Conventional Buy: SandRidge Plunks Down $800M for Popular Permian Basin Property

Less than a month after SandRidge Energy dropped its bid for bankrupt Crusader Energy, the company announced another acquisition -- one nearly four times as large -- of oil and gas properties in the Permian Basin in Texas. SandRidge will spend $800 million for the property owned by Denver-based Forest Oil Corp. About $720 million of the price will be used to acquire 80 million barrels of oil equivalent of proved reserves. The remaining $80 million will be used to buy undeveloped acreage, equipment and other assets, according to a statement from SandRidge. The transaction is expected to close on or before Dec. 31.

SandRidge has focused on traditional conventional gas plays in the West Texas Overthrust, where it holds leases on about 640,000 acres. Its initial bid for Crusader Energy was intriguing because among the assets up for grabs were unconventional gas plays.

The Oklahoma City-based company has returned to its conventional roots with this latest acquisition of Forest Oil properties and CEO Tom Ward seemed to acknowledge exactly that in a conference call with investors late Monday.

"This is an interesting and opportunistic time in the industry, one I haven't seen since the mid-1990s, where traditional buyers of conventional assets are no longer in the market," Ward said during the call. The company does not have any more acquisition plans, he said.

So, where have the traditional buyers gone? Unconventional gas plays, of course. Ward wasted little time during the call describing why SandRidge did not want to pursue unconventional gas plays. In short, he said, they require expensive midstream infrastructure and high-cost horizontal wells with complicated completions.

"The entry costs are expensive and its a big bet on the unknown," Ward added.

SandRidge isn't the only independent scooping up Permian Basin assets. The area has had a flurry of activity in the past few days. Vanguard Natural Resources said Monday it plans to buy oil and gas assets in the Permian Basin for $50 million from a private seller. Linn Energy announced Tuesday it was buying oil and gas properties in both the Permian and Anadarko basins for $154.5 million.

Forest Oil, on the other hand, is moving toward unconventional gas plays. The sale of its Permian Basin assets -- and an unrelated transaction of non-core Canadian properties in early 2010 -- marks a strategic shift to North American operated tight gas and shale resource plays that have higher growth opportunities with very attractive returns, Forest Oil President and CEO H. Craig Clark said in a statement Monday.