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Gulf Keystone – botched boardroom suicide pact?

By Ben Turney | Wednesday 25 June 2014

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.

It now looks like the recent weakness in Gulf Keystone’s (GKP) share price has been caused by not one, but two civil wars. I covered events in northern Iraq a fortnight ago, yet it is boardroom infighting that is once again the greater concern. Greed does funny things to people and it is high time the directors of Gulf grew up and got their acts together. Failing that, they should just take off their shirts and go and wrestle in the car park until one side cries uncle. Anything would be better than having to watch this never-ending struggle for control of the company.

I’ll admit I underestimated the severity of the deteriorating situation in Iraq. I didn’t underestimate the response. Within a few days of publishing my original piece, there was news of an American fleet steaming into the region, the Iraqi request for air support and the rapid deployment of military “advisers” (not special forces soldiers, of course!). If drone strikes haven’t started already, it seems a fair bet that once they do ISIS’s 15,000 combatants (the last number I have seen) will either not be long of this world or will melt back across the border into Syria. I noted my colleague Robert Sutherland Smith’s comments earlier about the business brains at work in ISIS, but I’m still swayed by the flood of refugees which escaped the insurgents’ advance as an indicator that this rebellion doesn’t have the groundswell of local support it will need to stand any chance of survival.

Anyhow, this is a digression. The greater threat to Gulf Keystone’s valuation is the boardroom civil war, which has plagued the company for too long. The eleventh-hour deal reached with major shareholder M&G Investment Management before the last AGM, and which averted a full blown shareholder revolt, no longer looks like it was a genuine accord, but rather a temporary cessation of hostilities.

It is no wonder the market hasn’t responded too well to today’s corporate hara-kiri of an RNS. It is a bloody mess. Independent non-execs Jeremy Asher (Deputy Chairman) and John Bell have ceased to be directors and CEO Todd Kozel announced he will retire from his current role. Had Kozel’s retirement meant he was leaving the company, this could have provided the clean break, which shareholders have been crying out for. However, when has anything ever been simple with the generously paid Mr Kozel?

Sky News recently broke the story that negotiations were ongoing to find a suitable severance package for Mr Kozel. It was no surprise that this severance package was likely to involve “a significant payoff, which could fuel further investor anger”. Further investor anger certainly wouldn’t have been help for Gulf’s share price, but at least this outcome would have meant a new person could take the helm and steer Gulf through what should be an incredibly exciting period in its development.

What Sky News didn’t anticipate was that in stepping down as CEO, Mr Kozel would make a bid to cling on to an executive directorship with the company. This is too ridiculous for words and if Mr Kozel is successful in his outrageous bid to maintain an executive role in the company, which has been such a liberal cash cow for him, how could shareholders ever really have faith in the new CEO, with the ghost of excesses past lurking in the background?

The silver lining to this sorry tale is that, in three weeks, shareholders have the opportunity to get shot of Kozel once and for all. His appointment as an executive director requires formal approval. I haven’t yet seen any comment from M&G on this situation. Given that M&G led last summer’s charge, it seems highly improbable it will vote in favour of Mr Kozel’s new role. Perhaps part of the behind the scenes deal between the competing factions in Gulf meant that Asher and Bell offered themselves as sacrifices so that Kozel would throw himself to the mercy of a shareholder vote. If this is the case I expect M&G to stay quiet and just let the process run its course.

Whatever the outcome of the AGM on July 17th, Gulf desperately needs some calm at the top. The company faces enough challenges that it doesn’t need to create more of its own making. The boardroom clown show must be brought to an end and it looks like the first step in achieving this will be to send Mr Kozel packing with a squirt of water in his eye and custard pie in his face.



Since starting this article, Gulf’s share price has recovered from the morning’s lows. This underlying strength could be a positive indicator that, assuming Mr Kozel is ditched on July 17th, this stock could be readying itself for a move higher.

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