Small oil company’s shareholder fight has international reach

A small independent oil and gas company, based in Houston but working in Alaska and listed on the Australian stock exchange, is locked in a takeover battle with Chinese investors who have called for a July 2 showdown.

Buccaneer Energy CEO Curtis Burton and the rest of the directors have a final chance to persuade shareholders to keep them on the board even as the company’s stock is trading at just pennies a share. They’ll make their case during a call-in meeting Tuesday — Wednesday in Australia, where many of the shareholders live.

That follows a series of shareholder meetings in Houston and Australia to counter arguments by two investor groups, Pacific Hill International Limited and Harbour Sun Enterprises Ltd., that claim that Buccaneer has lost its way, beset by delays and cost overruns as it pursued an ambitious drilling program in Alaska’s Cook Inlet and on the Kenai Peninsula.

Low stock price

Burton, who founded the company in 2006, acknowledges the stock price is a problem. It traded at 4 cents a share Friday; share prices reached a high of 40 cents in 2008.

But he insists the company is poised to turn around, with two gas wells producing onshore and a third well now drilling offshore.

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He said the company’s proven reserves of 27.1 million barrels of oil equivalent in Alaska are at stake and couches the issue as a U.S. company at risk of being taken over by foreign investors for “pennies on the dollar,” most of its assets sold or being taken private, leaving shareholders with little recourse.

“I’m more than a little ticked off that a couple of fat-cat Chinese investors can come in” and threaten to take over the company, he said.

Struggle for funding

Buccaneer struggled for funding from the beginning and continues to lose money, according to its latest quarterly report. But the losses are lower than in previous quarters, and a report issued last month by Australian financial firm Bell Potter Securities predicted revenue will increase over the next few years.

Burton and Dean Gallegos, the company’s Australian-based finance director, have begun a campaign to counter Pacific Hill and Harbour Sun, sending out a letter Friday urging shareholders to vote against the proposal to remove them and the rest of the Buccaneer board.

Representatives from Pacific Hill and Harbour Sun, both of which list Hong Kong addresses, could not be reached for comment.

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According to materials distributed by Buccaneer at the dissident shareholders’ behest, those investors want to shrink the company to better match its “financial and human resource capacity.” They question Buccaneer’s reliance on Alaskan tax credits, as well as its decision to purchase a jack-up drilling rig.

The rig required costly repairs when it arrived in Homer, Alaska, from Singapore last year. After seven months and a legal dispute with a repair contractor,the rig launched in March and is drilling in the inlet.

Burton met with Alaska Gov. Sean Parnell and members of the Alaska Legislature in mid-June, weeks after it became clear the takeover threat was serious. He said he did not discuss the issue with them, instead focusing on Parnell’s ideas for energy development in the state.

A Parnell spokeswoman said Friday the governor was not aware of the takeover threat.

Neither were Alaskan environmentalists, who have criticized Buccaneer for its entry into the Cook Inlet, which hadn’t been drilled for nearly 20 years.

But Bob Shavelson, executive director of the Cook Inletkeeper, was cautious about a takeover.

“It depends on who the new owners are going to be,” he said.

Under Australian law, any shareholder with at least 5 percent of stock can request a meeting be called. Pacific Hill and Harbour Sun own 8.69 percent of Buccaneer, according to the letter sent to shareholders.

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Buccaneer spokesman Richard Loomis said company management, including Burton, own about 3 percent of shares.

The July 2 meeting will be in Sydney. The dissidents will ask shareholders to remove all five directors – Americans Burton and Frank Culberson, CEO of Rimkus Consulting Group, and Australians Gallegos and Alan Broome – and replace them with Nicholas Davies, Shaun Scott and Clinton Adams. Davies and Scott are the founders of Arrow Energy, a coal seam gas company based in Australia.

Rules for companies listed on the U.S. stock exchange make it more difficult for minority stockholders to attempt a coup. But Burton said regulations make it too hard for a small company to raise money in the United States.

“If I had to do it again, I’d go to Australia again,” he said.

Even if he is removed from the board, he has a contract as CEO.

“But this isn’t about me keeping my job,” he said. “If I went home tomorrow, I’d be disappointed about the outcome, but I could start something else.”