On December 16, 2013, Chimicles & Tikellis LLP filed a derivative action complaint on behalf of Sanchez Energy Corporation (“Sanchez Energy” or the “Company”) in the Court of Chancery of the State of Delaware (the “Action”). The Action alleges wrongdoing by the Sanchez Energy directors for causing the Company to acquire an interest in the Tuscaloosa Marine Shale from (“TMS Assets”) from Sanchez Resources LLC (“Resources”), an entity affiliated with Sanchez Energy’s CEO, Tony Sanchez, III, and Executive Chairman Tony Sanchez, Jr. (together the “Sanchezes”) at a grossly excessive price, exposing Sanchez Energy to substantial increased risk.
On August 8, 2013, Sanchez Energy announced it had acquired a working interest in the TMS Assets from Resources. The Sanchezes own a portion of the equity of Resources. Moreover, the CEO of Resources is Eduardo Sanchez, son and brother to the Sanchezes. The transaction was valued at $78 million or roughly $2,500 an acre. The per acre price was exponentially higher than the $145 an acre paid by Goodrich Petroleum Corp. for 172,000 acres in the Tuscaloosa Marine Shale just one month prior. Resources retained a 50% working interest in the TMS Assets. The transaction was approved by the Sanchez Energy board of directors and was not subject to a vote of Sanchez Energy’s public shareholders.
At the time of the transaction, the Sanchezes owned approximately 17% of Sanchez Energy’s outstanding common stock. Based on the Sanchezes’ control of a significant voting stake and power at the Board level, the Sanchezes had the ability to consummate the transaction on terms favorable to themselves and detrimental to the interests of Sanchez Energy and its stockholders.
After the announcement of the Transaction, several actions were filed. On December 20, 2013, the Court consolidated all of the actions and Chimicles & Tikellis LLP was appointed Co-Lead Counsel. Co-Lead Counsel filed a Verified Consolidated Stockholder Derivative Complaint (“Complaint”) (available here) on January 28, 2014.
After Defendants filed several motions to dismiss the Complaint, on November 25, 2014, the Court of Chancery issued an opinion dismissing the Action (“the Opinion”). On October 2, 2015, the Delaware Supreme Court reversed the Court of Chancery’s Opinion and remanded the case for prosecution. Shortly thereafter, the aiding and abetting Defendants, Eduardo Sanchez, Resources and Altpoint filed renewed motions to dismiss (“Renewed Motions”). On August 9, 2016 the Court of Chancery denied the Renewed Motions.
While the Parties engaged in extensive discovery, counsel for the Parties held discussions concerning a possible resolution of this Action, including participation in mediation with Robert A. Meyer, Esq. (the “Mediator”). As part of ongoing settlement discussions involving the Mediator, the Sanchez Board formed an independent committee of Directors (the “Committee”) to consider and determine whether an acquisition by the Company of Resources would be consistent with the long term strategic plans of the Company and would be in the best interests of the Company if effected through a settlement of the Action. To facilitate the discussions among the Parties about a possible settlement that would include, as part of the consideration provided to the Company, a transfer of the full equity ownership of Resources to Sanchez Energy, the Committee retained Cypress Associates, LLC (“Cypress Associates”) to provide a valuation of Sanchez Resources. To view a copy of the Cypress Valuation Report, click here.
As a result of those discussions, the Parties reached an agreement and executed a Stipulation and Agreement of Compromise, Settlement and Release on August 11, 2017, subject to Court approval. To view the Stipulation of Settlement, click here. As consideration for the Settlement, Defendants shall cause full, complete and unencumbered ownership of Resources to be transferred to Sanchez Energy, with Resources to be held as a wholly owned subsidiary of Sanchez Energy. In addition, Defendants shall pay or cause to be paid $11,750,000 into an escrow account, which, after deduction of any taxes and any attorneys’ fees and expenses awarded by the Court, will be paid to Sanchez Energy. Defendants will also cause certain royalty interests on assets within the Tuscaloosa Marine Shale to be transferred to Sanchez Energy.
On August 16, 2017, the Court entered a scheduling order setting a date and time for the Settlement Hearing and establishing customary notice and objection procedures for Oracle Stockholders. The Scheduling Order is available here. To view the Notice of Pendency And Proposed Settlement of Stockholder Derivative Action, click here. During a hearing held on November 6, 2017 the Court approved the Settlement.