STATEMENT OF DIRECTORS
Download a pdf copy of this statement HERE
Dear MEC Resources Ltd shareholder
As you are likely aware, 15 small shareholders in MEC Resources Ltd (“MEC” or the “Company”) – Protax Nominees Pty Ltd, Anstey Superannuation Fund Pty Ltd, Paul Anstey & Co Pty Ltd, Paul Emile Richards Anstey and Mrs Katherine Jean Anstey, Steven Craig James, Roger Julian Glyn Davenport and Mrs Frances Davenport, AVCO Pty Ltd, Mr Valentine Durnin, Mr Valentine Durnin and Mrs Pauline Durnin, Ms Claire Durnin, Mr Peter Durnin and Mr Joseph Durnin, Avatar Energy Pty Ltd, Kinetas Pty Ltd, Superfold Pty Ltd, Mr Thomas Andrew Keith Wilson and Mr David Booth & Mrs Tracey Booth (the largest holding approximately 2%) – of the Company’s nearly 2,800 shareholders, representing approximately 6.3% of MEC’s capital (the “Requisitionists”) have lodged with MEC notices under section 203D and 249D of the Corporations Act 2001 (Cth) (the “Act”).
Accordingly, MEC is legally obliged to call a meeting of shareholders at the Company’s expense at which to consider the resolutions requested by the Requisitionists being that we – Chairman, Mr Hock Goh, Executive Director and Company Secretary, Ms Deborah Ambrosini, and Non-Executive Directors, Messrs Kah Ong Yap, Mr Heng Yu and Mr Darryl Moore – that is to say, all the current Directors of MEC – be removed from the Board and that Messrs Thomas Fontaine, Albert Grinceri and Peter Richards (together, the Requisitionists’ Nominees) be elected to the Board.
The meeting of shareholders is to be held at Moore Stephens, Level 7, 9 Castlereagh Street, Sydney NSW on Tuesday, 10 July 2018 commencing at 2:00 pm Australian Eastern Standard Time.
MEC shareholders will no doubt recall that the Company found itself in much the same situation in late 2016 and during 2017.
Indeed, in December 2016, MEC announced that it had received notices purportedly under sections 203D and 249D of the Act requiring it to convene a meeting of shareholders to consider resolutions for the removal of all of the Directors of the Company at that time and the election of nominees including, once again, Mr Fontaine. The notices were considered by the Company to be invalid in respect of the proposed resolutions for the existing Directors.
The meeting considering the resolutions for the nominee directors including, Mr Fontaine, was held on 16 February 2017 with approximately 57% of shareholders voting against the election of the nominees, including Mr Fontaine.
Following lodgment of further notices under sections 203D and 249D of the Corporations Act in January 2017, a further meeting was held on 9 March 2017 with approximately 86% of shareholders voting against the removal of the existing Directors.
Notwithstanding the defeat of the aforementioned resolutions and the strong show of support for the Board, on 28 April 2017, a notice of meeting was issued under section 249F of the Act requiring shareholders to consider the exact same resolutions as previously considered by shareholders. This notice was subsequently withdrawn upon MEC notifying the requisitioning parties that the notice contained a host of deficiencies that were inconsistent with the provisions of the Act.
As you are aware, the person behind each of these Board spill attempts in 2016/ 2017 was Mr David Breeze.
Mr Breeze was a Director of MEC from April 2005, and Managing Director until the termination of his consultancy agreement with the Company in November 2016.
Mr Breeze is currently the subject of legal proceedings issued by MEC in the Supreme Court of Western Australia for failing to return Company property following his termination.
In respect of the new meeting request the subject of this letter, Mr Breeze is not named, either as one of the Requisitionists or as one of the Requisitionists’ Nominees.
However, it will come as no surprise to MEC shareholders that your Directors have received information suggesting that Mr Breeze, once again, is the key person behind this new meeting request.
Indeed, in a recent telephone conversation with one of your Directors, Mr Grinceri, a representative of AVCO Pty Ltd, one of the Requisitionists, and one of the Requisitionists’ Nominees, he stated:
“David Breeze is behind this but does not want his name associated with it. He wants to take down the Board and the Company. He has a personal vendetta.”
