Investment firm TPG-Axon Capital is optimistic about the future of SandRidge Energy Inc. and its oily asset base.
But not with the company's current management team at the helm.
TPG-Axon, one of SandRidge's largest shareholders, is seeking to replace CEO Tom Ward and some of the company's board members.
The firm, which owns more than 4.5 percent of SandRidge's outstanding stock, contends the market has lost confidence in the company's management, as evidenced by its 76 percent decline since its initial public offering in 2007. SandRidge's stock also has dropped more than 91 percent since its peak in 2008.
“Although we are enthusiastic about the value potential in SandRidge, we have grown increasingly concerned about the ability of this management team, or of the board of directors to protect shareholder interests,” TPG-Axon CEO Dinakar Singh wrote Thursday in a letter to SandRidge's board.
TPG-Axon maintains SandRidge stock should be valued at $12 to $14 a share. It closed Thursday at $6.10, up a dime. More than 40 million shares changes hands, nearly four times its average volume.
Ward declined to comment on the letter Thursday, but SandRidge issued a statement in response.
“The board and management value the opinions of our shareholders and are always open to constructive engagement with them,” the company said. “While our perspectives on various points made in the letter from TPG-Axon differ in many instances, we agree that SandRidge has valuable assets and that we need to focus on improving performance for shareholders.
“The board continues to actively work with management in taking steps to improve shareholder performance.”
RBC Capital Markets analyst Scott Hanold said activist investors have forced positive changes at other oil and natural gas companies over the past year, but a “complete management overhaul may prove difficult.”
Shareholder complaints about corporate governance at Chesapeake Energy Corp. have resulted in CEO Aubrey McClendon's replacement as chairman of a reconstituted board and termination of a program that allowed him to buy a stake in every well drilled by the company.
SandRidge eliminated a similar program in 2008, paying $67 million to Ward for his stake in the company's wells.
In a Sept. 4 report, Morningstar analyst Mark Hanson praised Ward's efforts to transform SandRidge into an oil producer.
“Along the way, shareholders have paid a steep price, as poor returns on capital and the need to finance its acquisitions have led SandRidge to raise significant amounts of debt and nearly triple its post-IPO share count,” he wrote. “The company's future looks brighter than its past, however, given the inventory it has build in two of the more attractive liquids plays in the United States.
“As a result, we're bullish on SandRidge's ability to deliver profitable, double-digit growth over the next decade or so.”
TPG-Axon gradually has become a sizable shareholder in SandRidge over the past year, as its confidence in the company's value grew, according to its letter.
“We own SandRidge because we believe the company's position in the Mississippi Lime, together, with other assets that the company owns, is worth far more than the company's current enterprise value,” Singh wrote.
SandRidge announced Thursday that it is mulling the possibility of selling its holdings in the oil-rich Permian Basin of west Texas to focus on the Mississippian.
“We've now drilled proven wells over 200 miles, just SandRidge, from Noble County, Oklahoma, all the way to Finney County, Kansas,” Ward said. “It just is an area that continues to have so much scale with high rates of return that you can build a company around it, which is fairly rare.”