SandRidge Energy (NYSE:SD) is expanding outside the onshore United States through the acquisition of a private oil and gas company with operations in the Gulf of Mexico. The company believes that assets here are being undervalued by an industry that may be obsessed with shale and other unconventional resource plays. (To know more about oil and gas, read Oil And Gas Industry Primer.)
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.
SandRidge announced the purchase of Dynamic Offshore Resources, LLC, a private oil and gas company with properties located mostly in the shallow water of the Gulf of Mexico. The company will pay a total consideration of $1.28 billion, with $680 million in cash and the balance through the issuance of 74 million shares of its common stock in the deal.
Dynamic originally planned to go public through an initial public offering and filed the required documents with the Securities and Exchange Commission in January 2012.
Its current production is approximately 25,000 barrels of oil equivalent (BOE), with 50% of this production composed of crude oil. The company reported proved reserves of 62.5 million BOE at the end of 2011, with a PV10 value of $1.9 billion.
It has a diverse production base with output from 270 wells and interests in 250 offshore leases in both state and federal waters.
One deepwater property that Dynamic is involved with is the Bullwinkle Field, located in Green Canyon Blocks 65, 108 and 109. Superior Energy Services (NYSE:SPN) purchased the field and associated platform from Royal Dutch Shell (NYSE:RDS.A, RDS.B) in 2010. The company then sold a 49% interest to Dynamic, which operates the field.
Production Handling Fees
Dynamic also receives revenue by processing production from other nearby oil and gas fields through the Bullwinkle platform. The platform has a capacity of 160,000 barrels of oil and 320 million cubic feet of natural gas per day.
SandRidge expects revenue from third party processing to grow as more fields are developed nearby. One operator that uses the Bullwinkle platform to handle production is Marathon Oil (NYSE:MRO), which operates the Droshky Field. This field started production in 2010 and is expected to peak at an estimated 45,000 BOE per day.
Bullwinkle and five other offshore fields comprise the majority of the PV10 value of the company's proved reserves. The names of the fields and production as of November 2011 are:
South Marsh Island 41 - 1,835 BOE per day
South Pass 60 - 2,208 BOE per day
West Delta 79/80 - 1,395 BOE per day
Vermilion 362-371 - 1,685 BOE per day
Vermilion 272 - 830 BOE per day
SandRidge received little approbation from the market after the deal became public, and saw its stock decline 10% on the day the deal was announced. The company believes that the acquisition fits in with its strategy of being the first to pursue oil opportunities in areas that are undervalued by the market. It compares the purchase to the company's acquisition of Arena Resources several years ago, which boosted its position in the Permian Basin at a low cost.
The Bottom Line
Although SandRidge Energy's recent acquisition of Dynamic Offshore Resources was not well received by the market, this is not necessarily a negative as most investors tend to consider short-term factors. This deal could pay off long-term for the company. (For additional reading, check out A Guide To Investing In Oil Markets.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.
Stock AnalysisIf you're seeking modest appreciation, generous dividend payments and resiliency, consider these eight utility stocks.
Stock AnalysisHere's why Phillips 66 will likely remain one of the world’s largest and most profitable companies for a long time to come.
Mutual Funds & ETFsExplore detailed analysis of the top three equity energy mutual funds, and learn about the characteristics and suitability of these funds.
Stock AnalysisLearn about some possible risks for Chipotle, one of America's most popular and fastest-growing food chains and leader of the "casual dining" experience.
Stock AnalysisStuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
EconomicsEmerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
Stock AnalysisPepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
Investing BasicsTrading spot gold or gold futures, equities and options isn’t hard to learn, but the activity requires skill sets unique to these markets.
EconomicsExplore the historical relationship between interest rate increases and the price of gold, and consider what effect a fed funds rate hike might have on gold.
InvestingHow do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>