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5 Years : From Oct 2014 to Oct 2019
RNS Number : 3575F
Milroy Capital Limited
23 April 2014
The Shareholders April 23 2014
Wessex Exploration Plc.
YOUR VOTE IS IMPORTANT, ACT NOW - VOTE YES
-- The value of our company has fallen by over 95 % in less than two years
-- The current board lacks strong leadership, is too passive and does not have any skin in the game
-- We need a new stronger board with relevant experience to drive value creation for all shareholders
-- The Company needs to be on a stable growth projection with positive cash flow
-- Without fundamental change shareholders face a bleak future and a likely further dilution of their investment at best
Dear Fellow Shareholders;
On April 17, Wessex Exploration announced a General Meeting on May 15 following a requisition order submitting seven resolutions including the dismissal of three of the current directors and the substitution of four new directors.
We urge your support in order to turn around the fortunes of the company which have sadly drifted.
Milroy Capital Limited, a 4.7% shareholder of Wessex with 34 million shares, more than ten times the aggregate number of shares owned by the current board has, until now, been a patient long-term shareholder of the company despite seeing shareholder value plummet from 10 pence to as low as .30 pence (currently .52 pence) - a decline of 95%. This sad and continuing negative story and the current Board's failure to deliver on a stated strategy to preserve both assets and shareholder value, has motivated Milroy Capital to take formal action. Over the last year we have voiced our concerns about a lack of value creation strategy with the Chairman and the board and offered to help the board but the offer was not accepted.
For clarification there is no such "Dekker Group" as stated in the notice of general meeting by your current board. Mr Dekker will not be a member of the new management team, nor will he return to the board. (see later)
We do not believe that the current management has any chance of rescuing Wessex, and the longer they prevaricate, the more certain is the fate of our Company and our loss as shareholders.
Having been rebuffed, Milroy Capital submitted a Letter of Requisition requiring Wessex to convene a General Meeting which was received by Wessex on March 28. When the Company posted the Notice of the General Meeting to Shareholders it took the opportunity to reveal the board's plan to rejuvenate the stock with a "Mystery Deal".
As first lines of defence go, the lamentable attempt by Wessex's board to thwart the assault on their position is entirely predictable. This is what they had to say;
"Wessex is pleased to inform shareholders that it is now in advanced discussions with the vendors of a company holding an interest in a prospective offshore asset in the Far East, which the Directors believe is capable of near-term production. The acquisition, to be paid for by way of shares, will hold sufficient cash to cover its contractual drilling obligation and will bring with it a highly experienced, well-known and successful board level management team.
Further details of the intended acquisition will be announced when the Heads of Terms are signed.
However, completion of the transaction is conditional, inter alia, on shareholders voting against all seven resolutions in the forthcoming General Meeting."
Or put another way, they have a mystery deal, which is so amazing and that they are only going to tell you this big secret if you do what they want.
Without providing any serious details about their proposal for transforming Wessex, how on earth are shareholders meant to trust and evaluate such a vague announcement?
We contacted the Chairman for further details regarding the transaction having volunteered to sign a confidentiality agreement, and for the counter-party to remain anonymous not least because the proposed board is very capable of assessing any proposed global oil and gas acquisitionhaving extensive experience in Canada, USA, UK, Europe, Russia, Central Asia, Africa, Australia, Indonesia, Malaysia and Thailand and so could assist the Company.
The Chairman replied that he would not provide these details.
As such we cannot comment on the transaction's commercial terms, and on the basis of the Company's reply we can only conclude that the purported deal is designed solely to encourage shareholders to vote against our proposals at the forthcoming shareholders meeting. What is clear from the limited amount disclosed is that a transaction of this nature would almost certainly constitute a reverse takeover, and result in enormous dilution for all shareholders at the current low share price of .52 p.
Also we cannot tell you what the current management stand to gain, financially or otherwise from the transaction, or whether the counter-party is related to the current management.
History of Key Costs, Financial Performance, and Operating Cash flow
Over the three financial years from 2010 to 2013 including the December 31 2013 interim accounts your current board reported:
Cash inflow: Nil
Administration Cash Costs (including directors' remuneration) : GBP4.5 million (GBP260,000 for 3 months 2014)
Operating losses: GBP12.6 million
Proven Producing Reserves: Nil
The Chairman and board has presided over the destruction of a cash reserve of GBP15 million, reducing it to GBP2 million in less than 2 1/2 years with no tangible value creation to show for it.
The April 4 2014 Wessex news release-"Update on South of England Strategy" confirms that the current board has no strategy to fund future geological, geophysical work and drilling. There is no plan on how to survive, never mind build shareholder value. If shareholders do not act now, our figures show that the current board will take Wessex into administration in less than 18 months. The only alternative then available to the board will be a forced sale of any remaining assets at fire-sale prices, completing the destruction of the value of your shares.
In our view, Wessex is possible to turn around but our years of running companies tell us that the current management does not have the capability of changing course to keep it away from the abyss.
The strategy for running the company must be different now than it was 3 years ago. Wessex is in the end game and we have to assess risks differently and not be a passive wild cat exploration company.
