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Reuters: SandRidge ‘Adapted’ Chesapeake Playbook, Now Absorbing Similar Scrutiny

Filed by KOSU News in State Impact.
January 15, 2013

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Together as company president and CEO, Tom Ward and Aubrey McClendon built Chesapeake Energy into the second-largest natural gas producer in the U.S.

And while each have very different personalities, Ward may have borrowed some of the same “idiosyncratic business practices” when he left Chesapeake in 2006 to found SandRidge Energy, according to a new Reuters report.

At Chesapeake, McClendon intertwined his personal financial deals with the company he runs.

Similarly, Ward has melded his own financial interests with those of publicly traded SandRidge more than many of the company’s shareholders may know, an examination of court documents, Oklahoma state records and Securities and Exchange Commission filings shows.

Like Chesapeake CEO McClendon, Ward has come under fire from shareholders and analysts for operating a publicly traded company like a private one, “drawing large paychecks and bonuses even during periods when his company struggled,” Reuters reports:

In 2008, Ward received personal loans from the chairman of Bank of Oklahoma – one of SandRidge’s key lenders. He also took the unusual step of opening the company’s books for the lender’s review of that personal deal. The mixing of personal and corporate roles posed a potential conflict of interest for the CEO, analysts say.

Ward got more than the $75 million in loans from the BoA chairman, according to Reuters:

Ward also collected $67 million from SandRidge by selling back his personal interests in a controversial corporate perk: stakes in the company’s wells.

You might remember that McClendon had a similar perk at Chesapeake.

SandRidge has also paid nearly $28 million more to Ward or firms linked to him or his family, according to SEC filings.

Those payments are in addition to the more than $116 million Ward has received in compensation as CEO since 2007. Between 2007 and 2011, Ward made more than $7 million more than the two men who served as CEO of Chevron, a company more than 60 times the size of SandRidge by market capitalization.

SandRidge disclosed the transactions, and Ward’s compensation packages were “perfectly legal,” Reuters reports. Some corporate governance experts interviewed by the news service said there isn’t a problem if everything is disclosed, but others said Ward’s transactions suggest a risk that the CEO is putting his personal finances ahead of the company’s:

“The number of related-party transactions (SandRidge) reports is out of proportion to the size of the company,” says Paul Hodgson, an independent corporate-governance consultant.

Like Chesapeake before it, SandRidge is experiencing a shareholder revolt. Two of the largest investors — TPG-Axon Capital and Mount Kellett Capital — have called for Ward’s replacement and the company’s sale.

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