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
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
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
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
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
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
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
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
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
-- 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
-- Excellent due diligence and country risk assessment
capabilities, based upon the experience and stature of new board
-- 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
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
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
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
-- 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
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
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
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