LONDON (Alliance News) - PetroNeft Resources PLC on Monday said shareholders should reject the propositions put forward by its largest shareholder at an extraordinary general meeting next month, stating there would be several major risks to the company if they are approved.
PetroNeft has tried to win investors over to its side by announcing its partner in Russia has agreed to provide a loan so the pair can carry out a substantial work programme over the next two years, but said it is contingent on the resolutions being rejected by shareholders next month.
PetroNeft shares were down 13% to 2.01 pence per share on Monday morning.
Natlata Partners Ltd is the largest shareholder in the company with a 29.47% stake and filed the request for an EGM earlier this month so that it could propose removing Non-Executive Chairman David Golder, Chief Executive Dennis Francis, Chief Financial Officer Paul Dowling and Executive Director David Sanders from the board.
Natlata is controlled by Russian businessman Maxim Korobov and describes itself as an investment company focused on investments that "appear to be distressed or are at an early stage of development and which will clearly benefit from effective management and proven sector experience."
Natlata is hoping to replace those existing PetroNeft board members with Anthony Sacca, David Sturt and Korobov himself, and shareholders will vote on those proposed board changes at the EGM on April 18.
PetroNeft said Monday there were several major risks facing the company if shareholders approve the propositions, and highlighted it was the second time in two years that Natlata has tried to replace a majority of the board with its own nominees.
If those four existing board members were successfully ousted, PetroNeft would be left with two Independent Non-Executive Directors, Tom Hickey and Gerard Fagan.
PetroNeft said Natlata has supplied insufficient information about what its proposed strategy for the company would be if the resolutions were approved, including the plan for funding.
The company stressed that the passing of the propositions "would cause material risks" for the company and "could lead to" the loss of ownership of licence 61 in Russia, also known as Tungolsky, which is a 50:50 venture with Oil India Ltd.
In addition, PetroNeft said the "key funding" to be provided by Oil India for the development of the licence could be lost if the propositions are approved.
The company added there is a "real risk" that the company's strategy will be changed or related-party transactions undertaken that could be to the "detriment of the independent majority of shareholders", adding that the new board could also seek to cancel the company's shares from trading.
"PetroNeft has engaged extensively with Natlata in recent years. When the EGM requisition was received...the company was at the final stage of appointing two independent non-executive directors in a process that had been discussed with Natlata," said PetroNeft.
"Following receipt of the EGM requisition the board put this decision on hold in order to enter new discussions with Mr Korobov and Natlata to ascertain his current position which appeared to have changed markedly from earlier more constructive discussions," the company added.
"Since the EGM proposal was made PetroNeft has met with representatives of Natlata on several occasions with a view to reaching an arrangement that is in the interests of PetroNeft and its shareholders as a whole. To date a compromise has not been reached but the board of PetroNeft remains open to continuing these discussions," said PetroNeft.
In an attempt to demonstrate the company has a firm plan moving forward, PetroNeft also published its work programme for 2016 and 2017 for licence 61.
"The board and Oil India believe that there is an attractive economic return for this development plan even in today's low oil price environment and it will position the company to benefit materially from future increases in oil prices," said PetroNeft. "Natlata has not communicated or proposed any credible alternate strategy for the prioritised development and financing of Licence 61."
PetroNeft operates the licence and said the agreed work programme would require USD35.0 million of funding over the two years, and said Oil India has "indicated" it would be willing to fund 100% of the work by way of a shareholder loan to the joint venture company "on favourable terms."
However, that is reliant on the propositions being made by Natlata being rejected by shareholders.
The loan will not require repayments to be made until 2019, according to PetroNeft, and it said the legal documentation for the first tranche of the proposed funding is being finalised.
"This is a significant accomplishment for PetroNeft in the current market as it would otherwise be extremely challenging, expensive and dilutive to shareholders for PetroNeft to raise the required funding for its share of these costs," said the company.
"However, Oil India has indicated that this funding will only be made available conditional on the current management team remaining in place. Furthermore, should there be a change in management subsequent to the drawdown of the new loan this would constitute an event of default, requiring immediate repayment of amounts advanced and further requiring PetroNeft to provide its 50% share of this funding," the company added.
Later Monday, Natlata responded to the PetroNeft's plan to take out the loan and said the circular sent to shareholders regarding the EGM contains "vague and misleading allegations" about Natlata and its proposals.
Natlata said PetroNeft is offering "no solutions" apart from a "poison pill".
"It is immediately apparent that the board offers no solutions of its own, except spending more money, with a shareholder loan of USD35.0 million offered by farm-out partner Oil India, with certain conditions attached," said Natlata.
"This is similar tactics to what the board tried in 2014, when last challenged by Natlata. The result of that strategy is clear for all to see, with USD45.0 million spent for no material increase in production, and worse, only half of that production now accrues to PetroNeft," Natlata added.
Natlata's Korobov added: "Our proposals are aimed solely at unlocking the value of company for the benefit of all shareholders. In the next week we will be sending out our response and look to having a full and open discussion with shareholders in the run-up to the EGM."
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
Copyright 2016 Alliance News Limited. All Rights Reserved.
