As activist investing in the oil and gas industry metamorphoses from a growing trend into a situation that is starting the rule the day, investors and industry experts alike are starting to wonder whether this is really beneficial for shareholders—and for the American economy in general.
What is an Activist Investor?
Activist investors—also often referred to as “activist shareholders” or “dissident shareholders”—are typically individuals or groups, such as hedge funds, that attempt to fundamentally change a company by acquiring large shares to obtain seats on the board and forcing emergency general meetings (EGMs) to take over a company and remove its management to this end.
This is a phenomenon that has gained momentum in recent years, and which can be particularly prominent in times of oil and gas market crisis and price slumps. The year 2013 was dubbed by many as the year of the activist investor, and indeed, that year saw more than 200 activist campaigns across business sectors.
The shale oil and gas boom and the hydraulic fracturing revolution created a great deal of market turbulence, which was compounded with the dramatic drop in oil prices that began in third and fourth quarter of 2014. The activist investor has emerged out of these new oil and gas realities as a very prominent force pushing shareholders to go to great effort themselves to ensure higher returns.
The trend began in the 1980s—but then its ‘pioneers’ were called ‘corporate raiders’. Since then--and particularly since 2013--activist investors have begun to win approval from large institutional shareholders.
Recent E&P Activism
• Activist investor Carl Icahn pressured the board of Chesapeake Energy to get rid of CEO Aubrey McClendon, forcing his resignation in April 2013, and the replacement of almost the entire board.
• Elliot Management Corp. took on John Hess, chairman and CEO of Hess Corp. in May 2013, keeping him on as CEO but forcing him out of the chairmanship. The restructuring saw Hess start shedding non-core assets and giving more back to shareholders.
• Deepwater driller Transocean was also targeted in 2013 by Icahn, who managed to win enough proxy votes to force a leadership change in the company; again the result was a slashing of costs and more dividends for shareholders.
• Occidental Petroleum Corp.’s CEO, Ray…