UPDATED: West Face Capital Launches Proxy War To Usurp Management And Take Control of Gran Tierra Energy
It was only a matter of time before dominoes start to fall in the Andean petroleum sector due to the prolonged low oil prices, and now, Finance Colombia has obtained documents filed with the United States Securities and Exchange Commission (SEC) signaling the intent by Toronto based activist investor West Face Capital to completely usurp and replace Gran Tierra Energy’s (Amex: GTE) board of directors and top management at the upcoming annual meeting on June 24. West Face Capital controls just short of 10% of Gran Tierra Energy’s shares.
According to statements in the SEC form SC 13D filed with the SEC, West Face Capital is of the opinion that Gran Tierra Energy has been too distracted by adventures in Peru, Argentina and Brasil, and not focused enough on Colombia exploration and production. Gran Tierra fired Dana Coffield as CEO in February, when founder Jeffrey Scott took the reins as executive chairman. At the time the company issued a statement saying it would “re-examine the company’s strategy.”
West Face Capital’s nominated slate of directors (Biographies are from the SEC filing):
- Gary Guidry – Guidry is the prospective CEO of Gran Tierra. He is the former CEO at each of Caracal Energy Inc., Orion Oil & Gas, Tanganyika Oil Company and Calpine Natural Gas Trust. He was named The Oil Council CEO of the year in 2014.
- Robert B. Hodgins – Hodgins currently sits on the Boards of AltaGas Ltd., Enerplus Corporation, MEG Energy Corp., StonePoint Energy Inc., and Kicking Horse Energy Inc. He is the former CFO of Pengrowth Energy Trust, VP and Treasurer of Canadian Pacific Limited, CFO of TransCanada Pipelines, and is the former Chairman of Caracal Energy Inc.
- Brooke Wade – Wade is currently the President of Wade Capital Corporation, a private investment Company, and sits on the Boards of Novinium Inc., and IAC Acoustics Limited. He is the former Co-founder, Chairman and CEO of Acetex Corporation, founding President and CEO of Methanex Corporation, and is a former director of Caracal Energy Inc.
- Peter Dey – Dey is Chairman of Paradigm Capital Inc., an investment dealer. He is a Director of GoldCorp Inc. and Granite REIT Inc. Formerly, Mr. Dey was Chairman of the Ontario Securities Commission, Chairman of Morgan Stanley Canada, Senior Partner with Osler, Hoskin & Harcourt LLP, Chairman of the Toronto Stock Exchange Committee on Corporate Governance, and former director of Caracal Energy Inc.
- Ronald Royal – Royal is a private businessman and serves on the Boards of Valeura Energy Inc. and Oando Energy Resources Inc. Mr. Royal is a professional engineer with more than 35 years of experience with Imperial Oil and ExxonMobil’s international, upstream affiliates. Prior to his retirement in 2007, he was President and General Manager of Esso Exploration and Production Chad Inc. He is a former director of Caracal Energy Inc.
- David P. Smith – Smith is Chairman of the Board of Superior Plus Corporation. He is a former Managing Partner of Enterprise Capital Management Inc., an investment manager, and is a former investment banker and energy research analyst.
As of publication, there has been no statement forthcoming from Gran Tierra’s current management. According to West Face Capital, in its filing, Gran Tierra has excessive general and administrative (G&A) expense as compared to its most similar peer companies. Gran Tierra’s G&A was $5.82 per BOE of production in 20141. By comparison, a subset of its peers had average G&A of $4.74 per BOE of production in 2014. “ We believe high operating costs are symptomatic of poor management and a culture lacking in accountability, starting at the Board,” stated West Face Capital. Additionally, the investor stated that Gran Tierra should refocus on Colombia.
