UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2)*
ENERGEN CORPORATION
(Name of Issuer)
COMMON STOCK, $0.01 PAR VALUE
(Title of Class of Securities)
29265N108
(CUSIP Number)
Keith Meister
Patrick J. Dooley, Esq.
Corvex Management LP
667 Madison Avenue
New York, NY 10065
(212) 474-6700
Jeffrey L. Kochian
Akin Gump Strauss Hauer & Feld LLP
One Bryant Park
New York, NY 10036
(212) 872-8069
(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)
June 26, 2017
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. ☐
Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.
* | The remainder of this cover page shall be filled out for a reporting persons initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. |
The information required on the remainder of this cover page shall not be deemed to be filed for the purpose of Section 18 of the Securities Exchange Act of 1934 (Act) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
CUSIP No. 29265N108 |
1. |
Name of Reporting Person:
CORVEX MANAGEMENT LP | |||||
2. | Check the Appropriate Box if a Member of a Group (See Instructions): (a) ☐ (b) ☒
| |||||
3. | SEC Use Only:
| |||||
4. | Source of Funds (See Instructions):
AF | |||||
5. | Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e):
☐ | |||||
6. | Citizenship or Place of Organization:
DELAWARE | |||||
Number of Shares Beneficially Owned by Each Reporting Person With
|
7. | Sole Voting Power:
7,413,386* | ||||
8. | Shared Voting Power:
0 | |||||
9. | Sole Dispositive Power:
7,413,386* | |||||
10. | Shared Dispositive Power:
0 | |||||
11. |
Aggregate Amount Beneficially Owned by Each Reporting Person:
7,413,386* | |||||
12. | Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions):
☐ | |||||
13. | Percent of Class Represented by Amount in Row (11):
7.6%* | |||||
14. | Type of Reporting Person (See Instructions):
PN, IA |
(*) | See Item 5. |
CUSIP No. 29265N108 |
1. |
Name of Reporting Person:
KEITH MEISTER | |||||
2. | Check the Appropriate Box if a Member of a Group (See Instructions): (a) ☐ (b) ☒
| |||||
3. | SEC Use Only:
| |||||
4. | Source of Funds (See Instructions):
AF | |||||
5. | Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e):
☐ | |||||
6. | Citizenship or Place of Organization:
United States | |||||
Number of Shares Beneficially Owned by Each Reporting Person With
|
7. | Sole Voting Power:
7,413,386* | ||||
8. | Shared Voting Power:
0 | |||||
9. | Sole Dispositive Power:
7,413,386* | |||||
10. | Shared Dispositive Power:
0 | |||||
11. |
Aggregate Amount Beneficially Owned by Each Reporting Person:
7,413,386* | |||||
12. | Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions):
☐ | |||||
13. | Percent of Class Represented by Amount in Row (11):
7.6%* | |||||
14. | Type of Reporting Person (See Instructions):
IN, HC |
(*) | See Item 5. |
This Amendment No. 2 supplements the information set forth in the Schedule 13D filed by Corvex Management LP and Keith Meister with the United States Securities and Exchange Commission (the SEC) on May 31, 2017, as previously amended (the Schedule 13D), relating to the shares of common stock, par value $0.01 per share (the Shares), of Energen Corporation, an Alabama corporation (the Issuer). Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Schedule 13D.
The information set forth in response to each separate Item below shall be deemed to be a response to all Items where such information is relevant. The Schedule 13D is supplementally amended as follows.
Item 3. Source and Amount of Funds or Other Consideration
The Reporting Persons used the working capital of the Corvex Funds to purchase the 6,998,186 Shares reported herein and to acquire the call options referenced in Item 5. The total purchase price for the Shares reported herein was approximately $369,348,586 and the purchase price to acquire such call options was approximately $1,269,972.
Various of the Reporting Persons may effect purchases of securities through margin accounts maintained for the Corvex Funds with brokers, which extend margin credit as and when required to open or carry positions in their margin accounts, subject to applicable federal margin regulations, stock exchange rules and such firms credit policies. Positions in Shares may be held in margin accounts and may be pledged as collateral security for the repayment of debit balances in such accounts.
