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.

Deal Summary
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.

Deepwater Property
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.

Other Fields
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

Rationale
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.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Regional Banks

    Obtain information and analysis of the iShares US Regional Banks ETF for investors seeking particular exposure to regional bank stocks.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
RELATED FAQS
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!