SandRidge (SD) Announces Bonanza Creek Buyout Worth $746M

Oil and natural gas company, SandRidge Energy, Inc. (NYSE:SD) recently agreed to acquire its rival Bonanza Creek Energy Inc. (NYSE:BCEI) , a Denver-based company for a total consideration of $746 million including cash and stock.

Deal Details

The cash and stock deal will require SandRidge to buy all the outstanding shares of debt-free Bonanza at $36.00 per share. This marks a premium of 17.4% to Bonanza Creek’s Nov 14 closing price. For every share of Bonanza Creek, SandRidge will pay $19.20 in cash and $16.80 in its own shares. Per SandRidge, the deal is expected to be over by the first quarter of 2018.

SandRidge will receive 970 proved and probable reserve locations in Niobrara and Codell formations along with Bonanza Creek’s $31 million cash on hand. At the end of the third quarter, SandRidge had $133 million in cash and equivalents. The combined entity will have 630,000 net acres to operate on, which are concentrated in the Mid-Continent and Rockies. Total production from the net acres in the third quarter was 55,000 barrels of oil equivalent per day.

Stock Scenario

Following the news of the acquisition, SandRidge shares fell 13.2%. The stock has declined 16.7% in the last 30 days. On the other hand, Bonanza Creek stock jumped 4.6% to $32.07 post the announcement but is still below the offer price of $36.00.

Deal Rationale

The deal will enable SandRidge to increase its presence in Colorado's Denver-Julesburg Basin by attaching an enriched inventory of drill-ready locations, which will complement its current portfolio. The deal includes 67,000 net acres adjacent to SandRidge‘s Niobrara Shale acreage. Cost and operational synergies from the deal will aid SandRidge, which recovered from bankruptcy at the end of 2016 while Bonanza Creek came out of bankruptcy in early 2017. The acquisition will help the combined entity to yield risk-adjusted returns in the coming years.

About the Companies

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. SandRidge is headquartered in Oklahoma City, OK.

Bonanza Creek is an independent oil and natural gas company, engaged in the exploration, development, and production of onshore oil and related liquids-rich natural gas in the United States. The company was founded in 2010.

Price Performance

SandRidge has lost 19.8% year to date compared with 9.1% fall of its industry.

Zacks Rank and Other Stocks to Consider

SandRidge has a Zacks Rank #2 (Buy).

Some top-ranked stocks in the oil and energy sector include ConocoPhillips (NYSE:COP) and Denbury Resources Inc. (NYSE:DNR) . Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based ConocoPhillips is a major global exploration and production company. The company’s sales for 2017 are expected to increase 24.4% year over year. The company delivered an average positive earnings surprise of 152.3% in the last four quarters.

Plano, TX-based Denbury Resources is an oil and gas company. The company’s sales for the fourth quarter of 2017 are expected to increase 4.8% year over year. The company delivered an average positive earnings surprise of 125% in the last four quarters.

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