GREENWICH, Conn., March 20, 2018 /PRNewswire/ -- FrontFour
Capital Group LLC together with its affiliates, a significant
shareholder of Obsidian Energy Ltd. ("Obsidian" or the "Company")
(TSX/NYSE: OBE), today issued an open letter to the Company's
stockholders. The full text of the letter
follows:
March 20, 2018
Dear Fellow Shareholders,
As previously disclosed, FrontFour Capital Group LLC (together
with its affiliates, "FrontFour" or "we") and its principals are
significant long-term shareholders of Obsidian, collectively
beneficially owning over 31 million shares, representing
approximately 6.2% of Obsidian's outstanding shares. Since
issuing our first public letter to shareholders on January 17, 2018, Obsidian's shareholders have
expressed a common theme of frustration with Obsidian's
inconsistent and unsound strategic plan, flawed hedging strategy
and poor leadership team. Accordingly, we are announcing our
intention to nominate four highly qualified directors for election
at Obsidian's 2018 annual general meeting. We intend to
formally nominate our highly qualified candidates once the meeting
has been called.
In the weeks to come, FrontFour will release its detailed value
creation strategy at Obsidian, initially centered on streamlining
the Company's organizational profile via:
- the disposition of the Company's remaining non-core legacy
gas-weighted production; and
- the divestiture of Obsidian's operations in the Alberta Viking
and Peace River.
Obsidian has the ability to aggressively shift the drilling
program to the higher return Cardium, where the Company has a deep
and enviable inventory. Given the size and resources of
Obsidian it is very important to bring focus to the
portfolio. While the Alberta Viking and Peace River are both attractive assets, for
Obsidian they are non-core and should be monetized.
Given that multiple parties have expressed
interest to FrontFour in such assets, should they become available,
we strongly believe this is an executable course of
action.
We believe the monetization of the Alberta Viking, Peace River and the remaining non-core legacy
assets would result in:
- the ability to significantly reduce Obsidian's corporate
general & administrative expense which is bloated, even when
adjusting for their off-market legacy office lease expense;
- the removal of the negative drag on funds flow from operations
("FFO") from the legacy gas-weighted production, thereby improving
Obsidian's performance metrics, while also reducing asset
retirement obligations; and
- allowing the Company to continue to delineate its acreage in
the Mannville should condensate
pricing remain strong.
In turn, FrontFour's value creation strategy would focus on
re-deploying the proceeds from the divestitures of the Alberta
Viking and Peace River in the
following manner:
- pay down enough debt to keep Obsidian's leverage ratio constant
on a forward 12-month basis at strip;
- immediately expedite the Company's primary drilling program
within the Cardium, specifically within the bioturbated zone within
Willesden Green, with a focus on aggressively growing the Company's
light oil-weighted production and by extension drive reserve and
FFO growth and which would further deleverage the Company while
displaying the true potential of its asset base; and
- initiate a share buyback program designed to take advantage of
the significant discount at which the Company's shares currently
trade relative to their intrinsic value, while also
increasing shareholders' ownership exposure to the Company's
dominant position in the Cardium which is highly coveted by
potential strategic acquirers.
On March 12, 2018, Obsidian
announced a proposed 1:3 reverse stock split to be voted on at its
2018 annual general meeting. This proposal is in response to
a notification from the New York Stock Exchange ("NYSE") that the
Company was no longer in compliance with one of the NYSE's
continued listing standards because the average closing price of
Obsidian was less than US$1.00 per
share over a consecutive 30 trading day period. FrontFour will
be voting against the reverse stock split proposal. The
historic track record of subsequent stock price performance by
companies that execute reverse stock splits from perceived
positions of weakness is very poor. Furthermore, the
proposal by management and the board of directors (the "Board")
signals to us that they themselves may lack confidence in their
operating and strategic plan to catalyze the stock price
sustainably above US$1.00.
In contrast, it is our strong belief that our plan would
result in a value proposition for investors that would be valued
significantly higher by the public equity markets and would quickly
result in Obsidian being back in compliance with NYSE listing
standards. We believe our nominees' strong collective
technical and operational expertise within the energy industry,
coupled with significant financial and strategic experience across
numerous complex situations, will bring a fresh perspective to the
Board and will help drive the necessary decisions needed to close
the significant value gap between Obsidian's current stock price
relative to its intrinsic value.
Biographies of FrontFour's Nominees:
Steven P. Evans
Mr. Evans had a 31-year career with Chevron / Texaco until his
retirement in 2012. Most recently held the position of general
manager, North America exploration
at Chevron.
