Are These CEOs Screwing You Over?: SandRidge Energy Inc. (SD) and More

SandRidge isn’t the only fly in the oily punchbowl. Gulfport Energy Corporation (NASDAQ:GPOR)‘s chairman of the board is also using the company to profit from other ventures. Gulfport has repeatedly purchased land in the Utica Shale from Windsor Ohio, the operating member of which is Mike Liddell. Can you guess where Liddell serves as chairman? Ding ding ding – at Gulfport Energy! Shareholders take it on the chin because Gulfport funds the purchases with equity offerings, and the payouts on Windor’s side go to the unitholders, including Liddell.

Gulfport doesn’t disclose how much money will actually go to Liddell through these deals. February’s 8-K filing on the latest transaction uses the most confounding language possible to describe the financial relationship between Gulfport and Windsor Ohio:

Windsor Ohio is an affiliate of Wexford Capital LP (“Wexford”). Mike Liddell, Gulfport’s Chairman of the Board, is the operating member of Windsor Ohio. All distributions made by Windsor Ohio are first paid to the Wexford members in accordance with their respective ownership interests in Windsor Ohio until they have received amounts equal to their respective capital contributions. Thereafter, distributions are made 90% to the Wexford members in accordance with their respective ownership interests and 10% to Mr. Liddell.  

This language leaves us to guess at Wexford members’ ownership interests in Windsor Ohio, and thus precludes calculation of Liddell’s take. Wexford’s website is no help. The latest land purchase in February cost $220 million, so Liddell would have gotten 10% of whatever portion of that was left after Wexford members got paid. The previous sale in December cost $372 million, of which Liddell personally received $2.9 million.

Hess Corp. (NYSE:HES) has just come under scrutiny as well. Thus far, I’ve seen no suggestion that it’s up to anything nearly as questionable as SandRidge and Gulfport, but the company has some problems with an overpaid CEO and an inexperienced and complacent board of directors. Could that explain Hess’ record of inefficiency? By some estimates, its Bakken wells cost a third more than those of its peers. Hedge fund Elliott Associates figures if Hess were running a tighter ship, it could be worth up to double its current value.

Investors of the world, unite!
You may feel helpless in the face of all this, but don’t despair. The hedge funds I mentioned above – TPG-Axon and Elliott Associates – are activist investors. They are seeking to replace the boards at SandRidge and Hess, respectively, and TPG-Axon is gunning for Tom Ward’s ouster.