Item 4. Purpose of Transaction
On June 27, 2017, the Reporting Persons delivered a letter (the Letter) to the Issuers Board of Directors (the Board). In the Letter, the Reporting Persons expressed their disappointment with the Issuers announced decision to continue with its status quo business plan without first conducting a road show with shareholders to solicit shareholder views on the best path forward for the Issuers business and empowering financial advisers to investigate potential strategic alternatives as the Reporting Persons had previously suggested. The Reporting Persons state in the Letter that they believe the Issuer did not conduct a substantive review of alternatives to maximize shareholder value before making the decision to move forward with its current business plan. The Reporting Persons urge the Board to re-examine its conclusions as to the best direction for the Issuer after receiving feedback from engaging in a road show with shareholders independent of management and meeting directly with the Reporting Persons.
The foregoing description of the Letter does not purport to be complete and is qualified in its entirety by reference to the full text of the Letter, which is filed as Exhibit 4 and is incorporated herein by reference.
The Reporting Persons intend to review their investment in the Issuer on a continuing basis and may from time to time and at any time in the future depending on various factors, including, without limitation, the Issuers financial position and strategic direction, actions taken by the Board, price levels of the Shares, other investment opportunities available to the Reporting Persons, conditions in the securities market and general economic and industry conditions, take such actions with respect to their investments in the Issuer as they deem appropriate. These actions may include, without limitation: (i) acquiring additional Shares and/or other equity, debt, notes, other securities, or derivative or other instruments that are convertible into Shares, or are based upon or relate to the value of the Shares or the Issuer (collectively, Securities) in the open market or otherwise; (ii) disposing of any or all of their Securities in the open market or otherwise; (iii) engaging in any hedging or similar transactions with respect to the Securities; or (iv) proposing or considering one or more of the actions described in subsections (a) through (j) of Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer
(a)-(b) Corvex may be deemed to be the beneficial owner of 6,998,186 Shares and 415,200 Shares underlying the call options referenced below in this Item 5, which collectively represent approximately 7.6% of the Issuers outstanding Shares. By virtue of his position as control person of the general partner of Corvex, Mr. Meister may be considered to beneficially own such Shares. The Reporting Persons may be deemed to have sole power to vote and sole power to dispose of 7,413,386 Shares.
The percentage calculated in the immediately foregoing paragraph is calculated based on a total of 97,188,418 Shares outstanding as of May 1, 2017, as reported in the Issuers Quarterly Report on Form 10-Q filed with the SEC on May 9, 2017.
On June 26, 2017, Corvex exercised over-the-counter market American-style call options with an expiration date of May 31, 2018, referencing an aggregate of 5,508,364 Shares at an exercise price of $36.50 per Share (which resulted in the termination of corresponding over-the-counter market European-style put options referencing an aggregate of 5,508,364 Shares at an exercise price of $36.50 previously sold by Corvex).
In addition, Corvex has acquired listed American-style call options referencing an aggregate of 415,200 Shares, which have an exercise price of $50 per Share and expire on October 20, 2017. Corvex also has sold listed American-style call options referencing an aggregate of 415,200 Shares at an exercise price of $60 per Share, which expire on October 20, 2017, and has sold listed American-style put options referencing an aggregate of 415,200 Shares at an exercise price of $40 per Share, which expire on January 19, 2018.
(c) Except as set forth in Exhibit 5 attached hereto or previously disclosed in the Schedule 13D, as amended, there have been no transactions in the Shares during the sixty days prior to the date hereof by any of the Reporting Persons.
(d) The limited partners of (or investors in) each of the private investment funds for which Corvex or its affiliates acts as general partner and/or investment adviser have the right to participate in the receipt of dividends from, or proceeds from the sale of, the Shares held for the accounts of their respective funds in accordance with their respective limited partnership interests (or investment percentages) in their respective funds.
(e) Not applicable.
Item 7. Material to be Filed as Exhibits
Exhibit 4 Letter to the Board of Directors of Energen Corporation, dated June 27, 2017
Exhibit 5 Transactions in the Shares effected in the past 60 days
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
Date: June 27, 2017 |
CORVEX MANAGEMENT LP | |||
By: |
/s/ Keith Meister | |||
Keith Meister | ||||
Managing Partner | ||||
Date: June 27, 2017 |
KEITH MEISTER | |||
By: |
/s/ Keith Meister | |||
Keith Meister |
EXHIBIT 4
June 27, 2017
Energen Corporation
605 Richard Arrington Jr. Blvd. N.
Birmingham, AL 35203
To: Board of Directors
I was very disappointed to read Energens June 19 press release, in which the company announced its intent to continue with a status quo business plan. The market appears to share this view, as the price of Energen stock fell 4.1% and 7.6% (versus an average gain of 2.1% and 4.8% for its three closest peer companies1 ) for the day and week, which I believe demonstrates a substantial negative reaction to the announced plan.