The Company also has other items of evidence linking Mr Breeze to the current meeting requisition.
Your Directors can certainly understand why Mr Breeze considers that the likelihood of a Board spill attempt succeeding would be much enhanced by him hiding (or attempting to hide) behind both the Requisitionists and the Requisitionists’ Nominees.
The MEC Board considers it highly likely that, if each of the resolutions is passed, Mr Breeze will immediately be appointed by the Requisitionists’ Nominees as a Director of MEC and henceforth elected as MEC’s Chairman.
In justifying his various attempts to seek to take control of the MEC Board during 2017, the key thrust of Mr Breeze’s claim was that it was time to change the Board, without showing any merit in doing so.
In respect of the current attempt to take control of the MEC Board, the Requisitionists have suggested a new justification for change, as set out in their 31 May 2018 Member’s Statement provided under section 249P of the Act, being that MEC investee, Advent Energy Limited (“Advent”) should drill an exploration well at PEP11 upon completion of a 2D seismic survey (since completed) rather than after the completion of a 3D seismic survey as is Advent’s plan.
We write this letter to you to seek your support so we may continue with the important task of running your Company in the best interests of shareholders as a whole. You can achieve this outcome by voting AGAINST each of the eight resolutions proposed by the Requisitionists at the Company’s forthcoming General Meeting.
We strongly consider it is in the best interests of MEC and all of its shareholders, other than Mr Breeze and the Requisitionists, to vote AGAINST the resolutions for the following key reasons:
- The Requisitionists’ strategy of Advent not undertaking a 3D seismic survey at PEP11 before drilling the next exploration well is fundamentally flawed on both technical and financial grounds
- Mr Breeze has a track record of significant value destruction in respect of listed companies over which he has presided with the MEC share price declining approximately 90%, BPH Energy Limited (“BPH”) approximately 98%, and Grandbridge Ltd (“Grandbridge”) also approximately 98%
- Your Directors consider that value destruction in these companies under Mr Breeze has come about because of questionable business decisions and questionable use of company funds
- Mr Breeze seems overly generous with his personal remuneration, enjoying average aggregate remuneration over the twelve years to 2017 from MEC, BPH and Grandbridge of approximately $415,000 per annum. This amount does not take into account any moneys that may have been payable by entities he controls to entities he owns
- Holding only approximately 6.2% of the shares in MEC, it is inappropriate for the Requisitionists’ Nominees, together with Mr Breeze, to seize control of the MEC Board and hence control of MEC
- Your Directors consider themselves to have superior and appropriate credentials to continue running MEC
Further information in support of these reasons is set out as an Attachment which we urge you to read.
For these and other reasons, we again seek your support by voting AGAINST each of the eight resolutions at the Company’s forthcoming General Meeting.
You can vote AGAINST the resolutions by completing and returning the green proxy form which is enclosed with this booklet. Every single vote is important, no matter how big or how small. Indeed, our chances of putting an end to these unwelcome distractions and ongoing interferences for good will be enhanced if as many shareholders vote as possible.
Finally, let us say that we respect the right of every shareholder to be heard. Equally, we have an obligation to act without fear or favour, and not to override the interests of the Company and shareholders as a whole in favour of a small group of dissenting shareholders and one man with a personal grievance.
We are pleased that this matter, which has come at a significant cost to MEC, will soon be over so we can get on with the important task of running your Company.
We offer our sincerest thanks for your ongoing support.
The Board and Directors
MEC RESOURCES LTD
THE REQUISITIONISTS’ STRATEGY OF ADVENT NOT UNDERTAKING 3D SEISMIC AT PEP111 BEFORE DRILLING THE NEXT EXPLORATION WELL IS FUNDAMENTALLY FLAWED
As the key argument in support of this new attempt at gaining control, the Requisitionists are seeking to convince MEC shareholders that Advent’s three-step strategy of first, undertaking a 2D seismic survey, then undertaking a 3D seismic survey and, finally, drilling an exploration well is wrong. Instead, they claim, Advent should skip the 3D seismic survey and proceed to the drilling of an exploration well as the next step. This, they believe, will lessen the cost of exploration and in turn lessen the dilution of MEC shareholders.
