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The Globe and Mail

Bitter rivals face off over future of Penn West Petroleum

Rick George is the current chairman of Penn West Petroleum Ltd.


Calgary energy producer Penn West Petroleum Ltd. is facing the prospect of a messy battle for control of the company just as it copes with an accounting scandal and allegations of manipulating stock options.

Former investment banker Tom Budd said several Penn West shareholders have contacted him about launching a campaign to oust company chairman Rick George.

The two oilmen have a bitter history. Mr. George, who led Suncor Energy Inc. for 20 years, backed a recent move by his son to take control of Renegade Petroleum Ltd. Mr. Budd was chairman of Calgary-based Renegade and fended off the challenge. Now he is considering turning the tables on Mr. George at Penn West.

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"Rick George doesn't seem to be the right guy to do the job or have the right qualifications," Mr. Budd said Wednesday. "He should be embarrassed and he should step down based on the stock performance."

Mr. Budd would not disclose who approached him, how much stock those investors control, or whether he owns Penn West shares.

Penn West was not available to comment, according to an outside communications firm Penn West hired.

The potential proxy battle comes as Penn West's share price took a beating Wednesday after it revealed $381-million worth of accounting irregularities in 2012 and 2013 and is still reviewing the last 4 1/2 years of financial statements. The company has alerted regulators in Canada and the United States about the issues and plans to restate some of its financial statements. It could also be in breach of the some of the conditions of its loans.

Meanwhile, Penn West faces allegations in a lawsuit that six former board members, including the last chief executive, manipulated the price of stock options to make them more valuable. None of the allegations have been proven.

The $4.2-billion oil and gas company controls roughly five million acres in Western Canada and is partially owned by the China Investment Corp., which holds about 5 per cent of the stock, making it the second-largest shareholder. The Chinese firm is also a joint venture partner on one of Penn West's projects.

Mr. Budd said Penn West shareholders asked him to get involved in the energy firm earlier this year after he came out on top in the fight over Renegade, which is about one tenth the size of Penn West. He declined then but Penn West's weak stock price, exacerbated by the accounting scandal, has him reconsidering.

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"I've been re-approached over the last couple of days about would I consider going in and replacing Rick George if there was enough support," he said. "Either joining the team that is there or putting in my own team to try to get the same success that we had at Renegade."

The Globe and Mail sought comment from several of the company's largest shareholders, including U.S. hedge fund First Eagle‎ Investment Management, Penn West's top investor, but none responded.

Calgary-based Mawer Investment Management‎ had already sold much of its position in recent months because it had not met the firm's investment criteria, Mawer chairman Jim Hall said.

Mr. George did not return messages seeking comment. Penn West officials were unavailable for comment.

Mr. George has been part of significant changes since taking over as Penn West's chairman a year ago. The company is going through a restructuring process, which has included installing a new chief executive last year and a new chief financial officer on May 1 (Penn West said the accounting review started after questionable practises came to the incoming CFO's attention). Penn West also axed its dividend and cut staff in a bid to save money. And it has sold $700-million worth of assets.

However, Mr. Budd said Mr. George is not up to the job and added that his leadership at Suncor, Canada's largest oil company, did not mean he has the skills to chair a smaller oil and gas company with assets beyond the oil sands. And while he is not blaming the accounting irregularities on Mr. George, Mr. Budd is eyeing the additional pressure the troubles put on Penn West's stock price and may use that as a way to launch his campaign.

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Penn West's stock closed at $8.57, down 13.7 per cent, on the Toronto Stock Exchange on Wednesday. The company indicated that its cost expectations for 2014 may need to be jacked up because of the accounting revisions, and said it voluntarily informed the United States Securities and Exchange Commission and the Alberta Securities Commission about its review.

With a report from Jeffrey Jones

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