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Midstates Petroleum Proposes Merger with SandRidge (SD) (revised)


SandRidge Energy, Inc. SD has recently been offered a merger deal from rival Midstates Petroleum Company MPO in an all-stock deal. The move, if it were to be agreed upon at somew poibnt in the future, would create one of the largest oil players in the Mississippian Lime shale formation. Both Tulsa-based Midstates Petroleum and Oklahoma-based SandRidge have prominent presence in Mississippian Lime and the merger would be likely to unlock substantial synergies for both companies.

Following the news of the offer, SandRidge shares rose more than 2.2% to eventually close at $16.87 on Feb 6. On the other hand, Midstates Petroleum stock dipped around 1% to eventually close at $15.30 following the announcement.

This comes almost after a month SandRidge cancelled its plan to acquire Colorado-based Bonanza Creek Energy BCEI amid shareholders’ strong opposition.

Details of the Deal

SandRidge shareholders would be expected to receive 1.068 shares of Midstates Petroleum’s for each share held, according to the proposed deal, per its closing price as on Feb 5. SandRidge shareholders would own a 60% stake in the combined company, with the remaining interest held by Midstates Petroleum. The combined entity would likely be valued at nearly $1 billion.

According to the proposal, Midstates’ CEO David J. Sambrooks would serve as the chief controller of new entity. The proposal also supports the prolonged efforts of Fir Tree Partners and Carl Icahn — two of the biggest shareholders in both SandRidge and Midstates Petroleum — who have long criticized SandRidge’s managerial decisions and wanted a change in the company’s leadership position.

The new entity would own more than 450,000 net acres in the core of the Mississippian Lime play, with the production capacity of over 53,000 barrels of oil equivalent per day. In addition, the combined company would also hold 75,000 net acres in the Northwest STACK play.

Benefits of the Deal

The merger would benefit from complementary assets which would likely lead to various financial, commercial and operational synergies. It would lead to cost synergies of around $70 million annually, generating free cash flow of over $100 million. The deal would lead to significant value addition for both companies.

Both companies have emerged from Chapter 11 bankruptcy after successfully completing debt restructuring. SandRidge recovered from bankruptcy in October 2016 after reorganizing $4.1 billion in debt, while MIdstates Petroleum came out of the same in December 2016 after writing off $2 billion in debt.

The proposed combined company would not have any debt and would display strong liquidity metrics with forecasted free cash flow of up to $480 million in the next five years. The acquisition would help the combined entity to yield superior risk-adjusted returns in the coming years.

Zacks Rank and Other Stock to Consider

SandRidge is engaged in the development and production activities of oil and gas. The company's operating segment consists of Exploration and Production, Drilling and Oil Field Services and Midstream Gas Services.The company carries a Zacks Rank #2 (Buy).

Investors interested in the space can also consider Occidental Petroleum OXY, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

(NOTE: We are reissuing this article to correct a series of errors. The original version, published yesterday, February 7, 2018, should no longer be relied upon.)

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