Petroceltic (LSE:PCI)
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RNS Number : 5799E

Petroceltic International PLC

11 February 2015

Dublin

11 February 2015

Petroceltic Responds to the Worldview EGM Circular

Don't let Worldview destroy your Company

Petroceltic International plc (AIM: PCI) ("Petroceltic" or the "Company"), the oil and gas exploration, development and production company focused on the Middle East and North Africa, the Mediterranean and Black Sea regions, notes the statement issued on 9 February 2015 by Worldview Capital Management ("Worldview") in relation to the resolutions it has proposed for consideration by Petroceltic shareholders ("Shareholders") at an Extraordinary General Meeting (EGM) scheduled for 25 February 2015 (the "Worldview EGM Circular").

Petroceltic reiterates its recommendation that Shareholders should vote AGAINST the resolutions proposed by Worldview, as they clearly represent a means for them to obtain control of the Company's Board without paying Shareholders a fair price for gaining control of the Company.

-- Worldview's attempt to take control of Petroceltic risks serious damage to the Company's North African assets and their proposed technical strategy for Algeria and Egypt is flawed.

- Accelerating production commencement and reducing project capital expenditure in Algeria is not feasible from a technical and regulatory perspective.

- Materially increasing current production is technically unrealistic and risks damaging the assets.

- Very similar proposals have been extensively discussed and rejected by the Board, Petroceltic's partners in Sonatrach and Enel and ERC Equipoise (an independent oil and gas expert consultant).

- Worldview has no basis for its technical assertions and has never asked for access to any technical data on the Company's assets.

-- Worldview's proposed Board would be in breach of recognised standards of corporate governance.

- It would have a majority of Worldview nominated non-independent Directors.

- It would have no independent Director with financial experience to chair the Audit Committee, nor any executive Directors.

- It would include three technical Directors with similar and non-relevant backgrounds, namely experience in Russia, followed by service on the board of Ruspetro plc.

- The Board would not have the balance of skills required to run your Company.

-- Worldview's suggestion that the Company's cost structure is unjustifiable ignores the fact that the Company has already announced significant reductions to operating and capital expenditure in 2015.

-- Contrary to Worldview's assertions, Petroceltic has no current plans to raise equity capital.

The Board believes that the 'alternative strategy' proposed by Worldview demonstrates a serious misunderstanding of the assets owned by Petroceltic, the geographies in which it operates and a total lack of experience in managing major oil and gas production and development projects, in conjunction with National Oil Companies. The Board believes that the implementation of such a strategy would be value destructive for Shareholders.

Petroceltic further repeats its recommendation that shareholders should vote IN FAVOUR OF the Company's own resolutions to appoint two new independent non-executive Directors, Neeve Billis and Nicholas Gay to ensure the Board has a proportion of independent non-executive Directors and suitable relevant financial experience consistent with good corporate governance requirements. The two directors proposed and nominated to the Board by Worldview, Joe Mach and Don Wolcott, have taken a dissenting position with respect to the Board recommendations.

If you would like to submit or change your proxy, you can do so through completing a new form of proxy or by logging on to www.eproxyappointment.com and following the instructions. CREST members may also submit or change their proxy by utilising the CREST electronic proxy appointment service. Please ensure your proxy arrives at the Company's registrars no later than 11 a.m. on 23 February 2015.

For further information, please contact:

   Brian O' Cathain /Tom Hickey, Petroceltic International        Tel: +353 (1) 421 8300 
   Philip Dennis / Rollo Crichton-Stuart, Bell Pottinger              Tel: +44 (20) 3772 2500 
   Douglas Keatinge / Joe Heron, Murray Consultants              Tel: +353 (1) 498 0300 
   John Frain / Roland French, Davy                                          Tel: +353 (1) 679 6363 

Petroceltic Responds to the Worldview EGM Circular

Petroceltic notes the statement issued on 9 February 2015 by Worldview Capital Management in relation to the resolutions it has proposed for consideration by Petroceltic Shareholders at an Extraordinary General Meeting scheduled for 25 February 2015.

In relation to Worldview's core claims, the Company responds as follows (quotations in italics are taken from the Worldview EGM Circular):

Algeria strategy: "In our view the current approach to Algeria is outdated with its unreasonably large budgets and long schedules, aimed to deliver a 'gold-plated' custom-designed plant where one is unlikely to be required"

The Ain Tsila project cannot be delivered based on a strategy that ignores the project development requirements, location and regulatory framework.

