New York-based investment firm Mount Kellett Capital Management called for an independent probe of allegations that SandRidge Energy Chairman and CEO Tom Ward and a trust run by his son engaged in "persistent front running of the company" Thursday.
In its second letter to SandRidge expressing concerns about the company's management and financial dealings, Mount Kellett referenced allegations made by global investment firm TPG-Axon in a Dec. 24 letter to SandRidge's board of directors and proxy materials dated Jan. 15.
Mount Kellett said the documents contain "serious and specific" allegations that Ward and his son acquired mineral rights from third parties ahead of the company and then "flipped" them to SandRidge or other oil and gas companies at a profit, often even retaining a participation in future wells in transactions with SandRidge.
"That WCT [the trust] 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 valued from SandRidge shareholders and into the pockets of the Ward family," said Mount Kellett in its Jan. 17 letter to Oklahoma City-based SandRidge.
"If true, these allegations may constitute a breach of Mr. Ward's non-compete obligations to the company and "cause" for terminating Mr. Ward," said Mount Kellett in the Jan. 17 letter, which is the second letter sent by Mount Kellett related to concerns over SandRidge's financial dealings.
WCT had its principal office at SandRidge until 2011, and it appears that WCT derived some benefit by leveraging SandRidge's facilities. It would also seem reasonable to infer, given Ward's son's limited experienced in the oil and gas industry, that WCT leveraged SandRidge's and Ward's knowledge of the Mississippian play, at the expense of company shareholders, to acquire properties at a time when the play was just emerging, lease rates were cheapest and the knowledge of SandRidge and Ward were most valuable, Mount Kellett noted.
"To date there has only been silence, other than the assertion, which we believe lacks credibility, that Tom Ward had no involvement in WCT" Mount Kellett commented.
Mount Kellett holds 4.5 percent, or 22.2 million shares of SandRidge's stock.
In late November, TPG-Axon had called again for the restructuring or sale of SandRidge Energy, citing the company's poor financial performance, strategy as well as structural challenges such as staggering overhead costs.
Last month, SandRidge announced it would sell its Permian Basin assets for $2.6 billion in cash.
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