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Worldview Capital Management: Major Shareholder of Exillon Energy Plc to Requisition Extraordinary General Meeting for Board Overhaul and Strategic Review
By: PR Newswire
Jan. 14, 2013 02:01 AM
LONDON, January 14, 2013 /PRNewswire/ --
Reasons for EGM:
EGM will call for:
Worldview Capital Management ("Worldview"), the Swiss-based investment manager, has begun the formal process of requisitioning an EGM at former FTSE-250 constituent, Exillon Energy plc ("the Company") (EXI.L), an independent oil producer with assets in Northern Russia. Worldview are seeking the removal of Chairman, David Herbert, and the appointment of 3 new Non-Executive Directors. This follows a more than 60% decrease in the oil firm's share price following the $280m placing in March 2011 and a series of production setbacks. Worldview believe this performance is the result of an inappropriate Board who have implemented a flawed operational strategy and overseen a period of serious corporate governance failings.
Worldview's call for an EGM comes as a last resort following a period of attempted engagement with the Board since May 2012.
Purpose and role of proposed new Non-Executive Directors
With a clear focus on recovering shareholder value, the proposed new Directors would provide vital operational and sector experience where the existing Board is currently weak. Worldview have major concerns regarding the Company's current strategy and portfolio management. The new Directors' experience will play a crucial role in developing and executing the most appropriate strategy and driving operational performance improvement, whilst immediately improving corporate governance at the Company.
Underperforming and inappropriate existing Board
Non-Executive Chairman, David Herbert, and Chief Executive, Mark Martin, were appointed in 2011, without a proper search process, despite both lacking relevant E&P experience. Under their tenure the Company has experienced production setbacks on two occasions. In the period from David Herbert's appointment on 28 April 2011 to date the Company's shares have underperformed the FTSE 350 Oil and Gas producers index by 65% and the Russian RTS index by 60%. Furthermore, during this time the Company has also dropped out of the FTSE-250, with the share price falling sharply (from 468p to 146p). In the absence of news of significant progress, Worldview believe that recent share price appreciation is the result of its share purchase programme that took place during the second half of 2012.
The absence of a Finance Director further demonstrates that the Board lacks the expertise to properly manage the Company's activities.
Flawed strategy and ineffective portfolio management
Worldview believe that the Board has the wrong strategic focus by developing its high risk and less profitable assets in the Russian region of Timan-Pechora, which is diverting capital and other resources away from developing its assets in Western Siberia that have been shown to produce higher returns.
This view has been echoed by Otkritie Capital, an independent firm of brokers covering the Company, who stated in a research report in November 2012: "We do not support the company's aspiration to invest in Timan-Pechora due to the higher drilling costs and lower flow rates than in West Siberia. Nor do we support infrastructure spend ahead of production growth."
Lack of independence
There remain significant questions over the independence of the current Exillon Board. David Herbert and Mark Martin were UK bankers from Exillon's sponsoring investment bank. They were appointed to the Board as Chairman and CEO shortly after a major fundraising by Exillon and sell-down by the principal shareholder, Maksat Arip, of $130 million conducted at the Company's near all time share price high.
Since that time the role of Mr Arip, who at the time of his resignation as Executive Chairman, was simultaneously appointed CEO of the Company's subsidiary companies has remained unclear. The latest annual report refers to Mr Arip as a "consultant" rather than an employee or by his announced title. Nevertheless, "Mr Arip assisted the Remuneration Committee in its decision regarding the remuneration of Mr. Martin [and] of Mr. Herbert" (Annual Report 2011).
This concern is reinforced by the fact that there appears to be precedent for this type of management manoeuvre by Mr Arip. When he stepped down as Director and CEO of Kazakhstan Kagazy plc ('Kagazy'), a London Stock Exchange-listed industrial group of which he was a principal shareholder, Mr Arip continued to hold the position of Director of its principal operating subsidiary "in order to focus [his] time on the strategy and business development of the Group" and that he would "continue to perform the same duties as [he had] to date". (Kagazy RNS 30 April 2008). Having raised $250 million on IPO in 2007, Kagazy is understood to still be negotiating restructuring terms with its creditors that have been ongoing since it first defaulted on over $100 million of bonds in November 2009 (Mr Arip having resigned as Director of Kagazy's principal operating subsidiary in July 2009 and disposed of his entire interest in Kagazy in September 2009 (Kagazy RNS 24 September 2009). Moreover, there are concerns that there may have been inadequate and misleading disclosure in Exillon's most recent prospectus regarding the Kagazy debt restructuring.
