SD - SandRidge Energy

[muscleman]

http://www.4-traders.com/SANDRIDGE-ENERGY-INC-66802/news/SandRidge-Energy-Inc-TPG-Axon-Sends-Second-Letter-to-SandRidge-Board-of-Directors-15560498/

 

Second letter by TPG.

 

Very interesting event stock now that there are some potential catalysts in place (finally).

 

 

 

Long SD

 

Yes, I agree. It is interesting to see what will happen now. TPG only has 5% of the shares, so it can't do this on its own.

[bmichaud]

I just hope Fairfax doesn't continue this charade of supporting TW and block a sale for example...

 

 

[bmichaud]

Full letter attached.

Sandridge_DS_11_30_2012_FINAL_LETTER.pdf

[bmichaud]

This is a fascinating letter, and if true, utterly SHOCKING Fairfax supports this guy. Perhaps TPG is making it all up in order to gain shareholder support....

 

Makes me wonder about another so-called "genius"....LVLT's stock price has spoken over the past 10 years - would be an interesting case study seeing how Crowe has been compensated for such brilliance.

[zippy1]

There is a new 13D by TPG today.  They increased from 23m shares to 28.5m shares, I think.

[txlaw]

So Myth and other O&G focused investors, what do you guys think of the substance of the TPG-Axon letter?

[txlaw]

So Myth and other O&G focused investors, what do you guys think of the substance of the TPG-Axon letter?

 

With respect to the strategy part, I mean, not the part focused on structural challenges, which is pretty convincing.

[Packer16]

It looks like TPG-Axon brings up pretty good points (esp. on compensation and overhead versus other E&P cos).  I like the underlying assets (esp. Mississippian) that is why I bought.  I would like to see TW's response to the points.  The 2 points that I think are most relevant are the higher G&A costs and the amount of cap-ex required to bring the fields online over a short period of time or lose the drilling rights.  It is interesting that TPG brought up the point of higher interest costs as FFH is a beneficiary via preferred but not as a common holder.  Similar to Level 3.  I bought at a higher price and am holding for now.  Maybe I should have bought the preferreds.

 

Packer

[Myth465]

So Myth and other O&G focused investors, what do you guys think of the substance of the TPG-Axon letter?

 

Im 110% behind TPG. As I said earlier in this thread my confidence in SD was truly shaken when ROI went from 90%+ to mid 40%. I thought SD had a secret sauce of sweet spot, efficiency, and scale. I thought they were handling risk properly by hedging and didnt care about cost of capital being in the 9% range with returns being in the 90% range.

 

I always knew Ward would take a disproportionate piece of the pie, but figured hey there is a lot of pie. I was looking for the hidden upside in DOR, but havent seen it. The only upside is bolt ons at 2x and if Ward buys something in the Gulf, the share price goes down and cost of capital goes up so thats a none starter.

 

Ward would like to grow SD into a massive major, bigger then CHK, and will make money either way by skimming it off the top or via eventual share expansion.

Prem gets paid to wait, has converts on eventually share expansion, and has first debs on the assets. Its in his best interest to collect his 6-9% for years and eventually reap a capital gain via share expansion or by taking over the assets should Ward screw up.

 

I as a common and options holder just want to make money, and most importantly not lose money via time value. I want a consistent strategy with consistent goals that I can hold Management to.

 

Our interests are not aligned, and TPG has my interest at heart. I need to read the entire second letter as I have only skimmed it thus far, but thats how I feel.

An options play at this minute with 2 years expiry is how I would play it. TPG has a plan, deep pockets, and friends in high places. I dont know if Ward can convince enough people to put skin in the game for him with the internal dealings. But hostiles just dont happen with oil and gas.

 

Icahn will take a 10% stake sooner or later inmo. This is peanuts for him.

[txlaw]

So Myth and other O&G focused investors, what do you guys think of the substance of the TPG-Axon letter?

 

Im 110% behind TPG. As I said earlier in this thread my confidence in SD was truly shaken when ROI went from 90%+ to mid 40%. I thought SD had a secret sauce of sweet spot, efficiency, and scale. I thought they were handling risk properly by hedging and didnt care about cost of capital being in the 9% range with returns being in the 90% range.

 

I always knew Ward would take a disproportionate piece of the pie, but figured hey there is a lot of pie. I was looking for the hidden upside in DOR, but havent seen it. The only upside is bolt ons at 2x and if Ward buys something in the Gulf, the share price goes down and cost of capital goes up so thats a none starter.

 

Ward would like to grow SD into a massive major, bigger then CHK, and will make money either way by skimming it off the top or via eventual share expansion.

Prem gets paid to wait, has converts on eventually share expansion, and has first debs on the assets. Its in his best interest to collect his 6-9% for years and eventually reap a capital gain via share expansion or by taking over the assets should Ward screw up.

