Detailed write up on Gulf Keystone in Sunday Times following board room shake up

The end of last week proved to be rather a profitable period of shareholders in Gulf Keystone Petroleum with the shares rising 15% on Friday and 27% for the week. The period up to the AGM on July 17th is sure going to be interesting after a series of board changes.

The catalyst for this rapid rise in sentiment appears to have been a belief that Chief Executive Todd Kozel, who announced his retirement from the role last week, could be ousted in the coming weeks if his desire to be elected as an Executive Director is rejected by shareholders at the AGM. Kozel has been tarnished both by corporate governance issues and also disappointments in the ramp up of oil production which are likely to hit 40,000 barrels a day by the end of the year. It is believed that the exit of Kozel could open the door to a takeover bid with the old guard wiped from the picture as Deputy Chairman Jeremy Asher and FD Ewen Ainsworth have both announced their resignation. In addition to this news, some were saying that a joint venture with Chevron was imminent. Next week could be very interesting as the continued  implications of the board room shake out play themselves out.

An article in today’s Sunday Times, posted below, gives a good background to last week’s announcements. The big question remains the influence of the KRG (Kurdistan Regional Government) on the continued appointment of Todd Kozel and in particular the relationship between Kozel and Ashti Hawrami, oil minister of Kurdistan. Simon Murray, chairman of GKP, has told shareholders that Hawrami has requested that Kozel stays on to ensure continuity but will the KRG really pull the plug on the licence in Kurdistan if Kozel departs? Unlikely you would think. So a game of bluff between disgruntled shareholders including M&G and Kozel/Murray.

Investing in GKP is never without excitement that’s for certain, but a little less would be welcomed by many I am sure. The end of the Kozel days would be a game changer, signalling the end of an era of corporate excess, mainly at the expense of private investors. The share price action next week will be fascinating. Will GKP issue some good news to stem the negative noise after the boardroom changes? After the shares dived to close to 80p following the ISIS interventions in Iraq, those buying recently have made a decent return at the current 109p. All froth…..you never know with GKP but at the end of the day despite the controversy and blunders the company has excellent assets. Expect the continued volatility that you’d get from an AIM stock….even though the company is now listed on the main market. Until more institutions come on board and there is less private investors holding it’ll be more of the same! At the moment knowing what is pump and dump, rumour, conjecture or fact is pretty much impossible with GKP.

Contrarian Investor UK

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Gulf Keystone’s chairman says the oil explorer will not prosper without its founder
Danny Fortson Published: 29 June 2014
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Desert showdown: Gulf Keystone’s Simon Murray, left, and Todd Kozel met the Kurdish oil minister last week (ITV/REX)
LAST WEEKEND Simon Murray, the 74-year-old chairman of Gulf Keystone, boarded a private jet bound for Erbil, capital of Kurdistan in northern Iraq.

Fifty miles away, the city of Mosul had been overrun to the jihadist forces of the Islamic State of Iraq and al-Sham (Isis), plunging the country into chaos.

Murray, once a French foreign legionnaire in Algeria, is no stranger to the battlefield. But in Iraq he was on business.

He had sought an audience with Ashti Hawrami, oil minister of Kurdistan, where Gulf Keystone made a huge discovery that, for a time, made it one of the most valuable companies on London’s junior AIM stock market.

That meeting may come to be seen as the turning point for a company that has become a lightning rod for controversy.

Depending on whom you talk to, Gulf Keystone is either one of the most exciting companies on the London market, or a corporate basket case — or both.

At the heart of the controversy sits Todd Kozel, Gulf Keystone’s American founder. The Pittsburgh native was with Murray this month when he dropped in on Hawrami, as was Andrew Simon, a Gulf board member. The men had come together to discuss Kozel’s future.

For months Gulf Keystone’s biggest investors back in London had been trying to force out Kozel. The complaints were many — and his pay was the biggest. Kozel has pocketed tens of millions of pounds in salary and bonuses for running a loss-making company that has missed production targets. At one point, the company had four private jet accounts despite having fewer than 200 employees.

Last year Kozel even dipped into company coffers for $2.4m (£1.4m) to cover “personal expenses”. He paid back the money, but a clutch of big investors, including M&G and Capital Group, which own more than 10% of the stock between them, had had enough.

Convinced that Kozel and his team were more concerned with personal enrichment than delivering on the company’s great promise, they wanted him out.

Mark Denning, fund manager at Capital, said: “These guys have set themselves exceedingly low standards of corporate governance, and consistently failed to meet them.”

Kozel declined to comment for this story.

