Mount Kellett Sends Letter to The Board of SandRidge Energy
NEW YORK, Nov. 15, 2012
NEW YORK, Nov. 15, 2012 /PRNewswire/ --Mount Kellett Capital Management LP
("Mount Kellett") today sent a letter to SandRidge Energy, Inc.'s (NYSE: SD)
("SandRidge") Board of Directors outlining issues related to the company's
management and strategic direction. Full text of the letter follows:
November 15, 2012
SandRidge Energy Inc.
123 Robert S. Kerr Avenue
Oklahoma City, OK 73102
Attn: Board of Directors
Mount Kellett Capital Management LP ("Mount Kellett" or "we") is a
multi-strategy private investment firm focused on global value, special
situations and opportunistic investing. Mount Kellett and funds and accounts
under common control collectively have beneficial ownership in SandRidge
Energy Inc. ("SandRidge" or the "Company") of 22.2 million shares (the
"Shares"), or approximately 4.5% of the Company's outstanding common stock.
Mount Kellett originally invested in the Company's common stock in 2009
because we believed the Company was undervalued and possessed very valuable
oil and gas assets that would generate tremendous future value if developed
properly in a strategically consistent, systematic manner. Even today, as
outlined in more detail below, we believe that – properly managed – the
Company's assets are worth approximately $20 per share. Unfortunately, all we
see now are critical failures of management and Board oversight. SandRidge has
not merely failed to even remotely maximize the potential of its assets, but
it has destroyed stockholder value. Just this year alone, the Company's stock
price has plunged, down almost 40%.
Like other stockholders, we read with interest TPG-Axon's November 8th letter
to you. Lest the Board believe that TPG-Axon's concerns are isolated ones, we
are writing to add our views and be crystal clear that management and the
Board cannot ignore the interests of the Company's stockholders any longer.
We strongly believe that Tom Ward should be replaced as Chairman and CEO with
a seasoned executive who can restore the Company's credibility. In addition,
we believe the Board should be strengthened by the addition of new, truly
independent directors selected in consultation with the Company's largest
stockholders. In the interim, we urge the Board not to take any hasty
strategic actions, such as the precipitous sale of the Permian assets, which
will permanently impair stockholder value. The Company has no immediate
financing needs and there is no need to sell assets at fire-sale prices. The
future direction of the Company should be properly and fully evaluated by a
reconstituted Board and management team. All options should be explored,
including a potential sale of the entire Company or a more limited divestiture
of ill-fitting assets, such as Dynamic Offshore.
Our valuation of the Company of at least $20 per share is supported by the
In the Company's Mississippian play, we believe the Company's original 750,000
acres to be worth approximately $6,800/acre on a developed basis. Further, we
believe the 1,000,000 excess acres in the extension of the Mississippian play
into Kansas to be worth approximately $2,500/acre based on comparable
transactions. In total, the Company's Mississippian assets could represent an
approximate $8 billion asset.
The Company's Permian assets, pre-royalty trust interests, are worth up to $4
billion, based on Apache's purchase of BP's Permian assets in 2010, at
approximately $22/boe when oil was at $75-$80 per barrel. The Company's own
reported PV-10 of its Permian assets is approximately $4 billion.
Additionally, we believe that if the Company were to continue to monetize
portions of its Permian assets through a royalty trust structure, such as the
SandRidge Permian Trust ("PER") or a Master Limited Partnership ("MLP")
structure, the Company would continue to realize premium valuations for these
We estimate the Company's other production, undeveloped proved reserves,
undeveloped acreage and Gulf of Mexico assets are worth $3.6 billion. In
addition, the Company has other assets that have not been properly
oMississippian Infrastructure - The Company has invested huge amounts of
capital to develop the water disposal and electrical infrastructure
necessary for future Mississippian development. This front loading of
infrastructure has increased the value of the Company's Mississippian
assets, providing the Company with a competitive advantage on its acreage
and should enable the Company to accelerate development over the coming
years. We commend the Company's operations team for successfully managing
such a large and complex project. We estimate that the Company has spent
approximately $500 million in mid-stream infrastructure, gathering system
and salt water disposal wells in this area. We believe these assets could
ultimately have tremendous value to an MLP buyer who would be willing to
pay a multiple of in-place cost, especially with the prospect of
attracting third party volumes as the play continues to develop.
oMississippian Drilling Carry - By our calculations, at year-end the
Company will have approximately $650 million of drilling carry remaining
in the Mississippian.
oPinon Field - The Company's Pinon field in the West Texas Overthrust,
while of little value today, should have tremendous value in a higher
natural gas environment or in the hands of the right buyer.
Overall, we believe SandRidge's Net Asset Value to be approximately $16.5
billion (assuming the mid-stream assets at cost), prior to net debt and
royalty trust minority interest.
So, given these values, why is the stock trading at $5.19 per share on
November 14, 2012?
The answer is clear. The Company's fundamental problems stem from the failure
of management and the Board to adhere to some of the most basic tenets of
managing a publicly traded company:
oFollow a consistent strategy – Instead, the Company has shifted its
strategy with alarming frequency, sometimes seemingly on a
oAllocate capital properly – Poor capital allocation decisions have led not
only to stockholder dilution but diversion of management time and
resources from the development of core assets;
oInsure management credibility – To the contrary, the management team has
consistently overpromised and underperformed; and
oAlign management compensation with stockholder success – As the
stockholders have suffered, the CEO, other top executives and Board
members have been richly rewarded through restricted stock grants that
have significant value even if the Company's stock fails to appreciate in
In conclusion, SandRidge has great assets and should be a great company, but
it is clear that it will not be without changes at the top. We would prefer
that the Board take the initiative and work in consultation with major
stockholders to make the necessary changes. Of course, if that does not
happen, the stockholders will have no choice but to take the necessary actions
to protect their investment.
We are hopeful that the Board understands the gravity of the situation and
that the Board can and will do the right thing. As always, we are available
to discuss issues relevant to SandRidge at your convenience.
Very truly yours,
MOUNT KELLETT CAPITAL
Name: Jonathan Fiorello
Title: Chief Operating Officer
About Mount Kellett Capital Management LP
Mount Kellett is a multi-strategy private investment firm focused on global
value, special situations and opportunistic investing. The firm has
approximately 115 employees with offices in New York, Dallas, Hong Kong,
London, and Mumbai. The firm currently has in excess of $7 billion in assets
SOURCE Mount Kellett Capital Management LP
Contact: Scott Tagliarino or Catherine Jones, ASC Advisors, +1-203-992-1230
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