- In this role, Mr. Evans was responsible for leading exploration
activities in the Gulf of Mexico
(both shelf and deepwater), onshore United States, onshore Canada, offshore the Atlantic Coast in
Canada, and Alaska with annual budgets ranging from
US$500 million to US$1.2 billion;
- Asked by CEO of Texaco to participate on the Chevron/Texaco
merger team. Served in this capacity from November 2000 through December 2001 and helped generate over
US$300 million in expense savings for
the new organization;
- Previously, Mr. Evans started with Texaco as manager of
finance, planning and portfolio for E&P technology in 1989 and
assumed various leadership roles in strategy and planning;
- Prior to 1989, Mr. Evans completed assignments in reservoir
engineering, operations research and planning. He started his
career with Pennzoil in 1980; and
- Currently a director of Venari Resources, a private-equity
backed deepwater Gulf of Mexico
start-up.
Michael J. Faust
Mr. Faust has 34 years of industry, financial and leadership
experience within the oil and gas sector, including diverse
geological, geophysical and technical reservoir experience spanning
many different basins and formations throughout the world.
- Mr. Faust was most recently the Vice President of Exploration
and Land at ConocoPhillips Alaska, Inc. where he oversaw and
managed the company's exploration organization and strategy in
Alaska;
- Mr. Faust previously served as the Vice President of
Exploration and Land at ConocoPhillips Canada Resources Ltd. where
he was responsible for Conoco's Canadian exploration activities
with significant experience within the Deep Basin and various
formations within the Western Canadian Sedimentary Basin;
- Joined Arco Alaska, Inc. in 1997 where he held multiple senior
positions up to and following Phillips Petroleum Co.'s acquisition
of Arco Alaska in 2000 and the subsequent merger between Phillips
and Conoco Inc., which created ConocoPhillips Alaska, Inc. in
2002;
- Positions of increasing responsibility at Arco Alaska included
Chief Geophysicist, Development Geoscience Manager, Technology and
Operations Manager, and Offshore Exploration Manager;
- Prior to Arco Alaska, Mr. Faust held various positions with
Exxon Exploration Company and Esso Norge A.S. after beginning his
career with Exxon Co. USA in 1983; and
- Mr. Faust is currently the lead independent director at
SAEploration, an oilfield service company.
Matthew ("Matt") Goldfarb
Mr. Goldfarb has over 20 years of diverse experience as an
investor, senior management roles at companies undergoing financial
restructurings, legal counsel, and board director across numerous
industries where he has helped drive successful outcomes for
shareholders.
- Mr. Goldfarb is a founding partner and managing member of
Southport Midstream Partners LLC, a private-equity backed
investment vehicle focused on energy infrastructure projects in
North America;
- Mr. Goldfarb also serves as Chief Restructuring Officer and
Acting Chief Executive Officer of Cline Mining Corporation;
- Mr. Goldfarb previously served as Chief Executive Officer of
Xinergy Ltd., having previously served as its Vice Chairman and
lead independent director since its IPO in December 2009 through November 2013;
- Mr. Goldfarb previously was an attorney at Icahn Associates
Corp. and Schulte Roth & Zabel
LLP; and
- Mr. Goldfarb has served on the Boards of Sevcon, Inc., Midway
Gold Corporation, The Pep Boys – Manny, Moe & Jack, Huntingdon
Capital Corp., Fisher Communications, Inc., CKE Restaurants, Inc.,
and James River Coal Company.
Stephen E. Loukas
Mr. Loukas has nearly 20 years of experience as an investor,
investment banker, and financial restructuring consultant with
significant experience across a broad-based number of
industries.
- Mr. Loukas has been a Managing Member and Portfolio Manager of
FrontFour Capital Group LLC since February
2009 where he helps oversee the firm's investment
portfolio;
- Previously, Mr. Loukas held roles including Director at Credit
Suisse Securities where he was a Portfolio Manager and Head of
Investment Research of the Multi-Product Event Proprietary Trading
Group and at Pirate Capital where he was a senior investment
analyst;
- Mr. Loukas has also worked within the Corporate Finance &
Distribution Group of Scotia Capital where he focused on the
structuring and syndication of leveraged loans and high yield
debt;
- Mr. Loukas started his career at financial restructuring firm
Zolfo Cooper where he assisted corporate clients in the development
and implementation of operational and financial restructuring
plans; and
- Mr. Loukas has previously served as a director of Xinergy
Ltd.
As stated in our January 17th
letter to Obsidian's shareholders, we worked tirelessly to come to
an amicable agreement with Obsidian's Board on the addition to the
Board of one mutually agreed upon independent nominee proposed by
FrontFour, as part of an effort to work constructively with the
Company to maximize shareholder value. In response,
Obsidian's Board issued a defensive and inaccurate press release
stating that it had negotiated in good faith, but that FrontFour
had refused to sign the same agreement executed by Edward (Ed) H. Kerneghan in connection with his
appointment to the Board. The time has come for
FrontFour to set the record straight.
