The ongoing SandRidge shareholder vote could have significant effects on both the energy company and Oklahoma City, according to local industry observers.
Tulsa money manager Jake Dollarhide said the effort is driven by out-of-state investors focused only on the stock price.
“These big industry players don't care about any effect on Oklahoma City or Tulsa,” said Dollarhide, CEO of Tulsa-based Longbow Asset Management Co., which owns SandRidge Stock.
“They don't care about contributions to the community or feeding the hungry here. This is all to help their returns. They want to maximize the value for their clients. They want to make sure they can feed their families and that they can worry about feeding the hungry and supporting the arts community in their towns.”
New York-based TPG-Axon has asked SandRidge shareholders to replace the company's directors with a slate of its choosing. The shareholder claims that CEO Tom Ward and the SandRidge directors have destroyed shareholder value by allowing the stock price to tumble 80 percent from its initial public offering in 2007.
“The destruction of stockholder value has been caused by poor and erratic strategic decisions, reckless spending, and a culture of cronyism and waste that has drained value from the company,” the shareholder said in December.
TPG-Axon also has pointed out that Ward has received one of the highest compensation packages in the industry and has accused Ward and his family of improperly competing with SandRidge for oil and natural gas leases.
SandRidge has dismissed the claims, saying Ward has done nothing improper and calling TPG-Axon a “opportunistic, short-term investor.” The company also has questioned TPG-Axon's proposed new directors.
“The TPG-Axon Group has not identified proposed directors or a management team with expertise in oil and gas exploration and development generally, and the proposed TPG-Axon Group nominees have no experience in the Mississippi Lime play, one of the company's principle assets,” the current directors said in December.
SandRidge also had said that if successful, TPG-Axon's effort would constitute a “change of control” that could force the company to buy back all of its senior notes in a move that could cost the company $4.3 billion.
However, the company said Friday that the charge likely will not occur because the buyback price would be lower than current price.
TPG-Axon also contends entities affiliated with Ward have been “flipping” leases to SandRidge.
The shareholder group last month released a 32-page filing that includes six examples of how WCT Resources LLC — a trust owned by Tom Ward's adult children — and another Ward-related entity leased mineral rights and then sold them to SandRidge.
TPG-Axon also documented 15 instances when the entities acquired acreage adjacent to SandRidge's holdings. None of the “adjacent acquisitions” were disclosed in regulatory filings, according to the hedge fund's presentation.
Until last year, WCT Resources' address was listed as SandRidge's headquarters.
SandRidge's board said last month WCT Resources is independent of the company, with no nonpublic access to information about its land and mineral acquisition programs, even though one of its managers is Ward's son. Ward is not involved in the company, which was created by trusts established to benefit his adult children, according to the board.
“Thus, contrary to TPG-Axon's assertions, neither the company nor Mr. Ward has the power to ‘allow' WCT Resources to engage in any business regardless of whether it competes with the company,” the board said. “As an ongoing business not controlled by the company or Mr. Ward, WCT Resources is free to engage in whatever commerce it deems suitable wherever it chooses.”
The board also dismissed TPG-Axon's concerns about WCT leasing acreage adjacent to SandRidge's holdings in the Mississippian oil play.
“Given the company's vast acreage holdings in the Mississippian play, which include interests in over 7,500 sections covering nearly five million acres in 30 counties through out an area that encompasses approximately 17 million acres, this is an entirely unremarkable fact,” according to the board's statement. “Virtually all companies active in the play are likely to have some interests that could be characterized as adjacent to the company's holdings.”
The board said its dealings with TLW Land and Cattle LP, another company Ward has a stake in, involve acreage acquired well before SandRidge was formed in 2006.
Edmond investment adviser Greg Womack said he hopes SandRidge is able to withstand the shareholder fight.
“My hope is that it won't succeed and that the Oklahoma business will continue to be run by Oklahomans who know the business and are invested in the community,” said Womack, president of Womack Investment Advisers Inc. “Naturally, you have to do what's best for shareholders in the long term, but I think there's a way to do that without coming in and totally changing everything.”
A wake-up call
While Womack supports the existing board in the vote, he said at least some of TPG-Axon's efforts have been helpful. Womack's firm holds SandRidge stock.
“This is a wake-up call, and SandRidge is taking some steps in the right direction to address some of the issues and concerns they have raised,” Womack said. “I would rather have the company run by Mr. Ward and the board, but that doesn't mean there can't be changes within the board and with compensation and other areas.”
Womack said he is not satisfied with the company's response to the questions its shareholders have posed.
“It does raise concerns,” he said. “There doesn't appear to be anything illegally done, but I think some changes are needed to assure shareholders that they're righting the ship and putting in tighter controls.”
Over the past three months, TPG-Axon and Mount Kellett combined have released five letters to SandRidge and its shareholders and have made repeated filings with government regulators.
My hope is that it won't succeed and that the Oklahoma business will continue to be run by Oklahomans who know the business and are invested in the community.”
President, Womack Investment Advisers Inc.