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SandRidge: Pinon Gathering Purchase Makes Little Sense

SandRidge is out with news that it has bought Pinon Gathering.

The blended stock and cash transaction is a net cash outlay for SandRidge (forward looking 12 months) and does nothing to improve immediate term viability - a real concern currently.

While this transaction is cloudy at best from the standpoint of intentions my analysis is that it doesn't change the avoid thesis for all SandRidge capital structure vehicles.

I get that oil pricing has been moving higher the last few days with both Brent and WTI now pricing near $50/bbl, and if that's all SandRidge's (NYSE:SD) recent buying frenzy has been based on - SandRidge shares have doubled over the last five days, that's perfectly fine. But if the five day run has been based on anything but algorithms loading mutual fund and ETF books with shares I really hope investors are considering taking profits into volume or that they already have. I'm convinced SandRidge goes to zero, as I've professed in several prior pieces, and I'm convinced its recent Pinon Gathering purchase not only does nothing to alter that outcome but 1) accelerates this outcome and 2) evidences the selling parties' belief in this outcome. I'll explain.

First, SandRidge is out with news that it has purchased the Pinon Gathering Company from EIG Global Energy Partners for a blend of $126 million in cash and five-year Notes. Yes, purchased - this for a company with a significant forward-looking liquidity issue. Specifically, SandRidge will have a $48 million cash outlay and issue $78 million in 8.75% Senior Secured Notes (2020 expiration). Keep in mind SandRidge just a>