(Adds company comment)
By Anna Driver
NEW YORK, April 7 SandRidge Energy Inc's
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 Mississppi Lime, a rock formation
where SandRidge and other companies including Chesapeake Energy
Corp 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