While I strongly disagree with the conclusion the Board appears to have reached, I am even more troubled by the failure of the process by which the Board came to its decision.
In our letter dated June 2, 2017 (attached), I asked the Board to have a road show to meet with shareholders to get their views on the best path forward for the company, to hire financial advisors, and announce a strategic review process. Equipped with this information, the Board could have come to an informed view as to both what its shareholders believe is the best course for the business and what real world, actionable alternatives exist to maximize shareholder value.
In the press release dated June 19, 2017 the Board stated: With input from financial advisors J.P. Morgan and Tudor Pickering Holt & Co., the Energen Board reviewed its strategic alternatives and unanimously concluded that the best way to enhance shareholder value is continued execution of the companys business plan. This examination took into consideration input from numerous shareholders and analyzed Energens top-tier assets, its improving execution, and the broader macroeconomic and commodity price environment.
No actual alternatives were proposed. The Board refused to meet with us to hear our perspective despite multiple requests, did not engage in any formal process to solicit the views of other shareholders, and announced a status quo business plan less than 3 weeks after we sent our letter to the company. At best this represents a poorly run process and at worst it is misleading and emblematic of corporate entrenchment. Perhaps most important, the apparent refusal to empower your advisors to run a market check as to potential M&A value calls into question the legitimacy of the entire review.
To mix industry metaphors, this is no way to run a railroad.
1 | Peer companies defined as Parsley Energy, Diamondback Energy, RSP Permian, and prices determined at last reported price on June 20th as compared to June 19 and for the week ended June 23, 2017 |
While I understand that you and I might ultimately disagree on the best path to maximize value for shareholders, I expected that your decision would have been made after a substantive review and, more importantly, after getting the perspective of the shareholder-owners of the company.
In this letter, I urge the Board to correct this mistake. I have little doubt that the Board, independent of management, will greatly benefit from meeting with its shareholders. Ask yourself: Why is management trying so hard to keep its Board from hearing the perspectives of the owners of the company? We believe this is the question your shareholders will be asking.
The Board should engage in a road show with shareholders, independent of management, to get their assessment and views as to the future direction of the company. And, after receiving the perspective of your shareholders, re-examine your conclusions as to the best direction for Energen. Maybe it changes, maybe it remains the same, but in either case you should then explain in detail to the shareholders why you reached this decision. The shareholders can then decide if they agree with these conclusions.
I encourage the Board to embrace this opportunity to course correct and obtain the views of its shareholders in connection with deciding on the future direction of the company. The days of 1970s-style governance are over, and a Board should not make decisions in a vacuum and without consultation with its shareholders. If you fail to take such actions on your own, be assured that we, as the owner of more than 7 million shares and equivalents, will be resolute in pushing for a meaningful path for all stakeholders to have a direct voice in the plans for the companys future.
As always, I am willing and able to meet any of you, either in person or over the phone, to discuss any of these issues in more detail. I look forward to hearing from you.
Sincerely,
/s/ Keith Meister
Keith Meister
Managing Partner
Corvex Management
June 2, 2016
Energen Corporation
605 Richard Arrington Jr. Blvd. N.
Birmingham, AL 35203
To: Board of Directors
By way of introduction, I am the managing partner of Corvex Management LP. Corvex is an investment advisor with a fundamental, value-based strategy. We focus on investing in high quality, North American businesses in industries with positive secular tailwinds, that trade at discounts to underlying value. We believe in actively engaging with the senior management and Boards of our portfolio companies with the goal of developing relationships built on constructive, two-way dialogue. As you likely know, on May 31st Corvex filed a Schedule 13D disclosing ownership of 5.37 million shares and share equivalents, or approximately 5.5% of your outstanding stock, making us one of Energens largest shareholders.
Since inception, Corvex has spent considerable time and capital investing in the North American energy space. We have significant domain knowledge, having owned large stakes in E&P, refining, and midstream companies. Due to the quality of the rock, productivity of the wells, areal extent, stacked pays, and proximity to existing infrastructure and markets we believe the Permian basin is poised to significantly grow production and take market share even at structurally low commodity prices. We are witnessing a modern day gold rush, with a frenzy of deals to capture acreage in the Permian at prices regularly exceeding $40,000 per acre and two recent multi-billion dollar deals for in excess of $55,000 per acre. Large, contiguous acreage blocks are the most highly coveted. With approximately 150,000 net acres, split between the Midland and Delaware basins, Energen is sitting on some of the most valuable undeveloped leasehold in North America.
