Asset manager Third Avenue Management bought a stake in Midcontinent producer SandRidge Energy, which has large acreage position in Oklahoma (pictured). (Source: Shutterstock.com)
Asset manager Third Avenue believes Midcontinent producer SandRidge Energy is set for additional M&A.
The firm announced establishing a new position in Oklahoma City-based SandRidge through its Third Avenue Small-Cap Value Fund—the company’s only fund holding that bears direct revenue exposure to oil and gas prices.
Third Avenue said it was able to purchase its SandRidge position at an attractive discount to PV-10 valuation. SandRidge shares were trading at $11.48 per share near midday on Oct. 22, near their 52-week low of $11.40 per share.
SandRidge’s neglect in the public markets “appears to stem from several sources,” including a Chapter 11 bankruptcy process in 2016, Third Avenue said in a third-quarter commentary. It’s also a small-cap name with a market value of less than $500 million.
But SandRidge does have several “very attractive things going for it,” the firm noted.
SandRidge has a large net cash balance sheet. The company also has a large federal and state net operating loss carryforward—which can be used to shelter cash flows from taxes—stemming from the bankruptcy process.
That combination puts SandRidge in a position to potentially acquire more acreage in the Midcontinent.
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“SandRidge has pushed this plan forward with its recent acquisition of Upland Exploration for $144 million,” Third Avenue said.
The $144 million deal included 42 wells, four DUCs and net production of around 6,000 boe/d (~40% oil) in Ellis and Roger Mills counties, Oklahoma.
The acreage is in the prospective Cherokee play, a liquids-rich Midcontinent play attracting more capital and horizontal drilling activity.
Upland Exploration was one of the leading developers in the Cherokee play, along with family-owned Mewbourne Oil.
Third Avenue believes the conversion of SandRidge’s net balance sheet into a larger producing asset portfolio, and the usage of its tax assets, “puts the company in a strong position to further enhance shareholder returns.”
SandRidge is open to evaluating new M&A opportunities “with consideration of our balance sheet and commitment to our planned return of capital program,” President and CEO Grayson Pranin said in the company’s second-quarter earnings call in August.
M&A experts say the Midcontinent plays, particularly the SCOOP/STACK plays, will attract more dealmaking as natural gas prices increase and other shale basins mature.
In September, privately held producer Validus Energy reportedly struck a deal to acquire Midcontinent E&P Citizen Energy for more than $2 billion, including debt.
Mach Natural Resources, and MLP led by former Chesapeake and SandRidge executive Tom Ward, has also been a buyer in the Midcontinent.
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