 

I as a common and options holder just want to make money, and most importantly not lose money via time value. I want a consistent strategy with consistent goals that I can hold Management to.

 

Our interests are not aligned, and TPG has my interest at heart. I need to read the entire second letter as I have only skimmed it thus far, but thats how I feel.

An options play at this minute with 2 years expiry is how I would play it. TPG has a plan, deep pockets, and friends in high places. I dont know if Ward can convince enough people to put skin in the game for him with the internal dealings. But hostiles just dont happen with oil and gas.

 

Icahn will take a 10% stake sooner or later inmo. This is peanuts for him.

 

Thanks for your thoughts.  Please do take a look at the second letter and, if you wish, provide more detail on TPG-Axon's arguments.

[twacowfca]

So Myth and other O&G focused investors, what do you guys think of the substance of the TPG-Axon letter?

 

Im 110% behind TPG. As I said earlier in this thread my confidence in SD was truly shaken when ROI went from 90%+ to mid 40%. I thought SD had a secret sauce of sweet spot, efficiency, and scale. I thought they were handling risk properly by hedging and didnt care about cost of capital being in the 9% range with returns being in the 90% range.

 

I always knew Ward would take a disproportionate piece of the pie, but figured hey there is a lot of pie. I was looking for the hidden upside in DOR, but havent seen it. The only upside is bolt ons at 2x and if Ward buys something in the Gulf, the share price goes down and cost of capital goes up so thats a none starter.

 

Ward would like to grow SD into a massive major, bigger then CHK, and will make money either way by skimming it off the top or via eventual share expansion.

Prem gets paid to wait, has converts on eventually share expansion, and has first debs on the assets. Its in his best interest to collect his 6-9% for years and eventually reap a capital gain via share expansion or by taking over the assets should Ward screw up.

 

I as a common and options holder just want to make money, and most importantly not lose money via time value. I want a consistent strategy with consistent goals that I can hold Management to.

 

Our interests are not aligned, and TPG has my interest at heart. I need to read the entire second letter as I have only skimmed it thus far, but thats how I feel.

An options play at this minute with 2 years expiry is how I would play it. TPG has a plan, deep pockets, and friends in high places. I dont know if Ward can convince enough people to put skin in the game for him with the internal dealings. But hostiles just dont happen with oil and gas.

 

Icahn will take a 10% stake sooner or later inmo. This is peanuts for him.

 

Thanks for your thoughts.  Please do take a look at the second letter and, if you wish, provide more detail on TPG-Axon's arguments.

 

This one has always been in my too hard pile.  The main thing to recommend it has been Prem's stake, but he has been in and out, and his current stake is somewhat protected with owning preferreds. 

 

If TPG's letters are not entirely fiction, their indictment is devastating.  It explains some of some of SandRidge's strange actions like buying D. Off.  The motivation  now appears to have been to buy EBITDA to avoid breaking their covenants on their debt.  Never mind that they bought crappy assets with rapidly declining production at an inflated price that will require lots of future capex to keep production from declining rapidly. 

 

The other thing that stood out the most for me was Ward having one old business jet plus two old prop planes before their IPO and now a modern fleet of jets, including a $50M intercontinental business jet that he uses to travel free to many vacation spots while their assets are all within 500 miles of their headquarters.

 

Oh, I almost forgot to mention that his buddy directors who are light in industry experience are paid more than Exxon Mobile's directors.  Yikes! 

[muscleman]

So Myth and other O&G focused investors, what do you guys think of the substance of the TPG-Axon letter?

 

Im 110% behind TPG. As I said earlier in this thread my confidence in SD was truly shaken when ROI went from 90%+ to mid 40%. I thought SD had a secret sauce of sweet spot, efficiency, and scale. I thought they were handling risk properly by hedging and didnt care about cost of capital being in the 9% range with returns being in the 90% range.

 

I always knew Ward would take a disproportionate piece of the pie, but figured hey there is a lot of pie. I was looking for the hidden upside in DOR, but havent seen it. The only upside is bolt ons at 2x and if Ward buys something in the Gulf, the share price goes down and cost of capital goes up so thats a none starter.

 

Ward would like to grow SD into a massive major, bigger then CHK, and will make money either way by skimming it off the top or via eventual share expansion.

Prem gets paid to wait, has converts on eventually share expansion, and has first debs on the assets. Its in his best interest to collect his 6-9% for years and eventually reap a capital gain via share expansion or by taking over the assets should Ward screw up.

 

I as a common and options holder just want to make money, and most importantly not lose money via time value. I want a consistent strategy with consistent goals that I can hold Management to.

 

Our interests are not aligned, and TPG has my interest at heart. I need to read the entire second letter as I have only skimmed it thus far, but thats how I feel.

