Hedge fund Corvex Management LP on Wednesday reported a 5.5 percent stake in Energen Corp (EGN.N) and called for the possible sale of the oil and gas producer.
Energen's shares were up 3.1 percent at $57.38 in morning trading, giving it a market value of around $5.3 billion. The Birmingham, Alabama-based company has a large concentration of its assets in the Permian Basin.
The Permian Basin of West Texas, the largest U.S. oil patch, has become a hotbed of M&A activity in the energy industry as a recovery in oil prices spurs firms to make strategic investments.
Oil industry deals this year have centered on securing acreage in the Permian Basin due to its low production costs, key at a time when oil prices have recovered to around $50 per barrel, up from around $35 per barrel in early 2016.
The hedge fund, which called Energen's shares "undervalued", has held discussions with the company, according to a regulatory filing on Wednesday. (bit.ly/2qFNiaW) Corvex, a $5.5 billion hedge fund run by Carl Icahn protege Keith Meister, is urging the company to put itself up for sale.
"This flows from an opinion that EGN has strong assets that are underappreciated by the market because of operational missteps," said Don Bilson, head of event-driven research at Gordon Haskett.
When asked during a conference call last week about the company's shareholder base, Energen CEO Jim McManus said he expects the company to have a break-out year.
"So I think it's all about execution right now," he said on the first-quarter conference call. Corvex, in its quarterly filing of stock holdings earlier this month, disclosed a small Energen stake purchased in the first quarter. Hedge funds Elliott Management LP and Highfields also disclosed they purchased Energen shares in the first quarter.
Up to Tuesday's close of $55.62, Energen's shares had gained about 17 percent over the past year, valuing the company at about $5.5 billion. The S&P 500 Oil & Gas Exploration & Production index .SPLRCOILP has gained about 24 percent over the same period.
(Additional reporting by Swetha Gopinath and Yashaswini Swamynathan in Bengaluru; Editing by Maju Samuel and Paul Simao)