LAIG Issues Open Letter to Shareholders of Crown Point Energy Inc
BUENOS AIRES, Argentina, Dec. 1, 2014 /CNW/ - On December 1, 2014, LAIG Oil Investments issued the following open letter to shareholders of Crown Point Energy Inc.
December 1, 2014
Dear Crown Point Shareholders:
We, LAIG Oil Investments ("LAIG"), write to you as a concerned shareholder of Crown Point Energy Inc. ("Crown Point" or the "Company") to explain why we requisitioned a meeting of the shareholders (the "Requisition") of the Company.
LAIG tried to Work with Management and the Board before Requisitioning the Meeting
LAIG tried to work cooperatively with the Company's management ("Management") and board of directors (the "Board") before deciding to Requisition a meeting. In fact, LAIG previously expressed its concerns to Management and the Board, including most recently in a letter dated November 4, 2014. Unfortunately, LAIG did not receive an acceptable response from the Board. Rather, the Board misleadingly purported to rely on a request for exclusivity as a transparent pretext for not responding to LAIG's proposed agenda for change. In fact, LAIG had not requested exclusivity in the way conveyed by the Board; had it agreed to meet on LAIG's terms, the Company still would have been free to pursue, or decide not to pursue, any transaction with LAIG or anyone else on a mere one-day notice to LAIG. However, instead of entering into good faith discussions with LAIG, the Board negotiated a financing with two new investors in the Company, which suggests that the Board is focused on entrenching itself and Management at the expense of the Company's shareholders. The financing will not remedy the underlying issues. It will simply lead to further deterioration of shareholder value and further entrenchment of the status quo, making critically important change more difficult to achieve. As a significant shareholder of the Company for the past three years, and as a current owner of close to 7% of Crown Point's outstanding shares, LAIG has decided to take an active stance to defend the value of its investment and put an end to the mismanagement of your and our Company.
The Company's Performance Speaks for Itself
As shareholders of the Company, we are sure that you will agree that the mismanagement of the Company is evident in the value of your investment. The Company's stock price has plummeted 46% in 2014 and 76% over the past three years. This underperformance is even more disturbing, considering that, according to Morgan Stanley Capital International (MSCI), Argentinean stocks have increased 35% year-to-date in 2014 and 39% in the last three years (in US dollars). While the Company's share price remains near all-time lows, Management and the Board continue to deplete the Company's cash resources. Crown Point is currently at a critical turning point. Failure to take decisive action will lead to continued impairment of the Company's value.
What has Caused this Dismal Performance?
We believe that the Board and Management are responsible for the Company's dismal performance. The current Board and Management have overseen and approved several misguided decisions that destroyed value, while reducing their collective stake in the Company from 26% four years ago to their current embarrassingly low collective stake of 1.6%. At the same time, SG&A expenses and, in particular, Board and Management cash compensation, have risen to unsustainable levels, while the value of option awards has steeply decreased.
Poor Operational and Strategic Decisions and Inadequate Disclosure
From an operational and strategic point of view, the Board and Management have proven to be unfit to manage an Argentine oil company. Their track record speaks for itself.
- Management communicated to the market that El Valle was the Company's key asset prior to the acquisition of Antrim in 2012. In fact, in early 2012 the Company (through its reserve report, which was confirmed by Management in its MD&A and the Company's investor presentation) valued its interest in the El Valle block at $48.1 million. As recently as June 2014 the El Valle block was valued by Management at $12.3 million. However, shortly thereafter, the Company announced the sale of the El Valle block for US$525,000. Management did not justify the low sale price. Almost as bad as the deterioration in value of this important asset is the fact that the Board and Management have failed to adequately disclose how this asset's value suddenly disappeared. Over several meetings and communications with Management, we tried to ascertain what had happened but have never received a satisfactory explanation.
- The Company acquired the "Cañadón Ramirez" and "Laguna de Piedra" blocks in 2011 and 2012, respectively. To justify these acquisitions, Management announced their strong strategic fit and potential, as well as the implementation of several investment programs. However, just months later the Company abandoned both projects. As was the case with El Valle, despite our repeated requests for an explanation we have not been given a satisfactory answer.