Your Directors consider it is important for shareholders to understand why this strategy is fundamentally flawed on both technical and financial grounds. It is against industry oilfield practice and not a technique used by other companies in drilling offshore wells.
The fact is, oil and gas industry standard practice in undertaking exploration is to take a staged approach with the aim of progressively de-risking the exploration effort through lower cost activities before proceeding to the more expensive activities such as drilling an offshore exploration well. Indeed, in the case of PEP11, a well is likely to cost of the order of $20-30 million.
Advent has recently completed a 2D seismic survey primarily over the Baleen prospect at PEP11 encompassing approximately 200-line kilometres.
Undertaken at relatively low cost, the 2D seismic survey had two key purposes.
First, it returned PEP11 to good standing, both with the National Offshore Petroleum Titles Administrator and the joint authorities (Federal and NSW State politicians). But for this effort, the security of tenure of this title was at considerable risk as a result of previous non-compliance and non-conformity to the work commitments under the leadership of Mr Breeze.
Secondly, the work was undertaken with the aim of furthering our understanding of the geological features of PEP11 and to calibrate against the previous well ahead of undertaking the 3D survey.
Introduced as a standard technique and utilized routinely in good oil field practice, 3D seismic, using a grid layout of detectors and seismic source locations, collects subsurface data both along and at a distance to the 2D line, thereby enabling correction for the scattering effects experienced with 2D seismic. As compared to 2D seismic, 3D seismic provides a much clearer, continuous image of the subsurface, and thus identifies structural and stratigraphic features with far greater accuracy. This means that volumetric estimates of prospects and leads can be being obtained with far greater reliability, and hence risk assessment and target prioritisation is far more reliable. Furthermore, a quality 3D seismic survey may provide multiple drilling targets allowing a multi-well exploration program. A 3D seismic survey will also enable development of any commercial discovery far quicker than a commercial discovery reliant on sub-optimal 2D seismic data.
It is noted that many major oil and gas explorers – Shell, for example – will not drill exploration wells solely on the basis of 2D seismic data.
Moreover, insofar as Advent will likely be reliant on further funding for its contribution to future drilling costs, MEC considers that prospective investors and financiers are far more likely to participate if a rigorous approach to locating the exploration well(s) can be demonstrated.
Advent is anticipating undertaking a 3D seismic survey at PEP11 early 2019. On the basis of the information derived from the 3D seismic survey, Advent anticipates drilling an exploration well or wells in early 2020, pending regulatory and financial support. In other words, Advent has a firm plan in place to undertake a 3D seismic survey and drill an exploration well(s), but will do so in a rigorous and systematic manner in accordance with good oilfield practice.
Your Directors can only presume that the strategy proffered by the Requisitionists has as its aim the achievement of short term share price gain through the hype generated by the drilling program. If this occurred, and there is no guarantee that it would, this would come at the expense of the majority of MEC shareholders who believe in the long term commercial potential of PEP11.
Shareholders will recall that, during 2010, the first well was drilled in PEP11 under the leadership of Mr Breeze based on suboptimal 2D seismic data only and, hence, without sufficient understanding of the geology. Costing more than $26 million, the failure to detect hydrocarbons saw MEC’s share price decrease by approximately 90% within a short period, significantly depleting the financial resources of Advent and its investor companies, and severely curtailing exploration activity in the seven years thereafter.
Shareholders will appreciate that your Directors are frugal with the Company’s scarce financial resources and have nothing to gain by spending shareholders’ funds unnecessarily.
Accordingly, the Requisitionists’ strategy of Advent not undertaking a 3D seismic survey at PEP11 before drilling the next exploration well is fundamentally flawed.
MR BREEZE HAS OVERSEEN SIGNIFICANT VALUE DESTRUCTION IN LISTED COMPANIES OVER WHICH HE HAS PRESIDED
As stated above, Mr Breeze was Managing Director of MEC from prior to its listing in April 2006 until his services were terminated on 25 November 2016.
