New SandRidge CEO: To Focus on Growing Promising Assets, Fiscal Discipline
SandRidge Energy Inc. will focus on drilling on its most promising oil and gas properties while running a tight fiscal ship, following a strategy already put in place by a recently revamped board, newly appointed Chief Executive James Bennett said Thursday.
Mr. Bennett, who has served as SandRidge's chief financial officer since 2011, on Wednesday replaced embattled founder Tom Ward, who is getting a severance package valued at about $90 million. Mr. Ward's compensation and allegations of self-dealing were at the center of a months-long proxy battle between the company and New York hedge fund TPG-Axon Capital LP.
Now Mr. Bennett faces the task of bringing SandRidge's spending in line while producing long-awaited results for shareholders. His pre-SandRidge background--a career in private equity, including a three-year stint with credit investors GSO Capital Partners, now a unit of Blackstone Group LP--has led some analysts to ponder whether his appointment would lead to more deal-making, or the sale of the company.
But Mr. Bennett said in an interview that his ascension doesn't mean the company is up for sale, or that shareholders should expect to see major parts of the portfolio sold.
"We're committed to optimizing the assets, growing assets, deploying capital--not selling the company," he said. "We think with the balance sheet and liquidity we have right now...it's best for shareholders to grow the business and execute on those assets."
The changing of the guard at Oklahoma City-based SandRidge had been anticipated since March, when the two sides in the proxy fight came to an agreement that avoided a vote to replace SandRidge's entire board, including Mr. Ward, with nominees backed by TPG-Axon.
Under the agreement, SandRidge appointed four directors nominated by TPG-Axon at that time, and agreed that majority control of the board would shift to TPG-Axon if Mr. Ward was still presiding over the company by June 30. Mr. Ward was criticized for what the fund described as an incoherent strategy and lack of fiscal discipline, along with allegations that shareholders were harmed by land deals between SandRidge and companies controlled by members of Mr. Ward's family.
An investigation of those transactions by an independent law firm concluded that they didn't merit cause for terminating Mr. Ward. An attorney for Mr. Ward said Wednesday that two investigations--one conducted by SandRidge's board and the one by the outside law firm--concluded that Mr. Ward's actions were proper.
Wunderlich Securities analyst Jason Wangler suggested that some investors might have been hoping for a more clear-cut break with the company's past. "When TPG was starting to get aggressive a few months ago, it wasn't just 'Tom Ward is a bad person'," said Mr. Wangler. "The financials have been a problem for multiple years and you're bringing the CFO up. He was there. He was in the conversation. I am a bit surprised that it was not a full cleansing or change in the guard."
Mr. Bennett said he is cut from a different cloth than Mr. Ward, who helped found Chesapeake Energy Corp. (CHK) before founding SandRidge in 2006. Mr. Bennett became familiar with SandRidge while at GSO, which was an early investor in SandRidge, he said.
"My background is more financial in nature," Mr. Bennett said. "I tend to be focused on returns and cost and allocation of capital."
Mr. Bennett declined to comment on Mr. Ward's severance package, saying it was designed by the compensation committee and the board. He noted that SandRidge has $2 billion in liquidity, so paying for the package won't alter the company's plans.
Mr. Bennett said the revamped board has already begun the process of steering SandRidge in a new direction, leaving the company with a lower debt-to-earnings ratio and more liquidity. For example, a controversial $3.275 million-a-year sponsorship deal with the Oklahoma City Thunder professional basketball team was allowed to expire after the 2013 season, the company said.
Last month, the company announced that following a strategic review by the board, it cut its capital budget for this year by $300 million and announced intentions to focus on the most productive and reliable areas of the key Mississippi Lime oil and gas formation in Oklahoma and Kansas.
"The changes we made there were reducing capital spending, focusing drilling on the most proven areas--that's all stuff that's largely been rolled out," Mr. Bennett said.
Ben Guill, founder of White Deer Energy and former president of private equity firm First Reserve, worked with Mr. Bennett at both of these companies and said Mr. Bennett knows the financial and operational sides of the energy business.
"I was starting my own firm five years ago and Bennett is one of the first guys I tried to hire myself," Mr. Guill said. "He has a good business instinct. He's conservative in the way he structures transactions--that will probably carry forward at SandRidge."
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