-- At the Capital Markets Day ("CMD") on 28 January 2015, Petroceltic devoted 2 hours to explaining its strategy for the development of Ain Tsila, which had been agreed with and ratified by Algeria's National Energy Company, Sonatrach, and its partner, Enel. A copy of the CMD presentation is available on the Company's website www.petroceltic.com.

-- That proposed approach to the development of the Ain Tsila project derives from many years of co-operation and detailed discussion between Petroceltic, Sonatrach and Enel, on all aspects for the development.

-- Petroceltic has assembled a team of industry and Algerian experts with the necessary experience to deliver Ain Tsila, recognising the benefit of this approach to Shareholders and partners.

-- The Company is taking a number of initiatives to expedite project delivery including streamlined engineering, procurement and construction (EPC) tendering and contracting processes, drilling programme optimisation, the pre-ordering of long lead time equipment and facilities modularisation where appropriate.

-- The use of standard "off the shelf" facilities as suggested by Worldview is not possible for the Ain Tsila project due to a combination of factors including:

- the field's remote location which means that the project cost and schedule are largely dictated by the installation of infrastructure (airstrip, roads, accommodation and security provisions), ancillary plant and equipment (power generation, compression, gas gathering systems, utilities, metering and storage) as well as 400km of export pipelines;

- the requirement for a plant with a mandated long design life (the field may produce for up to 50 years), high reliability and low operating costs;

- the need for the plant to extract the maximum amount of high value hydrocarbon liquids from the gas and to produce high quality dry gas which can be exported directly to Europe; and

- compliance with Algerian government approvals, legal and procurement processes and technical equipment specification standards.

-- Worldview has claimed that the risk highlighted by the Company to the Algerian production sharing contract (PSC) in the event of the Worldview Resolutions being approved is "misleading and ... scaremongering." On the contrary, that is a real and significant risk which is enshrined in Algerian Hydrocarbon Law and on which the Company has received advice from its Algerian legal advisers. It is inappropriate for Worldview to dismiss this risk without detailed legal analysis.

-- Worldview states that it "has significant reason to believe its approach would be supported by the Company's Algerian partner and without any negative implications for the license granted by the Algerian authorities". Worldview has given no account of its engagement with Sonatrach or the Algerian Authorities, and the Company is not aware that Worldview has engaged with them. This unsubstantiated statement should give little comfort to Shareholders.

Petroceltic's Algerian management team, led by Brian O'Cathain, has a track record of successful Algerian project delivery, strong working relationships with the Company's development partners, and is fully aligned with them on the planned approach to delivering the Ain Tsila project.

Desire to increase production: "Based on current industry best practice, it is estimated that volumes in Egypt and Bulgaria can increase by a third within months"

-- The Company has almost a decade of operating experience in the Nile Delta and Black Sea and continually reviews its reservoir and well management practices to optimise production levels.

-- The Company also engages expert independent industry consultants and recently commissioned ERC Equipoise to review its Egyptian field management practices.

-- Consistent with the Company's internal view, ERC Equipoise considers that any attempt to materially increase rates from the existing wells would require them to be produced in a way which would significantly increase the risk of rapid well and pipeline failures due to water and sand production.

-- This could lead to a significant near term reduction in production levels, reserves write-downs, increased capital expenditure requirements, accelerated debt repayments, health and safety issues and, potentially, the premature relinquishment of certain development leases and breach of the Company's Concession Agreements.

-- Based on these considerations, neither the Company nor its partner EGPC (an Egyptian National Oil Company) would be in a position to support the approach proposed by Worldview.

Cost cutting and strategic direction: "In our view the cost structure of the Company is unjustifiable and unsustainable"

-- Petroceltic has responded to recent changes in market conditions and has already announced plans to significantly reduce operating and capital expenditure in 2015.

- Capital expenditure will be focussed on core production and development and operating assets in Algeria, Egypt and Bulgaria.

- Exploration activities in Romania, Bulgaria and Greece are being curtailed and the Company plans to farm-out acreage in Italy and Egypt.

- Petroceltic has implemented a programme to reduce business costs through a 40% reduction in head office costs and a 15% operating cost reduction in Egypt and Bulgaria.

-- The Company's operating costs ($3.12/boe in 2014) are very competitive by global standards. Furthermore, the Company's costs in the Nile Delta ($2.62/boe in 2014), where it sources the majority of its production, are significantly lower than the average for the region ($4.75/boe).

