The transaction, which at $40 per share values Arena at a 16.8 per cent premium to its Thursday closing price, will crank up SandRidge’s exposure to rising oil prices as the price of natural gas falls.
SandRidge derived around 54 per cent of its revenues from oil last year. The firm is trying to position itself to take advantage of the nascent recovery in the global economy as resurgent industrial activity increases the demand for oil.
Under the tie-up, Arena investors will receive 4.7771 SandRidge shares and $2.50 in cash per share.
The merged company will be headquartered at SandRidge’s base in Oklahoma and will be run by SandRidge executives. No Arena figures are expected to sit on the board.
In a statement, SandRidge chairman Tom Ward said: “This acquisition of Arena continues the strategic shift we initiated in 2009 to increase our oil production and reserves.”
Arena co-founder Tom Rochford said the deal would deliver superior returns for his company’s shareholders over the long term.
SandRidge said the group would begin drilling and developing shallow, low-risk reservoirs on the Central Basin Platform that runs through West Texas. It has identified 5,700 potential sites for exploration around San Andres and Clear Fork.
The purchase of Arena is the second acquisition SandRidge has made in the region after it bought properties from Forest Oil for around $800m in November. Deutsche Bank and law firm Covington & Burling advised SandRidge on the takeover, which is expected to be completed by July. Arena was advised by SunTrust Robinson Humphrey and law firm Johnson & Jones.