Western Oil Sands faces revolt

CALGARY, TORONTO -- Major shareholders in Western Oil Sands Inc. -- unhappy with its foray into Iraq -- are about to begin a public battle to oust the company's board of directors, says a source close to the investors.

Shares in Western climbed yesterday in extremely heavy trading on the Toronto Stock Exchange, on a day of widespread losses among energy issues.

Until three months ago, Western was a junior partner in the Athabasca Oil Sands Project, and seen as a comparatively safe investment in a turbulent sector.

But three months ago, it unveiled plans to expand into the Kurdish region of northern Iraq, a relatively stable part of the war-torn country. That announcement confused and upset investors, who questioned the company's decision to abruptly shift its strategic focus. That upset grew when Western said it had been planning the move for a year-and-a-half, and had already signed two memoranda of understanding with the government of the Kurdish region.

Now, the turmoil is about to take form as a concerted shareholder revolt, according to a money manager who owns shares in Western Oil Sands. He told The Globe and Mail yesterday that the first formal step in that revolt, the filing of proxy materials, is imminent, perhaps as soon as today. Two major shareholders, one in Canada and one in the United States, will lead the effort, he said.

So far, the shareholder uprising has remained behind closed doors, but it has been brewing for weeks. A source close to Western's biggest shareholder, Wellington Management Co. LLP, recently told The Globe and Mail that investors are determined to push for change behind the scenes, or if necessary, in an "unfriendly" and public fight.

He likened the clash with Western management to the showdown between Penn West Petroleum Ltd. and its shareholders two years ago, when an investor uprising prompted that company to convert into an income trust.

Wellington declined to comment, and it is not clear whether the Boston-based fund is actively involved in the shareholder effort to oust management.

Western Oil Sands did not return calls yesterday. At the time of the announcement of the move into Iraq, the company had stressed that the expansion would incur only modest capital expenses. The company must spend at least $45-million (U.S.) over four years, although if those initial exploration efforts proved successful, there would likely be more exploration and development expenditures.

Shares in the company rose 2.4 per cent to $28.76 (Canadian) on the TSX yesterday, on a trading volume of 6.1 million shares. That is four times greater than the average trading volume of the stock over the last three months.