-- The Company regrets the costs which are being borne by shareholders in dealing with the EGM process and Worldview's legal action against the Company, which the Company believes is without merit and misconceived.

Need for financing: "Based on Worldview's analysis the Company will soon yet again run out of money, will ask Shareholders for funding, and will likely dilute many of them in the process"

-- Contrary to Worldview's assertions, Petroceltic has no current plans to raise equity capital. Should the Company wish to raise cash by carrying out a capital raise at any time in the future, this would require the prior approval of Shareholders.

-- Under the farm-out agreement with Sonatrach, all of Petroceltic's costs in Algeria will be carried until Q2 2016, ensuring that a number of critical project milestones will be achieved at no cash cost to the Company.

-- As always anticipated (and disclosed) the Company will look to put long term funding solutions in place to facilitate the Ain Tsila project spend for the period post the Sonatrach farm-out funding. The Company is confident after detailed discussions that this will be achievable, even after recent oil price declines. The Company believes that its production and development portfolio has excellent long term funding characteristics and in particular Ain Tsila, which is currently ungeared, will be the principal foundation for the future financing of the business.

-- Petroceltic has taken significant steps to strengthen its balance sheet in 2014, including a $100 million placing initially opposed by Worldview, and the completion of the up to $180 million Sonatrach farm-out.

Dragon Oil Offer Process: Worldview alleges that Petroceltic "refused to actively engage sufficiently" with Shareholders during the Dragon Oil process and that when it did that the Company proposed "unacceptable conditions" resulting in the offer being "mishandled".

Any offer for Petroceltic is governed by the Irish Takeover Rules, which require that all Shareholders must be afforded equivalent treatment. Following a request made by Worldview to Petroceltic, the Company specifically entered into formal correspondence with the Irish Takeover Panel ("the Panel") to seek its permission to pass relevant information on the Dragon Oil process to Worldview. However Worldview was unwilling to satisfy all of the conditions required by the Panel, in particular the signature of a confidentiality agreement and therefore it was not possible for Petroceltic to provide further information to Worldview. Consequently, Worldview has no detailed knowledge of the Dragon Oil process on which to base its assertions that the offer was "mishandled".

Alleged Breach of the Worldview Shareholder Agreement

Petroceltic does not intend to provide a detailed response to the Worldview allegations regarding possible breaches of the Worldview Shareholder Agreement as this is the subject of ongoing litigation, other than the following. The Company has performed all of its obligations under the Worldview Shareholder Agreement and considers the litigation to be misconceived. The Company announced on 6 October 2014 that subject to consultation with its Shareholders, it would be willing to recommend a firm offer from Dragon Oil plc. Prior to this announcement the Board had undertaken a full business review concluded between July and September supported by external advice. The subsequent CMD presentation was delayed by virtue of the ongoing discussions with Dragon Oil but was held as soon as practically possible following the termination of these discussions, and the Board has continued to review the business since this time.

The Board was heavily involved in preparing for the CMD and approved both its content and the style of presentation. The CMD was attended by four of the six Directors of Petroceltic (one of whom was only available for part of it) and the Company's two new proposed independent non-executive Directors. The only Directors who did not attend the CMD were the two Worldview nominated Directors, Joe Mach and Don Wolcott. The Company arranged for Mr Mach and Mr Wolcott to attend the CMD but, despite confirming their intention to attend in writing, they did not attend on the day.

The Company also strongly refutes Worldview's assertion that the Worldview Shareholder Agreement contemplates a maximum Board size of seven. The Worldview Shareholder Agreement does not commit the Company to maintaining any specific Board size on an on-going basis. It would not have been appropriate for the Company to have made any commitment in that regard, given that ultimately the appointment and removal of Directors is a matter for Shareholders. Petroceltic's articles of association allow for a Board of between three and fifteen Directors.

Remuneration of executives: Worldview claims that the Petroceltic 'leadership is over remunerated'

In setting remuneration levels for its senior management team, Petroceltic engages independent external remuneration consultants to advise on the level and structure of remuneration packages. This included the introduction of new share option plans which were approved by Shareholders prior to implementation and the ongoing review of salaries, bonus targets and benefits. The share option awards made in December 2014 were in full accordance with these plans, at levels recommended by the external remuneration consultants, and were unanimously approved by the Remuneration Committee.

