NEW YORK/HOUSTON One of SandRidge Energy Inc's (SD.N) top shareholders called for the oil and gas company to consider selling itself and for Chief Executive Tom Ward to step down, saying management's strategy has been "incoherent, unpredictable and volatile."
Hedge fund TPG-Axon, which said it owns more than 4.5 percent of SandRidge and has about $4 billion in assets under management, on Thursday sent the company a letter that also urges a shakeup of the U.S. oil and gas company's board.
The hedge fund repeatedly compared SandRidge to Chesapeake Energy Corp (CHK.N), which has been besieged by a governance crisis and liquidity crunch. Ward co-founded Chesapeake with Aubrey McClendon in 1989. Ward joined SandRidge in 2006 and took the company public the following year.
TPG-Axon said in the letter it believes SandRidge could be worth $12 to $14 per share, compared with its $6 closing price on Wednesday.
SandRidge shares closed 1.7 percent higher at $6.10 on Thursday. The company's current market value is around $3.2 billion.
"SandRidge stock performance has been nothing short of disastrous, on both an absolute and relative basis, since the company's IPO in 2007," TPG-Axon founder Dinakar Singh wrote in a letter to the SandRidge board.
The shares have lost more than three-quarters of their value compared with their IPO price of $26. That compares with a 4 percent drop in the Dow Jones index of U.S. oil companies. .DJUSOG
Singh pointed to what he called appalling corporate governance and reckless spending that "has resulted in repeated financial emergencies, and caused massive dilution, soaring cost of capital, and unnecessary risks for shareholders."
SandRidge acknowledged in a statement that it needs to improve performance for shareholders and said it is open to constructive engagement with its investors.
The Oklahoma City, Oklahoma-based company focuses on exploration and production primarily in the Permian Basin and the Mid-Continent region of the United States. It is the leading operator in the Mississippian Oil Play of northern Oklahoma and western Kansas, and also has operations in the Gulf of Mexico.
"You look at shareholder returns, you look at consistent outspending of capital, you look at the pivots on strategy and their approach ... First they're onshore, then they're offshore, then they're gas, then they're oil," said Mark Hanson, analyst at Morningstar.
"It's a little bit of a roller-coaster and it's almost too much to stomach if you're a shareholder."
After the close of trading on Thursday, SandRidge reported a third-quarter net loss of $184 million and said it is exploring the sale of some Permian Basin assets.
TPG-Axon said in the letter that it met with Ward earlier this year, expressing concerns about governance.
"Mr. Ward assured us, in a meeting earlier this year, that SandRidge did not have the poor corporate governance practices employed at Chesapeake Energy," Singh wrote. "As we subsequently examined the claims he made to us in that meeting, we have come to believe these statements were disingenuous, at best."
Some of TPG-Axon's criticisms of Ward were centered on a program that allowed the executive to buy stakes in the company's oil and gas wells.
According to a SandRidge filing, the company paid $67.3 million in October 2008 to buy the stakes in wells that Ward had acquired since joining the company. At that time, the United States was in the middle of a financial crisis and SandRidge's shares had plummeted more than 80 percent from their all-time peak above $68 per share reached that summer.
A similar well program at Chesapeake has also drawn ire from its investors. In April, Reuters reported McClendon, Chesapeake's CEO, arranged to borrow more than $1 billion using as collateral well interests granted to him as a corporate perk.
McClendon's well program is under scrutiny by the U.S. Securities and Exchange Commission and the company has said it will no longer grant McClendon well interests beginning in 2014.
Reuters also reported McClendon, who has since been stripped of his title as chairman of Chesapeake, and Ward ran a hedge fund on the side that traded in the same commodities produced at Chesapeake and SandRidge for at least four years between 2004 and 2008.
Ward told Reuters in May that he continued to trade his own personal cash in commodity markets and that he saw "no conflict of interest.
Singh, the former co-head of Goldman Sachs Group Inc's (GS.N) proprietary trading desk, Principle Strategies, founded TPG-Axon Capital Management in late 2004 after a 14-year career at the investment bank.
While not typical of its strategy, TPG-Axon has used activism previously to try to boost returns. In one instance in 2006 the hedge fund began a campaign for changes at Triad Hospitals, which in 2007 agreed to a $4.7 billion buyout by two private equity buyers.
At the end of the second quarter, TPG-Axon's largest equity holdings by market value were Sirius XM Radio Inc (SIRI.O), Express Scripts Holding Co (ESRX.O) and W.R Grace & Co (GRA.N), according to a regulatory filing. The firm held roughly 15 million shares in SandRidge Energy at the end of the second quarter.