Karoon chairman preps for showdown with angry investors (AFR May 15, 2024))

Elouise Fowler Reporter, May 15, 2024 – 5.10pm

Karoon Energy chairman Peter Botten has made a final plea to shareholders to back management and the board at its annual general meeting next week, where the oil and gas producer faces intense pressure from activist investors.

Mr Botten’s note to shareholders on Wednesday urged them to ignore the activist consortium led by Samuel Terry Asset Management which intends to vote against five of the nine resolutions up for vote at Karoon’s AGM on May 23.

ASX-listed Karoon operates the Bauna project in Brazil, and Who Dat in the Gulf of Mexico. Karoon Energy’s Who Dat oil and gas operation in the US Gulf of Mexico.

“I would like to confirm that the board remains unanimously in favour of all resolutions and will not be changing this stance prior to the AGM,” Mr Botten wrote. “Our recent meetings with shareholders have indicated strong support for the board’s proposals.”

Street Talk revealed Karoon has received support of the four major proxy firms – ISS, Ownership Matters, the Australian Council of Superannuation Investors and Glass Lewis – who have said they intend to tell their influential client base to vote in favour of all nine resolutions.

However, activist consortium Samuel Terry Asset Management and Sandon Capital are urging shareholders to join them to vote against the re-election of Peter Turnbull to the board, and to vote down the remuneration report, an increase to the director fee pool, and a performance rights grant to chief executive Julian Fowles.

They have urged the company, which they say has evolved from explorer to producer, to return capital to shareholders via dividends or buybacks. They also railed against recent acquisitions such as Who Dat and the capital raises to fund them.

Shares have sunk 7.84 per cent to $1.88 since May last year, after the company raised equity to fund the Who Dat acquisition.

Investor returns strategy

Samuel Terry argues if the company changed its strategy, it could pay an annual dividend of 40¢ to 50¢ – equivalent to about a 20 per cent yield at current prices. Mr Botten, the former chairman of AGL, wrote in the letter to shareholders that the board would in July announce an investor returns strategy aligned with its goals and capital allocation framework.

“This framework is aimed at supporting safe and reliable operations, maintaining liquidity and balance sheet strength, while supporting both value accretive organic and inorganic growth, as well as capital returns to shareholders,” Mr Botten wrote.

He also defended the company’s remuneration policy, which came under fire from the consortium for buying a second asset, failing to prioritise oil production, and setting easy hurdles for the company bosses to clear to claim bonuses.

“The acquisition of a second producing asset, to diversify Karoon’s operations from its single-asset, one-country exposure, was crucial to Karoon’s long-term derisking objectives and strategy to create long-term value for shareholders,” he wrote.

The AGM will be held in Melbourne.