* Sells assets to Fieldwood Energy, an affiliate of
* Raises 2014 output growth forecast to 26 pct from 12 pct
* SandRidge shares down 1.5 pct
By Michael Erman and Garima Goel
Jan 7 Oil and gas company SandRidge Energy Inc
struck a deal Tuesday to sell its Gulf of Mexico assets
to private equity-backed Fieldwood Energy for $750 million,
ending a brief, much-criticized foray into offshore drilling.
The company bought the Gulf of Mexico assets from Dynamic
Offshore Resources for about $1.2 billion in cash and stock in
April 2012. Fieldwood, owned by private equity firm Riverstone
Holdings LLC, is run by Dynamic's former management team.
SandRidge CEO James Bennett said the company would use the
proceeds from the sale to further develop its holdings in
northern Oklahoma and western Kansas, where it is the biggest
operator in the Mississippian oil and gas formation, as well as
other holdings in the mid-continent region of the U.S.
"We cut back our capex on our offshore business, so that
production and capex was declining," he said on a conference
call with investors. "One of the things (the deal) does is turn
us into a higher-growth business. We are selling an asset that
had declining production and declining cash flow."
SandRidge fired Chief Executive Tom Ward last June after
hedge funds TPG-Axon and Mount Kellett Capital Management
agitated for change, accusing Ward of strategic missteps and
self-dealing at the expense of shareholders.
Notably, TPG-Axon pointed to SandRidge's 2012 acquisition of
Dynamic Offshore as being "massively dilutive, and most
importantly, strategically incoherent."
That fund's founder and CEO Dinakar Singh praised Tuesday's
sale, calling it a "perfect move" by SandRidge.
Still, the company's shares fell 1.9 percent after the deal
was announced. Mark Hanson, an oil and gas company analyst with
Morningstar in Chicago, said investors were probably worried
about leverage at the company, because the Gulf assets generated
a fair amount of cash for SandRidge.
At the end of the third quarter, SandRidge had $3.2 billion
in long-term debt.
COMPANIES OFFLOAD GULF ASSETS
SandRidge is the latest company to offload its Gulf of
Mexico assets, following Apache Corp, Devon Energy Corp
and Callon Petroleum Co.
Due to increasing regulation since BP Plc's Gulf of
Mexico oil well disaster in 2010, drilling in the region had
become a costly and lengthy process for oil and gas companies.
But activity is now picking up and drilling in the shallower
regions of the U.S. Gulf, where Fieldwood Energy operates, is
generally easier, cheaper and less risky than deepwater
Fieldwood Energy bought Apache's Gulf of Mexico shelf
operations for $3.75 billion in July, and the deal cements its
position as the owner of the largest asset base on the
continental shelf portion of the Gulf of Mexico.
"We know these assets very well," Matt McCarroll, CEO of
Fieldwood said in an interview. "SandRidge is a great company
and a great mid continent operator. I don't think they really
had the experience in the Gulf of Mexico that it takes."
As part of the deal with SandRidge, Fieldwood will also
assume well abandonment liabilities of $370 million.
SandRidge will retain a 2 percent overriding royalty
interest in two exploration prospects in the Gulf assets.
Most U.S. oil and gas companies are increasing spending on
their onshore fields as technological advancements open up vast
Morningstar's Hanson said that the deal should help
SandRidge because it makes sense for a company of its size to
focus its money and personnel in one area.
"It also makes it easier to sell the company outright," he
SandRidge's capital redeployment is expected to push its
production up by about 37 percent to 23.2 million barrels of oil
equivalent (BOE) in the mid-continent region this year.
The company also raised its forecast for overall production
growth in 2014 to 26 percent from 12 percent, after adjusting
for the sale, which is expected to close in the first quarter of
this year. The company expects to produce 28.3
million BOE in 2014, which does not include 1 million BOE it
expects to produce from the Gulf of Mexico assets before the
Daily output at the divested assets was about 23,500 BOE
over the past month, of which nearly half was natural gas,