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Thursday, October 8, 2015
The newswires have been full of releases issued by VAALCO Energy and relatively new shareholders in the company “Group 42 and Bradley Radoff.” Group 42 formed a group with Bradley Radoff and related entities that collectively acquired approximately 11.1% of the outstanding shares of common stock of VAALCO.
Group 42 and Radoff each acquired shares in VAALCO with a belief that the company stands to benefit from numerous operational and strategic opportunities that could increase value for all shareholders. The group did the legal dance informing the SEC and VAALCO of their ownership position.
Following the notice of the ownership position, the VAALCO board of directors amended the company’s bylaws and adopted a shareholder rights plan, called ‘poison pill’ by Group 42 and Radoff, that prevents VAALCO’s latest shareholders from acquiring any more shares in the company and limits their ability to discuss VAALCO’s strategic direction with other VAALCO shareholders.
Shortly after the changes to the bylaws and the adoption of the shareholder rights plan, Radoff and Group 24 delivered a letter to VAALCO’s board, calling them on their actions and setting forth their concerns; some of those concerns came with some pretty strong wording. Phrases like ‘value destruction’, ‘abysmal corporate governance’, and ‘rampant capital expenditures’ give the reader just a small taste of the tone of the letter.
Some might take umbrage at many of the points the new shareholders of VAALCO made, such as “recklessly risking and losing almost $30 million in a failed high risk exploratory well in Angola.” One who has been watching VAALCO’s actions in Angola could say that company has had the patience of a saint, waiting for the issues on Block 5 to be straightened out. The drilling of a well offshore one of the most prolific countries in Africa hardly seems reckless. While the Kindele-1 well was not a success, exploration in itself is inherent with risks. The new shareholders failed to mention its successful operations over the past year, which have yielded increased production and a number of other positives that one need only look at operational reports to ascertain.
The company, like so many other E&P firms, has felt the pressure of the plunge in crude oil prices, in the form of their share price falling; however, according to VAALCO’s new shareholders the drop VAALCO saw exceeds that of its industry peers.
Below are some of the items that VAALCO’s board is being called to account for directly from Group 42 and Radoff’s letter to the board:
The letter ended by saying that VAALCO shareholders deserved better and given that the group had made a significant investment in the company it was prepared to take action to insure that the board was composed of individuals committed to act in the stockholders’ – as opposed to their own – best interests.
Later that same day VAALCO issued a statement in response to the letter Bradley L. Radoff (and related entities) and Group 42, Inc. that stated the board and management team were committed to acting in the best interests of all VAALCO stockholders. The statement went on to say that a strategic plan was being executed that the board “believes will drive enhanced stockholder value and ensure that VAALCO successfully moves through what is currently one of the most challenging environments for the oil and gas industry”.
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