As part of Activist Strategy here’s a look at how the West Face Capital took Gran Tierra Energy to school and back.
It’s been 22 days since West Face Capital announced its was active at Gran Tierra Energy. They now run half the board and have their guy running point as CEO. A CFO change is already in the works as well.
It was a swift and rather painless takeover, partly overshadowed by dismal quarterly results at Gran Tierra. The energy company basically had no choice. West Face targeted a company in management “no man’s land” and made the compelling case that the company had been literally pissing away shareholder capital. In terms of the no man’s land comment, Gran Tierra’s co-founder, COO and CEO has all left within the last year.
With West Face running point, you’ll have a company that will no longer be spending money on elephant gun-like acquisitions in countries like Brazil or Peru. Gran Tierra blew through some $800 million over the last four years on acquisitions that led to no growth in reserves or production.
And no activist takeover isn’t complete without some serious cost cuts, driven by a large downsizing in the workforce. Gran Tierra is spending over $5.20 per BOE in general and admin costs, which is a hefty premium to the $4.30 per BOE or so that its peers spend. What’s even more entertaining is that Gran Tierra is overspending, although it capitalizes a large part of its general and admin expenses - pushing 50% in 2013, while peers were capitalizing less than 20%. Looks to be a lot of bloat in there.