SandRidge (SD) Nixes Merger Plan With Midstates Petroleum
Zacks Investment Research | Mar 20, 2018 10:41PM ET
SandRidge Energy, Inc. (NYSE:SD) , an oil and gas player, recently aborted plans to merge with Tulsa-based rival Midstates Petroleum Company, in an all-stock deal. Last month, Midstates Petroleum had made the proposal to merge with SandRidge after the latter dropped its plan to acquire Colorado-based Bonanza, Creek Energy, Inc. (NYSE:BCEI) following intense opposition from its shareholders.
However, after comprehensive technical and financial review, along with careful evaluation of all other strategic alternatives, SandRidge also canceled plans to merge with Midstates Petroleum.
Had the deal been finalized, it surely would have improved the scale and value for both the players by creating one of the largest entities in the Mississippian Lime shale formation, as both the companies have a strong presence in the region. However, the merger would entail a significant risk as Mississippi Lime requires much higher commodity prices to prove highly productive.
The company is skeptical about Midstates’ reserves, and the economic feasibility of drilling locations at current oil and gas prices. Further, SandRidge believes that the merger is not likely to unlock substantial synergies unless the company employs Midstates’ assets with high operational efficiency. As such, SandRidge does not support Midstates’ estimate that the merger would result in free cash flows of $320-$400 million over the next four years. The company thus views the collaboration as highly dilutive and not in the best interests of shareholders.
Meanwhile, SandRidge is exploring other strategic alternatives that will help increase significant shareholders’ value. The company is likely to examine divestment and joint venture opportunities at its North Park Basin assets, along with other potential mergers that stand to fit best in the company’s long-term growth. In fact, SandRidge is open to reconsider merger offer from Midstates’ as well albeit with certain changes in the terms and conditions, so as make it an appealing investment that would yield superior risk-adjusted returns in the coming years. Notably, Midstates, which still believes in the efficacy of the deal, is thus considering options related to the transaction.
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SandRidge is engaged in the development and production of oil and gas. The company mainly focuses on promoting high return, growth-oriented projects in the U.S. Mid-Continent and Niobrara Shale. SandRidge is headquartered in Oklahoma City, OK.
SandRidge recovered from bankruptcy in October 2016 after reorganizing $4.1 billion in debt. The company is undertaking strategic initiatives to make the company more efficient and reduce costs in order to reap higher investment returns. In the 2018 guidance, the company announced its intention to lower general and administrative expenses in the range of $36-$39 million per annum.
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The company carries a Zacks Rank #5 (Strong Sell).
SandRidge Energy, Inc. Price
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