2024 net profit will be $ 53-56 M (eps=$ 1.49-1.57, PE=8.4-8.8).
• In 2025, with the new assets included for the whole year, the eps increase with $0.80 to $ 2.48-2.68 (PE=4.9-5.3).
• Sandridge is a very profitable company.
Shareholder returns.
• In the last few ears Sandridge has paid a fixed dividend of $ 0.44.
• Sandridge also paid a special dividend of $ 2.00 (Feb 2023) and $ 1.50 (Feb 2024).
• Due to the acquisition, assume there will be no special dividend in Feb 2025.
• The special dividend can restart in Feb 2026. I assume at a level of $ 1.30/year.
• Yield in 2025 should be 3.3%, going up to 13.2% on 2025.
• Sandridge may choose to dampen out the difference in returns between 2025 and 2026.
Conclusions
Sandridge made a way overdue, but good acquisition. Impact on reserves is yet unknown, but production will increase substantially. Oil content will go up. Despite paying the acquisition with cash at hand, the balance sheet remains rock solid. Profitability is high and the PE in 2025 onwards will be low. Shareholder returns may dip in 2025, but will recover to high levels thereafter.
With the acquisition implemented, Sandridge jumps in my oil and gas companies ranking from 19th to a high 12th position (out of 81). Listen to coming Fridays webinar to see what this means