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FF ResponseGREENWICH, Conn.,April 3, 2018/PRNewswire/ -- FrontFour Capital Group LLC, together with its affiliates ("FrontFour" or "we"), a significant shareholder of Obsidian Energy Ltd. ("Obsidian" or, the "Company") (TSX/NYSE: OBE) with an ownership interest of approximately 6.3% of the Company's outstanding shares, today announced that it has formally provided advance notice to the Company of the nomination of a slate of four highly-qualified candidates for election to the Board of Directors (the "Board") at the Company's 2018 Annual and Special Meeting of Shareholders ("2018 AGM") to be held onMay 11, 2018. FrontFour has also issued the following open letter to Obsidian shareholders: A LETTER TO THE SHAREHOLDERS OF OBSIDIAN ENERGY LTD. April 3, 2018 Dear Fellow Shareholders, As previously disclosed, FrontFour and its principals are significant long-term shareholders of Obsidian, collectively beneficially owning over 31 million shares, representing approximately 6.3% of Obsidian's outstanding shares. In contrast to Obsidian's current Board, our interests are directly aligned with yours. After years of enduring substantial share price underperformance at Obsidian, our goal is to drive significant value creation for the benefit of all Obsidian shareholders. OnApril 2, 2018, Obsidian publicly announced that it had commenced a process to explore the sale of the Alberta Viking andPeace Riverassets as part of an effort to focus on growth in the Cardium. This followed an announcement late last week that Obsidian scheduled its 2018 AGM forMay 11, 2018, with a record date ofApril 4, 2018, although its annual meeting is customarily held in June. We interpret the incumbent Board's action in setting a significantly earlier meeting date as an attempt to minimize the time that FrontFour has to conduct its campaign and use historically low voter turn-out to its advantage. The Board's Recent Strategic Review Announcement Validates FrontFour's Strategy, is Reactionary and Represents Yet Another About-Face on Strategy OnJanuary 17, 2018, FrontFour first publicly expressed concerns with the Board and laid out an action plan to streamline the Company's asset footprint to focus on becoming a standout light oil growth player and Cardium champion. Obsidian quickly responded by stating that its business plan, centered on sustaining a low-decline production base while leveraging significant development optionality, was working, and that "a change of course would hinder Obsidian's progress." OnMarch 20, 2018, we announced our intention to nominate four directors for election to the Board, vote against the proposed reverse stock split, and outlined a plan to dispose ofPeace Riverand the Alberta Viking and redeploy the proceeds into debt repayment, stock buybacks and jump-starting production growth in the Cardium. Obsidian almost immediately responded to this with a press release onMarch 21, 2018headlined "FrontFour is Risking the Company's Progress." This is proof positive that Obsidian's Board is out of touch with its shareholder base and in need of significant refreshment. We strongly disagree that Obsidian's stated strategy as ofJune 2017represents "progress" when it has led to anemic production and cash-flow growth, a track record of blown operating targets and disastrous hedge losses culminating in the receipt of a NYSE delisting notice. It is also quite remarkable that less than two weeks after decrying FrontFour's articulated strategy as "risking [the Company's] progress," Obsidian has now announced its intention to implement ALL publicly disclosed aspects of FrontFour's value creation plan, withDavid Frenchclaiming, "[t]oday's announcement is the natural next step in our ongoing strategy to unlock shareholder value and establish Obsidian Energy as a growth company focused on optimizing our industry-leading position in the Cardium." This announcement is anything but "natural" and represents another clear about-face on strategy. Obsidian's proposed asset sales and related strategic process are clearly material developments. In commenting upon them, Board chairJay Thorntonnoted that "[t]he process started in Q3 last year and accelerated in October when the Board selected RBC Capital Markets as our lead financial advisor." This flies in the face of recent trading activity by Obsidian's directors. Over the last few months, Obsidian directors have made market purchases of Obsidian shares, including as recently asMarch 13, 2018. Had the so-called process including asset sales been fulsome and truly active, then insiders would have been precluded from trading Obsidian shares. The insider purchases suggest that Obsidian'sApril 2ndstrategic review announcement is a recent development and a reaction to significant shareholder pressure.
The Current Board Has Overseen Significant Value Destruction While Underperforming All Relevant Industry Indices As evidenced by the chart below, Obsidian's Board has overseen the destruction of significant long-term shareholder value as reflected by the stark underperformance of Obsidian's shares relative to three prominent energy indices: (i) the S&P/Canadian Energy Index (XEG ETF), (ii) the Energy Select Sector Index (XLE ETF), and (iii) the S&P Oil & Gas Exploration & Production Select Industry index (XOP ETF). Astonishingly, Obsidian's shares have traded down approximately 96% during the tenure ofGeorge Brookmanas a director and 45% sinceDavid Frenchbecame CEO in October of 2016.