We, The New board need to be attuned to the needs of the shareholders (by being vested in the company) and have a proven expertise to put the company on a stable growth projection with positive cash flows as soon as possible.
As of April 18 2014, Wessex had a market capitalisation of GBP4.2 million (with a share bid price of 0.52 pence) compared to a market capitalisation of GBP72 million several years ago (with a share price per share of near 10.0 pence).
What is Milroy Capital Proposing to Wessex Shareholders?
Remove the existing Board of Directors and replace with a new Board that collectively have substantial shareholder exposure (and thus alignment) and have the proven expertise to build a strategy which puts the company on a stable growth projection with positive cash flows. Milroy Capital and other shareholders will seek to remove from the current board and propose the election to the board the following:
-- Robert Milroy
-- Robert McAndrew
-- Alastair Murray
-- Ian Burns
Each nominee has an outstanding proven record in his field with extensive oil and gas experience not only at the public company board and senior management level. (see later)
New Board's Strengths
-- People- a seasoned team combining proven petroleum competence and financial acumen and access to substantive expertise in geology and geophysics
-- Excellent due diligence and country risk assessment capabilities, based upon the experience and stature of new board members
-- Immediate access to oil and gas prospects and transactions around the globe- international intelligence through the contact base of the new team
-- Speed - the ability to transact acquisitions in a timely fashion due to strength in pre-acquisition due diligence
In line with the UK Corporate Governance Code we are proposing to split the positions of Chairman and CEO (Provision A.2.1) and to increase the independent non-executive representation on the Board (Provision B.1.2). Our slate of candidates would expand the Board of Directors from three directors, to four directors, two of who will be independent non-executive directors.
Our proposed candidates are the following:
Robert Milroy as independent non-executive Chairman. Mr. Milroy indirectly holds 4.70% of the company's issued share capital and has no other commercial or business connections to the company or its other shareholders. We consider that he meets the independence criteria set out in the UK Corporate Governance Code.
Alastair Murray as Chief Executive. Mr. Murray is well suited to this role because of his ability and history of managing an oil and gas company.
Robert McAndrew as Chief of Production and Operations. Mr. McAndrew's qualifications plus the staff and consultants of Aberdeen Drilling Management currently do these tasks.
Ian Burns as independent non-executive director and Chairman of the Audit Committee. Mr Burns does not hold any shares in the company and has no commercial or business connections to the company. Mr. Burns is not being remunerated for his involvement in the proponent's campaign. We consider that he meets the independence criteria set out in the UK Corporate Governance Code.
We consider that separating the roles of Chairman and CEO and increasing the independent non-executive representation on the Board to 50% will represent significant steps towards meeting the corporate governance best practice expectations of many investors.
We have outlined our plans to a number of key Wessex shareholders and found a common concern with respect to the existing board. In particular, we have talked to Mr. Dekker, a former director and the largest shareholder of the company (11.3%). Mr Dekker will support our proposals at the General Meeting. Mr Dekker will not be a member of the new management team, nor will he return to the board. He is working on other projects. However, he is confident that he will benefit from our ability to deliver on the business plan that we have for the company.
Without losing sight of the current exploration assets about which we comment in more detail later, the new board will expand and focus on positive cash flow developments especially in near field appraisal opportunities onshore and offshore which are relatively low risk. Instead of being a passive or a non operator we will become proactive in becoming an operator in our production operations and development.
-- Acquire and develop small/ medium- sized producing assets ;
-- Production focused in areas with good logistics, near refineries, and with low cost transportation;
-- Exploration focused on existing oil producing districts or acreage adjacent to oil producing fields;
-- A balanced mix between known resources and exploration potential.
-- Reduce the asset risk profile and maintain upside potential
-- With proven depth in engineering, subsurface, execution and operations add to existing assets and consider including oil field service companies;
-- Target opportunities offering early or current positive cash flow ;
-- Target maturing gas fields, to extract low risk remaining value with a novel value extraction concept;
-- Take over undeveloped assets and revitalise them to unlock bypassed value;
-- Seek out suitable low risk farm-ins.
With the collective ability of the new board innovative financing will be considered based on their first hand experience in raising capital through Production Loans, Preference Shares, Energy Trusts, Limited Partnerships and Income Debentures, thereby minimising the dilutive effects on current shareholders of more equity issuance at these low prices.
The new board has onsite experience managing high cost projects, meeting their budgets, revisions, technical objectives and delivering on time. Our experience covers Engineering and Construction in the Alberta oil sands, field development of oil and gas wells, and secondary recovery water floods in Canada, USA, Asia and Europe.
We also have experience in Major Field development such as the UK Continental Shelf, Norwegian Continental Shelf, Sudan, East Mediterranean Gas, Eastern Europe, Russia and Kazakhstan.
Wessex Current Exploration Assets
Wessex is basically passive; the current board relies on third parties, the operators of the various licenses, for the drive to move the Company forward.
Wessex is now reduced to one active exploration project, the South American Guyane Maritime Permit in French Guiana and operated by Shell. This is a project which started over 10 years ago and Wessex has expended a high proportion of its capital on a very small interest (first 1.25% then reduced by the current board to 1.103%) in this expensive exploration play that has a long way to go before any prospect of a return on investment.