Over this period, the MEC share price decreased from the $0.20 listing price to just over $0.02, representing a decrease of approximately 90%.
As shareholders are well aware, Mr Breeze presides over two other ASX-listed companies – BPH and Grandbridge.
BPH has been under Mr Breeze’s leadership since the company’s listing on the ASX in 2004.
On Mr Breeze’s recommendation, MEC invested in BPH in December 2010 at $0.226 per share.
A chart illustrating the BPH share price since investment is set out below:
Based on the current BPH share price of $0.002, the value of MEC’s investment in BPH has decreased by approximately 98%.
Like BPH, Grandbridge, in which Mr Breeze holds approximately 33% of the shares, has been under his leadership since 2001.
A chart illustrating the share price of Grandbridge over this period is set out below:
At one point, in 2010, Grandbridge traded at a price of up to $0.87 per share.
Shares in Grandbridge were suspended from trading on the ASX on 1 June 2017, due to ASX’s concerns as to the company’s financial condition. The shares have remained suspended since this date.
Based on the last price at which Grandbridge shares traded before they were suspended of $0.02 per share, this represents a loss in value from their peak of approximately 98%.
That said, with shares in the company seemingly unlikely to relist anytime soon, and the financial position of the company so poor – as at 31 March 2018, the company had cash and cash equivalents of only $8,000 – your Directors consider the ultimate value loss will likely be even bigger.
In summary, Mr Breeze has overseen significant value destruction in listed companies over which he has presided.
YOUR DIRECTORS CONSIDER VALUE DESTRUCTION UNDER MR BREEZE HAS COME ABOUT BECAUSE OF QUESTIONABLE BUSINESS DECISIONS AND QUESTIONABLE USE OF COMPANY FUNDS
Indeed, as Managing Director of MEC and Advent, Mr Breeze enacted his decision to over-ride the planned drilling program in 2010. At the last possible moment he changed the drilling location, the target, the casing shoe depths, such that the entire well – the culmination of many years of hard work from MEC’s investee Advent – was fatally compromised.
With your Directors being of the view that Mr Breeze is likely to be appointed as Chairman of MEC if each of the Requisitionists’ resolutions are passed, it is insightful to examine why both BPH and Grandbridge have performed so poorly.
Under Mr Breeze’s direction, both BPH and Grandbridge invested in two unlisted public companies, Cortical Dynamics Pty Ltd (“Cortical”) and Molecular Dynamics Systems Pty Ltd (“MDS”).
BPH’s investment in Cortical was made in 2007.
On 30 August 2007, BPH signed an Explanatory Memorandum that stated the aim of achieving a listing of Cortical on the ASX.
Since that time, we are aware of no less than 16 occasions where formal documents issued by BPH or Grandbridge have made reference, in one form or another, to the forthcoming float of Cortical.
The situation with MDS is similar. On multiple occasions during 2009 and 2010, BPH announced its intention to spin-off MDS on the ASX.
The fact that neither Cortical nor MDS have yet been listed after all these years despite Mr Breeze’s strong intentions to do so brings into seriously question the value and future potential of these investments.
We note that, in respect of Cortical, an article in the 23 June 2011 Australian Financial Review states:
“Cortical is among the more challenging floats this year. The poor investment performance of BPH Energy could spook investors. So could Cortical’s board composition, lack of CEO, low working capital, related-party transactions, emerging commercialization strategy, need for regulatory approval and requirement for more patient and clinical studies to confirm the technology’s benefits.”
Nevertheless, on multiple occasions, on the back of announcements concerning the pending listing of Cortical or MDS, or both, both BPH and Grandbridge have used this publicity as a basis for raising new funds.
However, little of the funds ever raised seem to be applied as the respective capital raising documents so intend.
A case in point is BPH’s 11 January 2017 rights issue pursuant to which approximately $800,000 in new capital was raised.
Of this amount, 38% or approximately $300,000 was intended for investment in Cortical and a further $300,000 was intended for investment in Advent.
