Canada’s Business News Network (BNN), which has previously interviewed our co-founder and editor Meena Krishnamsetty, sat down on Tuesday with David Lorber of FrontFour Capital Group, a Connecticut-based hedge fund that has been very active in the energy activism space in Canada of late. Lorber discussed his fund’s interest in the Canadian energy sector and shared several other investing insights during the interview, which is embedded on the following page.
Lorber is one of the co-founders and partners at FrontFour Capital, along with Stephen Loukas and Zachary George. The activist firm employs a value-oriented approach to investing and seeks mismanaged companies that have strong assets, where it is theoretically much easier to affect noteworthy change. Given its interest in the Canadian market, FrontFour has an affiliate in Toronto, Canada’s financial capital. It’s easy to see where some of the fund’s passion for the sector comes from given the pedigree of George, who is the son of Rick George, a former CEO of Suncor Energy Inc. (USA) (NYSE:SU), one of Canada’s largest energy companies.
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Getting back to the interview, which was conducted by BNN’s Amber Kanwar, Lorber was asked to describe FrontFour’s strong interest in the Canadian energy patch, and whether the interest was a broad bet on energy and oil prices, or on specific elements that made Canadian energy more appealing.
“It’s a few things. Number one it’s a thesis on the broader energy sector in Canada; the fact that the sector has a significant advantage to the U.S producers given the exchange rate. The fact the Canadian dollar’s weakened as it has, has allowed the Canadian producer to become profitable at a lower WTI price,” Lorber said.
When asked what fueled the firm’s choices within the sector, which are particularly intriguing given the avoidance of the major energy players in Canada, Lorber emphasized “high quality assets”. Lorber was asked to discuss specific Canadian energy companies FrontFour has previously invested in and the challenges it has faced when doing so, and the list is a lengthy one. In both Legacy Oil + Gas, and Renegade Petroleum, FrontFour had attemped to land board seats to put itself into a favorable position to exact change at the companies. However it lost a bitter public battle with Renegade (which was eventually acquired by Spartan Energy), and watched Legacy sell itself to Crescent Point Energy against FrontFour’s wishes. Nonetheless, Lorber pointed out that those investments were ultimately successes for the firm, which made a good deal of profit following their acquisitions. Interestingly, Lorber added that FrontFour looks to short U.S producers while attempting to turn around struggling Canadian ones (rather than short them also), citing the aforementioned currency advantage for Canadian energy companies. In addition to those previous Canadian investments, FrontFour also has holdings in Lightstream Resources and Rock Energy. Lorber also offered a strong assessment of Intertape Polymer Group (USA) (OTCMKTS:ITPOF), suggesting that the packaging and tape company was making all the right moves and was poised to benefit from sector headwinds.