(Adds Legacy CEO comment)
By Nia Williams
CALGARY, Alberta, April 20 (Reuters) - Intermediate producer Legacy Oil + Gas Inc formed a special committee on Monday to deal with hedge fund FrontFour Capital's move to gain seats on its board, the first major case of shareholder activism in Canada's oil patch since last year's sharp drop in crude prices.
Calgary-based Legacy, which has assets in southern Alberta and light oil operations in the Bakken region of southern Saskatchewan, came under scrutiny last month after legal documents showed it was back-stopping a loan for Chief Executive Officer Trent Yanko.
In a statement, the company confirmed it received notice of Connecticut-based FrontFour's plans to nominate three directors at Legacy's May 26 annual general meeting.
"We have formed a special committee to engage with FrontFour and now that matter is in their hands. I am not in a position to comment on it," Yanko said.
The committee is made up of three independent members of the board, including Jim Bertram, executive chairman of Keyera Corp .
"We are not surprised by the activist approach given Legacy's leveraged balance sheet, discounted trading multiple, and recent issues around corporate governance with respect to a personal loan guarantee for its CEO," said RBC Capital Markets analyst Shailender Randhawa.
Yanko and his wife bought $5.68 million worth of Legacy shares last year through a margin loan from the Bank of Nova Scotia supported by the lending value of stock owned by the couple.
Last year's oil price drop and accompanying slide in Legacy shares triggered a margin call in December. In order to avoid the Yankos' shares being sold off, Legacy's board guaranteed the loan.
Activist investors have been eyeing debt-ridden energy companies as U.S. crude prices tumbled to less than $45 a barrel from more than $100 last year. Most, however, are waiting for volatility to subside.
FrontFour owns 6.8 percent of outstanding Legacy shares. It was co-founded by Zachary George, son of former Suncor Energy Inc CEO and Rick George.
Zachary George is one of FrontFour's three shareholder nominees, along with Martin Ferron, CEO of North American Energy Partners Inc, and Matt Goldfarb, acting CEO of Cline Mining Corp.
FrontFour said last week it was seeking to elect nominees to ensure the Legacy board "acts in a manner consistent with governance best practices and maximizes value for all shareholders."
Legacy shares closed up 5.9 percent on the Toronto Stock Exchange at C$2.71. (Additional reporting by John Tilak in Toronto; Editing by Paul Simao and Andre Grenon)