The fact is, only $100,000 of this amount has since been applied to the Cortical investment and none has been applied to Advent, with BPH interest in Advent decreasing recently from approximately 27.06% to 25.47%.
Instead, it would seem that the relatively high proportion of funds raised by BPH have instead been applied to working capital, administration and corporate costs.
Curiously, BPH stated in its 2017 Half-Year accounts that:
“Grandbridge Ltd has confirmed that financial liabilities of $569,213 (30 June2016: $285,392) will not be called upon for repayment for a period of at least 12 months from the date of this report.”
Despite this, in the period to 30 September 2017, $113,000 was indeed paid by BPH to Grandbridge.
In summary, it would seem that the majority of funds that come to the avail of BPH are not being applied to the company’s investment portfolio as subscribers in the various BPH capital raisings were led to believe but instead to the payment of administration expenses, including Mr Breeze’s remuneration (see section below) and to related parties such as Grandbridge.
Shareholders would be interested to know that Spectre Capital LLC, which claims to be an advisor to shareholders in BPH, has posted on its website, a number of open letters to BPH. Such letters make insightful reading for any MEC shareholder even giving scant consideration to supporting resolutions that would see the Requisitionists’ Nominees and, hence, Mr Breeze appointed to the MEC Board.
Shareholders would also be interested to know that, in 2016, Mr Breeze appointed his sister-in-law, Ms Maureen Peterson, as a non-executive director at Grandbridge. So far as we understand, Ms Peterson has no prior business, investment or industry experience and, hence, we can only presume that the appointment was made to serve Mr Breeze’s personal interests rather than the best interests of Grandbridge.
As such, your Directors consider value destruction under Mr Breeze has come about because of questionable business decisions and questionable use of company funds.
MR BREEZE SEEMS OVERLY GENEROUS WITH HIS PERSONAL REMUNERATION
A table setting out Mr Breeze’s direct remuneration from each of MEC, BPH and Grandbridge over the last twelve years, as derived from the respective annual reports of the companies, is set out as follows:
One can calculate that, over the twelve-year period shown, Mr Breeze has from these three companies alone enjoyed average remuneration of approximately $415,000 per annum.
It seems that Mr Breeze might have also benefitted financially in other ways.
BPH’s 2017 Annual Report states:
“During the period Grandbridge charged the Company $252,595 in administration and service fees. At balance date $624,966 (2016: $563,578) was payable to Grandbridge. Grandbridge received $10,370 during the period for management services in relation to a share placement. Grandbridge’s 100% subsidiary, Grandbridge Securities Limited, received $8,750 in respect of the underwriting of a share issue.”
Moreover, Grandbridge’s 2017 Annual Report states:
“During the period the Company charged Cortical $85,398 in administration and service fees. Grandbridge’s 100% subsidiary, Grandbridge Securities Limited, received $4,250 in respect of the underwriting of a share issue.
“Office rent occupancy fees of $34,204 (2016: $58,701) were incurred to a director related entity.”
Although it is not disclosed as to which director related entity the rent was paid, Grandbridge lists both its Registered Office and Principal Business Address as 14 View Street North Perth Western Australia, which premise is part owned by Trandcorp.
As stated above, Mr Breeze also presides over various unlisted companies including Cortical Dynamic Systems, Molecular Discovery Systems and Diagnostic Array Systems.
As the disclosure requirements for such companies are less onerous than for listed companies, it is not possible to accurately determine what, if any, fees have been paid to Mr Breeze and his associates recently and in the past from these companies.
However, in Grandbridge’s 8 June 2017 announcement to the ASX which was made only seven days after shares in Grandbridge were suspended from trading on the ASX, it states:
“Grandbridge is pleased to confirm it has now entered into a Management Services agreement with Cortical Dynamics. Under the agreement Cortical Dynamics has agreed to pay Grandbridge $14,200 per month to reimburse Grandbridge charges for office, administration and accounting and certain management services.”
Grandbridge has since April 2017 lodged with the ASX Appendix 4C cashflow statements on a monthly basis rather than the usual quarterly basis at the requirement of the ASX.
