Northbrook, Illinois-based Livermore could also potentially seek one or two board seats to get better oversight of the company and eventually explore strategic alternatives, including a partnership or the sale of the company, the fund’s top executive said on Friday.
The recent oil price slump has hit energy companies hard, and many smaller producers are struggling to keep production going.
Zargon’s shares have underperformed the broader market in recent months. They jumped 3 percent on the news before pulling back to end the day little changed.
“The value is trapped here. We want to unlock that,” David Neuhauser, Livermore’s managing director, said in an interview.
“We want change,” he added. “We see this as a deep-value investment with long-term potential. We want to make sure that it’s preserved in the current state of energy prices.”
He said he expects the board to engage with Livermore.
Zargon officials could not immediately be reached for comment on the fund’s move.
Zargon, which has operations in Alberta and Saskatchewan, had proved and probable oil reserves of 19.67 million barrels at the end of 2014.
Most analysts have a “hold” or equivalent rating on the stock. Some of them are waiting for signs of an improvement in its key Little Bow project before turning positive.
In a letter dated June 18 addressed to board Chairman James Harrison that was reviewed by Reuters, Neuhauser said the company needed to look for ways to increase efficiencies and profitability.
“Zargon for now must move away from its yieldco model in favor of seeking equity price appreciation,” he wrote. Yieldcos’ operating assets produce a predictable cash flow, mainly through long term contracts, and a large portion of their earnings are paid out in dividends.
Neuhauser said given the challenging environment and production issues at Little Bow, Livermore saw a need to play a part in the company’s strategic direction.
Zargon shares have been on a prolonged slump, losing about 92 percent of their value since hitting a record high in 2005. With the collapse in oil prices, the stock has shed 70 percent in the last 12 months, compared with a 38 percent decline in the iShares S&P/TSX Capped Energy Index Fund (XEG.TO).
Livermore’s past activist engagements include Occidental Petroleum Corp (OXY.N) and Volt Information Sciences Inc (VISI.A).