JKX's Future Uncertain After June: CEO
The board of UK-listed oil and gas producer JKX is facing the very strong likelihood of a curtain call at the end of the month.
Shareholders representing 47% of the votes, Eclairs and Proxima, will use the annual general meeting June 28 to dismiss or not re-elect most of the executive and non-executive directors of the eastern Europe explorer including CEO Tom Reed, CFO Russell Hoare and chairman Paul Ostling.
New on the board will be Eclairs director Michael Bakunenko, joining Proxima CEO Vladimir Tatarchuk. Eclairs had hoped to have just the former on the board of JKX, when it initially proposed the motion in May. But this was too few under UK law, so Tatarchuk is to stay on the board as a non-executive.
Proxima (19.9% shareholder, which led the cash-free assault last year) also wants the board dismissed but it has given no indication of support for Eclairs' nominee, JKX said, expressing its disappointment at Proxima's lack of support just when JKX was launching a groundbreaking stimulation programme at the Rudenkovskoe field – "a central plank of the turnaround strategy previously supported by Proxima."
If the vote is carried, then the future of JKX is uncertain as nobody has said what they hope to do differently, JKX CEO Tom Reed (pictured below) told NGW in an interview June 13.
"We will find out their plans in July," he said, doubting if the company's work programme would succeed without western-style drilling management where purchasing power and day-to-day financial responsibility is delegated to the local operations supervisor rather than remaining with the CEO in the Soviet style. "If it is not us running it, then it will need to be someone just like us," he said, expecting to lose his position.
(Credit: JKX)
The present directors led by Reed were voted in late January 2016 by shareholders who wanted a better return on their investment than they felt were getting from the old board. Reed’s team had to address declining production and revenues and $40mn of tax liabilities in Ukraine which threatened to put the company out of business within a year. Kiev’s hostile attitude towards JKX, which had been suing it under international law, did not make this a likely outcome, Reed said.
Under the new board, JKX has halted the decline in production and it has successfully won back some of the tax liability with more perhaps still to come.
Despite repeated questioning about the owners' intentions, formally and informally, behind this seemingly value-destructive move, no reason has been given for the change of heart or what the plans are now for the company’s future, Reed said. He has used his rights under the Companies Act to ask the shareholders whether there could be any interest in further share acquisition, but has been met with silence. Other major shareholders are Neptune (12.95%) and Keyhall Holdings (formerly Glengary, 11.42%).
Fracks now cost a fraction of what they once did
This is all the stranger as a portion of the company’s tax debts have been roughly halved by legal argument; and the company has just begun a new system of hydraulic fracturing at the Rudenkovskoe field in the Poltava region of Ukraine, deploying tactics that have been successful in North America. The previous board had fracked the field, Reed said; but not in the way were doing it. “We have done 8 fracks in ten days at a cost of $1.5-2mn,” he said. Before, it would have taken 100 days and cost $12mn to do ten fracks.
The company has done all the preparation it needed to and is now in execution mode, aided by US oil field services giant Schlumberger, which is responsible for providing the equipment used to blend the proppant and drilling fluid and to pump it into the well.
William Powell