SandRidge

Carl Icahn’s SandRidge Presentation – The Case For New Leadership

Company Overview

Q1 hedge fund letters, conference, scoops etc, Also read Lear Capital: Financial Products You Should Avoid?

  • SandRidge Energy (NYSE:SD) is a pure-play E&P focused on the Niobrara formationin Colorado, the Northwest STACK in Oklahoma, and the Mississippian Lime in Oklahoma and Kansas.
  • The company emerged debt-free from Chapter 11 protection in October 2016, with a shareholder base consisting of many previous 2ndlien debt holders.
  • The current board consists of three members appointed upon emergence and two members appointed by the three incumbent directors following the resignation of the Chairman and the termination of the CEO in February, 2018.
  • Sandridge once ran over 35 rigs and had an Enterprise Value (EV) over $9 billion, while it currently runs 3 to 4 rigs and has an EV of ~$500 million.

SandRidge

Company History:

In 2006, Tom Ward, co-founder of Chesapeake Energy, purchased Riata Energy from Mitchell Malone, an Oklahoma oilman who had gathered several assets in various basins since 1984. The company was renamed Sandridge Energy and soon thereafter, Ward purchased National Energy Group from Carl Icahn for $1.5 billion to make most of what is the current Sandridge platform. Following a debt fueled acquisition spree, in 2013 Ward was ousted by Activist investors and then CFO, James Bennett, was instituted as CEO. Following the crude price crash in early 2016, the company filed for Bankruptcy until emerging debt-free in October of the same year.

SandRidge

  • SandRidgederives over 80%(1)of its production from the Mississippian Lime (“MS Lime”) play in Oklahoma and Kansas.
  • The MS Lime fell out of favor after a frenzied period of acreage acquisition and horizontal development in the late 2000’s. Well results were proved unrepeatable across the play and most of the big E&P’s offloaded acreage at deep discounts.
  • Although much of the MS Lime is inconsistent, certain areas in Woods, Alfalfa and Grant counties have provided solid returns.
  • SandRidgealso maintains sizeable positions in the promising NW STACK in Oklahoma and in the North Park Niobrara in Colorado where it holds 70K and 122K net acres, respectively.
  • Despite its high growth potential and IRRs in these two plays, and its cash generating core MS Lime position, SandRidgetrades at a deep discount to its Peers and its own PV-10 proved reserve base.

SandRidge

SandRidge

Executive Summary

Current Board and Management Team’s Track Record of Value Destruction

  • Unable to execute on existing assets (Miss Lime, NW STACK, North Park Niobrara) pre-and post-bankruptcy.
  • Unable to deliver a clear value enhancing strategy to investors.
  • Unable to align management compensation with company performance.
  • Unable to act with financial discipline (proposed dilutive Bonanza Creek transaction).
  • Unable to recognize and fully evaluate potential value-adding opportunities (MidstatesPetroleum Merger).
  • Unable to act in the best interest of shareholders (adopted a “one-sided” Poison Pill to minimize major stockholders’ influence while allowing management and the board to continue to campaign and act recklessly).

Current Situation

  • On November 2017 SandRidgeand its Board announced the dilutive acquisition of Bonanza Creek Energy which was subsequently cancelled after near unanimous stockholder revolt.
  • Soon after, Icahn wrote a letter to the board asking for two shareholder appointed director seats, essentially asking for a minority check on any new value-destructive deals.
  • On January 23, the board denied Icahn’s request, deciding not to add any shareholder representation.
  • Meanwhile, shares of Sandridge have fallen 26% from before the announcement, while the price of crude oil has risen 30%.(1)
  • The Bonanza approval and several subsequent actions detailed below, prove the board is unable to act in the best interest of the shareholders, create a strong stand-alone strategy, or run a proper strategic sale process.
  • As such, we’ve nominated a capable slate of directors which will represent the best interests of ALL shareholders.

SandRidge

Article by Carl Icahn

See the full PDF below.

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