The Sandon Capital MD - MUST WATCH, page-33

Having listened to Sandon's, **riel Radzyminski's interview I have to say I came away underwhelmed with his pitch.

Trashing management is very easy from the outside looking in (especially with a couple of Gen X "garage band" interviewers like these two couch potatoes...... not exactly Bloomberg / AFR level journalism ..... just saying). Who Dat is as yet unproven and pointing out the company is "empire building" is somewhat disingenuous when Karoon has clearly told the market it is BOTH a production and exploration company AND was on the lookout for a 2nd producing asset to diversify its production base for shareholders. I am not sure why that should be considered a negative version of "empire building", provided every acquisition meets its return thresholds, which management claims Who Dat does, and only time will tell if this is true.

The challenge for the activist investor is to not only criticise, but also put forth credible proposals that can be executed by the Board. I was disappointed that **riel Radzyminski did not have anything constructive or specific to say on:-

1. The quantum of the dividend, (I am in favour and would suggest 25-50% of annual net profits, depending on the oil price & planned exploration and CAPEX needs. With Oil higher a higher payout is justifiable.)
2. The quantum of a buyback (I am in favour of a A$150m buyback or 10% of the company shares over the next 18 months, as the best M&A opportunity currently is their own stock. The Board should have much more flexibility to do this with their new high yield facility)
3. How much Sandon would expect Karoon to spend on exploration or CAPEX to extend reserves going forward, (Clearly its not zero)
4. What criteria he would expect for any M&A (Karoon's internal targets are mid teens)
5. Valuation he expects for Karoon's stock. (I think Karoon is worth over $4 share, and considerably more if oil continues to stay higher $80-100/bbl for longer), or
6. Whether he or Samuel Terry would seek a Board seat to pursue their activist goals. (if they are serious long term they should seek a Board seat)

It strikes me Sandon is more interested in asset stripping than growing businesses. This is fine in certain company circumstances but is unlikely to suit an oil & gas fossil fuel company that is growing to refresh and expand its reserves like Karoon, so a suitable balance needs to be found with management and ST/Sandon.