Eagle Energy Inc. Confirms Operations Are On Track and Addresses Misleading Comments from Dissidents
Eagle Energy Inc. ("Eagle") (TSX:EGL) confirms operations remain on track and addresses the misleading comments issued by dissidents.
Operations Remain On Track
Eagle remains on track to achieve its 2017 annual guidance for its capital budget, average production and monthly operating costs. We intend to commence drilling our North Texas asset in the third quarter of 2017, as planned. We remain of the view that this asset could provide significant future value to Eagle's shareholders.
Eagle's shareholders should vote the proxy they believe provides the highest likelihood of a better outcome. We believe voting the YELLOW proxy is the best way to:
The dissidents' tone and their accusations aimed at Eagle suggest a culture within the dissident group that concerns us. We always welcome new or better ideas for Eagle's business or strategy that could realistically result in a better future value proposition for Eagle. However, the dissidents have not proposed any ideas that we have not already considered, are underway, or are likely to create a superior outcome to Eagle's plan.
Concerning Plan for New Leadership
We caution you regarding the dissidents' intent to appoint Mr. Gundersen as Eagle's President and CEO. His only experience as a CEO is 14 months with Maple Leaf Royalties Corp., which operated no properties. In contrast, Mr. Clark and Mr. Wisniewski, in combination, have decades of executive and board room experience in the Canadian and U.S. oil and gas industries, encompassing governance, finance, capital markets and oil field operations, with CEO and executive leadership responsibilities for production ranging up to 100,000 boe/d.
None of the companies listed in the biographies of the dissident nominees operated oil and gas assets in the U.S. The dissident nominees have not shown that they have U.S. energy industry experience. U.S. energy industry experience is crucial for Eagle's board. More than half of Eagle's assets, value and future development exist in the U.S.
Kingsway's Questionable Oil and Gas Experience
Kingsway Financial Services Inc.'s only oil and gas experience is its 2016 acquisition, through an affiliate, of Texas assets that produce 23 barrels of oil per day from one well. These assets, however, are burdened by more than $6 million in decommissioning and environmental liabilities, which far exceeds the value of the assets' production.
Of greater concern to Eagle is that the person who is the CEO of both Kingsway's affiliate that owns the assets and the company that operates the assets has been charged with environmental violations in Australia. The penalties, if convicted, are serious. We have grave concerns about Kingsway and these companies' ability to operate oil and gas assets.
The Dissidents' View of Eagle's Future
The dissidents' view of Eagle's future is to sell Eagle's best assets, pay down debt and cut costs. This strategy will leave Eagle as a shell with no reason for a continued existence and no ability to ever attract the attention of the investing community. While this strategy may help the dissidents, including Kingsway with an undisclosed agenda, we do not believe that this is the best result for Eagle or its shareholders.
The Dissidents will Burden Eagle with Unnecessary Costs
Shareholders should be aware that the changes proposed by the dissidents are highly risky and could trigger an event of default under Eagle's loan. The dissidents will burden Eagle Shareholders with 100% of their costs for this proxy fight. Eagle will be burdened by other unnecessary costs such as early termination fees for its loan and employment severance. These costs may be significant. These funds would be better spent on future oil and gas operations.
The Dissidents' Communications are False, Misleading and Alarmist
The North Texas Asset is Not "High Risk" as They Claim
If the dissidents were truly experienced with the U.S. oil and gas industry, then they would recognize that the North Texas asset is not "high risk" as they claim. We have spent over two years developing our plan for these assets, including completion of substantial technical subsurface and engineering work. Eagle's independent reserves evaluator has assigned proved undeveloped reserves to this asset. It is a development drilling project with solid well control and production history.
Eagle's Long-Term Incentive Plan is Within Industry Norm
The dissidents falsely accuse Eagle of issuing "free" shares to its directors and management.
Eagle's loan is within the new industry norm for junior oil and gas companies, given the current market. Several of Eagle's peers recently entered into financing transactions with term loans that are comparable to Eagle's. Some have more stringent terms with higher interest rates and a material equity component, which Eagle's financing does not have. The dissidents have not demonstrated that they will be able to obtain better financing terms for Eagle.
Eagle's Executive Compensation Arrangements are within Industry Norm
The dissidents criticize Eagle for its general and administrative expenses (G&A) and executive compensation arrangements.
When Mr. Gundersen was CEO of Maple Leaf Royalties Corp., its G&A per boe ($8.00) was higher than Eagle's ($7.49 in 2016), yet it did not operate any properties and had no employees. In comparison, Eagle has substantial cross border operations.
Eagle's executive compensation arrangements are influenced by the U.S. market where it began operating and where it competes for talent. Eagle engages independent assessments of its executive compensation arrangements through independent human resources consulting firms. They compare Eagle's executive compensation arrangements to its peers in Canada and the U.S. The most recent study concluded that, in total, Eagle's executive compensation was between the peer group's 25th and 50th percentile for total compensation.
Apart from a 2% cost-of-living increase in 2015, the base salaries of the management team have remained unchanged since 2014.
Half of the dissident nominees are currently directors or officers of oil and gas companies with similar executive compensation, long-term incentive and severance arrangements as Eagle.
Annual General Meeting
The Annual General Meeting of Eagle's shareholders is scheduled for 10:00 a.m. (Calgary time) on Tuesday June 27, 2017 at the Metropolitan Centre at 333 - 4th Avenue S.W., Calgary, Alberta.
SOURCE: Eagle Energy Inc.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.