2010-01-07-2009-12-01-2009-12-21

Bought 90,000 acres in TX, NM Pernian Basin, gaining 90 MMBOE proved, 7,600 BOE/d

Oklahoma City-based SandRidge Energy Inc. (NYSE: SD) has closed its acquisition of properties in the Permian Basin in West Texas and New Mexico from Forest Oil Corp., Denver, (NYSE: FST) and one of its subsidiaries for $800 million. The assets include an estimated 80 million barrels of oil equivalent proved (482 billion cubic feet equivalent; 65% oil and gas liquids) and more than 90 million barrels equivalent (540 billion cubic feet equivalent) of estimated probable and possible reserves, per SandRidge. Forest estimates proved reserves at 321 billion cubic feet equivalent as of year-end 2008 (67% proved developed. Current daily production is approximately 7,600 barrels of oil equivalent (46 million cubic feet equivalent). The deal involves some 90,000 net acres concentrated in six operated areas, primarily held by production and 98% operated, increasing the company's leasehold in the Permian Basin to more than 130,000 net acres. Upside includes approximately 1,200 drilling locations. Proceeds will be used to repay all outstanding borrowings under Forest's U.S. and Canadian credit facilities, redeem the company's 7 ¾% senior notes due 2014 and fund any capex in excess of discretionary cash flow. Additional oil hedges have been placed covering a cumulative 11 million barrels equivalent (67 billion cubic feet equivalent) through 2012, locking in $975 million of oil revenue per the company. Approximately 70% to 75% of 2010 equivalent production is hedged at $8.79 per thousand cubic feet. Approximately $720 million of the purchase price is attributable to the reserves and $80 million to undeveloped acreage, equipment and other assets. SandRidge chairman and chief executive Tom Ward says, "This acquisition of conventional Permian Basin assets significantly increases our ability to develop and produce oil and natural gas from our core West Texas properties. It is a rare situation to acquire legacy operated Permian assets. Further, it is especially unique to acquire a package of quality oil properties for the equivalent of the price of the proved developed reserves and obtaining the undeveloped, probable and possible upside for a nominal amount. We are particularly excited about gaining additional properties, acreage and opportunities in the Central Basin Platform where we expect to expand our successful Clear Fork drilling program." He adds the company has increased oil production from this area by 400% in two years while running an average of 1.5 rigs. The play generates the company's highest returns due to strong oil prices and low drilling costs, and the company plans to increase the number of rigs in its Clear Fork development program to six in 2010. "In 2010, after completing this acquisition…SandRidge will have an enviable base to develop gas in the Pinon Field, develop oil in the Central Basin Platform and explore for new gas fields in the West Texas Overthrust." The effective date is Nov. 1. SandRidge funded the acquisition with borrowings under the company's existing credit facility, $200 million of proceeds from the placement of new shares of mandatory convertible preferred stock, and the proceeds of a public offering of the company's common stock. H. Craig Clark, Forest president and CEO, says, this transaction marks a strategic shift away from the Permian Basin to focus Forest's ongoing development efforts in North American operated tight-gas and shale resource plays that have higher growth opportunities. "Proceeds from these divestitures (including a Canadian sale) will add to our strong existing liquidity position as we continue to ramp up our activity on our core development assets in the Granite Wash and Haynesville shale in the U.S. and our core Deep Basin assets in Canada." Pritchard Capital Partners analyst Ray Deacon estimates daily flowing metrics at $15,562 per Mcfe, "above current group multiples."