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SandRidge Energy explores debt restructuring options-sources

Jan 25 (Reuters) - SandRidge Energy Inc is exploring debt restructuring options, according to people familiar with the matter, as the heavily indebted U.S. oil and gas exploration and production company struggles with the fallout from plunging energy prices.

SandRidge has been in talks with investment banks and law firms about hiring restructuring advisors, and could make an announcement on their appointment as early as this week, the people said.

Debtwire had reported on Jan. 13, also citing unnamed sources, that SandRidge - which produces oil and gas from shale formations in the Mid-Continent region of the United States - had hired Houlihan Lokey to craft a restructuring plan. Houlihan Lokey is very likely to be named SandRidge’s financial advisor for any restructuring, the Reuters sources said.

These sources asked not to be identified because the deliberations are confidential.

SandRidge and Houlihan Lokey declined to comment.

Oklahoma City-based SandRidge, which has a debt burden of around $4 billion, has already been reaching out to some of its creditors to inform them that they should work together to prepare for likely negotiations, one of the sources said.

The vast majority of the company’s debt is in the form of bonds owned by a plethora of mutual funds, hedge funds, and other institutional investors. They do not yet have a single representative who could be reached for comment.

One of the options that the company will consider is a pre-packaged bankruptcy with the agreement of its creditors, the people said. They said that a decision on a way forward is not imminent and that the company has access to enough cash to continue doing business for at least several more months under its current structure.

Other avenues SandRidge could pursue would include a debt exchange or filing for bankruptcy protection without any agreement with its creditors. It is not clear whether the company currently has a preference for a particular route.

SETTLED DISPUTE

As oil prices hover around 12-year lows, many U.S. oil and gas exploration and production companies are looking for ways to stay afloat. SandRidge, which made risky bets in the Mississippi Lime formation in northern Oklahoma and southern Kansas, is particularly vulnerable.

For months, SandRidge has been caught in a bind, having just enough money to pay interest on its debt, but not enough to drill new wells or replace older ones.

Mississippi Lime wells typically do not produce as much oil as some other shale formations, and the rock also contains a lot of water, which is costly to haul away.

After an initially encouraging exploration phase, the shale play has not delivered the low cost production gains that SandRidge and Wall Street analysts expected.

About 40 energy companies entered bankruptcy in 2015 and more are expected in the next few months as oil prices have dropped by 75 percent since mid-2014.

The companies that filed last year include Swift Energy Co, which filed for bankruptcy on December 31, Magnum Hunter Resources Corp and Samson Resources Corp.

SandRidge attracted the ire of Oklahoma regulators over its use of wells to dispose of wastewater, an activity that is believed to trigger earthquakes. Last week, the company agreed to shut seven wells in the state and reduce the amount of wastewater injected into roughly 40 others.

On Friday, SandRidge said it had also settled a dispute stemming from a 30-year agreement to send Occidental Petroleum Corp a fixed amount of natural gas from the Pinon field in west Texas each year. Occidental had been treating the gas to extract carbon dioxide which it uses in its own oil recovery business and then sending methane back to SandRidge. However, low natural gas prices have made it uneconomic for SandRidge to fulfill the contract and it faced potential penalties that could have eventually run into the hundreds of millions of dollars.

Under the agreement, SandRidge will hand over the Pinon assets to Occidental plus $11 million in cash and Occidental will drop any claims from the previous deal. SandRidge said the settlement is expected to reduce its operating costs by $39 million in 2016.

SHARES DELISTED

To raise cash, SandRidge has put its headquarters in Oklahoma City up for sale in May, but has yet to find a buyer. In April, it laid off at least 130 employees, or 20 percent of its workforce based there, public records show. It has also previously used a distressed debt exchange with creditors to lighten its debt load.

SandRidge had $790 million in cash and access to undrawn credit facilities that gave it access to capital totaling $1.9 billion, chief financial officer Julian Bott said on the company’s latest quarterly earnings call on Nov. 5. This has given the company breathing room of several more months to decide on a way forward, as well as scope to pursue another debt exchange.

As of earlier this month, SandRidge’s shares are no longer listed on the New York Stock Exchange, and trade on the OTC Pink marketplace instead with a market capitalization of around $30 million.

Its bonds are trading at extremely distressed levels, with its Jan. 15 2020 notes at below 5 cents on the dollar.

Oklahoma-based SandRidge was founded in 2006 by former CEO Tom Ward, a previous executive and co-founder of natural gas giant Chesapeake Energy Corp.

Ward was ousted by SandRidge’s board in 2013 after some of SandRidge’s largest investors alleged governance lapses and strategic missteps, including transactions SandRidge had made with entities controlled by the Ward family. His exit package from the firm was worth around $90 million. A request for comment at Ward’s new Oklahoma City-based company, Tapstone Energy, was not immediately returned.

SandRidge named James Bennett as CEO in June of 2013. (Reporting by Mike Stone and Jessica DiNapoli in New York; Additional reporting by Joshua Schneyer in New York and Anna Driver in Houston; Editing by Martin Howell)

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