- The "Cerro de los Leones" block has been described by Management as the block with the greatest potential to create shareholder value. The main objective for a company the size of Crown Point, when holding such a high-risk and large block, is to de-risk it while incurring the lowest possible capital expenditures. Instead, Management (with, we assume, the Board's approval) decided to drill a high impact and expensive exploration well (La Hoyada X1), which was a complete failure. Also, after announcing that testing and completion of such well would resume after the Argentinean winter, nothing has been done and Management does not appear to know what actions are necessary to de-risk the Company's primary asset. Our understanding is that the Board and Management are now considering re-entering a well drilled by YPF (a large oil company in Argentina) and acquiring more 3D seismic, which are actions that should have been planned when the drilling rig and the seismic crew were on site. This delay and lack of Management execution on realizing the value of Cerro los Leone, will result in even higher costs and an inefficient overhead structure.
Unjustifiably High SG&A
With respect to Crown Point's SG&A expenses, our review has revealed disturbing results.
- Although all of the Company's operations are in Argentina, more than 75% of its expenses are incurred in Canada. This is highly dilutive to earnings, as Canadian expenses are not deductible in Argentina, where the revenues are generated. Moreover, Crown Point pays salaries in Canadian dollars, instead of paying them in Argentine pesos (using the beneficial official Argentine peso exchange) as is customary in the industry in Argentina and which is the exchange at which the Company sells its production. Due to the existing foreign exchange controls in Argentina, this is generating a currency mismatch at the Company which is exposing the Company to unnecessary risk and causing annual losses in excess of $1 million.
- Even though the Company does not operate any oil & gas fields and its assets are basically the same assets Antrim owned, the size of its staff is approximately four times greater than the one Antrim employed. The Company has two CFOs and two COOs and, individually, their current compensation levels are twice the average for comparable management positions in Argentina.
- The Company pays more than $1 million in office expenses for its 20 employees. In August 2012, the monthly office rent of its Calgary offices (for three employees) increased by more than 500%, from $4,437 to $23,294 (currently $23,903). In addition, $464,000 was incurred in travel expenses in 2013. Considering that during 2013 there was almost no investing activity, these expenses are unjustifiable. We assume these expenses are mostly incurred by the three employees living in Canada, who are frequently travelling to Argentina. If these employees were to live in Argentina, where 100% of the assets are located, the Company would save many of these unnecessary costs.
As a result, the Company's ratio of SG&A Expenses-to-Gross Margin has increased alarmingly to unacceptable levels. During the first half of 2014, this ratio reached 93%, while the average of the industry in Argentina is 24%.
The above confirms a disturbing pattern of mismanagement, lack of accountability and inadequate disclosure. We strongly believe that there is serious misalignment of interests between Management and the Board, on the one hand, and Crown Point's shareholders, on the other hand.
LAIG's Plan to Preserve and Create Value
The turnaround plan proposed by LAIG entails a substantial reduction of SG&A expenses to approximately half the current level, including through the closing of the expensive Canadian offices, the streamlining of the management structure and the relocation all the Company's employees to Argentina, eliminating all currency issues and the inefficient fiscal structure in place. These measures alone can be expected to increase annual EBITDA by $2 million (1st half of 2014 EBITDA was $850,000). On the operational front, we propose redirecting the Company to a path of growth and value creation, by ensuring that the Tierra del Fuego asset is well developed, "de-risking" the key "Cerro los Leones" asset and exploring the possibility of other accretive acquisitions in the conventional hydrocarbon sector in Argentina.
LAIG's Board nominees have the experience to implement this turnaround plan. LAIG's nominees have significant experience as investors in, and founders of, successful multi hundred million dollar companies, and particularly in the energy industry in Latin America with an emphasis on Argentina. They would bring to Crown Point unique and much needed experience to ensure that the Company's value is preserved and that additional value is created. Additional information on LAIG's Board nominees is available below under "Proxy Solicitation".
LAIG's turnaround plan will also result in a better alignment of interests between Management and shareholders, increased accountability, greater transparency and more clarity in communicating to the market the future strategy of the Company, each of which is currently lacking with the current Board and Management.
Failure to take decisive action will lead to continued impairment of the Company's value.
We look forward to receiving your support at this critical time.
Yours very truly
Jorge de Pablo
LAIG Oil Investments
Proxy Solicitation
LAIG is publicly soliciting proxies for the meeting of shareholders in reliance upon the public broadcast exemption to the solicitation requirements under section 9.2(4) of National Instrument 51-102 – Continuous Disclosure Obligations ("NI 51-102") and applicable Canadian corporate laws. The information that follows in this section is provided in accordance with corporate and securities laws applicable to public broadcast solicitations.
