West Face Capital’s Activist Letter On Gran Tierra Energy by Stock Pucker
Earlier this week, Canadian hedge fund, West Face Capital, went active on Gran Tierra Energy (GTE). It owns 9.78% of the Canada-based $1bn market cap oil explorer. Below is the chopped and screwed version of West Face’s letter, emphasis ours.
We will nominate six candidates for the board at the June 24 meeting. The new directors will have a mandate to replace the current Interim CEO with Gary Guidry.
Since the beginning of 2011, the current board has approved $1.7 billion in spending, with $860 million spent in Peru, Argentina and Brazil. There’s been no appreciable new discoveries or production growth from this spending. Thus, its share price has gone from $8.18 to $3.38, a 59% loss in market value per share.
The board has been gambling on high-risk exploration using shareholders’ capital. Its Colombian assets still provide most of the production. The chairman has called these excursions outside of Colombia “elephant hunting”.
It has $482 million of “buying power” and attractive assets in Colombia and an ability to grow through targeted spending on new lands. With the right leadership, we believe that Gran Tierra could become a very valuable company.
First, Gran Tierra has excessive general and administrative (G&A) expense. Its G&A was $5.82 per BOE of production in 2014. By comparison, a subset of its peers had average G&A of $4.74 per BOE of production in 2014
Gary Guidry is the man that should be running Gran Tierra Energy. He and his team have acquired 2.5 million Gran Tierra shares. Gary’s first order would be to stop spending in Peru and Brazil and focus on Colombia
Six director nominees include Bob Hodgins former Pengrowth Energy Trust CFO and TransCanada Pipelines CFO; Brooke Wade the President of Wade Capital; Pete Dey the Chair of Paradigm Capital; Ronald Royal having worked at Exxon; Dave Smith chair of Superior Plus; and Gary Guidry former CEO of Caracal Energy and the man we want running Gran Tierra.