Well, I’ve just read through the statement by the company in...

Well, I’ve just read through the statement by the company in their GM letter, the resolutions proposed, the letter by John Heugh, and letter from Clive Palmer. There was a significant amount of information to digest and dissect there. Where do I start….. and warning, this could be a long one!

Board Incompetence

The first thing that struck me was the incompetence and conduct of this board to date. A few key points I picked up:

1. First and foremost, it is corporately irresponsible for the Chairman of this company to be allegedly withholding information and failing to disclose to the Board any third party he may be dealing with. This kind of attitude is not only corporately irresponsible - but demonstrates a true lack of working in the best interest of shareholders. The role of the Chairman is not to be facilitating backroom deals – his role is to foster a collaborative, harmonious and transparent board decision making process in the best interests of the company’s 8000 shareholders. Shareholders should be very concerned if this kind of conduct is present at board level – this indicates self-motivations.

2. It is just as concerning that our Chairman allegedly stated he could farmout the company’s crown jewel (Surprise) ‘overnight’. We have no reason whatsoever to be farming out the crown jewel when it can underpin our balance sheet moving forward and give the company the kickstart we’ve been waiting for. The only thing farming out surprise would do is hit our cashflow. The fact that this was even suggested by our Chairman is hard to fathom and I once again question the motives. IMO, it seems he would rather sell off our crown jewel to ‘buddies’, than turn CTP into a true Australian oiler for the long term benefit of holders. The surprise permit area, in my opinion should and must be retained in full – no question.

3. It goes without saying that the Boards decision to instead shoot 3D seismic when we had a rig on site, the technical team, external consultants and MD all recommending another well is nothing short of stupidity. Intimations of funding being an issue is hard to believe – I’m sure Patersons and others would have had no trouble pulling together the funds for a successful well. If it wasn’t for this decision by the board our EPT would have the potential to pump out well in excess of 1000 bpd. We now have to run around and try to secure a rig in a tight market, pay mobilisation costs again, and will have diminished cashflow until next year at least.

4. Shareholders should be asking why the Board has not undertaken a globally competitive farmin process for our assets, and instead elected our exploration manager Trevor Shortt to represent our 8000 interests. Undertaking a successful farm out process on assets of this scale requires a fulltime commitment underpinned by the correct profile, procedure and contacts to ensure that the entire market is canvassed and shareholders get the best deal. Having our exploration manager seeking farmouts and managing the exploration campaign in my opinion places a serious risk on both the number and quality of farminees / offers we attract and without question the technical adequacy and competence of our exploration campaign. We need the right people to represent our significant assets - not the current half-baked situation they are undertaking.

5. Following on from the above, I found it quite disturbing that Dunmore and Shortt were allegedly telling ConocoPhillips that they are “open to takeover offers and had no defined farmin deal requirements”. I strongly hope this is not the farmout ‘strategy’ the board and Trevor has adopted. This is an extremely unprofessional approach to managing our assets, and firms such as ConocoPhillips and others will take us to town with this attitude. We have an asset they want. These assets are owned and funded by shareholders, and board members are only appointed to represent shareholder interests. I have no confidence whatsoever that they are canvassing the market appropriately, and subsequently representing the best interests of shareholders. This is not how you farm-out.

6. Questions must be asked as to why for 6 years the board imposed restrictions on the MD to to only seek farmout deals with majority equity, operatorship and nonstandard industry standstill provisions – yet as soon as they became aware of a shareholder movement to get rid of them (and not the MD), they removed the MD and blame the farmout process on him. The board is 100% responsible for the setting the conditions of the farmout process, the MD simply executes decisions by the board. This is a blatant method of self-preservation if I ever saw it - sell the front man out to protect yourself.

7. IMO, it’s the farmout and standstill provisions imposed by this board that has placed us in a precarious position over several years by failing to attract partners. Although I agree that maintaining operatorship and a majority stake is desirable - letting go of this is ok it’s done over a handful of permit areas only to get the initial capital / interest, or alternatively for extreme capital intensive projects such as the coal or shale.

8. The potential impacts of the lengthy standstill provision imposed by the board should not be overlooked. In simple terms, if a standstill is signed, it typically prevents the signing party from acquiring significant amounts of shares / capital in the company, or from making a takeover offer for a certain period of time. Although most companies won’t attempt a takeover - many will still refuse to sign it and will therefore not be able to review data. This creates an instant obstacle to attracting partners. I wonder how many missed opportunities the board imposed on us with this one simple clause? If a major company does sign a standstill, it must typically be signed / authorised by the top rung, i.e. CEO or company President. The fact that the MD was able to gain signoff with a global major is a good effort, and at the same time is a testament his perseverance and the quality of our package.


