NEW YORK ( TheStreet) -- On a Thursday during which the energy sector bled, shares of SandRidge Energy ( SD) were among the energy sector outliers, turning in a big winning day, up 4%. Trading action was heavy in SandRidge shares, with more than 17 million shares changing hands, or almost twice its average daily volume.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

SandRidge Energy's big winning day should be viewed in contrast to the big losing day the energy company suffered in November, when it announced a capital spending plan for 2011 that would balloon from $875 million to $1.1 billion, the company commenced a $250 million preferred note offering, and the SandRidge CFO left. On November 5, more than 68 million shares of SandRidge were traded.

On Thursday, SandRidge hired a new CFO and announced the closing of an asset sales of $155 million.

The biggest move of all, though, may have been the announcement made late on Wednesday by SandRidge that it was pursuing an unconventional asset financing plan, in which it would offer up to $287.5 million in a royalty trust on some of its Mississippian assets. Investors in the trust will receive a percentage of proceeds from producing wells and development wells to be drilled by SandRidge on approximately 42,600 net acres in the Mississippian formation in northern Oklahoma.

Earlier this year, it was better-than-expected results from the same Mississippian assets featured in the royalty trust that led to a surge in SandRidge shares.

Thursday's news helped to continue turning the tide back in favor of the company -- it was well up from its lows already as the energy sector rallied to end 2010 -- by removing the risk that the energy company would need to raise capital and dilute existing shareholders through future common stock offerings.

SandRidge shares ended Thursday at their highest price since April, closing at $7.85.

The royalty trust approach is a complex financial arrangement, not uncommon in the energy sector but certainly not as prevalent as traditional debt or equity. Still, it can be boiled down to this one critical point: SandRidge gets cash upfront in the $287.5 million offering by giving up the right to future cash flow for producing and development assets.

As such, it removes two big questions marks for SandRidge: whether it would tap the capital markets again and dilute shareholders, and finding a source of cheap cash to fund operations.

Neal Dingmann, energy analyst at Wunderlich Securities, said that investors need to consider both the pros and cons of the SandRidge financing deal. In the energy analyst's opinion, SandRidge didn't have many choices for a cheap source of capital, because given its balance sheet and the size of the company, the traditional debt markets would have been expensive.

"In today's market, there are two things that make investors most skittish. It's when a company says they will outspend cash flow and when the company is highly levered, and that's where SandRidge is, so now this eases those fears of overspending," Dingmann said.

He noted that it's a positive for shareholders because SandRidge is not an exploration and production company with the profile of little to no debt and plenty of capital to spend. On top of shareholder fears of another dilutive raise was the fear of additional levering of the balance sheet.

Yet the SandRidge decision is not an unequivocal win for shareholders. Ultimately, by moving Mississippian assets into the royalty trust, SandRidge is taking potential profits away from shareholders.

Additionally, as exploration and production companies become more creative in their financing, skeptics will raise eyebrows. Scott Hanold, an analyst at RBC Capital Markets, noted that non-traditional forms of financing add additional layers of complexity.

The energy sector poster-child for creative financing is Chesapeake Energy ( CHK), which has danced a delicate two-step of spending aggressively while selling off the rights to future production in a series of joint ventures and volumetric production payments.

Wunderlich's Dingmann said that it's fine for SandRidge to create one royalty trust. However, the more bells and whistles any company uses in financing, it becomes subject to the fear that a long line of creative financing tactics will follow. "To me, this is a positive because it's a cheap cost of capital, but if all of a sudden SandRidge is doing royalty trust 2, 3, 4 and 5, there is a tipping point," the analyst said.

-- Written by Eric Rosenbaum from New York.


>To contact the writer of this article, click here: Eric Rosenbaum.

>To follow the writer on Twitter, go to Eric Rosenbaum.

>To submit a news tip, send an email to: