Nanes
Delorme Partners Mails Proxy Statement to Vaalco Stockholders
Thursday
May 8, 9:00 am ET
Sends
Letter Urging Stockholders to Vote for Minority Slate of Director Nominees
Committed to Corporate Governance Reforms and Maximizing Stockholder
Value
NEW
YORK--(BUSINESS WIRE)--Nanes Delorme Partners I L.P. (“Nanes Delorme Partners”)
today announced that it has commenced mailing its definitive proxy statement to
all VAALCO Energy, Inc. (“VAALCO” or the “Company”) (NYSE: EGY - News) stockholders to
solicit votes in connection with its nomination of three highly qualified
candidates for election to the Board of Directors at the Company’s 2008 Annual
Meeting of Shareholders scheduled to be held on June 4th, 2008.
Nanes Delorme Partners also sent a letter to VAALCO stockholders urging them to
elect Nanes Delorme Partners’ nominees in order to ensure stockholders have new
directors that are committed to corporate governance reforms and to taking steps
to maximize value for all stockholders.
Nanes
Delorme Partners, with associated entities, currently beneficially owns
4,700,000 of the outstanding shares of VAALCO, representing approximately 7.9%
of the Company, making it the largest stockholder of VAALCO based on publicly
available information.
Julien
Balkany, a Managing Member of Nanes Balkany Partners LLC, the General Partner of
Nanes Delorme Partners, stated: “VAALCO’s stock is still undervalued and
responsibility clearly lies with the current Board and management. We are also
extremely disappointed that the incumbent directors, most of whom own little to
no stock in the Company, have displayed a clear lack of sincere interest in
improving the Company’s strategic direction, operating performance and corporate
governance, as well as having shown an overall lack of commitment to enhancing
stockholder value. As VAALCO’s largest stockholder, we have made every effort to
work constructively with current management, but it is increasingly apparent
that change at the Board level is necessary.”
Mr.
Balkany continued, “By electing the three highly qualified independent directors
that we have recommended at the upcoming Annual Meeting, VAALCO stockholders
will be able to send a loud and clear message to the current Board that the
status quo of underperformance is no longer acceptable and change is required
immediately.”
The text
of the letter follows:
NANES
DELORME PARTNERS I LP
YOUR
VOTE IS CRITICALLY IMPORTANT
May 8,
2008
Dear
Fellow Stockholders,
Nanes
Delorme Partners I LP, with associated entities, currently beneficially owns
4,700,000 of the outstanding shares of VAALCO Energy, Inc., representing
approximately 7.9% of the Company, making us the largest stockholder of
VAALCO.
As
VAALCO’s largest stockholder, we have a substantial interest in seeing that the
management and the directors of the Board of the Company are strongly committed
to maximizing value for all stockholders. Regrettably, we do not believe that
the Board is acting
in the best interests of its stockholders, and believe that immediate changes at
the Board level are necessary to unlock value. We are therefore seeking your
support at the Annual Meeting of Stockholders scheduled to be held in Houston to
elect our three highly qualified director nominees, Julien Balkany,
Leonard Toboroff and Clarence Cottman III, to the Board to serve as Class I
directors in opposition to the Company’s three incumbent Class I directors whose
terms expire at the Annual Meeting.
Just so
you know, we have made every effort to work constructively with VAALCO’s
management in the hope of maximizing value for all stockholders. We met with
senior executives of the Company on April 15, 2008. We approached the meeting
with an open mind and the sincere hope that management would consider a possible
turnaround of the strategic direction of the Company in a way that would have
helped reverse management’s prior poor decisions and negative reputation among
its peers, analysts and investors. While the meeting reinforced our
positive view of the Company’s underlying asset value in Gabon and Angola, we
were shocked by what we perceived to be the Board’s lack of sincere interest in
improving the Company’s operating performance, corporate governance
structure and overall lack of commitment to enhancing stockholder
value.
We
foresee this contest as a crucial opportunity to send a strong message to the
remaining incumbent directors that stockholders are not satisfied with the
Company’s current performance, management and
corporate governance. Specifically, our concerns include the
following:
|
·
|
VAALCO’s
disappointing stock performance;
|
|
·
|
Management’s
ill-advised oil exploration diversification in the UK North
Sea;
|
|
·
|
VAALCO’s
poor operational and technical
capabilities;
|
|
·
|
Management’s
failure to retain a first tier investment bank and to consider strategic
alternatives; and
|
|
·
|
VAALCO’s
stockholder unfriendly corporate
governance.
|
We are
extremely frustrated by the major disconnect that exists between VAALCO’s
depressed stock
price and the underlying value of its assets. We estimate the total Net Asset
Value of the Company at approximately $420 million, which translates into
approximately $7.12 per share (please see the NAV analysis table in our proxy
statement for a description of the basis for our estimate of NAV).
Without change to the current Board, we fear that the Company’s intrinsic value
may continue to erode under the continued unchecked stewardship of current
senior management.
VAALCO’s
stock has underperformed by all relevant
measures. In 2007, the share price fell approximately 30%, while the Standard
& Poor's Midcap Oil and Gas Exploration and Production Index climbed nearly
45%. Unsurprisingly the underperformance has continued in the beginning of
2008 and the share price has traded as low as $3.99 and has only started
to trade higher since we publicized our concern on March 11, 2008. Since this
date VAALCO’s stock has increased by approximately 33% illustrating what we
believe to be the strong expectation by stockholders of immediate and
substantial changes in the Company. A management team facing such recent market
reactions should be hungry for ideas to boost value. The management’s and
Board’s failure to offer any substantive responses or alternatives to our proposals to
unlock stockholder value leave us with no other choice than to encourage
stockholders to elect our Nominees to send a loud and clear signal to the
remaining members of the Board.
VAALCO’s stock price has
continued to trade at a substantial discount to VAALCO’s E&P peers using
virtually all relevant comparable valuation metrics. As illustrated below,
VAALCO recently has traded at a total enterprise value to 2008 estimated EBITDA
of approximately 3.1x, compared to recent multiples of approximately 8.0x
for its selected group of E&P peers. Despite this clear underperformance by
the Company, we are unaware of any new or promising initiatives commenced by
management or the Board to address the depressed stock price. VAALCO needs new
directors who understand the importance of maximizing stockholder
value.
We believe responsibility
clearly lies with existing management and the current Board, who have failed to
pursue a cohesive expansion plan. We believe VAALCO should refocus its efforts
and resources on the Company’s core geographical area in West Africa and
significantly reduce spending and management’s efforts in the UK North Sea. We
are extremely disappointed by the Company’s poor operational and financial
performance achieved under the current leadership in 2007. In 2007 the Company
sold 1,759,000 million barrels of oil equivalent (“boe”), a 13% increase
compared to 2006. The high oil price environment has also enabled the Company to
sell its oil production at approximately a 13% premium compared to sales in 2006. In
the meantime, the operating income for the year 2007 is down 8% from 2006 and
the net earnings decrease by more than 50%. We are extremely worried by the 2007
results and the total failure to benefit at all from the continued surge in oil
prices.
Given the
Company’s extremely poor performance viewed in comparison to its oil and gas
exploration and production peers and given the industry’s strong trend towards
consolidation, we have urged the Board, as part of its fiduciary responsibility
of delivering value to stockholders, to retain a first tier investment bank to
evaluate and explore all strategic alternatives instead of continuing its
“business as usual” approach that perpetuates the cycle of value destruction at
VAALCO. We further
believe that the NYSE is not the appropriate exchange to list a company with
core assets in West Africa and that VAALCO should not remain listed on it, but
instead should be listed on a more appropriate exchange.
We also
believe, based on conversations with numerous industry
experts, that the Board and VAALCO’s current management may have rebuffed
private inquiries regarding a potential acquisition of the Company at a
significant premium to its current share price on several occasions. If true,
this deepens our concern that the Board has failed to fully explore all
options to maximize value for stockholders. Stockholders should have the right
to decide to take advantage of a substantial buyout premium that delivers
immediate and compelling value.
In addition,
because VAALCO has consistently maintained poor corporate governance practices,
we believe there is an urgent need to improve the Board’s accountability to
stockholders. These sub-standard corporate governance practices of the Company
include, but are not limited to, (i) a staggered board, (ii) the consolidated
power in the combined role of the Chairman and Chief Executive Officer, (iii)
the adoption of a Shareholders Rights Plan or “poison pill” in September 2007,
(iv) anti-takeover provisions and (v) supermajority voting
rules.
If
elected, our Nominees will, subject to their fiduciary duties, lobby the other
members of the Board to implement corporate governance reforms and to
immediately improve the Company’s performance. The Nominees intend to address the following
issues:
|
·
|
Creation
of an independent special committee to evaluate and explore all strategic
alternatives for maximizing stockholder value, including, but not be
limited to, core asset divestments, alternative listings, mergers and/or
the sale of the entire Company.
|
|
·
|
Retain
a top tier investment bank to assist in the above
process;
|
|
·
|
Discontinuation
of further expansion in the North Sea Region and refocus VAALCO’s efforts
and resources on the Company’s core assets in Gabon and
Angola;
|
|
·
|
Take
all the appropriate measures to reduce the Company’s administrative costs
and close the Company’s office in Aberdeen (UK), relocate the headquarters
in London, Paris or Geneva to be on the same time horizon as Gabon and
Angola;
|
|
·
|
Redemption
of the Shareholders Rights Plan and elimination of VAALCO’s anti-takeover
provisions;
|
|
·
|
Declassification
of the staggered Board and institution of annual elections for all
directors;
|
|
·
|
Separation
of the role of Chairman and CEO;
|
|
·
|
Termination
of the supermajority voting provisions;
and
|
|
·
|
Commencement
of a process to identify and appoint a qualified Chief Operating Officer
to strengthen management;
|
We
believe our Nominees have the experience and oil and gas expertise necessary to
oversee an effort to maximize stockholder value through a change in strategic
direction and corporate governance reforms. VAALCO clearly needs new independent
directors who understand the importance of accountability and who will properly
and carefully review all strategic options to enhance stockholder value in
accordance with their fiduciary duty, instead of the incumbent directors who are
content to maintain the status quo that has led to the underperformance of the
Company.
We note
that five of the Company’s seven incumbent directors actually own 1,000 or fewer
shares each (and three of them actually own no shares). This includes W. Russell
Scheirman, the Company’s President and Chief Financial Officer, and a director
since 1991, who actually owns only 694 shares. We have
a clear financial interest aligned with the interests of all non-insider
stockholders. As the Company’s largest stockholder,
our interests are aligned with yours.
We do not
take lightly an election contest for directors of a public company. It is
unfortunate that the intransigence of the Board and senior management has forced
us to take this action, but we would like to reiterate that as the largest
stockholder of VAALCO, it is crucial that stockholders not let the status quo
continue. Our Nominees will work to maximize value for all
stockholders.
Thank you
for your consideration.
Sincerely,
/s/
Julien Balkany
Nanes
Delorme Partners I LP
About
Nanes Delorme Partners I LP
Nanes
Delorme Partners I LP is U.S.-based hedge fund that invests primarily in the oil
and gas exploration and production sector. Nanes Delorme Partners I LP pursues
active investments in publicly traded companies that it believes are trading at
a significant discount to their intrinsic values or where one or more potential
catalysts exist that could materially unlock the inherent value of those
companies.
The
General Partner of Nanes Delorme Partners I LP is Nanes Balkany Partners
LLC.
Contact:
Sard
Verbinnen & Co.
Paul
Caminiti/Dan Gagnier/Jane Simmons, 212-687-8080
Source: Nanes Delorme Partners I L.P.