First Calgary CEO Replaced by Shane O'Leary, COO

First Calgary CEO Replaced by Shane O'leary,COO

04-16-2008

The fight for First Calgary Petroleums Ltd. has ended with the Russian physicist who ignited the battle scoring a "three-point" win and CEO Richard Anderson -- who in the company's early years borrowed from his own RRSPs to pay staff -- being shown the door.

Shares of the TSX-listed oil and gas explorer, whose assets sit in the Algerian desert, had its biggest one-day gain in seven years after a release went out early Monday saying Shane O'Leary, First Calgary's chief operating officer, will replace Anderson at the company's helm.

Anderson, 57, agreed to remain as an adviser for six months as part of a deal which basically ends a proxy contest that emerged in December and grew into an acrimonious horse race between two sides chasing investor support for their respective director slates.

In the end, Waterford Finance & Investment Ltd., the U.K.-based investment fund run by Russian financier Michael Kroupeev, will have its proposed group of directors stand alone for election at a special shareholders meeting on Friday, although, as part of a compromise, First Calgary's current chairman Garfield Emerson will remain.

O'Leary, who led EnCana Corp.'s business unit in Brazil before joining First Calgary in 2006, will also take a board seat.

Independent directors Alastair Beardsall and Keith Henry, both of the U.K., and former Russian energy minister Yuri Shafranik, all of whom were directors until resigning in March, return as members of the new board.

Waterford owns 9.4 per cent of the company, but support for its dissident proxy climbed to 55 per cent of all outstanding common shares, based on feedback compiled by a proxy collection firm working on its behalf.

Kroupeev, 42, and other Waterford investors poured $14 million into First Calgary in 2002 when shares were trading at 60 cents. They watched their investment grow to more than $500 million as the former market darling's share price crested above $24 in early 2005.

A downward spiral for the stock ensued, following a failed sale process and amid massive shorting of the stock by European institutions.

First Calgary shares on the TSX jumped 69 cents on Monday to close at $3, a sign investors approved of the compromise and of Anderson's departure.

Kroupeev, in an interview from Moscow, refused to gloat but said the compromise should have been struck after Christmas so company funds would not have been "wasted" on efforts by management to gain support.

"I've done my job, I'm just a minority and for me to bask in any glory is just stupid," Kroupeev said.

It's believed Waterford essentially had three large U.K.-based institutions on side, as well as Wellington Financial Group, the secretive Boston-based money manager that is the single largest First Calgary shareholder with 9.7 per cent.

"I had a mandate from shareholders who essentially said, 'Michael, we understand there is no hidden Russian agenda and we understand Rick has to go, so try to maintain the status quo with management and with Gar, who is a reputable chap doing his best,' " Kroupeev said. "It's a three-point win. Rick is gone. Shane O'Leary is ready to go to the next level and Gar stays as chairman."

Anderson's departure marks a sad turn for the Calgary oilman who started First Calgary "from his den" 11 years ago after acquiring it as a shell company.

He built it into a public firm traded on the TSX and London's AIM market with 160 staff and offices in three countries. He acquired the leases in Algeria's prolific Berkine basin that would hold some 600 million barrels of recoverable oil and gas, and he is also credited with nurturing a key partnership with the country's national oil company, Sonatrach.

At a press conference, Anderson, who owns nearly one per cent of the company, said he would not reduce that stake any time soon.

He said he takes satisfaction from the company's growth to this point, and he cast the compromise as a "win for shareholders," urging investors to be patient.

"I think we did a very good compromise, as Shane said, so we're quite pleased with the result," Anderson said.

The MLE project, which First Calgary operates with partner Sonatrach through an agreement to pay 75 per cent of the $1.3 billion US capital cost for 20 per cent of the production, will churn out $500 million US in annual revenue for nine years with no declines once it's up and running in 2010, he said.

"One point we all agree upon is First Calgary's potential is not reflected in its share price value and this is partly because of the stage of the development cycle we are in," Anderson said. "As a public company with no other assets, shareholders want to see growth and realize returns but the timeline for the development for an asset like this is long and the market is impatient."

O'Leary, who called Anderson's accomplishments guiding First Calgary's early exploration "remarkable," said he is confident the company can secure $1 billion US of financing by July and keep the MLE project progressing on schedule.

First Calgary was working with Citigroup Inc. but O'Leary said financing talks were ongoing with "nine to 10 banks."

"In spite of these subprime issues that you hear about, the consistent feedback we get from the banks is that reserve-base lending is still very healthy. . . . We will work really hard to make it happen in that time frame," O'Leary said.

UBS Securities Canada Inc. said the turmoil around First Calgary weighed on the stock but O'Leary's appointment should "assuage the market's fears that the relationship with the Algerian government will be harmed by the CEO removal."

The bank's investment arm kept its 12-month target price for First Calgary at $7, while maintaining a "Buy" rating.