“Gran Tierra already has a well-established operating advantage in the Putumayo basin, with low-risk opportunities for expansion. In addition, we believe there are many opportunities for value creation in the middle and lower Magdalena basins as well as the Llanos basin. With a focus on proven basins within Colombia, we believe Gran Tierra is well positioned to create shareholder value through organic growth and smart acquisitions. The preponderance of the Company’s capital budget should be targeted to development, with a small allocation to exploration,” stated the activist investor.
Wednesday, April 22, the following day, Gran Tierra Energy’s management issued this statement:
The Gran Tierra Board of Directors and management team are committed to enhancing stockholder value, and we are executing a plan that we believe will enable us to achieve this goal. We take the views of our stockholders seriously and have had, and will continue to have, conversations with West Face.
We believe that Gran Tierra’s current strategy of retaining balance sheet strength by minimizing or eliminating expenditures that have no immediate value at current oil prices and making significant operating and general and administrative cost reductions and eliminations through resource re-allocation initiatives is the best path to maximize stockholder value and realize the full potential of our assets. The Gran Tierra Board has been candid about areas of underperformance and – recognizing the need for change – took decisive action to reshape the Company and usher in a new era at Gran Tierra. The Company is pursuing a strategy of focusing on its core Colombian properties, curtailing all discretionary expenditures elsewhere.
Gran Tierra’s Board at present is composed of four highly-qualified and proven leaders, three of whom are independent. They are active, engaged and have the expertise needed to drive success and build stockholder value, including: extensive South American oil and gas energy experience: material participation leading other oil and gas exploration companies; experience with mergers and acquisitions; experience investing in, developing and growing oil and gas exploration companies; as well as expertise in finance and accounting.
The Gran Tierra Board will consider West Face’s nominations in due course, will continue to look for other qualified nominees and will present details regarding the Board’s recommended slate of director nominees in the Company’s definitive proxy statement and other materials, to be filed with the Securities and Exchange Commission and mailed to all stockholders eligible to vote at the 2015 Annual Meeting, the date of which has yet to be announced.
On April 23, 2015, West Face Capital Inc. issued the following press release:
Incremental Change and Delay Does Not Serve Gran Tierra Shareholders: West Face Capital
TORONTO – April 23, 2015 – West Face Capital Inc. (West Face), whose managed funds beneficially own approximately 9.8% of Gran Tierra Energy Inc. (Gran Tierra) (NYSE MKT: GTE; TSX: GTE), today told its fellow shareholders that the latest statement from the company’s Board of Directors fails to address what is needed to fix Gran Tierra.
In its April 21 letter to Gran Tierra, West Face recommended, among other things, that the company refocus on its core Colombian properties and avoid further high-risk, high-cost ventures in frontier locations. Twenty-four hours later, the Gran Tierra Board clarified for shareholders that its strategic focus is on Colombia.
The current Board also acknowledged “areas of underperformance” after the company’s market value fell by 59% in just over four years.
West Face believes acknowledgement and promises are not sufficient to correct ineffectual oversight, incoherent strategy, inflated overhead costs and failure to align the interests of the Board and shareholders. A fundamental change of course is required for Gran Tierra, not half-measures by the existing Board.
“The current directors should do the right thing for shareholders and accept that a clean slate and a fresh start are needed at Gran Tierra now,” said Thomas Dea, Partner at West Face. “They should ensure that the shareholders’ voice will be heard at the annual meeting, which the company’s website stated would take place on June 24, 2015. There should be no delay.
“It’s time to fix GTE,” Mr. Dea said.
West Face has proposed a proven CEO in Gary Guidry and a new slate of experienced independent directors. Mr. Guidry’s experience was gained working in many international jurisdictions and includes extensive experience in Colombia and other parts of Latin America. West Face believes that the nominee group has strong and relevant South American experience.
The six West Face nominees are Robert B. Hodgins, Brooke Wade, Peter Dey, Ronald Royal, David P. Smith, and Gary Guidry. Further information about the nominees’ qualifications was provided in the news release issued by West Face on April 21, 2015.