Some of the settlement terms proposed by Obsidian at various times
were as follows:
- Obsidian refused to be transparent as to the composition of the
Board slate for the 2018 annual general meeting and insisted upon
retaining the ability to replace undisclosed incumbent directors
with new (and also undisclosed) director candidates at the meeting
– an outcome which had the potential to more than offset the
positive board influence that FrontFour is looking to effectuate
through its Board nominees;
- Nevertheless, Obsidian wanted FrontFour to agree to vote in
accordance with all of management's future recommendations on all
matters of business through January 1,
2019; and
- FrontFour was initially denied a standard replacement right in
the event that their mutually agreed upon director became unable to
serve in the future, and was then asked to agree to only have the
right to recommend a replacement that would be considered (and
potentially rejected) at the Board's sole discretion.
These and other terms proposed by Obsidian were off-market
in the context of a settlement agreement of this nature.
Neither FrontFour nor any sophisticated institutional shareholder
would, consistent with their fiduciary obligations to their
investors, effectively hand over blank proxies to Obsidian's
management and existing Board. However, most importantly, we
believe agreeing to these terms would have further entrenched this
Board and resulted in an extension of the value destructive status
quo at Obsidian.
We are committed, long-term investors with a strong track record
of alignment and value creation in situations where we have sought
change. We believe that significant upside exists in
Obsidian's shares from current levels. The current Board has
had ample time and opportunity to identify and unlock that value,
but has failed. The time for change at Obsidian has
come.
Sincerely,
Zachary R.
George
Portfolio
Manager
|
David A.
Lorber
Portfolio
Manager
|
Stephen E.
Loukas
Portfolio
Manager
|
FRONTFOUR CAPITAL GROUP LLC
FrontFour Capital Group LLC, located in the United States at 35 Mason Street,
Greenwich, CT 06830, was formed in
December 2006. FrontFour Capital
Group LLC is registered with the Securities & Exchange
Commission as an investment adviser under the Investment Advisers
Act of 1940, as amended.
ADDITIONAL INFORMATION CONCERNING FRONTFOUR'S PROPOSED BOARD
NOMINEES
Name
Province/State, Country of Residence
|
Present Principal
Occupation, Business or Employment and in Five Preceding
Years
|
Number of Common
Shares of Obsidian Beneficially Owned or Controlled
|
Steven P. Evans
Texas, USA
|
Retired since 2013.
Prior to his retirement, Mr. Evans was VP- Head of Exploration for
North America for Chevron.
|
Nil
|
Michael J. Faust
Alaska, USA
|
Currently a consultant
at Quartz Geophysical LLC. Prior thereto, Mr. Faust was Vice
President Exploration, Business Development and Land for
ConocoPhillips Alaska, Inc.
|
Nil
|
Matthew Goldfarb
Connecticut, USA
|
Founding partner and
managing member of Southport Midstream Partners LLC
|
124,500
|
Stephen E. Loukas
New York, USA
|
Managing Member and
Portfolio Manager of FrontFour Capital Group LLC.
|
254,650
|
Each of FrontFour's proposed board nominees has been indemnified
by an affiliate of FrontFour in connection with such board
nominee's nomination for election at Obsidian's 2018 Annual General
Meeting.
Penalties or Sanctions
To the knowledge of FrontFour,
none of FrontFour's proposed board nominees, has: (i) been subject
to any penalties or sanctions imposed by a court relating to
securities legislation or by a securities regulatory authority or
has entered into a settlement agreement with a securities
regulatory authority; or (ii) been subject to any other penalties
or sanctions imposed by a court or regulatory body that would be
likely to be considered important to a reasonable security holder
in deciding whether to vote for a proposed director.
Individual Bankruptcies
To the knowledge of FrontFour,
none of FrontFour's proposed board nominees is or has, within the
10 years prior to the date hereof, become bankrupt, made a proposal
under any legislation relating to bankruptcy or insolvency, or
become subject to or instituted any proceedings, arrangement or
compromise with creditors or had a receiver, receiver manager or
trustee appointed to hold the assets of that individual.
