Industry professionals envision an increase in shareholder activism in light of falling prices and growing activist investor successes.
Chad Brownstein, CEO of Rocky Mountain Resources, commented on CNBC’s “Closing Bell” that “[w]hat you’re going to see in the market in 2015 is an immense amount of activists turning their guns toward oil companies.” Brownstein noted that smaller oil companies in particular will face increasing vulnerability to hedge fund activism with pushes for consolidation, asset sales and management changes at the top of the activist agenda.
Ernst and Young’s most recent bi-annual “Oil and Gas: Capital Confidence Barometer” (the E&Y Report) highlighted the growing influence of shareholder activism in boardrooms of major oil and gas companies. The E&Y Report identified cost management, portfolio optimization and returning cash as key areas of focus for activist investors.
The E&Y Report also noted that companies are managing shareholder activism by enhancing communications with stakeholders, monitoring early warning signs for activist pressure and conducting ongoing portfolio reviews to grow revenue, increase margins and optimize value.
In the National Post, Stephen Griggs, CEO of Smoothwater Capital, a Toronto-based activist fund, stated that “[y]ou’ll see more activism in oil and gas as it’s easy to value the assets”. He added that “[y]ou have significant capital costs that need to be incurred in order to drill wells, you have companies leveraging themselves up, which creates risk.”
If the current low-price landscape holds steady, it is also expected that mergers and acquisitions will become central to the activist dialogue in oil and gas going forward.