Energen Corporation (EGN): Activist Takes Large Stake, Pushes For Sale

Prominent activist investor Keith Meister of Corvex Capital has taken a 5.5% stake in Energen Corporation (NYSE:EGN) and appears poised to try and push the company to sell itself. The stake and the investor’s intentions were revealed this morning in a 13D filing released by the SEC (the filing’s date of event, in this case the point at which a 5% stake had been amassed, was May 22). Energen’s shares have gained 2% today.

Meister was one of several major names to take a stake in the company in the first-quarter of this year, snatching up 1.35 million shares, which has since been increased to 5.37 million shares. The majority of the shares purchased in the second-quarter underlie call options which expire on May 31 of next year. Paul Singer and George Soros were among the other new shareholders of the stock in the first-quarter, though Soros’ position was a relatively small one (65,200 shares). Dmitry Balyasny also hiked his fund’s position in the stock by nearly 10,000% during the first-quarter, to 725,049 shares. Energen Corporation (NYSE:EGN) shares, which Meister declared to be “undervalued” in the 13D filing, slumped by 19% between the end of last November and the middle of March.

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The 13D filing also revealed that Meister’s fund has already engaged in discussions with Energen Corporation (NYSE:EGN)’s management, expressing to them that they have some of the “most attractive leaseholds for oil and gas development in the Permian Basin”. However, the fund also exclaimed that the company’s operational performance has been lacking in comparison to its peers and that now may be the time to consider a change of control given the premium which Permian Basin assets have been selling for recently in comparison to Energen’s own implied value.

Tracts of land in the Permian Basin in West Texas and New Mexico, one of the most lucrative oil plays in the U.S, have been the object of desire at the center of multiple M&A deals recently, with Marathon Oil Corporation (NYSE:MRO) making two acquisitions in March for a total of 91,000 acres at a cost of $1.8 billion. That comes after a 2016 year in which as much as $26 billion in deals took place in the region, which has transformed it into a sellers market with scant few parcels of land on the market.

However, Energen Corporation (NYSE:EGN) Chairman and CEO Jim McManus may be hesitant to sell at what may be perceived as a low point, believing his company is poised for a breakout year, echoing Meister’s thoughts during the company’s first-quarter conference call by stating that “[…] it’s all about execution right now”.

Energen’s production rose by 5% year-over-year to 52.8 MBOED in the first-quarter, with Mr. McManus stating that the performance of the company’s wells which were completed with its generation 3 frac design were very encouraging.

“For those Gen 3 wells with at least 75 days of production history, cumulative production by formation is outperforming the type curves associated with the highest potential EURs we have identified” he said. Energen anticipates calendar year 2017 production of 66.3 MBOED.

Drexel Hamilton analyst Robert Christensen stated in February that the company’s 2017 guidance was conservative given those generation 3 frac designs, and raised his price target on the stock to $81 from $71 at that time, which is 43% above the stock’s current price.

Disclosure: None