NEW YORK, Oct. 19, 2018 /PRNewswire/ -- Kimmeridge
Energy Management Company, LLC, beneficial owners of almost 10% of
the common shares of Resolute Energy Corporation (NYSE: REN), today
sent the following letter to Resolute's Board of Directors.
October 19, 2018
Resolute Energy Corporation
1700 Lincoln Street, Suite 2800
Denver, CO 80203
Attention: Board of Directors
Dear Members of the Board,
As beneficial owners of almost 10% of Resolute Energy
Corporation ("Resolute" or the "Company") shares, we are writing to
you today as concerned shareholders.
In 2017, Kimmeridge acquired a position in Resolute based on our
belief that the Company's assets were materially undervalued in the
market and that the Company had an opportunity to deliver
significant value to shareholders by improving operational
execution and engaging in appropriate strategic combinations or a
sale of the Company. Yet since the time we invested in the Company,
Resolute has continually failed to deliver on the promises made to
the investment community. As a result, the Company's share
price languishes and its competitive positioning in the Permian
Basin dwindles.
In short, there are too many operators in the Permian, many with
bloated cost structures, subscale assets and lingering
underperformance (despite rising commodity prices). As you are well
aware the development of shale resources is increasingly a
manufacturing business, but this unconventional manufacturing
business is one with hundreds of participants, many of which are
subscale. These subscale unconventional companies have much in
common: the promise of returns to investors that rarely materialize
due to poor capital allocation, the futile pursuit of growth over
returns, and the enrichment of the C-suite regardless of
performance. Indeed, these are the very issues plaguing
Resolute.
We believe that for the reasons mentioned above, Resolute
continues to trade at a steep discount to its relevant peers. In
early 2018 it became clear that other significant shareholders
shared this view, with Monarch Alternative Capital, VR Capital and
Fir Tree Capital each independently filing Schedule 13D's
encouraging the Company to pursue a sales process, a view that we
wholeheartedly agree with.
We were encouraged by the settlement between Resolute and
Monarch, negotiated this past May, as the Company explicitly agreed
to improve its governance structure and to add new independent
members to Resolute's Board of Directors (the "Board"). Moreover,
the Board made public commitments to "promptly conduct an in-depth
review, assisted by its financial advisers, Goldman Sachs & Co.
LLC and Petrie Partners, LLC, of Resolute's business plan,
competitive positioning and any potential strategic alternatives
that will enhance the Company's goal of creating stockholder
value." The company's 8-K, filed on May
15th, went even further, specifically noting that
such review included "potential merger, sale or business
combination alternatives." Yet, here we are five months
later, and the Company does not appear to have made significant
progress in its strategic review or in improving its financial
performance, as it has underperformed its relevant benchmark, XOP,
whether measured over one-year, two-years, or since the Monarch
settlement.
It is of concern to us that, in conversations with other
industry players, we have been left with the impression that
Resolute has employed a passive approach to its strategic review
rather than engaging interested parties in a serious sales process.
During the same time, the Company has continued to fail to achieve
the operational targets it set. In contrast, in the intervening
time since shareholders have called for a sale of the Company,
other Permian basin participants including Energen Corporation and
RSP Permian, Inc. have run successful sales processes while their
respective acquirers moved forward with the type of consolidation
that Resolute should be a part of.
It is our belief that time stands still for no one, and
certainly not for a subscale company that has committed to
reviewing strategic alternatives while struggling to thrive in a
competitive basin. We therefore ask that Resolute's
Board:
- Immediately launch a formal process with the goal of selling or
merging the Company with another Delaware Basin operator before year end;
- Reduce corporate overhead costs in the interim, and;
- Deliver to shareholders the returns and value accretion that
have been lacking.
In the event that the Board and management team fail to actively
and exhaustively pursue a sale or combination, Kimmeridge will
consider all options, including seeking to install independent
Board members to act in the best interests of the Company and its
shareholders.
We would be happy to discuss this in further detail at the
Board's convenience.
Sincerely,
Benjamin Dell
Managing Partner
About Kimmeridge Energy
Founded in 2012 by
Ben Dell, Dr. Neil McMahon and Henry Makanski, Kimmeridge
Energy is an energy private equity firm focused on making direct
investments in unconventional oil and gas assets in the U.S. Rather
than partner with separate management teams, Kimmeridge identifies,
owns and operates each of its assets directly, maintaining an
in-house geology and operating team with experience across all
major E&P functions. Kimmeridge's results to date underscore
the competitive edge of its integrated investment and operating
model.
Kimmeridge Contact:
Matthew Zales
646.517.7258
matthew.zales@kimmeridgeenergy.com
Media Contact:
Daniel
Yunger
Kekst
212.521.4800
daniel.yunger@kekst.com
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SOURCE Kimmeridge Energy