LONDON: UK-listed oil and gas companies that have lost favour with mainstream shareholders are attracting investors who want to push bosses out, access their cash and force asset sales.
The trend took root in the United States last year where activist shareholders targeted sizeable companies including Hess Corp. It now has three new directors and is selling assets in Asia after the intervention of Elliot Management.
The UK-listed companies in the sights of activists are smaller but given the worsening outlook for oil and gas prices and disappointment with some more marginal energy prospects of the boom years they may look for more and bigger targets.
Some UK companies have ended up with significant assets, including cash, relative to their shrunken stock market value.
“It’s a very simple model,” said a London investment banker who specialises in oil and gas and did not want to be named.
“You don’t have to take a view on the value of the actual assets or know anything about oil and gas. You just know the cash is there for the taking.”
One target is 3Legs Resources Plc, which is exploring for shale gas in Poland. Polish shale was once seen as a red-hot opportunity, but enthusiasm waned quickly last year when the government downgraded resource estimates and top global player Exxon Mobil pulled out.
The stock, which values the company at about £24m ($36m), trades below the cash position it is expected to have in the middle of next year, the company’s broker, Jefferies, said in a June 20 research note. Boston-based activist investor Weiss Asset Management’s stake in 3Legs topped 15 percent in April, according to a disclosure by 3Legs. Another activist, Guernsey-based Damille Investments, acquired a similar-sized stake in February.
In the past six months the company has twice faced down attempts to install a new board and put the business up for sale, defeating the activists in votes at extraordinary shareholder meetings and insisting its commitment to Polish shale will pay off.
Another example is Northern Petroleum, a company now worth about £30m but with a disappointing stock performance, and in which Damille emerged as a five percent shareholder in December. Since Damille took a stake it has made a number of board changes.
Damille’s parent, Nimrod Capital, did not respond to phone calls and an email requesting comment.
Another company trying to fend off shareholder activism is JKX Oil and Gas. Earlier this year, CEO Paul Davies narrowly survived a shareholder revolt led by Eclairs Group — not a traditional activist fund but an investment vehicle of Ukrainian billionaire Igor Kolomoisky, who has a 27 percent stake.
Mainstream activist fund strategy is to buy enough stock to force a shareholder vote, or buy a more modest holding and recruit other shareholders to a cause - usually selling assets or ousting directors seen as weak, misguided or overpaid.
Investment trusts and property, where valuation is easy and assets are relatively liquid, are common activist targets, but last year and this year, the energy sector has drawn them in.
Reuters
