View from the top: Wessex Exploration

With Wessex Exploration shares trading at a low and investors worried about a potential court case from ex-chief executive Fred Dekker, Julie Fisher interviews chairman Malcolm Butler and chief financial officer Andy Yeo about the oil and gas company's future prospects.

What progress has been made on the Guyane Maritime Permit in French Guiana?

Malcolm Butler: We had a discovery in the first well, two wells that were dry holes and we're now on the fourth well. We will then drill the fifth well, so we're hoping we can make a discovery on the current well or the one after that. That, combined with the discovery we made on the first well, will make the whole thing economic.

In the meantime, we have money to pay for these wells, we are monitoring them fully and we're keeping on top of the technical side.

Of course we're a very small [1.25%] interest-holder, so we're dependent on Royal Dutch Shell and also on Total and Tullow Oil for their technical input.

We have our own technical input but our interest is so small that anything we vote doesn't make any real difference.

What are the strengths of your operations there?

Andy Yeo: We've got the money in the bank to finance [the next two wells] so we're quite fortunate in as much as we've got a discovery already and also we've got a rig running.

There aren't many AIM companies who have got all three of those aligned.

MB: We also have three of the premier deepwater players as our partners so we hope they know what they're doing.

Do you consider Guyane to be your most important asset?

MB: We're staying with the other assets and we're trying to build value in them, but those are very small in relation to Guyane.

The [other assets] are sort of our fallback if Guyane doesn't work so we're keeping our options open, but the big deal is Guyane.

Do you have an update on the Juan de Nova Est Permit in the Mozambique Channel?

MB: [The licence] actually expires in December 2013. We have been talking to the French government and we're going to make an application for a renewal for another five years. [After that], we'll do a seismic programme.

In the meantime we've just done a regional review and identified the northern part is more interesting than anything else.

How much will it cost to extend that permit?

MB: It doesn't cost anything to extend it, other than the aggravation of dealing with the French government. But we'd have to commit to a seismic programme on it going forwards, which won't be very much, we'll decide whether we farm that out or whether we pay for it.

Has any progress been made in the Wessex basin in southern England?

MB: We have a potential [onshore] shale play as well as conventional plays and we are working up the reprocessing of the seismic [data] at the moment. We're planning another seismic this year offshore in shallow water and then we'll see if we can work up one or two prospects and then persuade somebody to come in and drill.

We've got a deadline of the middle of next year for the onshore and early next year or maybe as long as July next year for the offshore blocks to commit to drill or give them back.

Why do you say "maybe as long as July"?

MB: Because during the 26th and the 27th [UK licensing] rounds, the main part of the North Sea was awarded very quickly, but anything closer to the shore was held back and not awarded until very late in the process.

[The Department of Energy and Climate Change] still use the same award date, so we all lost six months out of the two-year programme because of that, but that's something we'll sort out.

And your final licences are in the Sahawari Arab Democratic Republic (SADR). What's happening there?

MB: SADR is pretty much all occupied by the Moroccans at the moment. We have three blocks there which are quite interesting technically - one deepwater, one shallow water with a salt basin and one onshore.

However, they can't be awarded until the government officially has them and that's [dependent] on the settlement of the dispute with the United Nations.

[SADR] is recognised as the legitimate government by the United Nations, but not by the Moroccans who happen to control the country, so it's a little difficult.

Are you planning to expand into any other regions?

MB: If we look anywhere else, we'll look somewhere we can get into very cheaply and follow our philosophy, but it's actually quite difficult to do that at the moment. Everywhere is getting more and more expensive. We won't farm into anything because we'd have to pay for somebody else's costs as well as our own, we'll only go into things that we could actually put together and farm out so that restricts us somewhat.

But we've got quite a lot on our plates already, so we won't be without projects if Guyane closes down.

So the answer to that is yes and no - we're always looking, we're pretty well attuned to the market but trying to find something that suits us, which is incredibly valuable but doesn't involve us spending any money, is not that easy really.

How much money do you have on the balance sheet?

AY: About £5 million, which is fine. We're halfway through well four. We've got one and a half wells to go, which means come the end [of drilling], we should have between £1 million and £2 million. Once the rig's gone, that £2 million is going to last quite a lot longer. And that's the way it was always planned.