Corporate Cease Trade Orders or Bankruptcies
To the
knowledge of FrontFour and except as set out below, none of
FrontFour's proposed board nominees is, or has been within the past
ten years, a director or executive officer of any company that,
while such person was acting in that capacity: (i) was the subject
of a cease trade or similar order or an order that denied the
relevant company access to any exemptions under securities
legislation that was in effect for a period of more than 30
consecutive days; (ii) was subject to an event that resulted, after
that individual ceased to be a director or executive officer, in
the company being the subject of a cease trade or similar order or
an order that denied the company access to any exemptions under
securities legislation that was in effect for a period of more than
30 consecutive days; or (iii) within a year of that individual
ceasing to act in that capacity, became bankrupt, made a proposal
under any legislation relating to bankruptcy or insolvency or was
subject to or instituted any proceedings, arrangement or compromise
with creditors or had a receiver, receiver manager or trustee
appointed to hold its assets.
In December 2013, and in
contemplation of a financial restructuring, Mr. Goldfarb was
retained by the Cline Mining Corporation board of directors, at the
instruction of its senior lenders, to lead the financial
restructuring and optimization of the mining assets of the Toronto
Stock Exchange-listed issuer. Companies' Creditors Arrangement
Act (Canada) ("CCAA")
insolvency proceedings and related Chapter 15 "recognition"
proceedings relating to the "work-out" of Cline Mining Corporation
were initiated in December 2014, and
the company emerged therefrom in July
2015.
Mr. Goldfarb resigned as CEO of Xinergy, Ltd. in November 2013. Xinergy filed for bankruptcy
protection under Chapter 11 in July
2015 due to challenging market conditions, given its
exposure to metallurgical coal pricing.
On June 22, 2015, Midway Gold
Corporation and certain of its subsidiaries filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code in
the United States Bankruptcy Court
for the District of Colorado,
seeking ancillary relief in Canada
pursuant to the CCAA in the Supreme Court of British Columbia in Vancouver, Canada. On January 29, 2016, Mr. Goldfarb was appointed as
an independent director of Midway to assist the issuer in its
ongoing financial restructuring and asset-sale efforts.
The information contained in this news release does not and is
not meant to constitute a solicitation of a proxy within the
meaning of applicable securities laws. Although FrontFour intends
to nominate the proposed nominees for election at Obsidian's 2018
Annual General Meeting, there is currently no record or meeting
date and Obsidian shareholders are not being asked at this time to
execute a proxy in favour of any matter, including the proposed
nominees. In connection with Obsidian's 2018 Annual General
Meeting, FrontFour may file a dissident information circular in due
course in compliance with applicable securities laws.
Notwithstanding the foregoing, FrontFour is voluntarily providing
the disclosure required under section 9.2(4) of National Instrument
51-102 – Continuous Disclosure Obligations in accordance
with securities laws applicable to public broadcast solicitations.
Any solicitation made by FrontFour will be made by it and not by or
on behalf of the management of Obsidian. All costs incurred for any
solicitation will be borne by FrontFour, provided that, subject to
applicable law, FrontFour may seek reimbursement from Obsidian of
FrontFour's out-of-pocket expenses, including proxy solicitation
expenses and legal fees, incurred in connection with any successful
result at a meeting of Obsidian shareholders. Proxies may be
solicited by FrontFour pursuant to an information circular sent to
shareholders after which solicitations may be made by or on behalf
of FrontFour by mail, telephone, fax, email or other electronic
means as well as by newspaper or other media advertising, and in
person by directors, officers and employees of FrontFour, who will
not be specifically remunerated therefor. FrontFour may also
solicit proxies in reliance upon the public broadcast exemption to
the solicitation requirements under applicable Canadian corporate
and securities laws, including through press releases, speeches or
publications, and by any other manner permitted under applicable
Canadian laws. FrontFour may engage the services of one or more
agents and authorize other persons to assist in soliciting proxies
on its behalf, which agents would receive customary fees for such
services. Once FrontFour has commenced any solicitation of proxies,
proxies may be revoked by instrument in writing by a shareholder
giving the proxy or by its duly authorized officer or attorney, or
in any other manner permitted by law and the articles or by-laws of
Obsidian. None of FrontFour nor, to its knowledge, any of its
associates or affiliates, has any material interest, direct or
indirect: (i) in any transaction since the beginning of Obsidian's
most recently completed financial year or in any proposed
transaction that has materially affected or would materially affect
Obsidian or any of its subsidiaries; or (ii) by way of beneficial
ownership of securities or otherwise, in any matter proposed to be
acted on by Obsidian, other than the election of directors to the
board of Obsidian. Obsidian's principal office address is 200, 207
- 9th Avenue SW Calgary, Alberta
T2P 1K3.
CONTACT
Investor Contact:
Stephen Loukas
FrontFour Capital Group LLC
35 Mason Street, 4th Floor
Greenwich, CT 06830
203-274-9050
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SOURCE FrontFour Capital Group LLC