Grandbridge’s Monthly Report’s variously state:
“Note: the Company expects to bank $28,000 from the provision of management services and recovery of administration costs in the month of [various], and will also draw funds from a related party receivable if required.”
It appears that the reality is that Grandbridge is financially supported by both Cortical and BPH to the amount of approximately $14,000 each per month.
As the owner of approximately 33% of Grandbridge’s issued capital and being on the Grandbridge payroll, Mr Breeze would certainly seem to be the major beneficiary of any such payments.
In summary, it is not possible to accurately determine the precise level of remuneration Mr Breeze and/ or his entities are receiving now or have received in the past from companies under his effective control.
However, in the opinion of your Directors, even based solely on information on the public record, Mr Breeze seems overly generous with his personal remuneration, particularly in the context of the value destruction over which he has presided.
Holding only approximately 6.2% of the shares in MEC, it is inappropriate for the Requisitionists to BE Seizing control of MEC THROUGH THE Requisitionists’ Nominees and Mr Breeze Seizing control of THE MEC BOARD
If the resolutions put forward by the Requisitionists are successful, the MEC Board will solely comprise the Requisitionists’ Nominees and, likely, Mr Breeze.
In control of the MEC Board, the Requisitionists’ Nominees and Mr Breeze will in turn control MEC.
Insofar as they only hold approximately 6.2% of the shares on issue in MEC, your Directors consider that the level of control the Requisitionists are seeking is out of all proportion.
What then for the other 94% of shareholders? Who is going to look after their interests?
Shareholders will be aware that BPH and Grandbridge each currently have what your Directors consider to be baseless legal claims against MEC. Shareholders will also be aware that MEC has lodged a claim against BPH for defaulting on a loan from MEC which is currently in the amount of approximately $410,000 (including interest). Should Mr Breeze become Chairman of or associated with MEC, your Directors believe that it is highly possible that these claims will be settled in a manner that is demonstrably favourable to BPH and Grandbridge, and punitive to MEC.
Given these circumstances, our message to the Requisitionists is that, if they want to take control of MEC, they should go about it in the usual manner in which a change of company control is affected, being a takeover offer under which a premium for control is paid to all other shareholders.
However, holding only approximately 6.2% of the shares on issue for the Requisitionists to seek to seize control of the Company without paying anything is entirely inappropriate and not something shareholders should support.
YOUR DIRECTORS CONSIDER THEMSELVES TO HAVE SUPERIOR AND APPROPTIATE CREDENTIALS TO CONTINUE RUNNING MEC
The credentials of Hock Goh as Chairman of MEC, a company with its major investment in oil and gas, are indisputable.
Mr Goh serves as an Independent Director of Santos Limited, one of Australia’s very few substantial oil and gas companies, with a market capitalisation of approximately $12 billion. He also currently serves on a number of other significant boards, and has previously held positions of very high seniority at Schlumberger Limited, the world’s largest oilfield services company.
Deborah Ambrosini is a fellow of Chartered Accountants Australia and New Zealand with more than 20 years’ experience in accounting, business development, compliance and taxation covering a range of business sectors, both nationally and internationally.
Kah Ong Yap is a graduate of the London School of Economics and a fellow of the Institute of Chartered Accountants in England and Wales. His career took him from general audit, computer audit and corporate advisory with Ernst & Young in London to investment banking with Barclays de Zoete Wedd Asia Ltd and then Daiwa Securities (H.K.) Ltd. He has extensive experience covering all aspects of corporate finance, mergers and acquisitions and capital raisings, with transactional experience in a number of countries and industries.
Heng Yu holds a Bachelor’s Degree in Geology from the Southwest Petroleum Institute in China. With more than 25 years of experience in the oil and gas industry, he has advanced skills in geology, modelling, reserves calculation, borehole image processing and interpretation, multiwall correlation and interpretation, and reservoir analysis.
Darryl Moore holds an Honours Degree in Engineering from the University of New South Wales. A drilling engineer, he has performed drilling engineering services for oil and gas companies of the highest standing including Shell, Chevron, Phillips, ENI and Woodside on projects both within Australia and internationally. He is also an experienced company director.