Despite this enviable asset position, Energen continues to trade at a meaningful discount both to public peers and asset transaction values. I have spent time with your CEO, James McManus, both in Birmingham and during a brief phone conversation. I found James both professional and knowledgeable and our conversations were cordial. During these discussions I expressed my views that Energens assets are best-in-class and that the company trades at a discount and James agreed on both accounts. I believe this discount is a reflection of Energens historical track record of operational underperformance and poor capital allocation.
Across most metrics, Energens operating performance falls short of its best-in-class peers. Both margins and F&D costs compare unfavorably, leading to a recycle ratio significantly below peers. This is not lost on industry analysts, investors, or competitors.
Further, an analysis of wells drilled in the Permian over the last 18 months consistently highlights underperformance at Energen. Cumulative recoveries from Energen wells are coming in 20% below those drilled by other operators on similar acreage. In the first quarter, while Energen was one of many operators to beat production guidance, it significantly exceeded its capex target and raised full year capex estimates by more than 10%, despite production estimates that were effectively unchanged. Energen was the only Permian company to raise full year capex estimates due to service cost pressures.
Additionally, Energen has a poor track record of capital allocation. Energen significantly diluted shareholders in 2016 through a stock issuance of 18.2 million shares, or nearly 20% of the company, for $21 per share. In 2016 Energen sold assets at the bottom, including Delaware basin acreage (for an undisclosed price) to Centennial Development, which now trades at nearly $40,000 per acre, only to return to the A&D market in 2017 to purchase more Delaware basin assets (for a rumored $30,000 per acre).
The net result of poor capital allocation decisions and subpar operating results has been considerable stockholder underperformance. Since Energen announced the sale of its utility, ALAGASCO, in April of 2014, Energen shares are down 30%. Over that same period of time, Energens closest peers are up an average of 60%1. While James expressed confidence that future drilling results will improve, the companys historical track record raises significant doubt.
In light of the following facts: record-breaking deal prices for Permian assets, the industrial logic and value created from in-basin M&A, Energens trading discount and historical track record of operational underperformance we are strongly of the belief that the Board should explore the value that could be delivered to shareholders through a change of control transaction. We believe most of your large shareholders share this perspective, and thus it is critical that you, the Board, get ahead of the momentum and control the process.
Even if Energen were a best-in-class operator with superior metrics and capital allocation, the case for M&A would still be compelling. The rationale for consolidation in the basin is tremendous, with benefits including but not limited to:
● | Realizing a significant upfront premium with the possibility, if desired, to participate in additional upside by taking a portion of the consideration in stock |
● | The improved ability of a larger company, running more rigs, to manage its relationships with service and midstream companies and thus realize improved unit economics through economies of scale |
● | The ability to take advantage of improved access to capital as a bigger company both equity and debt in order to accelerate development and pull forward NPV. Our assets in the hands of an operator with a superior track record would likely garner a lower cost of capital or higher trading multiple |
1 | Peers include RSP Permian, Diamondback Energy, and Parsley Energy |
● | A merger with an incumbent in the basin would allow for a high grading of location development cadence as well as the potential to drill longer laterals, optimizing development, and thus NPV |
● | Realization of corporate synergies, including elimination duplicative costs, that would not otherwise be available to Energen shareholders |
Specifically, we have two requests: 1.) The board should publicly announce that it has hired a leading investment bank to explore strategic alternatives. 2.) Members of the board should conduct a roadshow to meet with top shareholders and gather their views on value of status quo versus the value delivered from the potential sale of the company. To be clear, we have not pre-judged any outcomes and we will support whatever creates the most value. All shareholders benefit from a robust analysis of the value of our standalone plan versus the value that could be obtained through a merger or acquisition of the company. A public announcement is critical to maximize value as we believe the potential buyer universe is extremely large, including peer Permian companies, new basin entrants, large independents, as well as both major domestic and international oil companies.
It is our understanding, from our recent conversation with James, that you have a board meeting in mid-June. We believe this is an opportune time to consider and implement our suggestions, and hope the takeaway from the meeting is a formal announcement that you have retained advisors. It is important that you embrace and engage in this process and by doing so, fully inform yourselves as to the best path to realize value for shareholders. We are prepared to work with you to help in any way that we can. After visiting with shareholders, I believe you will find a significant majority favor exploring strategic alternatives. We have sent this letter to you privately, as we believe you will get a better result for all shareholders if the board undertakes this process from a position of strength. However, if the Board does not embrace this approach, given our conviction in the potential value at stake for shareholders, we will continue to advocate privately or publicly if necessary, to ensure this path is followed.