So no plans for capital raising then?

MB: I think we would only look to raise more money on success at this point.

But the good thing is that we have a group of very well-heeled institutional investors who will carry us through if we decide we need to raise more money to go forward on a more extensive programme. That's where we're different [from] a lot of small AIM companies.

[The investors] came in for the £12 million that was raised in 2011 and they obviously will support us until we decide we've reached enough value added and we can duck and run, with a lot of money in our pockets hopefully.

What does the current shareholder structure look like?

AY: Fred Dekker, who is the original founder, is the single largest shareholder with a 12% shareholding. Standard Life, Killik and CQS hold another 25%. Then you've got some of the other smaller institutions. So, just over 50% of the company is in the hands of five or six people.

So, what was originally a very highly private climate in activity is now much more mainstream. That's important to us because if we do actually want to go and raise a real slug of money at some point, you get that out of the likes of Standard Life rather than private clients because it's just easier to do, isn't it?

Interactive Investor user question: One month ago eight institutions held about 50% of Wessex. In the past month, that has dropped to four institutions holding approximately 30%. Why have these investors sold their positions and are you concerned?

AY: Well these things ebb and flow, but in terms of does it really make any difference to us in terms of our ability to raise money, it doesn't. The way I look at it is we've got four or five big long-term supporters and that's what we need. It would be nice to have a whole list of people, but the reality is that it doesn't always work like that.

MB: I think the institutions have their own guidelines, and we've got two dry holes, so some of them don't have the staying power that others do.

Interactive Investor user question: What can you tell shareholders about the sad situation regarding Fred Dekker? Is he bringing legal claims against the company and what do these potentially amount to?

Note: Fred Dekker was Wessex's founder and chief executive, but left the company in November 2012. He said in a statement before the company's AGM in December that his removal from the board had been "groundless" and that Butler and Yeo were "on notice to expect [him] to take action". To date, he has not brought any legal claim against the company.

AY: The answer is: We don't know. And it would be wrong to say anything more, simply because it's just one of those things where there are various bits and pieces to sort out.

MB: [Dekker] is obviously still very upset about the whole thing [his removal from the board], as are we, which is a great shame but that's the way it worked out. He may well try and sue us, but we took the necessary legal advice before we acted and were very, very careful and gave him every opportunity to deal with the issues and he didn't.

That's all I can say really, it's still up in the air.

Is it affecting the day-to-day running of the company?

AY: As far as we're concerned, we're focused on getting on with what we need to do and that's running the business. If anything happens, fine; and if it doesn't, that's fine [too]. But as far as we're concerned, we've done what we needed to do and that's that really.

MB: The other issue is that we have the general expertise to deal with the assets; it's not [like] we've lost our great technical brain. If there's an issue and people feel uncomfortable about Fred having left, that's out there and it is what it is, but it hasn't left us disadvantaged.

Why is the share price so low?

MB: The share price actually mirrors [that of] Tullow's quite nicely for the last year and a half. Obviously they started higher and they haven't fallen as far but the shape of the curve is exactly the same, every time you drill a dry hole the price goes down, gets boosted back up and then goes down again.

We're not relaxed about it but frankly you can't sit there worrying about it because it is what it is.

Some see Wessex as a takeover target. How would you react to that?

MB: Yes please!

We're not particularly worried about the idea of a takeover at a low price because we're protected by our major institutions [and] they're not going to back out for a low price. So I think the answer to that is we obviously see ourselves as a medium-term holder of these assets, but [in the] long term, we're looking for an exit.

It would have to be somebody with liquid shares because I don't see the institutions going for anybody that they couldn't exit from.

But who knows? We can't control it, but it's got to be a decent price. Nobody's going to pick us up in the bargain basement.

Do you have any message for your shareholders?

MB: We're drilling two high-profile wells, we've got funding for them. We're not going to disappear and we'll revert to other assets if Guyane doesn't work at all, so it's relatively simple as a speculative buy if you have the risk appetite for it.

AY: If something good happens in French Guiana, it will make a big material difference to the business and we have Shell, Total and Tullow who are premier league oil and gas companies. We've got about as good a set of partners as you'll find and therefore you could argue that this is as good a bet as any simply because you've got three world-class players looking on your behalf.