Another top 10 investor accused him of “looting” the company, and added: “They have not performed in delivering production. That is the most damning indictment of all.”

The biggest obstacle to a coup was Hawrami’s personal support for Kozel. The purpose of last week’s trip was to inform the minister that Kozel would not hold out any longer. He planned to resign.

Last week Kozel did just that.The shares jumped 18% on the day, valuing the company at £850m.

Yet there was a twist in the tail. Gulf announced that while Kozel planned to resign as chief executive at next month’s annual investor meeting in Paris, he would be up for re-election in a new role as “executive director”.

It was an odd move. Yet it was Hawrami who insisted on it. The minister’s relationship with Kozel stretches back to 2006, when he was struggling to find anyone to invest in Kurdistan in the early days after the American-led invasion. Kozel was one of the first.

Murray said: “Todd said he would remain a consultant. Ashti made it clear he didn’t deal with consultants. He dealt with directors. I was also of the opinion that this relationship was very important. It goes back nearly 10 years.”

This was not the first time Hawrami has intervened on Kozel’s behalf. According to a letter Murray sent to shareholders on Friday to explain the boardroom change, Kozel had informed him in December of his desire to go.

Not included in the missive was the fact that the same month, M&G and Capital had informed the company of their plan to requisition a shareholder meeting to vote Kozel off the board once and for all.

Hawrami derailed the rebellion. A source close to the minister said: “It [the Kurdish government] doesn’t take a position on individual personalities, but they made it clear they didn’t want disruption in the boardroom at a critical time in the company’s development, which could affect the value of the asset.” The Kurds hold 20% of Shaikan, the oilfield that is Gulf’s biggest asset.

Investors were stunned. “It seemed highly unusual for a minster to be getting involved directly in the goings-on inside a publicly listed company’s boardroom,” said one.

Kozel may have survived another battle, but the war is far from over. Matters will come to a head on July 17, when Kozel and the rest of the board are up for re-election. It is unclear if investors will agree with Murray’s view of the importance of his presence in the business.

The bad blood between Kozel and his biggest investors goes back as far as 2011, when hopes for the Shaikan field — discovered two years before — were running high.

Kozel pocketed $22m in salary and bonus that year, making him one of the best paid public company executives in Britain. The following year he took home $21m.

The problem was that Gulf Keystone was far from the finished article. It had discovered a giant reservoir, but it was years away from developing it in a part of the world where doing so would be far from straightforward. It has lost money every year but one— 2006 — since it listed a decade ago. Its share price has dropped more than 70% from its 2012 peak.

The fall was also due to the company’s habit of overpromising what it could deliver. Gulf once said it would produce 100,000 barrels a day from Shaikan by the end of this year. It is now on track to be pumping 40,000 — and that is progress. When Murray took over as chairman last year, Gulf was producing a fraction of that amount.

Still, Kozel has always had his share of backers. Gulf Keystone is a favourite of private investors and has a fervent following among those who bought in when it was just a penny stock.

Yet a shareholder vote last summer indicated a shift in sentiment. M&G and Capital suggested the appointment of four new board directors to impose stricter controls at the company. At the time Denning said Kozel needed “adult supervision”.

Gulf Keystone’s board reacted harshly. It told investors to vote “no”, claiming the proposed directors lacked a “track record of successful operational and commercial experience” required for the roles.

When it became clear they might lose the vote, the board, led by Murray, changed its tune. More than 70% of investors eventually voted in favour of the new men.

Their arrival served only to deepen the discord, particularly that of Jeremy Asher. A large personal investor, he had been booted off the board in 2010 when he clashed with Kozel over his pay.

It didn’t take long before they crossed swords again. A source close to the company said: “Jeremy can be quite intense. He was in pursuit of the right thing, but it led to huge confrontation. There was considerable dysfunction on the board.”

It is perhaps little surprise that he has also become a casualty. Alongside the announcement of Kozel’s resignation last week, the company revealed that Asher and John Bell, another vociferous critic, had “ceased to be directors”.

The duo were jettisoned from the board in a majority vote by fellow directors. They had lasted only 10 months. The casualties didn’t stop there; finance director Ewen Ainsworth resigned with immediate effect after nearly six years.

The stakes are rising. Some commentators have predicted that the insurgency by Isis could split Iraq into three: the Shia south, the Sunni north, and Kurdistan, which has cosied up to neighbouring Turkey in the northeast.

Six months ago the Kurds completed a pipeline to the Mediterranean port of Ceyhan that allows them to supply crude direct to international buyers for the first time. A Gulf Keystone investor said: “This is a very good asset. Given what’s happening in Kurdistan, with the right management, this thing could really take off.”