GREENWICH, Conn., Jan. 27 /PRNewswire/ -- Wexford Capital LLC announced that it wrote the Board of Directors of Energy Partners Ltd. (NYSE: EPL) urging the Board to cancel the 'change in control' severance agreements with senior management, terminate senior management, reduce significantly the company's SG&A, restructure the company's debt, and reduce the size of the Board of Directors.
The following is a copy of Wexford's letter:
January 26, 2009
Richard A. Bachmann
Chairman
John C. Baumgarner, Jr.
Jerry D. Carlisle
Harold D. Carter
Enoch L. Dawkins
Norman C. Francis
Robert Gershen
William R. Herrin, Jr.
James R. Latimer, III
Bryant H. Patton
Steven J. Pully
Directors
Energy Partners Ltd.
201 St. Charles Avenue
Suite 3400
New Orleans, LA 70170
Gentlemen:
Wexford Capital LLC and its affiliated investment funds are major stakeholders in Energy Partners Ltd., holding significant positions in the Company's common stock as well as the 9.75% Senior Notes due 2014 and Senior Floating Rate Notes due 2013 (collectively, the 'Notes'). By way of background, Wexford is an SEC registered investment advisor with over $6 billion of assets under management in a series of affiliated private equity and hedge funds. Energy / natural resources is one of our key areas of focus and expertise, and we have significant experience in the oil and gas exploration and production industry as well as other facets of the energy sector.
As an investor in Energy Partners we have watched with increasing dismay and frustration the Company's loss in enterprise value. Our disappointment and concern over Energy Partners' dismal financial performance is exacerbated by the apparent lack of any sense of urgency at the Company to implement measures to protect and preserve value. Management, it would seem, is content to proceed with business as usual as the Company continues to decline in value. Under these circumstances, we believe that the board of directors needs to take firm steps to address the challenges confronting the Company.
Stakeholders have good reason to be concerned about Energy Partners' performance, prospects and viability --
- The Company's administrative and overhead costs are grossly disproportionate to its size and operations, and the cuts that have been planned are insufficient.
- The Company's exploration activities and efforts to replace its reserves have been a dismal failure.
- The Company is overleveraged and has failed to take necessary actions to restructure its balance sheet.
The Company's Operating Expenses are Too High.
Energy Partners is not a large company, but bears administrative and overhead expenses similar to companies 4-5 times its size. In 2007 SG&A was $61.7 million. In mid-2008, the Company acknowledged the need to reduce overhead costs and adopted a plan to reduce 2008 expenses by $20 million. It appears that $17-19 million of this savings was planned to come from SG&A (which would reduce 2008 SG&A to $43-45 million). However, since the 2007 SG&A included $9.4 million of one time expenses relating to failed M&A activity, the actual planned 'savings' in recurring SG&A expenses was only $7.6-9.6 million. Moreover, based upon the Company's September financials, it appears doubtful that the Company will achieve even this reduction. In any event, even if the Company succeeded in realizing the full planned reduction of SG&A, this should be viewed as a good starting point, not a success. In our view, based on the Company's size and operations, it should target SG&A (excluding one time items) of $25 million or less.
The comparison below of 2007 SG&A at Energy Partners to a peer group demonstrates the extent to which Energy Partners is a significant outlier. (The companies shaded are from the peer groups used by the Company for management compensation purposes.) The Company's 2007 SG&A has been adjusted to eliminate the $9.4 million in one time M&A expenses that were incurred in 2007. The 2008 target assumes the accomplishment in full of the targeted amount of additional savings.
