Friday, May 24, 2019
U.S. shale producers that have reined in growth plans to mollify investors are facing more pressure to slash their own pay and gut bloated offices.
(Bloomberg) — The push for change at oil and gas producer PDC Energy Inc. has won the support of another activist investor, who plans to vote in favor of Kimmeridge Energy Management’s three nominees for the board.
Lion Point Capital, which owns a 2.3% stake in PDC Energy, believes the company requires changes at the board level to improve its performance.
“The focus on reducing costs and giving additional oversight over all strategic options reviewed by the board is important,” Jay Johnson, an analyst at Lion Point, said in an interview. “We think Kimmeridge will do a good job providing that level of oversight.”
A representative for PDC Energy declined to comment.
PDC Energy has been locked in a proxy fight with Kimmeridge, which owns a 5.1% stake in the driller and has nominated three directors to its board. The firm has argued that PDC Energy’s investors have suffered poor returns due to the company’s flawed acquisition strategy and operational shortcomings. It wants the company to improve its capital allocation, cut costs, return cash to shareholders, and pursue acquisitions to grow scale.
Lion Point agrees and Johnson added that the “first step is getting costs in line.”
PDC Energy has pushed back on Kimmeridge’s arguments and said cutting costs at the level proposed would be reckless and that a call for a 4% dividend would be financially unsound. It has also argued that Kimmeridge’s nominees lack public company board and oil and gas experience.
Two prominent shareholder advisory firms have were divided in their recommendations for PDC Energy shareholders ahead of a vote slated for May 29. Institutional Shareholder Services Inc. has recommended shareholders vote for two of its three nominees, concluding that that while the removal of Chief Executive Officer Barton Brookman from the board was not necessary, some changes to the board was warranted.
Glass Lewis & Co., meanwhile, has thrown its support behind management’s slate, in part, because it didn’t find Kimmeridge’s case for change nor its nominees compelling.
PDC Energy is not the only driller to come under pressure. U.S. shale producers that have reined in growth plans to mollify investors are now facing increasing pressure to slash their own pay and gut bloated offices.
Didric Cederholm, a former portfolio manager at Elliott Management Corp, and Jim Freeman, a former senior analyst at Perry Capital, formed Lion Point in 2015. The firm also holds a stake in rival Carrizo Oil & Gas, Inc. and believes the company should explore a sale or merger with another Permian driller, including potentially PDC Energy, people familiar with the matter said earlier this month.
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