In its continuing quest to broaden its oil base, Oklahoma City-based SandRidge Energy Inc. (NYSE: SD) plans to acquire Permian Basin-focused Arena Resources Inc., Tulsa, Okla., (NYSE: ARD) for $1.6 billion in stock and cash.

SandRidge will pay 4.7771 shares and $2.50 in cash per Arena share for a total of $40 per Arena share, representing a 17% premium to the April 1 closing price. SandRidge will issue 191 million new shares in the acquisition. Arena has $63.6 million cash on hand and no debt. The combined enterprise value is approximately $6.2 billion. Arena shareholders will hold 42% of the combined entity.

The assets include an average 95% working interest in 67,600 net acres, with some 85% concentrated in the Central Basin Platform in the Permian Basin of West Texas and New Mexico. Proved reserves are 69.3 million BOE equivalent (37% proved developed). Production is 8,500 BOE per day (86% oil).

Upside includes 2,700 drilling locations mostly targeting the San Andres and Clear Fork formations.

Arena also holds interests in Oklahoma and Kansas.

Pro forma, SandRidge total proved reserves will be 288 million BOE (57% proved developed). Production will be 57.8 million BOE per day. SandRidge will have more than 5,700 potential Permian drilling locations.

In December, SandRidge acquired Permian assets from Forest Oil Corp., Denver, (NYSE: FST) for $800 million.

SandRidge chairman and chief executive Tom Ward says, “This acquisition of Arena continues the strategic shift we initiated in 2009 to increase our oil production and reserves. This transaction will add low-risk drilling opportunities in the Central Basin Platform.”

Arena chairman and co-founder Tim Rochford says, “We have ultimate confidence that Tom Ward and his team are well equipped to deliver enhanced value of Arena’s assets to stockholders…This transaction recognizes the value Arena has created for its stockholders and provides its stockholders with a meaningful stake in the combined company.”

Phil Terry, Arena president and CEO, adds, “The combined company offers a unique balance of oil and gas assets, encompassing each company’s Permian-based oil production and SandRidge’s natural gas position in the West Texas Overthrust…Arena’s stockholders are able to share in the significant upside potential offered by the play.”

SandRidge plans to have some $3 billion in 2010-2012 oil revenue hedged by closing. Closing is expected in June or July.

Deutsche Bank Securities Inc. is financial advisor to SandRidge and provided a fairness opinion. Covington & Burling LLP is legal advisor. SunTrust Robinson Humphrey Inc. is financial advisor to Arena. Tudor, Pickering, Holt & Co. Securities Inc. provided a fairness opinion. Johnson & Jones PC is legal advisor.

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