By Tom Winnifrith | Friday 14 February 2020
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Yesterday another dog cursed by the hex that is a Gervais Williams investment, that is to say Nostra Terra Oil & Gas (NTOG), published details of a sack the board EGM and the management’s case for staying on. What, in a cowardly fashion, it refused to do, as I believe it should have done is publish the letter that the requisitioner, Eridge Capital run by flip flop Ben Turney, wanted to send to shareholders. Fear not… the letter, outside of all paywalls, is below. Nostra Terra shareholders should read it and vote to sack chairman Ewan Ainsworth - in light of the scandalous pay revelations below - and hapless Lofgran after this bombshell. Sack the board!
Eridge Capital statement to shareholders concerning the General Meeting requisitioned on 15 January 2020
To the Shareholders of Nostra Terra Oil & Gas Plc (“Nostra Terra” or the “Company”),
It is with deep regret that Eridge Capital (“Eridge”) has requisitioned this General Meeting.
As you all know, Eridge has been a long-standing supporter of Nostra Terra.
At the start of last year the Company appeared to have built a solid foundation to grow its business upon.
In the first half of 2018, Nostra Terra successfully drilled two new producing oil wells in the Permian Basin. The Company reported it was cash flow positive for the month of February that year and, in August 2018, that it had generated record revenue in H1.
In October 2018, the Company acquired its first 1,384 net acres of the Mesquite Asset in the Permian Basin (“Mesquite”). It followed this by engaging Trey Resources Inc., a specialist engineering firm with experience in developing Permian assets, to create a Field Development Plan for Mesquite. This was completed in January 2019 and the Company released details of the related Engineered Economics Report, which assigned a $21.6 million NPV10 valuation to the initial 1,384 net acres at Mesquite on the basis of 2.4 million barrels of recoverable oil.
In that January Nostra Terra also secured an option over an additional 600 net acres at Mesquite (to take its total potential net position here to 1,984 acres). The Company opened a data room to help secure a farm-in for this project. The board had previously claimed, in November 2018, that it had received “four unsolicited expressions of interest from potential industry partners”, which it believed was “a promising indicator for the future development of Mesquite”.
Subsequently, in February 2019, Nostra Terra raised £1.15 million and Miton Group took a 10.17% strategic stake in the Company.
Eridge also participated in that fundraise, in the belief it had bought into a compelling turnaround story on AIM.
The funds should have presented Nostra Terra with a wonderful opportunity to grow its business.
Unfortunately, the current board of directors failed to take advantage of this.
It is now nearly twelve months later and there has been absolutely no discernible, meaningful progress in the Company whatsoever.
In recent months we, the directors of Eridge, have attempted to engage positively with Matt Lofgran (Nostra Terra’s Chief Executive Officer) and Ewen Ainsworth (the Company’s Chairman) to encourage them to address critical issues in the Company’s direction, its leadership, its lack of progress and its waning reputation in the market.
Regrettably, our efforts were in vain.
It has, unfortunately, become clear to us over this time that neither Mr Lofgran nor Mr Ainsworth is suited to the demands and obligations of being a successful director of a publicly listed company.
It is our strong belief that both men have been putting their own interests before those of Nostra Terra and its shareholders.
More disturbingly, as we exhausted all options in attempting to engage positively with Mr Lofgran and Mr Ainsworth and experienced more of their behaviour, we have become increasingly alarmed at what we believe represent significant failures in corporate governance at Nostra Terra.
Nostra Terra applies the QCA Corporate Governance Code (the “QCA Code”).
In this context, our key concerns about the poor state of corporate governance at Nostra Terra include, but are not limited to, the following:
A failure by the board to report to the market a critical banking covenant, which the Chairman claimed he was not aware of as late as mid-January 2020
A failure to set appropriate levels of remuneration for a company of Nostra Terra’s size
A failure to scrutinise and hold to account Nostra Terra’s senior management in its delivery of publicly announced objectives
A fostering of a corporate culture in which the Chief Executive Officer has been permitted to act as he pleases with woefully inadequate oversight
A failure to exercise appropriate due caution in risk management, especially key-man risk to the business
We expect the Company will make its response to the above and welcome any public statement it makes to counter our concerns. It has so far refused to respond directly to Eridge.
With respect to remuneration and we recently learned that on 16 August 2018 Nostra Terra’s remuneration committee, which is chaired by Mr Ainsworth, awarded Mr Lofgran a new service agreement. Notable terms of this service agreement include:
The agreement was backdated to 01 January 2018, at which time it became effective
Mr Lofgran’s basic salary was increased to $250,000 a year
There is a six month notice period in the event of Mr Lofgran’s termination as a director of the Company
Mr Lofgran is permitted to continue working for the Company or its subsidiaries, even if not a director of the Plc
This agreement remains in force today
With respect to Mr Ainsworth’s service agreement, we learned that this was dated 22 June 2015 and it stipulates that Mr Ainsworth is entitled to receive £16,667 as an annual fee for provision of his services as “chairman”. Related to Mr Ainsworth’s service agreement, we note:
According to Nostra Terra’s audited accounts for 2018, Mr Ainsworth was paid $121,647 in fees during that year. No explanation has been given for the increase.
In the event that Mr Ainsworth is terminated from the board of Nostra Terra there is no notice period and he shall only be paid fees that are outstanding.
As a significant shareholder, Eridge believes it is time to resolve the wider malaise that has afflicted Nostra Terra, its management and strategic focus.
Shareholders now have the opportunity to vote on the future direction of their company.
Eridge is convinced that by supporting the resolutions, this will set Nostra Terra on a new, brighter path to value creation, by building on the foundation that remains in place, significantly cutting Plc overhead (and director pay) and substantially improving corporate governance and oversight.
Join us in saving our company.
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