Reader asks about SandRidge, Midstates merger
The Oklahoman’s Adam Wilmoth and Jack Money answered questions from readers Tuesday about SandRidge’s future and about other oil and natural gas related issues during their monthly energy chat.
A transcript of the chat, edited for clarity and space, follows.
Q. Any update on the Midstates, SandRidge merger?
Wilmoth: SandRidge directors yesterday rejected Midstates’ unsolicited takeover offer, but left the door open for further negotiations. They said they have received other offers and said they will consider additional proposals.
They specifically said they are open to asset sales, joint ventures and complete mergers, and they said they would be willing to negotiate with Midstates on a better deal for SandRidge. Midstates executives responded to that by saying they made a good offer and are now considering their options.
It’s hard to know what will happen to SandRidge.
The company is being led by activist investor Carl Icahn, who over the past five months has become the company’s biggest shareholder and already successfully blocked SandRidge’s planned purchase of Bonanza Creek Energy in Colorado and ousted SandRidge’s CEO and chief financial officer. SandRidge’s secondlargest shareholder, Fir Tree Partners, controls more than 25 percent of Midstates and is that company’s largest shareholder.
Q. If a 7 percent gross production tax eventually is approved, what would be the economic impact? Could it potentially be a wash where we get more money from production but lose out on the other taxes paid such as sales and income taxes?
Wilmoth: Executives with some exploration companies and two larger associations representing them say an increased production tax could lead companies to decide to invest their drilling money elsewhere, leaving less money for Oklahoma projects.
The argument on the other side is that drillers in Oklahoma have access to pipelines and services they might not get elsewhere, plus a regulatory and political system that encourages drilling and other oil and natural gas activities.
The higher gross production tax proponents say the gross production tax is just one of many variables companies consider and that drilling will continue in Oklahoma at a growing pace, regardless.
Money: Oil and gas operators that have ongoing aggressive drilling and production programs say an increase would impact their plans. Yes, I believe you might see changes in other tax revenue sources if the gross production tax were increased. But I believe the price of a barrel of oil is the biggest driver of drilling activity, both in Oklahoma and across the country.
Q. While many master limited partnerships said impact was minimal, stock prices for Magellan Midstream Partners and others have been hammered since last week’s ruling by the Federal Energy Regulatory Commission that they can no longer collect owed income taxes from customers. Any ideas why?
Money: Master limited partnerships are complicated, both for the companies and their investors.
An investments adviser I spoke to about that this week said he thinks they have been falling out of favor with investors because of that complexity, i.e., those investors have to file multiple state tax returns when the partnership involves interstate pipelines. The commission’s ruling didn’t help.
Q. The more I hear about the Merge, the more good things I hear. What are you hearing?
Wilmoth: The play, part of the Anadarko Basin between the STACK in central and northwest Oklahoma and the SCOOP in south central Oklahoma, does seem to be attracting quite a bit of attention. The rock apparently has many of the qualities of both the STACK and SCOOP in that it has several oil and natural gas producing rock layers stacked on top of each other. It’s also in an area with a history of oil and natural gas production, so much of the acreage is held by production, and there is pipeline and other infrastructure in the area. The area is still being tested and proved.
One concern, however, is that Chesapeake Energy has scaled back its operations in the Merge after having some problems with drilling into targeted formations. Chesapeake executives last summer said that drilling teams had hit the waterlogged Mississippi Lime and flooded its wells.
The area has attracted several smaller and midsized independent producers, including Austin-based Jones Energy.
Former RKI Exploration & Production executive Jack Rawdon late last year started Ventana Exploration and Production, which is active in the Merge.