Freestone or PNPL

As shareholders, we need to ensure we have the right skillset to take this company to the next phase and at the moment, after reviewing the information being touted from all parties, I’m 100% sold to the movement proposed by Clive Palmer’s PNPL nominees.

Over the previous 6 years the current board has failed to show vision, drive or delivery of a congruent strategy in unlocking company value, and it is clear to me that they are now in a scramble to protect their own interests, as opposed to the interests of the company’s 8000 shareholders they were appointed to represent.

In simple terms, we have 2 options in front of us. Appoint ‘Freestone’ who have been selected by the current incompetent board which leaves shareholders with a hangover of Henry Askin and the opportunistic Richard Cottee. Or alternatively we can bring in some real industry muscle, through the appointment of a person who has proven time and time again they can deliver via Clive Palmers PNPL coupled with the vision and drive from John Heugh – the person who created this opportunity.

Now it took me a while to gather my thoughts on this and could go on forever, but have just listed a handful of points below:

Freestone Comments

1. Firstly, after seeing the options and salary package, I am unable to stomach issuing in excess of 170 million shares or 12% of the current issued capital (once executed) to Freestone. My initial thoughts were - What makes Freestone this valuable? Do they have a proven track record, time and time again of delivering the goods for shareholders? Am I happy to give away 12% of our company to an external consultancy group who have not lifted a finger to date for this company, and have their own personal financial motivations?

2. In my opinion, it seems Freestone saw weakness at Board level of CTP, and has swooped in like opportunistic vultures in an attempt to line their own pockets at the expense of shareholders after the hard work has already been done. This is one exorbitant package by any means - if one were to run the calculations, the indicative value of the options package for Freestone is in the order of some $50 MILLION. It makes the income and options package of our previous MD (who did all the hard work to accumulate this package and make a discovery) look like peanuts. Only top global executives that have proven time and time again they can bring value deserve this, and Cottee and Freestone are not.

3. The current marketing campaign being undertaken by the board is to sell Richard Cottee to holders as a ‘golden boy’ or ‘$5.7 Billion man'. I’ve read this in their campaign across the AFR, the West Australian and other papers. Now let’s cut to the chase here, Richard Cottee only shot to fame in Australia on the back of selling QGC to BG for some $5.7Bn – but this was in the midst of an unprecedented boom never before seen in Australia’s history. Anyone who had a CSG asset from 2007 – 2010 was ripe for the picking, and QGC was one of these companies during Cottee’s 7 odd year reign with them. To back up how supportive his environment was, below are just a handful of deals that happened in the sector in very short period of time, including QGC’s.

Deals at 2P ($Gj)
• AGL / Gloucester Basin ($2.11)
• AGL / SGL ($4.08)
• BG / PES ($2.53)
• Conoco / ORG ($4.02)
• Petronas / STO ($4.91)
• Shell / AOE Tipton ($1.77)
• Shell / AOE ($2.72)
• BG / QGC Feb 08 ($2.37)
• BG / QGC Oct 08 ($1.71)
• QGC / SHG ($1.67)

Deals at 3P ($Gj)
• AGL / Gloucester Basin (1.00)
• AGL / SGL ($4.08)
• BG / PES ($0.40)
• Conoco / ORG ($1.90)
• Petronas / STO ($1.70)
• Shell / AOE Tipton ($1.17)
• Shell / AOE ($0.80)
• BG / QGC Feb 08 ($1.00)
• BG / QGC Oct 08 ($0.70)


4. IMO, Cottee was in the right place at the right time with QGC. Since then he moved to NXS and AKK by selling his QGC success story. We all know that whilst at NXS he created severe disruption for the Nexus Board (NSX) and its holders. At NXS - he saw an ‘opportunity’ to take the board down and he took it, walking out of that situation with his tail between his legs by some 80% of shareholder votes. He has also made several other claims with other firms i.e. Austin Exploration (AKK) where nothing has happened. He has no proven track record that I can find, other than striking one deal with QGC to warrant this exorbitant appointment and package to Freestone and their silent associates who mind you, will do nothing at all to earn their millions at the expense of long suffering holders.

5. As a solid supporter of this company for some 6 years now – I found it quite insulting that Cottee came to this company with a motherhood statement of telling the press he can have CTP in production within 3 years. If he had an honest interest in CTP (and not his pockets) – he would have realised that the hard work was already done by our previous MD and technical team, and we kick off production soon under the EPT – this has been the highlight of the past 6 years for our company and he missed it. What an embarrassing statement and a true demonstration of where his interests may lie. If it wasn’t for the incompetence of the current board we could have had potentially triple the production in a few weeks.

PNPL Comments

1. Unlike the current Board and Mr Cottee, Clive Palmer is a real global industry heavyweight and he and his lieutenants have consistently proven, time and time again, that they can bring in the big money and get capital intensive projects up and running – not just sell them off. These guys are not one hit wonders who rode the heat of the market.