An options play at this minute with 2 years expiry is how I would play it. TPG has a plan, deep pockets, and friends in high places. I dont know if Ward can convince enough people to put skin in the game for him with the internal dealings. But hostiles just dont happen with oil and gas.

 

Icahn will take a 10% stake sooner or later inmo. This is peanuts for him.

 

I am a common holder and I feel the pain.

How likely do you think that an activist will succeed? I am sure if TW and his team are that bad, they will try their best to protect their economic interest unless there is some law or regulator that force them to resign.

I remember that Buffet said before that he tried to be an activist for some company but eventually decided it was too much pain.

I think at this point, it is possible to force TW and his team to resign, but this will likely be as painful as a divorce.

[value-is-what-you-get]

I just hope Fairfax doesn't continue this charade of supporting TW and block a sale for example...

 

Perhaps a few questions will be asked at Sanjeev's FFH shareholder dinner.

 

Which company jet did you use to get here?

How did that cost benefit your shareholders?

 

[twacowfca]

bmichaud, thanks for your question. 

 

I don't know how much Sandridge is worth under current management.  It's apparently worth something north of what TPG and other increasingly activist funds paid for it recently if sold in part in whole or if acquired.  If it is worth midway between the current price and what the activists claim, that would still be a very nice gain.  A sale or breakup should be resisted by the entrenched management with their hands in a huge cookie jar, but the situation is so stinky, I think it is more likely than not that the activists will eventually get their way. 

 

Prem is the key, if his statement is carefully read, it isn't wholehearted support. It merely says TW is a good operator, not necessarily admirable in every respect.  The logical thing for Prem to do is work behind the scenes to encourage Ward to get the best possible price.  Ward will have difficulty accessing financing in the future because of the big stink.  Hopefully, he will see the writing on the wall and realize he won't be able to keep his sweetheart deal going much longer. 

 

The second key is what's in it for Ward.  Does he have a golden parachute with a change of control or a liquidation or breakup?  How much is that worth?  The answer to that question is very important.  :)

[abcd]

Termination without Cause. The Company may terminate the Executive’s employment without Cause at any time by the service of written notice of termination to the Executive specifying an effective date of such termination not sooner than ten days after the date of such notice (the “Termination Date”). If the Executive is terminated without Cause (other than a CC Termination under paragraph 6.3.2 of this Agreement or on account of the Executive’s incapacity or death under paragraphs 6.4 and 6.5 of this Agreement), the Executive will receive as termination compensation:

 

(a) his Base Salary as in effect on the Termination Date (without regard to any reductions constituting a breach of this Agreement) for a period of thirty-six months;

 

(b) an amount equal to three times the “Average Bonus” (defined as the average annual bonus compensation paid pursuant to paragraph 4.2 over the three years preceding the Termination Date), payable in a lump sum, in cash; and

 

© any PTO accrued through his Termination Date, payable in a lump sum, in cash.

 

http://www.sec.gov/Archives/edgar/data/1349436/000119312511352901/d270965dex101.htm

 

[twacowfca]

Termination without Cause. The Company may terminate the Executive’s employment without Cause at any time by the service of written notice of termination to the Executive specifying an effective date of such termination not sooner than ten days after the date of such notice (the “Termination Date”). If the Executive is terminated without Cause (other than a CC Termination under paragraph 6.3.2 of this Agreement or on account of the Executive’s incapacity or death under paragraphs 6.4 and 6.5 of this Agreement), the Executive will receive as termination compensation:

 

(a) his Base Salary as in effect on the Termination Date (without regard to any reductions constituting a breach of this Agreement) for a period of thirty-six months;

 

(b) an amount equal to three times the “Average Bonus” (defined as the average annual bonus compensation paid pursuant to paragraph 4.2 over the three years preceding the Termination Date), payable in a lump sum, in cash; and

 

© any PTO accrued through his Termination Date, payable in a lump sum, in cash.

 

http://www.sec.gov/Archives/edgar/data/1349436/000119312511352901/d270965dex101.htm

 

Thank you abcd.  Do you know how much the above are worth?

 

Ward may have other goodies available upon a sale.  Do any warrants or rights to receive restricted shares vest upon a change of control?  Is there an opportunity to receive accelerated retirement benefits upon change of control?

 

[abcd]

Equity Compensation Provisions.

