GREENWICH, Conn., Jan. 17, 2018 /PRNewswire/ -- FrontFour Capital
Group LLC together with its affiliates ("FrontFour") today
commented on recent developments related to Obsidian Energy Ltd.
("Obsidian" or the "Company") (TSX/NYSE: OBE). FrontFour and its
principals are significant long-term shareholders of Obsidian,
collectively beneficially owning over 28 million outstanding
shares, representing approximately 5.7% of Obsidian's outstanding
capital.
As previously disclosed in its Schedule 13D filing of
November 20, 2017, on October 5, 2017, after significant dialogue with
Obsidian CEO David French on the
Company's development plan within the Willesden Green Cardium, as
well as with numerous Obsidian directors in reaction to Obsidian's
analyst day presentation and SEC lawsuit, FrontFour sent to the
board of directors (the "Board") of Obsidian a letter outlining its
significant concerns with Obsidian's capital plan, strategic
direction and value proposition to investors. FrontFour's
specific concerns included but were not limited to:
(i) the belief that Obsidian's
capital program was highly flawed and has negatively impacted
Obsidian's current valuation due to an emphasis on an integrated
waterflood approach to developing the Cardium as opposed to a
shorter cycle strategy focused on more rapidly growing Obsidian's
light oil production;
(ii) the decision to spend minimal
capital on drilling and completing new wells in the Cardium and
Viking during the first half of 2017, resulting in sequential
declines in light oil production throughout the year;
(iii) Obsidian's positioning of
the Peace River joint venture as a continued core focus of capital
deployment post expiry of the remaining capital carry in lieu of
spending capital to grow its light oil and liquids production;
and
(iv) Obsidian's inability to
dispose of or improve the operations within its non-core legacy
gas-weighted production.
Due to these concerns and in light of our significant long-term
shareholdings in Obsidian, FrontFour also requested board
representation. Despite FrontFour's tireless efforts over the last
three months to come to an amicable agreement with Obsidian's
management team and Board on the addition to the Board of ONE
mutually agreed upon independent nominee proposed by FrontFour, we
have been unable to come to an agreement that would avoid a
needlessly costly and distracting proxy fight. It became
apparent to FrontFour during our negotiations that the Board is
divided on strategy and that certain directors are entrenched,
which is surprising given their aversion to share ownership and
long-term track record of underperformance.
We welcomed Obsidian's January 15,
2018 press release, which featured strong primary well
performance out of the bioturbated interval within the Willesden
Green Cardium and an accelerated 2018 Cardium program via the
reallocation of capital from vertical waterflood injectors.
Both initiatives are consistent with our private suggestions to
management and our dialogue with the Board. We note that the
Company made no mention of this approach in their recently released
5-year capital plan, which is less than seven months old. We
believe that continued shareholder engagement is necessary,
especially in light of Obsidian's ill-timed hedging strategy of
selling essentially ALL of its 2018 light oil production via fixed
price swaps at prices of ~$52 per
barrel, which has led to material mark to market
losses. This decision has created additional headwinds
to equity performance as Obsidian has continued to underperform its
peers, who are benefitting from the recent increase in crude
prices. Despite Obsidian's vast resource base, it is clear
that investors are struggling to find the equity compelling
relative to its peers given the Company's below average growth
rate, underwater hedge program, muddled capital plan, and lack of
dividend.
FrontFour believes that a significant overhaul of Obsidian is
necessary, including the streamlining of the portfolio via
dispositions, and the high grading of the capital program to drive
robust light oil and liquids growth within Obsidian's dominant
Cardium position and vast Mannville footprint. Obsidian has the
potential to be a standout light oil growth player and Cardium
champion through a dramatic transformation that we believe will
unlock significant value for all shareholders. To this end,
FrontFour is currently considering all available options, including
seeking changes to the composition of the Board at Obsidian's 2018
Annual Meeting.
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.
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. Obsidian shareholders are
not being asked at this time to execute a proxy in favour of any
matter. 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/David Lorber
FrontFour Capital Group LLC
35 Mason Street, 4th Floor
Greenwich, CT 06830
203-274-9050
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SOURCE FrontFour Capital Group LLC