Investors scuttle trust spin-off plan

An issue that has been building from simmering to seething over the past two years finally boiled over June 28 when investors scuttled plans to spin off a junior exploration company from a merger of Penn West Energy Trust and Petrofund Energy Trust.

Although the C$2.97 billion friendly takeover of Petrofund was resoundingly approved, the exploreco spin-off involving production of 1,350 barrels of oil equivalent per day and 150,000 undeveloped acres was blocked by mostly institutional investors.

More than 70 percent of Penn West shareholders opposed the creation of Insignia Energy, unhappy with terms the shares and options offered to directors and managers as an incentive to work with Insignia.

Institutional Shareholder Services Canada estimated the insiders were getting access to exploreco shares at C$1.86 each, or about 70 percent of the estimated trading value.

The shareholder rights group President Bill Mackenzie said growing opposition to the private placements has been reflected in a recent narrowing of the share price as explorecos have created paper wealth in millions of dollars for the insiders.

Penn West Chief Executive Officer Bill Andrew has defended the private placement and options, saying that rejection of the exploreco plan would leave the assets in the trust, meaning that both Penn West and Petrofund unit holders would be unable to benefit from receiving exploreco shares.

He said recruiting a separate qualified management team for the exploreco would be expensive.

Andrew said later that the vote was disappointing because it eliminated the potential for future transactions.

—Gary Park