 

Notwithstanding any provision to the contrary in any option agreement, restricted stock agreement, plan or other agreement relating to equity based compensation, in the event of a termination <edited>:

 

(a) all units, stock options, incentive stock options, performance shares, stock appreciation rights and restricted stock granted and held by the Executive immediately prior to such termination will immediately become 100% vested; and

(b) the Executive’s right to exercise any previously unexercised options will not terminate until the latest date on which such option would expire but for the Executive’s termination of employment. To the extent the Company is unable to provide for one or both of the foregoing rights, the Company will provide in lieu thereof a lump-sum cash payment equal to the difference between the total value of such units, stock options, incentive stock options, performance shares, stock appreciation rights and shares of restricted stock (the “Equity Compensation Rights”) <edited>

 

This looks relatively small

    Base salary at an annual rate of not less than 1,545,000 dollars so ( at least 3 times $1.545 million)

    Bonus: unspecified at the discretion of the Company

 

As per yahoo, the compensation (I am assuming this is Salary + Bonus) for 2011 is $4.5 million (times 3 would be the hit)

 

And there is this

 

To determine the number of shares to be awarded during the calendar year, the Company shall divide the grant date fair market value of the award, which shall be no less than 16,250,000 dollars, by the closing price of a share of the Company’s stock on the grant date. These awards shall be made under the Company’s Equity Compensation Plans, which shall govern the vesting and other terms and provisions of the awards, except that, if the Executive’s employment is terminated under circumstances that entitle him to benefits under paragraph 6.1.1 or 6.3, the Executive shall be entitled to receive cash or shares (in the Company’s discretion) equal in value to the long-term retention incentive

 

[Myth465]

TPG launches website.

 

http://finance.yahoo.com/news/tpg-axon-launches-informational-website-181700207.html

 

These guys are serious. Ward is toast inmo. He will need to sell the company for $12 prior to being booted, I dont think he has enough friends to buy enough shares.

[Myth465]

I always said Ward would sort this out or SD would be taken over. Interesting to watch it play out. The majors are liquidating and could easily throw $10 billion at this problem. Plus would have either half the cost of capital or no cost of capital due to internal cash flows.

 

 

[alertmeipp]

anyone think we will get a bid out by year end?

[muscleman]

TPG launches website.

 

http://finance.yahoo.com/news/tpg-axon-launches-informational-website-181700207.html

 

These guys are serious. Ward is toast inmo. He will need to sell the company for $12 prior to being booted, I dont think he has enough friends to buy enough shares.

 

I am glad that these guys are doing this. I am out break even yesterday.

I think even if they could do it, the return is 10-12 a share, but there is still some chance that they couldn't do it. So maybe the risk-reward ratio isn't that great.

What do you think is the likelyhood that TPG succeed, and in what time line? I think at this point it only makes sense to play call options.

[Myth465]

I think TPG will succeed. I think they locked things up before hand. Ward will have to find some greenmail or sale assets quickly. I have tried to buy additional calls (was going to move out of preferred and into options) for the last 5 days but my bid never gets hit. With 5% up each day. I will simple hold, my breakeven is around 9, but thats after taking profits last year and rolling forward my options. I probably have a slight gain right now.

[alertmeipp]

I think TPG will succeed. I think they locked things up before hand. Ward will have to find some greenmail or sale assets quickly. I have tried to buy additional calls (was going to move out of preferred and into options) for the last 5 days but my bid never gets hit. With 5% up each day. I will simple hold, my breakeven is around 9, but thats after taking profits last year and rolling forward my options. I probably have a slight gain right now.

 

My leaps have 10$ strike. Hopefully, someone offer better than this.

[muscleman]

I think TPG will succeed. I think they locked things up before hand. Ward will have to find some greenmail or sale assets quickly. I have tried to buy additional calls (was going to move out of preferred and into options) for the last 5 days but my bid never gets hit. With 5% up each day. I will simple hold, my breakeven is around 9, but thats after taking profits last year and rolling forward my options. I probably have a slight gain right now.

 

What if an evil player joins the party?

Suppose I am the most evil trader in the world, and I have a lot of resources, how do I make the most out of this play? I would keep buying the shares until December 13th, preferrably way more than 15%, ally over a few more evil folks so we add up to over 50%, vote against TPG's solicitation, and then on the 14th, All my evil friends and I sell all shares, and go fully short.

At that point, what would happen? If TPG's solicitation cannot go through, the price will crash for sure. Also notice that the previous poison pill that grants shareholder rights to buy more shares will cause dilution, therefore favorable for short sellers and prevents hostile takeover. If I buy more than 15%, I would trigger that poison pill, and the result will either be nothing or something favourable for shorts.

After that, will some leveraged buyout or takeover happen, if price drops to too low? I think with that poison pill in place, no one would have the courage to try to force takeover.

 

I might be a bit thinking like a fiction writer. I am wondering how likely will this happen. If this is unlikely, then probably it is worth buying some call options. Otherwise I would rather look at other investments than risking my hard earned money on this one.

[Myth465]

muscle I dont see how you make money on that one. You would lose on the shares you had, or on the short position. Everyone is in this game to make money, evil is just a buy product of that greater cause inmo  :)