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Summary

  • Poor share performance has led to significant shareholder unrest.
  • Todd Kozel has stepped down as CEO and waits to be re-elected at the coming AGM as an Executive Director.
  • KRG stepped in to remove 2 non-execs from Gulf's board.

It is no secret that Gulf Keystone Petroleum (OTCPK:GUKYF) operates in a high-risk region (Iraq) in a high-risk business (Oil E&P). These risks are further compounded by ongoing boardroom power struggles and now the Kurdish regional government has seen fit to intervene according to FT reports.

CEO Todd Kozel has long "enjoyed" notoriety as a colorful boardroom character. A strengthened non-executive function at the board level has seen improvements in corporate governance and reduction in remuneration packages.

Blood in the water at a board level.

One of Gulf's biggest shareholders, M&G Investment Management, caused fireworks prior to the 2013 annual general meeting (AGM) when they shoehorned four new non-execs onto the board. One of these non-execs was Mr. Jeremy Asher, Chairman of Tower Resources (LSE AIM listed), a large shareholder himself of Gulf stock and rumored to have eyes on being CEO in place of Mr. Kozel. Without being dragged into the details, Mr. Asher had previously been on the board of Gulf and was removed. His phoenix rising again from the ashes in 2013 with backing of M&G was quite a shakeup - although we shall see he does not last the year.

As we approach the 2014 AGM another round of fireworks appear to be lighting up the sky. Investors were presented on June 25th with the following bombshell:

...The Company also announces that Todd Kozel will retire from his current role of CEO at the Company's upcoming Annual General Meeting on 17 July 2014 and that, subject to Mr. Kozel's re-election to the Board of Directors by shareholders, he will take up a new role of Executive Director...

Mr. Kozel is retiring as CEO and will be staying on as an executive director if the appropriate resolution is approved by shareholders. In the same announcement investors were informed of the removal of two non-execs including Mr. Asher. Later the same day a third member of M&G 4 resigned - getting pretty lonely the last remaining chap.

The FT reported that;

...a person close to the company said Mr. Asher and Mr. Bell had been removed at a board meeting on Tuesday, following a request from representatives of the Kurdistan Regional Government.

Come again?

...a person close to the company said Mr. Asher and Mr. Bell had been removed at a board meeting on Tuesday, following a request from representatives of the Kurdistan Regional Government.

It appears the regional Kurdish government took time from the impending collapse of Iraq and the possible birth of the Kurdish nation to intervene and tweak the board of Gulf Keystone Petroleum! I'm stunned and impressed with the level of importance Gulf must have in their eyes.

Questions Questions Questions:

  • Why did the KRG remove the 2 non-execs?
  • Why in particular was Mr. Asher removed? Unacceptable CEO candidate should Mr. Kozel not be retained?
  • Did Mr. Kozel leverage his relationship with the KRG to save his Executive skin?
  • Did a shareholder group manage to propose a resolution onto the AGM agenda to put Mr. Kozel's role as CEO up for re-election? I don't have full details of this group, its proposed resolution or their success but pressure certainly came from somewhere.
  • Did a resolution to put Mr. Kozel up for re-election as CEO represent an unacceptable risk? The risk that if the resolution was voted down that Mr. Kozel would have been off the board entirely.
  • Would that have been unacceptable to the KRG?
  • What will the KRG do if Mr. Kozel is voted off the board on the 17th of July?
  • Will disgruntled shareholders back off now the Mr. Kozel is stepping down as CEO?
  • Will the significance of the KRG intervening in this manner be ignored and shareholders plunge forward in seeking Mr. Kozel's outright removal?

I don't know - but you can sum the whole lot up as RISK. Big lumps of RISK. When explaining the massive resources of Gulf Keystone as an investment opportunity people always ask why it trades at an apparent discount if the assets are so great; well this is a good example of why.

In addition to the usual risks associated with oil E&P. There is an increased risk of implosion. Perhaps this time driven by disaffected shareholders pushing the company to make changes that could impact Gulf's relationship in-country and ultimately put our very assets in jeopardy...maybe that's the purpose of some.

It's never boring being a Gulf Keystone shareholder.

The AGM is on 17th July.

Update 28th June

On 27th June the Chairman, Mr Simon Murray, felt it necessary to spell out what the KRG intervention screamed in a letter to shareholders (link).

Some key quotes:

...the MNR stressed the importance of Todd remaining with the Company in a senior capacity...

The MNR considers the ongoing involvement of Todd necessary to preserve continuity for Gulf Keystone and ensuring maintenance of the strong relationship between it and the Company.

...the Board views it as essential that Todd remains on the Board as an executive director...

...the Board strongly urges shareholders to vote for Todd's re-election..

That's crystal clear then. The Kurdish Regional Government's representatives in the Ministry of Natural Resources considers Mr Kozel absolutely central to the ongoing relationship between it and Gulf.

Disclosure: The author is long GUKYF. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Actually long the LSE listed stock GKP but the disclosure remains the same. Long Gulf

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Source: Gulf Keystone's Boardroom Gloves Come Off