The License in the French Territory Mozambique Channel Juan de Nova Est Project in East Africa expired in December 2013 and is under a renewal process. Circumstances around this renewal process and the company's respective interest lacks clarity and may be in default.
Wessex has a 10 year extendible Assurance Agreement with the Saharawi Arab Democratic Republic ( SADR) for three blocks in North West Africa in the territory formerly known as the Western Sahara. This is an agreement with a "government" without control of the areas licensed as they are in an area controlled by Morocco. Wessex is the Operator. It is unclear when these licenses will become available for appraisal.
The three licenses held in the south of England and operated by NWE Mirrabooka have all been relinquished this year. All were approaching the end of their validity. The hope of the current Board of Wessex is to rebid for these relinquished licenses in the upcoming licensing rounds but there is no certainty about this as the area is now open to bidding by other competitor companies in firstly the 28(th) Offshore Round closing on 25 April, 2014, and later in 2014 in the 14(th) Landward Round.
Offshore Promote License P1928 was relinquished at the turn of the year as this license was expiring and no drilling prospect had been identified. PEDL 239 has just been relinquished as it was due to expire. This license covers two blocks on the Isle of Wight. It should be noted that no hydrocarbons have been discovered by any of the exploration wells drilled on the Isle of White. The value of this license area is questionable. PEDL 238, to the North of Wytch Farm was, like PEDL 239, at the end of a 2 year license extension, despite which NWE Mirrabooka had failed to complete the work required to retain the license. There are questions as to whether PEDL 238 is part of the Wytch Farm "petroleum system".
In summary all the current interests "held" by Wessex have some degree of legal uncertainty. Wessex has no source of income. The Company only has expenses. In the short term further severe cost cutting is required to allow the Company to continue and allow time to build shareholder value.
Summary Biographies of the Proposed Board
Robert "Woody" Milroy (Age 68)
Chairman of Milroy Capital Ltd and of Miloil Inc., which has interests in various oil and gas producing properties, processing plants and gathering systems, property and oil field service companies. Mr. Milroy is a Member of the Exploration and Production Society of Great Britain, Chartered Institute of Securities and Investment, and Institute of Directors. He is a non executive Director of Energy Ventures III, IV, one of the largest venture capital funds that finances early to mid-stage investments in oil and gas upstream sector companies that deliver a marketable, proprietary product or service. He is a Non Executive Director and Audit Chairman of Altus Resource Capital (LSE) and Non Executive Director of Altus Global Gold Fund, investment funds that focus on Junior and Mid tier Natural Resource companies. He was a founding shareholder, Director, CIO and Oil and Gas Fund Manager of the Corazon Group, an investment brokerage and management firm. Company now sold to Canaccord- Collins Stewart.
Robert MacAndrew (Age 66)
Managing Director of Aberdeen Drilling Management Ltd (ADM), a privately owned engineering and project management consultancy, providing services supporting the oil and gas industry. Mr. MacAndrew is a Chartered Engineer CEng, registered with the Engineering Council of the UK, and a European Engineer Eur Ing, on the register of FEANI in Brussels. He has worldwide experience of oil and gas operation, especially well related. His experience encompasses both onshore and offshore operations in operational areas that are remote and challenging. He has worked in roles from running drilling operations to Management.
Ian Burns. (Age 54)
Fellow of the Institute of Chartered Accountants in England & Wales and Chartered Institute of Securities and Investment. A director of Signet Petroleum Limited and Regalis Petroleum Limited, both of which are exploring for oil and gas in Africa. A non-executive director and audit committee chairman of two London listed companies, Phaunos Timber Fund Limited and Twenty Four Income Fund Limited. A non executive director Azincourt Uranium Inc. and Montreux Capital Corp, both of which are listed on the Toronto Stock Exchange.
Alastair Louis Murray (Age 54)
Chief Operating Officer of Stavanger Petroleum Ltd. and Chairman of Aberdeen Drilling Management and currently runs several natural resource (energy, mining and environmental related) projects in East Africa and Central Asia. A Materials Scientist, with 13 years government scientific service (United Kingdom Atomic Energy Authority) and 22 years of senior (Country & Regional) managerial experience in the oil and gas sector within emerging markets with Baker Hughes, Halliburton, Dresser Industries and Canamens Energy. Within Canamens Energy Alastair was the Innovation and Technology Director and was also an asset manager for Poland and Kazakhstan (Canamens Energy was financed by Sector Asset Management and Goldman Sachs).
Wessex Exploration needs to get back on track.
What we can confirm, that the current board would not benefit financially if our resolutions to change the board are approved, other than through the increase in the share price which will benefit all shareholders.
We urge you to support these board changes - Vote Yes
Should you wish to receive any additional information please feel free to contact myself or any of the parties below.
For further enquiries:
Britton Financial PR
Tel: +44 (0) 7957 140416
Chief Operating Officer - UK/Europe
Tel: +44 (0)207 019 7003
This information is provided by RNS
The company news service from the London Stock Exchange