2. The statement and comments released by PNPL have been very encouraging in my view. For those who have not seen the most recent statement, it is definitely worth a read. A few key points below:

• Statement 1: “PNPL has offered to joint venture with CTP on all its properties. The joint venture was including the provision of funding to stabilise CTP going forward”. Although more detail is required on this such as funding arrangements etc., IMO farming in with CP’s team who have continuously extracted maximum value on equitable terms is an excellent long term value proposition, as opposed to flogging off to big oil like the current board will likely attempt.

• Statement 2: “There will be no sweetheart deals done by the new CTP board, nor deals done in desperation, unlike the policy of the current Board". I don’t need to say it but this is clearly a lot better than the current board’s strategy such as Askin dealing with 3rd Parties and failing to disclose it to the rest of the Board along with Dunmore and Shortt telling ConocoPhillips that CTP is “open to takeover offers and had no defined farmin deal requirements”.

• Statement 3: “….Mineralogy is a cornerstone investor in CTP but only under the leadership of Mr John Heugh". I’m assuming that if Cottee is appointed, we lose the support and backing of Palmer which IMO would be severely detrimental.

3. PNPL’s proposal will not only underpin our balance sheet via provision of capital, but in my view ensure that we’re not rushing in and farming out too early, which destroys longer term shareholder value. CP has a track record of funding projects out of his own pocket to ‘unlock’ the value of assets before farming out which ensures much better deals for shareholder. One only has to look at his recent discussion with ExxonMobil for his assets in offshore PNG where he funded $40m of exploration himself to unlock the value first. This approach ensures you get several fold more for your asset for the incurred cost.

4. There is some concern that the appointment of PNPL removes ‘independence’ from the Board of CTP, however what most are forgetting is that once the GM motions are passed – additional directors can be selected and appointed. At present our current board has appointed a range of ‘buddies’ to protect themselves which is not really ‘independent’ as it is. Appointing PNPL nominess from the outset, enables CTP holders to remove the stagnant hangover and deadwood of the current structure and breathe fresh air into the company with some real industry clout. We can then seek additional, and much higher calibre directors who can drive this beast forward.


Overall:

I could keep going on forever however have babbled on enough for now. After reading about the incompetence of this current board and the way they have been representing shareholder interests, I have lost all confidence that they add any form of value to this business. If anything, they have destructed value through poor decision making, particularly via the farmin conditions they imposed on the company’s negotiations, the failure to drill an additional well at surprise and bolster our balance sheet, the ‘candy shop’ approach to selling our assets, and very irresponsible conduct at board level. So in my opinion, Askin, Dunmore and Faull must be removed – they’ve been funded by shareholders for long enough and add no value.

Secondly, as you can see I am not sold on Cottee to lead this company. Cottee does NOT have a PROVEN AND ONGOING track record of facilitating big deals and getting capital intensive projects up and running. From what I can see, outside of one deal with BG where he sold out (in a supportive environment), he has a track record of over promising, under delivering and creating board disruption when opportunity arises. The proposed options package to Freestone is also an insult to holders - and both Cottee and his silent associates of Freestone do not deserve to just swoop in like vultures and take 12% of this company. They are not proven performers or high profile execs.

When comparing the existing crew to the likes of Clive Palmer and PNPL – there is no comparison in my view. Palmer is a global heavyweight and his team have consistently, over decades, been able to bring in the big money to get large scale capital intensive projects up and running time and time again. This is exactly the clout we need. They’ve done it across coal, iron ore, base metals and oil and gas. Palmer can ensure equitable value for shareholders which is much better than flogging off to big oil, potentially losing the majority share and running a VERY REAL risk of getting taken over. It seems that extracting value for the company, its shareholders and nation is Palmers game.

I have had to read the statement by JH a few times and in doing so, I agree on his strategies and vision for this business. In my opinion, any person who perseveres and spends 15 years of their life dedicated to making something big happen for this country, going a long way to achieving that even with a deadbeat board and severe restrictions imposed upon him can do significantly better without the shackles.

Put simply, in my view - John Heugh’s unrestricted strategy, drive and perseverance backed by the strength of a global magnate like Clive Palmer and his lieutenants is a much better combination than the likes of Henry Askin and Richard Cottee. Keeping Askin and the rest of the board is merely a hangover at a time when we have the chance to breathe new life in to the company and really get us moving at a rapid pace with a solid long term backing, and not having to sell out cheaply and early.

It’s time to make a decision all. Is it going to be Henry Askin’s team and Richard Cottee? or Clive Palmer’s team and John Heugh? The latter is a no brainer to me, but each to their own!

Interesting week ahead…