View from the top: New World Oil & Gas interview

With New World Oil & Gas shares trading at a low on the back of abandoned wells in Belize, chief executive William Kelleher and executive Georges Sztyk talk to Julie Fisher about the impact a major new stakeholder will have on their strategy.

What has been happening with the company recently?

William Kelleher: We've recently completed a transaction with Niel Petroleum [New World agreed to issue more than two billion subscription shares to Niel in August in return for up to $50 million (£31 million) in financing].

We're very excited about that because they're a very serious, competent group of people with some very, very strong connections throughout the Middle East and French-speaking Africa. It's all upside for New World Oil & Gas because there's funding available to acquire a project and [a] debt facility available to capture the upside.

After the market's response to our drilling operations in Belize, to have a company come in and show this much interest in us is very encouraging.

Interactive Investor user question: A number of private investors are concerned by the size of Niel Petroleum's stake and the possibility of Niel seeking to delist. Is that not something you're concerned about?

WK: There's not been any talk of delisting, that's not been a consideration, that's never been on the table. I think Niel Petroleum was looking for a competent oil platform to engage in the oil business in a serious way, and that's what they've got and I think they plan to be in it for quite a while.

Georges Sztyk: They will have one or two directors on our board so they will have input into what we're doing. They do have a certain amount of control, but that is contractually bound in the transaction documents so there's no intention of them going in and changing everything that New World is doing.

WK: The director who we've taken on will chair our remuneration and audit committees. I hope that the second director is a technical person because the more technical horsepower we get behind us the better.

Can you provide an update on operations in Belize?

WK: We're well ahead of the curve there, and ticked all of the boxes as far as a late-stage exploration company could to pursue the model of adding value at the drill bit.

Unfortunately our prospects in Belize didn't pan out commercially, as we were not successful in finding a trap of significant size with sufficient oil saturation to call it commercial. But what we've gained from it is tremendous experience in the Petén basin and we also have a number of remaining drillable prospects.

I think in time, as we progress through this new transaction, we'll begin to attract additional people to come in and work with us there again. There's a lot of things we could do but we can't just do them all at the same time.

GS: There's no great rush in Belize because we have the licence for another three years, we've fulfilled all of our obligations financially and the maintenance of the licence has a very small annual fee so there's no panic. We just have to find the right person at the right time in order to proceed.

Is there any news on your projects in Denmark?

WK: We're in advanced negotiations with a partner on Danica Resources Block 1/08. We can't say who it is as we're bound by terms of confidentiality, but we are in the process of talking commercially.

What would you say are the key strengths of your business?

WK: We're very well funded, we have a very strong team, we have strong existing prospects on the exploration side of our business and our strategy shift (taking on a new stakeholder) is designed to make us more sustainable by allowing us to access the upside of producing or near-producing projects.

Every company wants to have a solid basis to its share price and when you have proven developed producing reserves in addition to exploration upside, I think that takes out some of the volatility in your stock.

What are the main risks to your business?

WK: Well let me see, I could walk out that door tomorrow and get struck by a meteor.

GS: The oil price could go to $3. Denmark could declare war on Sweden.

WK: The Uzbek navy could attack Belize. No seriously, there are always risks in oil price, but these are risks which all oil companies take on. We can't control [the] oil price, we can only control our costs and our strategy. We've undergone a pretty extensive cost-reduction programme and we've been very successful in our strategy shift in bringing on a stakeholder which is effectively making us a very well-funded company.

The share price is relatively low at the moment. Do you think it is set to recover soon?

WK: Our cash reserves are far greater than our market cap and at some point the market's going to realise that and it's going to go right up. The timing of that will depend on how we communicate to the market. The message we want to get out is that we are undertaking a strategy shift with our new stakeholder to build a strong base in production whilst still being able to capture the upside and continue to grow.

Do you think the main way to boost your share price is through communication?

WK: I think we've always been good communicators, that's what's put so much attention on our stock. Unfortunately the marketplace gets a little emotional sometimes, not all people are as well informed as others and that has a hurting effect.

We're looking at several new producing or near-producing projects right now and once we decide to pursue one, that news flow will start to hit the market and you'll see a change.

II user question: What would you say to a disgruntled investor who believes that you misled them on more than one occasion, for instance stating in a chain email to private investors that 6p was a buying opportunity, before announcing a 4p placing? Would you like to respond to that?

WK: No, I wouldn't without the chain of e-mail in front of me. I'm not going to respond to anything that's hearsay or speculation unless I see it in writing.

If somebody chooses not to trust me or trust us that's their prerogative and they can sell their shares, but we're not in it to bamboozle people or be untruthful. I've been in this business 34 years and that's not because I've run around and deceived people. If any of us as directors tell shareholders or potential shareholders what we think our share price should be, that's generally a function of where we're at in terms of our operations and our projects.

GS: I think you could add that to tell somebody that it's a buying opportunity knowing that there's a placing coming is something we would never do because that's contravening every rule you can think of. It just doesn't make any sense to say something like that.

Do you have any message for shareholders and prospective shareholders?

WK: We've just got our heads down and we will become a sustainable exploration and production company. We're a very strong team with a strategy shift that supports a long-term stable value proposition, as opposed to adding value at the drill bit or through acquisitions. We're a much stronger company now; eventually the market will see it and the share price will come back.

GS: I think our newly increased financial ability allows us to look at certain deals that we couldn't look at before, so there are new opportunities opening up for us.

How important are private investors to you?

WK: Every investor's important to us, honestly. There's no one investor who carries more or less importance than the others. As directors under the rules of the London Stock Exchange we have to look after all shareholders equally and we have no intention of creating a situation where one investor's going to benefit over another.

Private investors have helped us from day one and those that have chosen to become averse to us because of our lack of success or commerciality were perhaps in the wrong investment.

GS: The management are shareholders too, so we're not going to hurt ourselves either. Everybody's working in the same direction which is good.

How would you react to being seen as a takeover target?

WK: I don't think anybody's OK with a takeover, particularly a hostile takeover, but it's not a concern because we're ahead of the curve. We have been looking at projects and in the near term there will be news flow with details of which projects we're undertaking. As we undertake those projects our liquidity will be absorbed by them and that makes us less of a takeover target.

What are your plans for the remainder of the year?

WK: We'll have the results of our AGM, our interims by the end of September, we hope to have farm-out news on Denmark soon and then it'll be new project news. So I think we look to have steady active news flow for the remainder of the year.