Updated: Gulf Keystone rejects M&G's proposed board members

Gulf Keystone Petroleum has advised shareholders not to vote for four candidates put forth by its shareholder, M&G Recovery fund, as it begins a board expansion in preparation for admission to the FTSE 100 (UKX).

The Kurdistan-based oil exploration company issued a circular to shareholders on Saturday, urging them to vote against M&G's candidates for a number of reasons, including a lack of sufficient experience.

"The M&G candidates lack the requisite skills and track record that the board believes are required for a company the size and complexity of Gulf Keystone, and to support the company as Gulf Keystone seeks to achieve a standard listing in the main market later [in 2013]," wrote chief executive Todd Kozel in a letter to shareholders.

Philip Dimmock, John Bell and Thomas Shull were all interviewed by Gulf Keystone's board in the week leading up to the circular's release, and were determined not to have enough experience in oil and gas or at a senior level in a public company.

Jeremy Asher, who the board was unable to interview, was also deemed unsuitable as he holds a 1.71% shareholding in the company and was removed from the board on 1 April 2010 because he was a "disruptive presence".

Asher also recently attempted to set up a meeting with the competent authority in Kurdistan to discuss board changes without reference to Gulf Keystone, which the authority declined.

Gulf Keystone met with M&G on 12 July to discuss its candidates, and sent the circular to shareholders the day after the meeting.

M&G responded in a statement that it was "not seeking representation on the board of [Gulf Keystone], nor has any wish to interfere with its operations."But we do want the election of truly independent non-executive directors who will represent the interests of all shareholders."Gulf Keystone said it had held first interviews with "three outstanding candidates" for the position of non-executive director and would be in touch with shareholders in due course with the outcome of its decisions.

M&G, which owns 5.1% of Gulf Keystone, has been in conflict with the company since early July, when it accused the oil explorer of poor corporate governance and "excessive" executive pay. It said the board needed to be "strengthened" by the appointment of independent directors, and that it should also review remuneration policies.

Gulf Keystone hit back at these claims by pointing out that not only was it splitting the roles of chief executive and chairman for the first time by appointing Simon Murray as non-executive chairman, but would also recruit at least one additional non-executive director.

Analyst view

"In my view shareholders have to determine whether the three appointments [Gulf Keystone is] planning to make will indeed be independent and better than those tabled by the M&G," commented Malcolm Graham-Wood, an analyst at VSA Capital, adding that they "probably" would be."At the moment the vote could probably go either way and voting for either camp might end in tears," he added."What is not in any doubt is that the business that has been built up in Kurdistan is a truly world-class asset and it’s a bit of a shame that this bickering should obfuscate the potential that the shares still offer to investors."

Investor view

"In my opinion this battle is not about whether the non-executive directors are qualified or not," commented Interactive Investor discussion board user 'umr11'. "It is more to do with protecting the territory - the boardroom and all that goes on in there.

"[Todd Kozel] does not want outsiders to peep in and outsiders are saying enough is enough."

'Fruit n Veg' echoed this sentiment, adding: "The M&G nominees - Asher excluded - offer external oversight and that is exactly what has been lacking."

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