This solicitation is being made by or on behalf of LAIG and not by or on behalf of the management of Crown Point. LAIG has beneficial ownership over 6,943,200 shares or approximately 6.7% of the outstanding shares of Crown Point.
LAIG will bear all costs and expenses associated with this solicitation and will seek reimbursement from Crown Point for expenses reasonably incurred in connection with the requisitioning and solicitation of proxies for the meeting.
LAIG may solicit proxies by way of public broadcast, including through press releases, speeches or publications and by any other manner permitted under applicable laws. LAIG may engage the services of one or more agents and authorize other persons to assist it in soliciting proxies on behalf of LAIG. Shareholders appointing LAIG as their proxy holder for the meeting may subsequently revoke such appointment by depositing an instrument in writing executed by the shareholder or by the shareholder's attorney authorized in writing, as the case may be: (i) at the registered office of Crown Point at any time up to and including the last business day preceding the day the meeting of Crown Point shareholders or any adjournment or postponement of the meeting is to be held, or (ii) with the chairman of the meeting prior to its commencement on the day of the meeting or any adjournment or postponement of the meeting; or in any other manner permitted by law.
The registered office of Crown Point is located at 2400, 525-8th Avenue S.W., Calgary, Alberta, T2P 1G1 and its head office is located at Suite 1600, 700 – 6th Avenue S.W., Calgary, Alberta, T2P 0T8.
LAIG's Nominees
As set out in LAIG's requisition, LAIG's nominees (the "LAIG Nominees") are Ruben Maltoni, Alejandro Rojas and Jorge de Pablo. The table below sets out, in respect of each LAIG Nominee, his name, city and country of residence, his principal occupation, business or employment within the five preceding years, and the number of Crown Point shares beneficially owned, or controlled or directed, directly or indirectly, by such nominee.
Name, Province and Country of Residence |
Present Principal Occupation and Occupation over Past Five Years |
Number of Common Shares Beneficially Owned or Controlled1 |
Jorge de Pablo, |
President of LAIG Investments, a private investment company focused on the Latin American energy, infrastructure and natural resources sectors |
3,471,600 shares2 |
Alejandro Rojas, |
Co-Founder of Armada Capital, a boutique asset manager |
3,471,600 shares2 |
Ruben Maltoni |
Consultant and advisor |
Nil |
1 |
As at November 30, 2014. |
2 |
The shares are held by LAIG Oil Investments, a subsidiary of LAIG, which is controlled by Mr. de Pablo (President) and Mr. Rojas (Director). |
If elected, each LAIG Nominee will hold office until the next annual general meeting of Crown Point shareholders, or until his successor is duly elected or appointed. Each of the LAIG Nominees is qualified to be a director under the Business Corporations Act (Alberta) and has consented to act as a director of Crown Point. Additional biographical information of each LAIG Nominee is provided below.
Jorge de Pablo: With 15 years of experience as an investor in public and private equity in Latin America, Mr. de Pablo is the Founder and President of LAIG Investments (LAIG). LAIG is a private investment company focused on the Latin American energy, infrastructure and natural resources sectors. Prior to founding LAIG, Mr. de Pablo was the Managing Director and Senior Investment Analyst at some of the largest financial institutions invested at the time in Latin America, such as Amber Capital, Sandell Asset Management and Goldman Sachs, where he started his career as a Proprietary Investment Analyst in the Principal Strategies Group in London and in New York, focusing on Latin American Risk Arbitrage. Jorge has served on multiple company boards in Latin America, both as an investor in private companies and as a representative for minority investors in publicly listed ones. He has been an investor and board member of Genneia (an integrated Argentine energy group and largest renewable energy company in the country), San Antonio Internacional (the largest on-shore oil services company in Latin America with a market share in Argentina's oil & gas services sector of 50%), BRENCO (an ethanol company in Brazil), BR Properties (the largest investment company for commercial properties in Brazil), InvestTur (a real estate developer in Brazil) and Gasngo (the largest AVI company in Mexico).