In summary, the current MEC Board combines significant oil and gas experience across a range of disciplines and at the highest level, with accounting, compliance, taxation, corporate finance, mergers and acquisitions and capital raisings, just the sort of credentials one would look for in the board of a company whose major investment was in oil and gas.
Accordingly, your Directors consider themselves to have superior and appropriate credentials to continue running MEC, for the benefit of all shareholders.
We note that, based on the Requisitionists’ Member’s Statement:
- Messrs Richards and Mr Grinceri seem to have no oil and gas industry experience
- Mr Richards claims experience as a public company director; however, he does not identify the public company(ies) on which board(s) he has apparently served, or whether they were Listed on the Australian Securities Exchange (efforts by us to identify his previous roles have not been successful)
- Mr Grinceri is a company accountant who seemingly has no experience as a director of a listed public company such as MEC Resources
- Mr Fontaine has oil and gas industry experience but seemingly only in respect of small and generally unlisted companies. Mr Fontaine was a director of BPH at the time when it refused for no good reason to repay the outstanding debt of approximately $400,000 to MEC, which was the trigger for the Company commencing legal proceedings
Finally, we bring to shareholders’ attention the fact that Mr Richards has previously approached the MEC Board on more than one occasion to request for himself a role with the Company, as well as the reinstatement of Mr Breeze.
Response to RequisitionistS’ S249P Statement
The Requisitionists have provided a statement in support of their proposed resolutions. That statement is included as an annexure to the Notice of Meeting.
The Company notes the following matters with the Requisitionists’ statement:
- “We are not satisfied with the performance of the Company.”
We agree that historical performance until the end of 2016 has been unsatisfactory. Your Board has worked tirelessly, with negligible remuneration, to rebuild the credibility of the Company. Achievements include, in approximate chronological order:
- Termination of former MD’s services agreement
- Attract new, highly qualified and experienced directors to the boards of both MEC Resources and investee Advent.
- Reduction in remuneration for Directors’ fees to $1 p.a.
- Support Advent in enabling compliance with PEP11 work commitments, including seismic acquisition originally required in 2014.
- Achieving extension of PEP11 title to 2021.
- Achieving extension of EP386 title to 2020.
- “We believe it is time to refresh the Board and direct the projects and Company along an alternate path”.
Shareholders will recall that Advent’s strategy under Mr Breeze was to drill PEP11 at the earliest opportunity. Thus, upon the Board refreshment over the last 18 months or so, plus the planned farmout to RL Energy, your Directors are directing the projects and Company along an alternate path. The Requisitionists appear set to return to the “old ways”, which have not served the Company, or shareholders, well.
- “…by drilling a well on PEP 11 within 12 months (subject always to environmental approvals and logistics)”
Your Requisitionists have not disclosed how they will fund an exploration well or how it will affect your shareholding. This doesn’t appear to be a caveat to drilling within 12 months. On this basis their proposition appears both flawed and based entirely on speculation.
- “We oppose the Company’s current plan to complete 3D seismic before drilling which we believe would delay the drilling program by up to 3 years.”
As repeated frequently by the Company, the Requisitionists’ strategy is against good oilfield practice. It is a high-risk strategy which, if unsuccessful, would severely damage the ability to continue exploration of PEP11 in future. Furthermore, the intent to undertake 3D seismic after drilling simply adds more time to potential development of any discovered resources, if commercially viable. Acquisition of a modern 3D seismic dataset at the earliest opportunity will enable improved delineation of existing resources, a potentially greater number of drilling targets, and an expedited ability to develop any commercially viable resources discovered as a result of drilling on the basis of optimum 3D data.
- “This strategy breaks the deadlock of argument about 3D and 2D seismic. If the 3D can’t reasonably be funded at this time…”
The farmin by RL Energy is designed to achieve this objective. This survey is intended for early 2019. This would then enable drilling of an optimal exploration well or multiple wells to be commenced feasibly in 2020. The Requisitionists have not disclosed how they propose to fund and achieve an exploration well in 2019.
