A little more than halfway into the proxy vote between SandRidge Energy Inc. and dissident shareholder TPG-Axon, the rhetoric on both sides is heating up.
Two of the three largest proxy adviser groups have sided with the New York shareholder, while a third has lent its support to the Oklahoma City energy company. The vote is scheduled to close March 15.
TPG-Axon — which controls 7 percent of SandRidge's stock — has suggested five steps to address what it sees as SandRidge's biggest problems.
The first step would be to replace SandRidge directors and CEO Tom Ward.
SandRidge has defended its current board and questioned the qualifications of the proposed new directors.
“Your board has taken decisive steps over the last few years to transition the company to an oil-focused producer with a leading position in the Mississippian play — among the most profitable basins in the U.S.,” the company said in its letter to shareholders this week. “Unlike the nominees proposed by TPG-Axon who lack relevant experience, your board and management team have a clear plan and the necessary expertise to maximize value based on the strength of your Mississippian position.”
TPG-Axon has blamed SandRidge's directors and executives for allowing the company's stock price to plummet 80 percent over the past five years while paying an executive compensation package among the largest in the industry and allowing Ward's family to improperly profit from the company's efforts.
“The destruction of stockholder value, in our view, has been caused by poor and erratic strategic decisions, excessive spending and self-interested transactions,” TPG-Axon said in its consent statement.
If TPG-Axon were to win its proxy fight, the shareholder group would be free to pursue its four other proposed steps.
The shareholder group has been highly critical of what it calls SandRidge's “extravagance and waste.” TPG-Axon said it wants SandRidge to reduce its overhead spending by as much as 75 percent. Besides salaries and bonuses, TPG-Axon also cited SandRidge's spending on planes, buildings, advertising and luxury suites.
SandRidge has highlighted its efforts to reduce costs in the field.
"The company is currently the most efficient operator in the Mississippian play and is committed to further reducing costs in the Mississippian play by improving drilling and completion techniques and completing the build out of saltwater disposal and electrical infrastructure, enhancing the critical advantage these assets provide for the long-term development of the Mississippian play," SandRidge said in its consent revocation statement.
Critical of decisions
TPG-Axon also has been critical of some of SandRidge's strategic decisions.
While praising the company for building a quality asset base in the Mississippian play of northern Oklahoma and western Kansas, it has questioned the company's purchase last year of Gulf of Mexico producer Dynamic Offshore Resources LLC.
“We believe the Dynamic Offshore assets were a mistake to have acquired, and make little sense for the company to keep,” TPG-Axon said in its consent statement. “Sadly, while we do not believe the company can recover what it paid for the assets, it is best to recover what is possible from these assets and move on.”
TPG-Axon also has said SandRidge is too spread out even in its largest and most promising play. With more than 1.8 million acres of leasehold, SandRidge is the largest operator in the Mississippi Lime.
“Overall, we believe the Mississippian acreage the company controls is simply too vast for the company to develop by itself, even factoring in the joint venture deals the company has already struck,” TPG-Axon said.
SandRidge, however, has pointed out that it recently sold acreage in the Texas' Permian basin and has used the proceeds to pay down debt and help cover the operating costs in its other focus areas.
"The board believes the company's strategic plan will deliver long-term value to the company's stockholders by, among other things, continuing to grow the company's production and cash flow throughout the active development of the Mississippian plan, capitalizing on the company's operating efficiencies in the Mississippian play and improving the company's financial condition and liquidity."
If transforming the company is not enough to jump-start the stock price, TPG-Axon also said the directors should consider selling the company.
“While we do not believe a sale of the company is required to create significant value for shareholders, we believe it is an option that the board should carefully consider,” TPG-Axon said.
“Ultimately, the value of the Mississippian assets is extraordinary, but so is the investment and time required to develop those assets. As a result, there is a compelling argument that the assets will be worth the most to a company with the cheapest cost of capital.”