Gulf Keystone hits back at "disingenuous" M&G claims

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One of Gulf Keystone Petroleum's (GKP) largest shareholders has accused the Kurdistan oil explorer of poor corporate governance and "excessive" executive pay.

M&G Recovery Fund, which owns 5.1% of the company, stated: "The £7.4 billion M&G Recovery Fund wishes to improve corporate governance at Gulf Keystone by effecting the appointment of independent directors to its board.

"The fund also expects a strengthened board to review the current level of directors' remuneration, which we consider excessive - for example, we note the payment to the chief executive [Todd Kozel] of $13.6 million (£9.1 million), plus $9.1 million deferred cash, in respect of 2012 when the company [lost] $80 million."

M&G is supported by another top backer, Capital Group, which told the Sunday Times: "Kozel needs adult supervision. This company needs to be run for the shareholders, not the management."

The announcement by M&G came just days after Gulf Keystone announced that it had appointed Glencore's (GLEN) Simon Murray as chairman, in a move that split the roles of the chairman and chief executive for the first time.

And in an RNS issued on Monday, Gulf Keystone pointed out that not only had it split the roles of the chief executive and chairman in preparation for its move to the main market, but that it was also in the process of searching for an independent non-executive chairman and at least one other independent non-executive director with appropriate experience of FTSE 100/250 independent non-executive directorships.

The company stated: "A non-executive director [Lord Guthrie], of Gulf Keystone met with M&G on 12 June to discuss corporate governance, seven days before M&G issued their resolution nominating four proposed candidates for election as independent non-executive directors. At no time during the meeting did M&G raise the intention of sponsoring their own nominees.

"Indeed, Lord Guthrie had arranged, on request by M&G, to meet with Jeremy Asher, one of their proposed nominees and a former director of Gulf Keystone who was voted off the Board on 1 April 2010. This meeting was scheduled to take place, as it turned out, two hours after the submission by M&G of their nomination of the four candidates. At no time prior to this meeting was the nomination of the four candidates mentioned either by M&G or Jeremy Asher."

M&G also proposed Jeremy Asher to be appointed as an independent non-executive director, a move Gulf Keystone called "disingenuous... due to [Asher's] interests in a significant shareholding in Gulf Keystone".

The company acknowledged that the true value of the company's assets was not being reflected in the current share price, but believed that this was "not due to corporate governance concerns, but instead due to the combination of outstanding Excalibur litigation, the market sell-off in the mid-cap natural resources sector and the public perception of uncertainty surrounding the exports and payment of oil sales in the Kurdistan region of Iraq, all of which the company believes will be positively addressed in the short to medium term".

Gulf Keystone's prize asset is an oil field in the Kurdistan region of northern Iraq. A long-running dispute over payments for oil and a legal challenge to ownership of its oilfields have weighed on the shares, which have fallen 24% over the past year.

Investor view

On the Interactive Investor discussion boards, the users had mixed opinions about the public manner of the dispute.

'Seakelp' stated: "Whatever the rights or wrongs of the non-executive director proceedings, I say a big thank you to M&G for lighting a fire underneath the backsides of gargantuan pay deals."

'The Bully' added: "Doesn't matter who is right or wrong, our board of directors have mismanaged their relationship with their largest investors in such spectacular and out in the open.

"Maybe Todd [Kozel] doesn't need investors/financiers anymore... he is now walking on water!"

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