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Central Petroleum's Richard Cottee says he believes the Macquarie deal will go through. Jim Rice
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by Matthew Stevens
Richard Cottee has confirmed he will surrender his job at Macquarie Group target Central Petroleum should a failed takeover result in the successful boardroom coup foreshadowed by a group of 10 angry and relatively large shareholders in the Northern Territory gas play.
Cottee has revealed, too, that a series of very odd off-market trades in Central that occurred last Friday and were reported here on Tuesday have been referred to the market regulator for review.
"We have made a formal complaint to ASIC on that share trading," he said. "It is so suspicious," he said of trading that included 12 individual but closely timed one-share sales through the afternoon.
"I have been around a long time. I have seen manipulation before. But this is something new to me," the Central managing director said.
May14GMT+1000 (AUS Eastern Standard Time)May12May170.20.40.60.80.0880.897
Last updated: Thu Jun 01 2017 - 8:58:39 AM View full quote Company Profile
Oil and Gas exploration and production. http://www.centralpetroleum.com.au
Oil, Gas & Consumable Fuels (101020)
ASIC 083254308
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That offer has been recommended to shareholders by the Central board and the driller's managing director, namely Cottee. Independent expert Ernst & Young Transaction Advisory has also recommended the bid as fair, reasonable and in the best interests of shareholders.
But that pitch has been rejected by, among others, the Group of Ten, who collectively hold the more-than-5 per cent of Central that allows them to call a section 249D shareholder meeting in the name of replacing the existing Central board with their nominees.
In marketing an alternative that is light on financial or operational detail and long on hope, the OptionCo proponents have signalled confidence that Cottee and his senior management team would probably stay on should the recommended course of action be rejected. As we had anticipated, Cottee says that is not going to happen. If Central board is replaced, he will go.
Cottee has opted against offering a Macquarie defeat as a trigger for similarly definitive action. But, while he has left his options open, it seems to me very unlikely that he would stick in the face of rejection of what board and management reckon to be the company's only way forward.
The supplementary scheme booklet Central presented to shareholders on Wednesday evening makes plain why the 80 other options pursued by the gas company's advisers fell away so promptly and why Macquarie's position as financial, joint-venture partner and immediate future customer make it Central's only visible means of future support.
"I am shit scared this is turning into another Nexus," Cottee told me on Wednesday, recalling the bitterness of his 2011 engagement with a once-listed gas company that ended in his removal and the business eventually passing through the hands of an administrator into those of a major shareholder at a considerable discount to its erstwhile potential.
"Disappointed people are not always rational and for their sins they are being manipulated by people offering to introduce them to the fairies at the bottom of the garden," Cottee said of the group of agitators that aim to unseat the current Central board.
"It is insulting to me that they represented that they own me, that they don't have to talk to me," he said before agreeing that an enforced departure from Central would probably be the end of Richard Cottee and public listings.
"Some of the trolling that has been aimed at me, that has been seen by my kids, why should I suffer this vitriol? It sits harder with them than me. But what have I done to deserve this sort of stuff? I mean, some of the claims?! If there was any evidence of corruption or dishonesty that they have talked about – or any other shit – it would have come out by now.
"It hasn't. There isn't."
The way Central sees things, there also is no option that sustains the business beyond the one offered by Macquarie. In the immediate term, Central needs to find $42 million to finance the upgrade of its first best asset. Without that investment, the company will begin burning cash within 18 months. And that would risk breaching lending covenants.
So, sure, many shareholders might feel feel hard done by because they bought in high and are now being asked to leave at a loss. And yes, for sure, Central is sitting on a fair bit of known gas and a whole lot of Northern Territory blue sky as well.
But what Central doesn't have is any other means of accessing growth capital outside of Macquarie. There are two big reasons for that, one sectoral and the other tactical.
The sectoral logic is obvious. Since the oil price halved in November 2015, investment capital has become very hard to come by for junior and mid-tier oil and gas companies.
"I imagined that once we locked in the Northern Gas pipeline that equity markets would open to us. That did not happen. We could not raise the new equity we need to grow," Cottee explained. The only banker prepared to lend to Central was, you guessed, Macquarie. And there lies the tactical challenge for anyone else imaging a future directing Cottee's kingdom.
Central believes that the breadth of Macquarie's place in Central's active life is not fully appreciated. It is a relationship that needs careful management "for an independent Central to survive and prosper", the company said in its supplementary documentation.
"Macquarie Group has been a constructive and supportive partner to Central when debt and equity funding, necessary to rebuild and advance the company, were almost impossible to raise," Central told its owners before providing insights into its "intersections" with the millionaires factory.
Central owes Macquarie $84 million through a multi-loan agreement that has standard financial covenants and mean that the company must retain sufficient cash reserves to meet the next quarterly loan payment.
Central will continue to sate those conditions with the arrival of new cash flows from a recently signed contract for gas from its share of the reborn Mereenie joint venture.
When Cottee moved to recover production at the 30-year-old Mereenie gasfields, his partner was Santos. That changed in December when Santos accepted a $52 million bid for its 50 per cent share in the JV. The buyer? You guessed it. Macquarie.
Central acquired its half-share of Mereenie from Santos in 2015 for $42 million. To secure funding for that deal it signed up to a gas pre-sale agreement. The complicated little arrangement leaves the lender with security over the revenue generated from Central's sale of its share of initial Mereenie production, which is capped about 4 petajoule annually in the joint-venture agreement with Santos. That cap has been reached with the deal done last month.
The deal is from the moment that gas starts flowing east along Jemena's pipeline, or from January 1, 2019 if the connection if delayed, Central's banker has a call over the Mereenie cash flows. Who is that banker? You guessed it. Macquarie.
"On present facts, this could mean in 19 months' time all the take-or-pay revenues from the (recently signed) EDL contract could flow to MBL (Macquarie) and not Central to satisfy its pre-sale obligations," the company said in its court filings. "If no further contracts are entered into from now, Central will then revert to a cash-burning situation.
"Importantly, the EDL contract ensures that the company does not need to raise capital to fund operating losses in the near term," Central advised. BHP's Baroness
Baroness Shriti Vadera has emerged as the British market's latest hot tip to inherit the chair of BHP Billiton when Jac Nasser vacates the job some time before August.
London is a leaky market but not every leak is worth a whole lot. Back in March it was the font of supposedly informed speculation that former Westpac boss Gail Kelly would inherit a mantle held by only two men, Nasser and his predecessor Don Argus.
That was never going to happen and neither is a Vadera ascendancy.
BHP's senior independent director is surely busy enough chairing Santander UK, helping tune the City of London's response to Brexit and running Nasser's succession process.
There are no constraints on who BHP might elect as chairman. But when Nasser got the gig it was only after pledging a specified time to working in Australia.
So, not only would it represent a remarkable conceit for the person running the ballot to end up winning it, but it's sort of impossible to imagine that the Baroness described recently by the Financial Times as a "master networker" and the "Queen of the City's Brexit response" might want to spend the requisite amount of time in Melbourne.
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