Sunday, October 2, 2011

Bye, Sandridge

Last week, Sandridge Energy announced that it agreed to sell its 25,000 acres in East Texas holdings in Gregg, Harrison, Rusk and Panola Counties, TX to NFR Energy for $231 million.  The deal makes perfect sense.  Sandridge was always a fringe player in the Haynesville Shale and hasn't been very active in East Texas for a while (last permit was approved in November 2010).  NFR, on the other hand, is East Texas-focused and acquisitive.

The deal also makes sense in terms of financial position.  Publicly traded Sandridge needs to reduce its debt while it keeps spending on land acquisition and drilling to expand production and reserves.  It is also following the market trend of chasing oil-rich properties.  Monetizing its dry gas land to pursue opportunities in oil, especially in the Mississippian and Permian formations where it now operates all of its rigs, makes sense to the company. (FYI, the Mississippian play might be the next big trendy announcement.  I heard that Shell made a rather significant acquisition in the area from a private owner in Kansas that didn't get announced because the company is still shopping for acreage. Others have their doubts about the play.)

NFR, on the other hand, is still privately held and backed by private equity and can therefore pursue a long-term plan without having to react to the whims of the stock market.  Only time will tell which strategy is right.

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