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[NEW YORK] Activist investor FrontFour Capital Group is urging Obsidian Energy to explore a sale, arguing the company could fetch twice as much as its current share price, according to a person familiar with the matter.
The decision to push for a sale comes four years after FrontFour started to build its position in the embattled Calgary-based oil and gas producer, which was formerly known as Penn West Petroleum. It's now FrontFour's third-largest investment, according to data compiled by Bloomberg.
It also comes after Obsidian Chairman Rick George, the father of FrontFour co-founder Zach George, died in August.
FrontFour, based in Greenwich, Connecticut, said last month it owns about 5.6 per cent of Obsidian in stocks and options and has met with management to discuss ways to unlock value for its shareholders. The activist fund believes the company could fetch C$2.75 to C$3 a share at auction, or almost double where it traded Tuesday, said the person, who asked not to be identified because the matter is private.
Obsidian's shares have fallen 36 per cent this year despite efforts to pay down debt by selling assets. The company, which has a market value of about C$767 million (S$806.8 million), sold a group of assets in Western Canada last June to Teine Energy for about C$1.1 billion.
FrontFour believes Obsidian trades at a significant discount to Canadian peers and should explore a sale of all or part of the company, according to the person. The hedge fund sees Obsidian as having a leading position in the Cardium basin and attractive assets in the Viking basin in Alberta, said the person.
The activist, which is able to call a special shareholder meeting on its own because of its ownership level in Obsidian, is willing to pursue a proxy fight to implement its recommendations, the person said.
A representative for FrontFour declined to comment. A representative for Obsidian didn't immediately respond to a request for comment.