In relation to current remuneration levels, a report was produced to the Remuneration Committee in November 2014 by the external remuneration consultants analysing the remuneration level of each member of the Company's Executive Committee. This concluded that, in broad terms, the remuneration levels of the Company were low in comparison to the Company's peer group, and in particular some of the Executive Committee were shown to be remunerated at levels below the lower quartile. The salary of the CEO was below the lower quartile, and his total cash and remuneration package was between lower quartile and median.

Independence of Directors: "Worldview believes that Joe Mach and Don Wolcott were appointed as, and remain independent non-executive Directors, and Maurice Dijols also meets the criteria to be deemed an independent non-executive Director"

Worldview asserts that two Petroceltic Directors, Joe Mach and Don Wolcott, are independent Directors despite having been proposed and nominated by Worldview pursuant to the Worldview Shareholder Agreement. At the time of their appointment in July 2014, the Board initially determined them to be independent. It is, however, a matter for the Board to determine the independence of a director, based on his or her actions, on an ongoing basis. In January 2015, the Board completed an externally facilitated Board governance review, which it undertakes on an annual basis. One conclusion of this review was that Mr Mach and Mr Wolcott were not acting in a manner independent of Worldview, and a large number of examples of these actions were presented to Mr Mach and Mr Wolcott upon conclusion of the Board governance review. As a result, the Board determined that it was appropriate to declare the Worldview nominated directors non-independent. The Company is also aware that since their appointment, Worldview has met both Mr Mach and Mr Wolcott on a unilateral basis without other Board members being invited or present. Furthermore, the Company notes that Worldview has not addressed the guidelines issued by the National Association of Pension Funds (NAPF), which state that "the NAPF considers that a non-executive director "represents" a significant shareholder if he/she is appointed to the board as a contractual right of that shareholder" (and accordingly would not be regarded as independent).

Worldview has asserted that "the appointments of Mr Mach and Mr Wolcott were also approved by Davy, the AIM nominated adviser to Petroceltic, who would have concluded that their appointment would result in an effective board for the Company's needs in accordance with its obligations pursuant to the AIM Rules for Nominated Advisers". As required by the AIM Rules of the London Stock Exchange and the ESM Rules of the Irish Stock Exchange Davy, Petroceltic's Nomad and ESM Adviser, investigated and considered the suitability of Mr Mach and Mr Wolcott as proposed Directors of Petroceltic and the efficacy of the revised board as a whole for the Company's needs. This diligence did not make, and was not required to make, any assessment as to their independence and was undertaken in light of the determination by the board of Petroceltic that completion of the 2014 Placing was in the best interests of the Company and its Shareholders as a whole.

With respect to Maurice Dijols, the Company further notes that Worldview has not addressed NAPF guidelines which state that when a Director is "...nominated for election by a significant dissident shareholder... the onus is on the nominee to demonstrate his/her independence which should be based on the independence criteria applying in the UK...with particular attention to the assessment of links between the nominee and the dissident." Given this guidance and previous experience, the Board does not consider it appropriate to determine Mr Dijols would be independent upon appointment if appointed pursuant to a requisitioned meeting by the Company's largest Shareholder.

It is also noteworthy that Worldview has failed to address the issue of "recent and relevant financial experience" on the Board of Petroceltic, which the Board believes is essential to a UK Corporate Governance Code compliant Board make-up. Worldview's proposed Board would have no independent Director with a professional qualification from one of the professional accountancy bodies who would be capable of chairing the Audit Committee.

Petroceltic believes that the two Directors proposed by the Company, Neeve Billis and Nicholas Gay, are wholly independent of the Company and fully compliant with the independence criteria set out in the UK Corporate Governance Code and related guidance, including that issued by the NAPF. Furthermore, Nicholas Gay is a chartered accountant and so would be able to fill the role as Chairman of the Audit Committee, which is particularly important given the current composition of the Audit Committee and the Board and the on-going audit process.

Worldview has not addressed the total disregard of good corporate governance practices and procedures that would result if Worldview's proposed Board of Mr Moskov, Mr Dijols, Mr Mach, Mr Wolcott, Mr Adair, Dr Parsley and Mr Craig were to come to pass. In particular, in this scenario:

-- Four out of the seven Board members would be non-independent and would have been proposed and nominated by Worldview;

   --     There would be no executive Directors on the Board; 

-- There would be no Board members with the appropriate qualifications to lead the Audit Committee; and

-- The Board would be imbalanced in respect of the type and level of skills required to manage a company with the profile of Petroceltic, and, in particular, would lack recent and relevant financial experience, particularly in the area of audit and accounting, with five of the seven Directors having a technical background, with no recent and relevant operating experience in Algeria.

