An investor in SandRidge Energy Inc SD.N that has been seeking to replace the company's board and chief executive is now calling on the board to suspend CEO Tom Ward and probe claims by another big shareholder that Ward and a company run by his son acquired mineral rights and flipped then to SandRidge at a profit.
Mount Kellett Capital, which holds about 4.5 percent in SandRidge, said in a letter to the board of the oil and gas company on Thursday, which it released publicly, that it was reviewing the allegations made by TPG-Axon, a hedge fund that owns 6.7 percent of SandRidge.
Mount Kellet said SandRidge's board should hire an independent law firm and a forensic law firm to investigate the allegations, and that Ward should be suspended until a probe is completed.
"We received the letter. As we've previously stated before, SandRidge has disclosed related party transactions in the company's public filings as appropriate," SandRidge spokesman Greg Dewey said.
In addition to pressing to replace Ward and the SandRidge board, TPG-Axon Capital and Mount Kellett have pushed for a sale of the company, citing poor stock price performance under Ward.
TPG-Axon is also soliciting support from other shareholders to have the company's board of directors replaced.
SandRidge's shares rose about 3.5 percent on Thursday.
LINKS TO COMPANY RUN BY CEO'S SON
WCT Resources, an Oklahoma company owned by trusts benefiting Ward's three adult children and run by his son, Trent, is a business partner with SandRidge, according to filings with the Securities and Exchange Commission.
The company has paid WCT nearly $5 million since 2008 to lease property controlled by WCT in northern Oklahoma and for royalties on wells operated by SandRidge on the land, according to an analysis of SEC filings.
SandRidge is the largest operator and was one of the earliest companies to acquire acreage in the Mississippian - a rock formation that spans northern Oklahoma and southern Kansas. WCT has also acquired land in the region, a fact supported by oil and gas records from Pawnee County, Oklahoma, reviewed by Reuters.
Those records show WCT purchasing oil and gas leases in the county and transferring them to SandRidge later that year. It was not immediately clear how much WCT made from the transactions.
The documents also show that WCT listed its address as 123 Robert S. Kerr Ave., in Oklahoma City -- the same address as SandRidge's headquarters.
WCT Resources and Trent Ward did not immediately respond to requests for a comment.
Mount Kellett also criticized WCT for competing with SandRidge.
"That WCT could profit from acreage sales to other oil and gas companies at a time when SandRidge was looking to sell or joint venture acreage to delever itself, put WCT in direct competition with the Company and potentially siphoned value from SandRidge shareholders and into the pockets of the Ward family," Mount Kellett COO Jonathan Fiorella said in the letter.
SandRidge has been searching for a strategy to improve returns as its stock underperforms peers. The Dow Jones U.S. Exploration and Production index .DJUSOS is up about 8 percent over the last year, while SandRidge shares have fallen 13 percent.
"I think what is going to come out of all this is that maybe Wall Street will become more interested in companies where there is no question at all about the management," said Mike Breard, an oil analyst at Hodges Capital Management in Dallas.
Hodges Capital owned 1.4 million SandRidge shares at the end of September, according to its most recent filing.
SandRidge, which has shifted its focus from natural gas to oil in reaction to falling natural gas prices, made a steep cut late last year to its estimates on how much oil it believes it can recover from key wells in the Mississippian.
Ward bought into SandRidge's predecessor and took over the company in 2006 after leaving Chesapeake Energy (CHK.N) - a company he co-founded with Aubrey McClendon.
Chesapeake had to contend with its own governance and performance problems last year, and McClendon has been stripped of his title of chairman of that company as a result.
(Reporting by Michael Erman in New York and Anna Drive in Houston; Editing by Sriraj Kalluvila, Theodore d'Afflisio, Nick Zieminski, Leslie Adler)