Investors Agitate In Oil Patch
(From THE WALL STREET JOURNAL 1/30/13)
By Daniel Gilbert
Shareholder rebellion is spreading across the oil patch as investors lose
patience with companies whose stocks are languishing and push back against
what the investors see as excessive pay and perks.
A battle has engulfed SandRidge Energy Inc., an Oklahoma energy producer,
where a large shareholder is trying to take over the company's board. But
investors also are challenging management at oil company Hess Corp. and
drillers Nabors Industries Ltd. and Transocean Ltd. And Chesapeake Energy
Corp. said Tuesday that Chief Executive Aubrey McClendon would resign April 1.
He stepped down as chairman in June amid a boardroom coup.
The activism comes as shareholders that rewarded companies for asset growth
now are demanding earnings growth, better stock performance and richer
dividends.
Hess became the latest target on Tuesday, when Elliott Management Corp.,
with a 4% stake, said the hedge fund would nominate five directors to the oil
company's 13-member board. Elliott blamed current directors for failing to
hold management accountable for a depressed market value; the stock lost
almost 30% of its value in the two years through last week.
Elliott is urging Hess to separate its holdings in North Dakota's oil-rich
Bakken Shale from its international properties and to sell the business that
refines oil and sells gasoline. After Elliott's announcement, Hess shares rose
$5.63, or 9%, to $68.11 in 4 p.m. trading Tuesday on the New York Stock
Exchange.
Hess said it would review Elliott's proposal and said the fund made its
announcement without attempting to engage Hess in discussions. The company
said it has "a multiyear strategy to deliver significant value" to
shareholders.
At Nabors, its largest shareholder last week expressed concern about the
company's stock price, which also is down about 30% over the past two years.
The shareholder, Pamplona Capital Management LLP, said it would pursue
discussions with management. Nabors didn't respond to a request for comment.
Transocean was targeted by activist investor Carl Icahn last week, who
called for the company to raise its dividend. Mr. Icahn has increased his
stake to 5.6% and said he would consider nominating board members.
Transocean said it would review Mr. Icahn's proposal and that it looked
forward to discussions with him.
But the fiercest battle may be at SandRidge, which Tom Ward founded in 2006
when he left Chesapeake, which he had founded with Mr. McClendon. TPG-Axon
Capital LP, a hedge fund that owns 6.7% of SandRidge's shares, is attempting
to take over the board of the $3.4 billion company, citing its poor stock
performance and its corporate-governance practices. SandRidge's shares have
lost about 90% of their value since peaking in 2008.
TPG says that when it began building its stake in November 2011, the hedge
fund was focused on the company's assets and thought that the stock was a
bargain. But TPG said it has been unnerved by SandRidge's heavy spending,
including a $1.3 billion acquisition of an offshore oil driller last year.
The hedge fund also has complained about the company's compensation
decisions. Mr. Ward, chairman and chief executive, was paid $25.2 million in
2011, more than four times his peers at similar companies, according to
Institutional Shareholder Services.
In a letter to shareholders this month, SandRidge said it has generated high
returns by acquiring 2 million oil-rich acres straddling the Oklahoma-Kansas
border and by operating efficiently. SandRidge declined to comment for this
article.
The company has accused TPG of seeking to turn a quick profit by selling the
energy company, rather than maximizing the value of its assets.
TPG denied it is looking to make a short-term profit.
The conflict escalated last week when TPG said SandRidge had shortchanged
shareholders when it bought land rights from Mr. Ward and entities controlled
by his family. TPG and another large shareholder, Mount Kellett Capital
Management LP, also questioned whether one of the family-controlled entities,
WCT Resources LLC, was truly independent of SandRidge while competing with it
by acquiring mineral rights in areas where the company operates.
SandRidge "has reviewed issues related to these allegations several times
over the company's history and has found no wrongdoing to have taken place,"
the company said Friday. SandRidge said Mr. Ward doesn't manage, control or
share nonpublic information with WCT. SandRidge said it would consider an
independent investigation into TPG's allegations.
Mr. Ward didn't respond to a request for comment.
SandRidge's stock rose 18 cents, or 2.6%, to close at $7.18 Tuesday on the
NYSE.
Canadian investor V. Prem Watsa, SandRidge's largest shareholder, with about
11% of its shares, in recent weeks has expressed support for Mr. Ward and his
team.