- “MEC shares reached $1.13 in 2010 on the back of an active drilling program.”
Yes, they did. But look at the massive decline shortly thereafter due to drilling a “duster” on the basis of suboptimal 2D seismic data, and then the time taken to achieve the next on-ground exploratory work in PEP11.
- “We do not believe it is in shareholders’ best interests.”
What is in the shareholders’ best interests is in fulfilling work commitments on the title and progressing the exploration efforts therein. Your Directors have both achieved this during 2018, and facilitated ensuring this remains achievable in future. The Requisitionists have not declared any ability to achieve their ambitions. Your Directors have achieved the necessary commitments and can be trusted to continue to achieve these commitments in future.
- “RL Energy would earn 60% of the whole project for a contribution towards the 3D Survey capped at just $4m.”
Inaccurate. Upon carrying Advent’s share of a 3D survey up to the value of $4m, RL Energy will then contribute at 60% of any costs above that value.
- “MEC loses control as operator of the project.”
A strong Joint Operating Agreement governs the relationship between joint venture participants in PEP11. A strong Farmin Agreement with RL Energy ensures work is achieved in a timely manner. MEC Resources is a Pooled Development Fund.
- “Following shareholder complaints, the ASX has intervened…”
We have been made aware of the numerous complaints about the potential advancement of the Company by the Requisitionists, and this statement further confirms the identities of those responsible for complaining to the ASX and stifling the progression of your Company and its investments. We consider that this demonstrates the depths to which the Requisitionists have stooped, we believe in association with Mr Breeze, in which they attempt to inhibit the progress of the Company’s investments. Your Directors endorse prudent risk management procedures, including de-risking exploration and reducing cost exposure, whilst maintaining very material interest in the upside.
- “We have been in private talks with a potential farm-in partner to the Bonaparte permits EP 386 and RL1…”
ASX listing rules prevent misleading statements being made around uncertain transactions to limit the inappropriate trading that may result. Rest assured, your Directors endorse prudent risk management procedures, including reduction in cost exposure and liabilities, whilst maintaining material interest in the upside.
- “A history of rejecting funding proposals even while the Company is under financial stress”
Your Directors consider any funding proposals presented to the Company and judge each on its merits.
- “Outstanding current liabilities in excess of current assets”
This will not change under the proposals put forth by the Requisitionists as they have not demonstrated they can fund the immediate drilling of PEP11, at an estimated cost of $20-$30 million. Further, a large majority of the outstanding liabilities relates to outstanding Director fees from prior years that your Directors have deferred while working towards achieving change in your Company. Should the Requisitionists be successful, they will need to address these liabilities in their plan.
- “Undisclosed reason for cancellation of 16 April, 2018 Rights Offer”
As shareholders would realise from the announcement made to the ASX on 7 May 2018, this was due to the replacement of that Rights Offer with a superior offer, whereby improved option terms were offered to shareholders who were eligible to take up their rights under the terms of that offer.
- “Peter Richards has experience as a public company director”
He should name the companies upon which boards he apparently served to enable scrutiny by all shareholders.
- “Thomas Fontaine…introduced the PEP 11 project to MEC in 2004.”
The Directors have reviewed previous Directorships held by Mr Fontaine. It appears that, as Managing Director of the company holding the PEP11 title at the time MEC effectively acquired an interest, he was unable to raise sufficient funds to complete both a 2D seismic acquisition program and that company’s drilling obligation in PEP11. He therefore has a history of being unable to raise funds to complete work programs, and a history of being unable to raise funds to drill PEP11.
- “Albert Grinceri….”
We understand that Mr Grinceri is a suburban tax accountant. Mr Grinceri has not demonstrated any justification as to why he should replace the existing, superiorly qualified and experienced Directors, nor what attributes he would bring to the Company.
 Note: Upon lodging the section 203D notice in January 2018, the Requisitionists advised that they intended to call the meeting of shareholders under section 249F, pursuant to which they themselves would have had to pay all the costs associated with the meeting. However, the Requisitionists decided to proceed by way of section 249D, and hence the costs are unavoidably to the account of MEC.