Alejandro Rojas: With 20 years of experience as an investor and advisor in Latin America, Mr. Rojas co-founded Armada Capital in 2008 in a joint venture with ING Alternative Asset Management LLC ("ING"). Armada Capital is a boutique asset manager with over US$ 300 million in assets under management and advisory investing in Latin America. In June 2012, Mr. Rojas purchased ING's stake in Armada. He started his career at Grupo Bursatil Mexicano, S.A. de C.V. ("GBM") in 1995 and began working in asset management in 1997. During his tenure at GBM, his responsibilities included, sell side research, institutional and equity and fixed income management, development of derivative structures for GBM and its clients, trading securities on behalf of GBM and its clients. In addition, Mr. Rojas has often been retained to advise clients with respect to M&A and private equity transactions with over $1 billion in transactions under advisory. In 2004, Mr. Rojas designed, structured, launched and managed the GBM Global LP, a hedge fund with a focus on Mexican securities. Mr Rojas serves today on the board of Grupo Rotoplas (largest water solution's company in Latin America), Nasoft (leading SAP & software developer in Latin America), Gasngo Latam, LAIG and Maya Capital S.A. de C.V. He has served in the past as a director of the publicly listed company GBM Fondos de Inversion (leading independent asset manager in Mexico).
Ruben Maltoni: With a 45 years long experience in the Argentine energy sector, both in the public and private sector, Mr. Maltoni has a unique knowledge on the hydrocarbon sector in the country. He started his career at YPF, the largest oil company in Argentina, where he spent 21 years and had several key responsibilities as head of the petrochemicals department, head of project planning, head of the industrial division, head of E&P, member of the board of the company and advisor to the chairman. He has been a board member for five different YPF's subsidiaries as well, the most relevant been Petroquimica General Mosconi. Mr. Maltoni was a key member of the commission that prepared the Houston Plan and the Olivos Plan, for the exploration and exploitation of 149 areas by different Argentine companies. In 1991, he was named Hydrocarbon Secretary for the National Government, where he lead the transformation and opening of the sector, through the privatization of YPF and E&P blocks, designed its regulatory framework and led to an impressive decade of success in the hydrocarbons sector in the country. Over the past 20 years, Mr. Maltoni has been a consultant and advisor in the sector, having worked with some of the most well-known companies in the sector, such as YPF, Pluspetrol, Astra, Repsol, Unitec, PTC, Bunge and Born, PDVSA and Odebrecht. He is an active member in several Argentine energy institutions, such as the Instituto Argentino del Petróleo y el Gas, Club del Petróleo, Instituto Petroquímico Argentino, Asociación Petroquímica y Química Latinoamericana and Centro Argentino de Ingenieros
To the knowledge of LAIG, no LAIG Nominee is, at the date hereof, or has been, within 10 years before the date hereof: (a) a director, chief executive officer or chief financial officer of any company that was subject to a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation (each, an "order"), in each case that was issued while the LAIG Nominee was acting in the capacity as director, chief executive officer or chief financial officer, or was subject to an order that was issued after the LAIG Nominee ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer; (b) a director, chief executive officer or chief financial officer of any company that while such LAIG Nominee was acting in that capacity, or within a year of such LAIG Nominee ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or became subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or (c) someone who became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or became subject to or instituted any proceedings, arrangements or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of such LAIG Nominee.
To the knowledge of LAIG, as at the date hereof, no LAIG Nominee has been subject to: (a) any penalties or sanctions imposed by a court relating to securities legislation, or by a securities regulatory authority, or has entered into a settlement agreement with a securities regulatory authority; or (b) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable security holder in deciding whether to vote for a proposed director.
To the knowledge of LAIG, neither LAIG nor any of its directors or officers, or any associates or affiliates of the foregoing, nor any of the LAIG Nominees, or their respective associates or affiliates, has: (i) any material interest, direct or indirect, in any transaction since the beginning of Crown Point's most recently completed financial year or in any proposed transaction that has materially affected or would materially affect Crown Point or any of its subsidiaries; or (ii) any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any matter currently known to be acted upon at the meeting of Crown Point shareholders other than the election of directors.
About LAIG
LAIG Oil Investments is a subsidiary of LAIG Investments. LAIG Investments, with offices based in Buenos Aires, Mexico City, New York and London, is a private investment company focused on the Latin American energy, infrastructure and natural resources sectors. For the last quarter of a century, the members of LAIG's team have been key players in Latin American finance, with an unparalleled "buy side" track record and a strong advisory experience in capital markets, private equity and distressed situations. Total deals size executed to date in Latin America private equity of $2 billion, with approximately $1.2 billion in Argentina.
LAIG has filed this press release, which contains the information required by NI 51-102 in respect of the proposed LAIG Nominees, under Crown Point's company profile on SEDAR at http://www.sedar.com.
SOURCE: LAIG Oil Investments
Please contact LAIG's Buenos Aires office: Matias de Bujan or Juan Starobinsky, +54 11 5252 0303
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