Misleading production figures
Worldview believe that the Company's recent production announcements continue to be misleading. As a case in point, they regard the announcement on 7 January 2013 detailing 2012 production results as exemplifying this concern. Worldview notes the inclusion of data in the year end production report for "peak production". Peak production is not a performance indicator that is in accordance with industry norms or best practice and in Worldview's view is easily manipulated and therefore cannot be used to suggest that the Company has met its production targets for 2012. The reality is that the actual average daily production has in fact fallen below guidance for both the full year (12,862bopd vs 14,303bopd or minus 10%) and for the final quarter of 2012 (15,218bopd vs 17,398bopd or minus 13%). In addition, it is well below the forecast average daily production from proven reserves as projected in the Company's independent geological report in February 2012 (12,862bopd vs 18,760bopd or a 31% shortfall).
The issue of governance was brought into sharper focus in April 2012 when Exillon was fined £292,950 by the FSA for its failure to identify and disclose payments of almost £1 million to Mr Arip whilst he was Executive Chairman.
Breach of listing rules/ misleading information
Other corporate governance issues that shareholders are eager to see addressed include numerous examples of non-disclosure of key investor information such as the Company's prospectus and an accurate biography of its Chairman. During the appointment of Chairman, David Herbert, his previous Chairmanship of AIM-listed Timan Oil and Gas - a company that lost 88% of its value following its LSE AIM IPO under his stewardship - was not disclosed.
Worldview is also demanding to know why a remuneration package was agreed for CEO, Mark Martin, which included a salary of $825,000 p/a plus benefits - almost three times the amount of his predecessor - and a share package worth over £10 million at the point of issues, without any performance-related conditions.
EGM request and call for change
Worldview Capital Management, a significant shareholder in Exillon, has begun the formal process of requisitioning an EGM in the conviction that the introduction of new, qualified and experienced Board members, including two independent candidates who were identified following a thorough and professionally run search process, can address the issues currently undermining Exillon's operational and share price performance.
Restoring shareholder value - addressing strategy, portfolio management, executive and Board leadership, eliminating governance failings and assessing and improving operational performance.
Worldview is proposing the introduction of three new Board members with the relevant experience to evaluate the current operational strategy and ensure corporate governance standards in order to help realise the true underlying value of Exillon's assets and restore shareholder value.
Proposed Non Executive Candidates
Yves Mérer - Highly experienced oil executive with significant emerging market experience and a wealth of international oil and gas experience acquired over a 30-year career with Shell that included:
He is currently Chief Executive of Caithness Petroleum, a privately owned, British independent oil and gas exploration and production company.
James Dewar - Qualified chartered accountant with 30+ years of experience in senior international roles
He is currently a Non-Executive Director of East West Petroleum Corporation (TSX.V: EW), sits on the Advisory Board for Viking Services and is a Non-Executive advisor to Atlantic Energy, a privately owned UK and Nigeria based energy company.
Andrey Kruglykhin - Founding Partner and Chief Compliance Officer of Worldview Capital Management with significant oil and gas and turnaround experience in companies with management and governance failings, minority shareholders' rights, and corporate governance
Worldview Capital Management Partner and Chief Compliance Officer, Andrey Kruglykhin, said:
"We have invested significantly in Exillon and currently control 13% of the Company's shares. This reflects our view that Exillon has a number of attractive assets, which have the potential to deliver significant returns. The proposed new, experienced team at Board level will bring about the vital changes needed to unlock the true value of these assets. It is for this reason that we have informed the Company that we are requisitioning an EGM, having been unable to constructively engage with the Board since May 2012.
We believe that now shareholders are in full possession of this information, and have a clear opportunity to remedy the situation and restore shareholder value, we can count on their support to vote for these changes."
Notes to Editors:
Worldview Capital Management is an investment management group based in Switzerland and UK (FSA authorised), which controls votes of more than 13% of the share capital of Exillon Energy.
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