I look forward to engaging with the board to create value for all shareholders. Please feel free to reach
out anytime.
Sincerely,
Keith Meister
Managing Partner
Corvex Management
EXHIBIT 5
TRANSACTIONS
Except as previously disclosed in the Schedule 13D, as amended, the following table sets forth all transactions with respect to Shares effected in the last sixty days by the Reporting Persons or on behalf of the Reporting Persons, inclusive of any transactions effected through 4:00 p.m., New York City time, on June 27, 2017. Except as otherwise noted below, all such transactions were purchases and sales of securities effected in the open market, and the table includes commissions paid in per share prices.
NATURE OF TRANSACTION |
DATE OF TRANSACTION |
AMOUNT OF SECURITIES |
PRICE PER SHARE / PREMIUM PER OPTION ($) |
|||||||||
Purchase of Call Options |
06/15/2017 | 95,000 | (1) | 15.33 | (2) | |||||||
Sales of Put Options |
06/15/2017 | (95,000 | )(3) | 0.01 | (4) | |||||||
Purchase of Call Options |
06/16/2017 | 100,000 | (1) | 15.43 | (2) | |||||||
Sale of Put Options |
06/16/2017 | (100,000 | )(3) | 0.01 | (4) | |||||||
Purchase of Call Options |
06/20/2017 | 87,600 | (1) | 12.81 | (2) | |||||||
Sale of Put Options |
06/20/2017 | (87,600 | )(3) | 0.01 | (4) | |||||||
Purchase of Call Options |
06/21/2017 | 100,000 | (1) | 11.75 | (2) | |||||||
Sale of Put Options |
06/21/2017 | (100,000 | )(3) | 0.01 | (4) | |||||||
Purchase of Call Options |
06/22/2017 | 114,500 | (1) | 10.57 | (2) | |||||||
Sale of Put Options |
06/22/2017 | (114,500 | )(3) | 0.01 | (4) | |||||||
Purchase of Call Options |
06/23/2017 | 43,500 | (1) | 10.86 | (2) | |||||||
Sale of Put Options |
06/23/2017 | (43,500 | )(3) | 0.01 | (4) | |||||||
Purchase of Call Options |
06/23/2017 | 415,200 | (5) | 3.06 | (6) | |||||||
Sale of Call Options |
06/23/2017 | (415,200 | )(5) | 0.59 | (7) | |||||||
Sale of Put Options |
06/23/2017 | (415,200 | )(8) | 2.35 | (9) | |||||||
Exercise of Call Options |
06/26/2017 | 5,508,364 | 36.50 | |||||||||
Purchase of Common Stock |
06/26/2017 | 60,000 | 48.32 |
(1) | Represents Shares underlying American-style call options purchased in the over-the-counter market. These call options expire on May 31, 2018. |
(2) | This amount represents the cost of an applicable American-style over-the-counter market call option to purchase one Share. The per Share exercise price of these call options is $36.50. This exercise price will be adjusted to account for any dividends or other distributions declared by the Issuer prior to exercise of the options. |
(3) | Represents Shares underlying European-style put options sold in the over-the-counter market. These put options expire on the earlier of May 31, 2018 or the date on which the corresponding American-style call option described above in footnote 1 is exercised. |
(4) | This amount represents the proceeds received from an applicable European-style over-the-counter market put option to sell one Share. The per Share exercise price of these put options is $36.50. This exercise price will be adjusted to account for any dividends or other distributions declared by the Issuer prior to exercise of the options. |
(5) | Represents Shares underlying listed American-style call options. The call options expire on October 20, 2017. |
(6) | This amount represents the cost of an applicable listed American-style call option to purchase one Share. The per Share exercise price of these call options is $50. This exercise price will be adjusted to account for any dividends or other distributions declared by the Issuer prior to exercise of the options. |
(7) | This amount represents the proceeds received from an applicable listed American-style call option to purchase one Share. The per Share exercise price of these call options is $60. |
(8) | Represents Shares underlying listed American-style put options. The put options expire on January 19, 2018. |
(9) | This amount represents the proceeds received from an applicable listed American-style put option to sell one Share. The per Share exercise price of these put options is $40. The exercise price will be adjusted to account for any dividends or other distributions declared by the Issuer prior to the exercise of the options. |
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