Doubts return at SandRidge a year after CEO ousted by investors

Mon Sep 8, 2014 1:14am EDT
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By Anna Driver

HOUSTON (Reuters) - In June 2013, activist investors got the board of SandRidge Energy Inc (SD.N: Quote) to fire its CEO Tom Ward, arguing that he had mismanaged the Oklahoma City company and destroyed billions in shareholder value.

The oil and gas producer’s shares rose as much as 50 percent in the year following Ward’s ousting on optimism about the impact of cost cutting, asset sales and higher initial production rates from some of its wells. But in the past 10 weeks a lot has gone wrong - and the stock has lost virtually all of those gains.

The energy company’s oil and gas output has dropped below Wall Street expectations, casting doubt on its growth prospects, and its Chief Operating Officer David Lawler – who had been seen as key to some of the improvements it had made - departed for BP Plc’s  (BP.N: Quote) (BP.L: Quote) U.S. shale unit. At the same time, a restructuring proposal that would have tax benefits is being held up by the Internal Revenue Service.


The reversals at SandRidge show that activist investors’ pressure for major changes at energy companies don’t always work out. The number of such campaigns has tripled in recent years compared with the rate in the previous nine years. Among the success stories for shareholders was Elliott Management at Hess Corp (HES.N: Quote) and Chesapeake Energy Corp (CHK.N: Quote) has slashed spending under the watch of Carl Icahn. Both shares have climbed since the activists' interventions.

At SandRidge, large shareholders include a powerful triumvirate of investors -- New York-based hedge fund TPG Axon Capital, led by Dinakar Singh, has a 7 percent stake in SandRidge, Leon Cooperman’s hedge fund Omega Advisors owns about 10 percent, and Prem Watsa's Canadian investment group Fairfax Financial Holdings owns about 7 percent.

But plans to turnaround the company’s fortunes are currently being dashed on the rock formation known as Mississippi Lime, of which SandRidge has more than a million acres.

"They've got what many would consider to be second-tier rock," said Mark Hanson, a Chicago-based analyst who follows SandRidge for Morningstar. "If you are looking for someone to take these guys out, I’m not sure I could name anyone," he added in reference to any possible sale of the company.   Continued...

An electronic display identifies the post that trades SandRidge Energy stock on the floor of the New York Stock Exchange, January 11, 2013.  REUTERS/Brendan McDermid