Capricorn to Carnarvon: board ructions continue

A LARGE group of investors in one of Australia's hottest oil stocks, ASX-listed Carnarvon Petroleum, have raised serious concerns over board remuneration.
Capricorn to Carnarvon: board ructions continue Capricorn to Carnarvon: board ructions continue Capricorn to Carnarvon: board ructions continue Capricorn to Carnarvon: board ructions continue Capricorn to Carnarvon: board ructions continue

The Dorado-3 appraisal well

Paul Hunt and Helen Clark

Carnavron owns a 20% interest in the biggest oil discovery of this decade, the Dorado find on the North West Shelf of Western Australia. The project is currently under development by venture operator Santos (80%). 

The group of shareholders, led by Nero Resources Fund, together hold 8.79% of Carnarvon Petroleum stock, currently worth about A$30 million. Previously, prior to the oil price crash when the stock was worth as much as 60 cents, the stock held by the investors was worth more than $70 million
Earlier this week the investor group raised concerns about how much the board and management were paying themselves.
In a letter obtained by Energy News, the group of investors said the board and management had "failed to take steps to fully realise" the potential of the company's assets and had "little to show" as a result.

Of key concern was the company's "excessive" remuneration to board members and high-level executives.

The investors said in their letter that executive directs had been paid more than $6 million since the company's share price had fallen from 60 cents per share to just 23 cents.

The investors said the remuneration was paid to management with "very little value adding" and had nothing to show for it.

"For example, the chief financial officer was paid A$762,075 in 2019 but the work involved in that office and the failure to value add could not possibly justify such a reward," the investors said in their letter.

The investor group also want to appoint an independent director, namely Doug Jendry, to the board to ensure accountability. Jendry is also a director of Nero and the chair of Talon Petroleum. 
This move to appoint Jendry has been opposed by the current board which has advised shareholders to vote against his election at the November 11 annual general meeting. 
Carnarvon argues Jendry's skills already exist on the board, and his position on the board of Nero means he is not independent and the combined shareholders do not hold enough of the company to call for their own board appointment. 
It comes just weeks after former banker Debra Bakker was appointed to the Carnarvon board. Energy News understands the appointment of Jendry was not to remove Bakker. 
Jendry and Bakker are not unfamiliar. Nero forced Bakker out of an unrelated company, gold producer Capricorn Metals, last year. Jendry was her replacement for a short period while the company cleaned house and found a new board. 
"I'm really disappointed we didn't have a chance to prove ourselves to you," she said then. 
Nero's issue with the gold company was that it had little cash on hand, a small market cap, and not enough access to capital to develop the Karlawinda Gold Project.
It would have needed to find capex via a "highly delutive" capital raise, according to Nero managing director Russell Delroy, speaking to Energy News sister publication Mining News then.
The new board consequently at least doubled the company's market cap and shareprice. 
Speaking to Energy News this week Nero MD Russ Delroy said feedback from other Carnarvon Petroleum shareholders had been "really good" and suspected Nero had broader support. 
"I suspect the votes are behind us... we're not the only ones holding the view that things are a bit cosy down there". 
Delroy questioned the due diligence by both Carnarvon and Bakker, given the prior run-in with Nero. 
"Surely you were joining the board of a company to take a passing look at the shareholder registers and if there was a disagreement in the past why on earth enter that company," he said. 
"The point I've been making to the board, this is a group that owns 10% of your company or just under and we want to have someone on there that we feel adds a lot of value through experience and energy," he said of Jendry. 
Carnarvon however backed their woman. 
A statement to Energy News from chairman Peter Leonhardt said "The board's view is that her experience is relevant and will be of value to the financing process, and we are satisfied that she offers new insights into how the financiers the company is engaging will approach key issues." 
Nero directly holds 2.2% of Carnarvon shares, but has declared associated shareholders holding a further 6.53%, including former governor of Western Australia Malcolm McCusker.
Carnarvon only briefly hit 60c highs twice in the last two years, after initial drill results at the offshore WA Dorado-1 confirmed the decade's largest offshore oil find, and when later appraisal drilling turned up similarly happy results. 
Prior to that it was worth 14c or less through 2018. When the oil price crashed earlier this yeararound what it plunged to with its peers through the worst of the oil price crash in April. 
"Nero and their associated shareholders are trying to take advantage of the current volatile oil price environment to exert undue influence on the company from a minority position," Leonhardt said. 
"During the past three years, Carnarvon's current board and management have presided over the discovery, appraisal and advancement of one of the biggest and best oil discoveries in Australia for over 30 years in Dorado."
He also pointed to the possibility of a new drill campaign next year, targeting long-held favorite targets Apus and Pavo. 
Delroy wants to see the company to be more actively promoting itself, despite its junior partner status in the Dorado oil project with the much larger operator Santos (80%). 
He suggested to Energy News appointing someone with the "energy of Stuart Nicholls" would be beneficial for the company. 
Nicholls, well-known for his boundless energy, is managing director of Strike Energy, which made its own huge and historic find in the onshore Perth Basin at the West Erregulla-2 conventional gas well last year.
Nicholls had been promising huge returns even prior to drilling the 5000m well, while Carnarvon left the Dorado-1 announcement to the private Quadrant to make at a Western Australian Petroleum Club dinner two years ago. Quadrant was taken over by Santos later that year. 
Nero Resource Fund has $95 million under management.