“(Reuters) – SandRidge Energy Corp is giving its chief executive wide latitude to profit from personal oil-and-gas deals in ways that pose potential conflicts of interest with the company, according to a review of employment contracts and recent transactions.
SandRidge has lifted most restrictions on CEO Tom Ward’s ability to sell mineral rights or drill wells, through little-noticed changes to his employment agreement in 2011. (See Factbox.)
Before the changes, Ward was permitted to receive royalties from SandRidge, or jointly own wells with it, on land he had owned before joining the company in 2006. The 2011 agreement allows him to do deals with SandRidge competitors in the oil and gas business, and to do business with SandRidge on any land that he owns or acquires.
Ward started the independent energy producer in 2006 after leaving Chesapeake Energy Corp, which he co-founded with Chesapeake CEO Aubrey McClendon. At the two companies, both based in Oklahoma City, the CEOs have entwined their own finances with those of the publicly traded corporations they run. Last week, McClendon announced his resignation from Chesapeake after a year marked by a cash crunch and civil and criminal probes into his personal finances and other matters.
The new language in Ward’s employment contract allows “participation in outside operated oil andgas drilling” in areas not being pursued by the company. It also allows his “participation as a working interest owner in properties operated by the company” on land owned by Ward-related entities.
Taken together, the two privileges give Ward greater leeway to profit on private dealings.
According to land records reviewed by Reuters, a Ward-linked entity named 192 Investments LLC acquired mineral rights on thousands of acres in late 2011 in the Mississippi Lime shale formation in Kansas. The Ward-related company bought those mineral rights just months before SandRidge leased property in adjacent plots, the Kansas land records show.
Such deals could pose a potential conflict of interest. Buying personal mineral rights in land adjacent to acreage later bought by SandRidge could allow Ward to profit if SandRidge’s purchases help drive up values, for instance. SandRidge doesn’t disclose when its chief executive acquires new mineral rights in areas where it drills.
In 2012, the year after the employment contract was revised, royalties paid by SandRidge to TLW Land & Cattle – an entity in which Ward holds an ownership stake – rose by some $500,000 from the previous year to $1.4 million. TLW stands for Tom L. Ward.
It is unclear why the TLW royalties rose last year. Energy production simply could have increased at wells on land owned by TLW, increasing the royalties as well. The 2011 changes in Ward’s contract could also have enabled him to sell more mineral rights to the company….”
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