NEW YORK (Reuters) - SandRidge Energy Inc’s (SD.N) letter asking the Internal Revenue Service whether its water disposal business would qualify as tax-free for inclusion in a master limited partnership (MLP) has been caught up in the agency’s pause of such reviews.
“That process has started and there was the pause,” Duane Grubert, SandRidge’s head of investor relations, said at the OGIS energy conference in New York on Monday.
Grubert estimated the delay could last for months. SandRidge is exploring ways, including forming an MLP, to unlock the value of its oilfield water disposal business it estimates is worth around $1 billion.
The IRS did not comment when asked if it had temporarily stopped issuing private letter rulings that companies ask for when setting up MLPs.
The law firm Vinson & Elkins told its clients in recent days the IRS had “paused” to review the scope of assets that can qualify as tax-free for MLPs.
MLPs have been hugely popular among investors seeking higher yields, even though the structures often have corporate governance standards weaker than those of corporations.
Oil and gas wells in the Mississippi Lime, a rock formation where SandRidge and other companies including Chesapeake Energy Corp (CHK.N) operate, produce a large amount of water in the drilling process that is disposed of underground.
While SandRidge is considering other options for the saltwater disposal unit that handles about 1 million barrels of water per day in Oklahoma, Kansas and Texas, the company is looking hard at an MLP, said Grubert.
“That’s the one (an MLP) that seems to be the one that people can grasp,” the executive said, noting that a transaction was not likely until 2015.
Shares of SandRidge fell 16 cents, or 2.5 percent, to $6.28 in afternoon New York Stock Exchange trading.
Reporting by Anna Driver in New York, Edited by Terry Wade and Andrew Hay