The heat is fully on Sandridge (SD, Financial) CEO Tom Ward and the board of directors. One activist investor (TPG) has been pushing for a sale of the company and now a second activist investor chimes in with its second letter to the company.
It is hard to feel a lot of sympathy for the incumbent management here given the horrific stock performance that has been rewarded with inexplicable levels of compensation.
Here is the second letter from Mount Kellett:
NEW YORK, Jan. 17, 2013 /PRNewswire/ -- Mount Kellett Capital Management LP ("Mount Kellett") today sent a letter to SandRidge Energy, Inc.'s (SD) ("SandRidge") Board of Directors regarding allegations that SandRidge's Chairman and Chief Executive Officer, Tom Ward, and his son engaged in persistent front running of the company. Full text of the letter follows:
January 17, 2013
SandRidge Energy Inc.
123 Robert S. Kerr Avenue
Oklahoma City, OK 73102
Attn: Board of Directors
Dear Sirs,
Mount Kellett Capital Management LP ("Mount Kellett" or "we") is a multi-strategy private investment firm focused on global value, special situations and opportunistic investing. Mount Kellett and funds and accounts under common control collectively have beneficial ownership in SandRidge Energy Inc. ("SandRidge" or the "Company") of 22.2 million shares, or approximately 4.5%, of the Company's outstanding common stock.
We have reviewed with intense concern the allegations made by TPG-Axon in its letter to the Board of Directors of the Company dated December 24, 2012 and its proxy materials dated January 15, 2013 that Tom Ward, the Company's Chairman and Chief Executive Officer and a trust ("WCT") purportedly run by his son engaged in "persistent front running of the Company." The letter and the proxy contain serious and specific allegations that Mr. Ward and his son acquired mineral rights from third parties ahead of the Company and then "flipped" them to SandRidge or other oil and gas companies at a profit, often even retaining a participation in future wells in transactions with SandRidge. That WCT could profit from acreage sales to other oil and gas companies at a time when SandRidge was looking to sell or joint venture acreage to delever itself, put WCT in direct competition with the Company and potentially siphoned value from SandRidge shareholders and into the pockets of the Ward family.
WCT had its principal office at SandRidge until 2011 and it appears that WCT derived some benefit by leveraging SandRidge's facilities. It would also seem reasonable to infer, given Mr. Ward's son's limited experience in the oil and gas industry, that WCT leveraged SandRidge's and Mr. Ward's knowledge of the Mississippian play, at the expense of SandRidge shareholders, to acquire properties at a time when the play was just emerging, lease rates were cheapest and the knowledge of SandRidge and Mr. Ward were most valuable.
We had expected that the Company and its CEO would quickly issue an unequivocal denial of these allegations. To date there has only been silence, other than the assertion, which we believe lacks credibility, that Tom Ward had no involvement in WCT.
We assume that the independent directors of the Company, particularly the members of the Company's audit committee, were completely unaware of these dealings, as tolerance of these kinds of conflicts would be utterly incompatible with serving as an independent director of a public company. We call on the Board of Directors to retain a leading independent law firm and forensic accounting firm to conduct a thorough and independent investigation of these allegations. If true, these allegations may constitute a breach of Mr. Ward's non-compete obligations to the Company and "cause" for terminating Mr. Ward. Pending completion of the investigation, Mr. Ward should be suspended from serving as Chairman and Chief Executive Officer of the Company.
We hope the Board understands the gravity of the situation.
It is hard to feel a lot of sympathy for the incumbent management here given the horrific stock performance that has been rewarded with inexplicable levels of compensation.
Here is the second letter from Mount Kellett:
NEW YORK, Jan. 17, 2013 /PRNewswire/ -- Mount Kellett Capital Management LP ("Mount Kellett") today sent a letter to SandRidge Energy, Inc.'s (SD) ("SandRidge") Board of Directors regarding allegations that SandRidge's Chairman and Chief Executive Officer, Tom Ward, and his son engaged in persistent front running of the company. Full text of the letter follows:
January 17, 2013
SandRidge Energy Inc.
123 Robert S. Kerr Avenue
Oklahoma City, OK 73102
Attn: Board of Directors
Dear Sirs,
Mount Kellett Capital Management LP ("Mount Kellett" or "we") is a multi-strategy private investment firm focused on global value, special situations and opportunistic investing. Mount Kellett and funds and accounts under common control collectively have beneficial ownership in SandRidge Energy Inc. ("SandRidge" or the "Company") of 22.2 million shares, or approximately 4.5%, of the Company's outstanding common stock.
We have reviewed with intense concern the allegations made by TPG-Axon in its letter to the Board of Directors of the Company dated December 24, 2012 and its proxy materials dated January 15, 2013 that Tom Ward, the Company's Chairman and Chief Executive Officer and a trust ("WCT") purportedly run by his son engaged in "persistent front running of the Company." The letter and the proxy contain serious and specific allegations that Mr. Ward and his son acquired mineral rights from third parties ahead of the Company and then "flipped" them to SandRidge or other oil and gas companies at a profit, often even retaining a participation in future wells in transactions with SandRidge. That WCT could profit from acreage sales to other oil and gas companies at a time when SandRidge was looking to sell or joint venture acreage to delever itself, put WCT in direct competition with the Company and potentially siphoned value from SandRidge shareholders and into the pockets of the Ward family.
WCT had its principal office at SandRidge until 2011 and it appears that WCT derived some benefit by leveraging SandRidge's facilities. It would also seem reasonable to infer, given Mr. Ward's son's limited experience in the oil and gas industry, that WCT leveraged SandRidge's and Mr. Ward's knowledge of the Mississippian play, at the expense of SandRidge shareholders, to acquire properties at a time when the play was just emerging, lease rates were cheapest and the knowledge of SandRidge and Mr. Ward were most valuable.
We had expected that the Company and its CEO would quickly issue an unequivocal denial of these allegations. To date there has only been silence, other than the assertion, which we believe lacks credibility, that Tom Ward had no involvement in WCT.
We assume that the independent directors of the Company, particularly the members of the Company's audit committee, were completely unaware of these dealings, as tolerance of these kinds of conflicts would be utterly incompatible with serving as an independent director of a public company. We call on the Board of Directors to retain a leading independent law firm and forensic accounting firm to conduct a thorough and independent investigation of these allegations. If true, these allegations may constitute a breach of Mr. Ward's non-compete obligations to the Company and "cause" for terminating Mr. Ward. Pending completion of the investigation, Mr. Ward should be suspended from serving as Chairman and Chief Executive Officer of the Company.
We hope the Board understands the gravity of the situation.
| Very truly yours, | |
| MOUNT KELLETT CAPITAL MANAGEMENT LP |