The Board's disastrous historical record of oversight of management's repeated strategic missteps has resulted in an overhang on Obsidian's share price that, despite the recent announcement, in our view may only be lifted by a substantial overhaul in Board composition. We now urge our fellow shareholders to support FrontFour's efforts to drive value for all shareholders. Board Compensation: Taking Equity at the Bottom In Obsidian's April 2ndpress release, the Board announced their intention to receive all director fees in equity in lieu of cash. We find it interesting that the Board waited until now to finally align their interests with shareholders. As depicted in the charts below, the Board's historical actions have been anything but aligned. Per Obsidian's two most recent information circulars, only one director elected to receive more than 50% of his or her Board compensation in share-based awards. Additionally, as of the most recently available public data, four directors currently own significantly less than the minimum 100,000 share requirement, includingGeorge Brookman, despite his nearly 13-year Board tenure.
The stated intention in the Company'sApril 2ndannouncement is simply too little, too late. While Obsidian's shareholders have suffered significant losses, a majority of Obsidian's legacy directors (excluding Ritchie and Kernaghan) have continued to enrich themselves by electing to take the vast majority of their director compensation in cash.
FrontFour's Highly- Qualified Director Nominees Will Bring Technical Expertise, Oversight and Accountability to Help Steward Obsidian's Asset Optimization Strategy As long-term shareholders, our goal is to hold the Board accountable for their performance and to ensure that the Board's interests are aligned with those of shareholders. Given the Obsidian Board's poor track record, continued failure to communicate, let alone execute, a clear and consistent corporate strategy to investors and the misalignment of the Board's interests with those of shareholders, we believe substantial change is warranted, especially as industry consolidation in the Cardium appears on the horizon. The incumbent Board cannot be counted on to take the appropriate value maximizing steps. Accordingly, FrontFour has formally provided advance notice of the nomination of four highly qualified nominees. If elected, we expect that our nominees would spearhead the implementation of a revised corporate strategy focused on streamlining the Company portfolio and growing Obsidian's light oil-weighted production in the Cardium. Our nominees would bring significant technical and financial expertise, as well as additional fresh perspectives and renewed accountability, to Obsidian's Board for the benefit of all shareholders. We are highly confident that such a dynamic will put Obsidian on a path towards unlocking the significant shareholder value embedded within its asset base. Quite clearly, the incumbent Board has failed shareholders and has a demonstrable track record of entrenchment. When FrontFour approached the Board inOctober 2017as part of an effort to work constructively and privately towards unlocking value for shareholders, their immediate reaction was to take aggressive and defensive steps towards entrenchment and self-preservation, as opposed to anything related to enhancing shareholder value. When FrontFour stood firm, the Board opted to installEdward Kernaghanonto the Board, despite having resisted doing so since March 2016. This was principally due to Mr. Kernaghan's ability to further entrench the incumbent Board by virtue of his willingness to sign an off-market standstill and voting agreement obliging him to vote blindly for Obsidian's slate at the 2018 AGM. This behavior – on both sides of the negotiation – is a prime example of the insular, "clubby" mentality that now permeates Obsidian's boardroom to the detriment of shareholders. FrontFour and its nominees are committed to changing this culture for the benefit of all shareholders. Over the coming weeks, we look forward to engaging with you. Biographies of FrontFour's Nominees: Steven P. Evans
Michael J. Faust
Matthew ("Matt") Goldfarb
Stephen E. Loukas
Sincerely,
FRONTFOUR CAPITAL GROUP LLC ADDITIONAL INFORMATION CONCERNING FRONTFOUR'S PROPOSED BOARD NOMINEES
Each of FrontFour's proposed Board nominees has been indemnified by affiliates of FrontFour in connection with such Board nominee's nomination for election at the 2018 AGM, and Messrs. Evans, Faust and Goldfarb have each provided a power of attorney in favour ofStephen E. Loukasfor the purposes of various corporate and securities law filings in connection with the 2018 AGM and related matters. Penalties or Sanctions Individual Bankruptcies Corporate Cease Trade Orders or Bankruptcies InDecember 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 inDecember 2014, and the company emerged therefrom inJuly 2015. OnJune 22, 2015, Midway Gold Corporation and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code inthe United StatesBankruptcy Court for the District ofColorado, seeking ancillary relief inCanadapursuant to the CCAA in the Supreme Court ofBritish ColumbiainVancouver, Canada. OnJanuary 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. In connection with Obsidian's 2018 AGM, FrontFour intends to file a dissident information circular in due course. FrontFour is providing the following disclosure required under section 9.2(4) of National Instrument 51-102 –Continuous Disclosure Obligationsin 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. In particular, The Laurel Hill Advisory Group Company (the "Proxy Solicitor") has been engaged to solicit proxies inthe United StatesandCanada. Pursuant to this engagement, the Proxy Solicitor will receive an initial fee ofC$100,000plus a customary fee for each call to and from shareholders. In addition, the Proxy Solicitor may be entitled to a fee of up toC$125,000in connection with a successful solicitation campaign. 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 AvenueSW Calgary, AlbertaT2P 1K3. CONTACT Investor Contact: Stephen Loukas C |
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