Control: "the Directors proposed by Worldview would, together with the newly constituted Board, seek to implement Worldview's new strategy immediately following the EGM".

As noted above, Worldview asserts that Joe Mach and Don Wolcott are independent Directors. It also asserts that, if appointed, Maurice Dijols would be independent.

Based on the statement above, Worldview clearly envisages that, if the Board changes proposed by Worldview are approved by Shareholders, the newly constituted Board will implement Worldview's strategy as outlined in its announcement of 9 February 2015. Worldview makes this statement notwithstanding the fact that such a newly constituted Board would not be in place until after the EGM and therefore has not yet even considered the proposed strategy. Furthermore, three out of the seven Directors that would make up such a Board (being Robert Adair, Ian Craig and Alan Parsley) have expressed the view that the proposed Worldview strategy is flawed. Accordingly, the Board could only implement the proposed Worldview strategy through the support of Angelo Moskov and Maurice Dijols, together with Joe Mach and Don Wolcott.

The Board cannot understand how Worldview can credibly claim that any of Maurice Dijols, Joe Mach or Don Wolcott could be seen as independent of Worldview in these circumstances or how Worldview can credibly claim that the newly constituted Board would not in effect be controlled by Worldview. The Company believes that its view is further supported by the threat in Worldview's announcement that, 'even if Shareholders approve the appointment of Nicholas Gay and Neeve Billis, it would seek to remove them'. The Company notes that Worldview has not outlined any specific concerns in relation to the suitability or independence of either candidate.

The EGM:

The EGM will be held at 11am on Wednesday, 25 February 2015 at Royal College of Physicians, 6 Kildare Street, Dublin 2, Ireland. A circular, containing a notice of the EGM, is available for inspection on the Company's website at www.petroceltic.com.

Worldview's proposed resolutions seek the removal of Mr Brian O'Cathain, the current Chief Executive Officer of the Company, as a Director and to appoint two additional Directors, Angelo Moskov (the Chief Executive of Worldview) and Maurice Dijols (a person nominated by Worldview) (together, the "Worldview Resolutions").

In addition, the Board is proposing two further resolutions for consideration by Shareholders at the EGM. These relate to the proposed appointment of two additional independent Non-Executive Directors, Nicholas Gay and Neeve Billis, to the Board (together, the "Company Resolutions").

The two existing directors proposed and nominated by Worldview, Joe Mach and Don Wolcott, have taken a dissenting position with respect to the Petroceltic Board recommendations regarding the Worldview's resolutions and Petroceltic's resolutions.

Petroceltic continues to believe that the Worldview Resolutions are not in the best interests of Shareholders and that Worldview's proposed 'alternative strategy' is totally misinformed, technically unrealistic and extremely high-risk and wholly lacking in detailed technical analysis or understanding.

Petroceltic reiterates its view that Shareholders should vote AGAINST Worldview's resolutions, as they clearly represent an effort to obtain control of the Company's Board without paying Shareholders a fair price for gaining control of the Company.

Petroceltic further repeats its recommendation that Shareholders should vote IN FAVOUR OF the Company's own resolutions to appoint two new independent non-executive Directors, Neeve Billis and Nicholas Gay to ensure the Board has a proportion of independent non-executive Directors consistent with good corporate governance practice.

Ends

For further information, please contact:

   Brian O' Cathain /Tom Hickey, Petroceltic International        Tel: +353 (1) 421 8300 
   Philip Dennis / Rollo Crichton-Stuart, Bell Pottinger              Tel: +44 (20) 3772 2500 
   Douglas Keatinge / Joe Heron, Murray Consultants              Tel: +353 (1) 498 0300 
   John Frain / Roland French, Davy                                          Tel: +353 (1) 679 6363 

Notes to Editors:

Petroceltic International plc is a leading Upstream Oil and Gas Exploration and Production Company, focused on North Africa, Mediterranean and Black Sea Regions, and listed on the London Stock Exchange's AIM Market and the Irish Stock Exchange's ESM Market. The Company has production, exploration and development assets in Algeria, Egypt, Bulgaria, Romania, the Kurdistan Region of Iraq, Italy and Greece.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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