23 May Karoon Energy suffers ‘first strike’ as activists land a blow

Source: The Financial Review

By: Sarah Thompson, Kanika Sood and Emma Rapaport

Activist shareholders have inflicted a hit on Karoon Energy’s board as investors voted down the oil and gas producer’s remuneration report at the company’s annual general meeting in Melbourne on Thursday.

Street Talk first reported that more than 26.25 per cent of proxy votes were cast against its executive pay regime ahead of the meeting.

Going off the proxies alone, around 16.5 per cent of total shareholders have already voted against the remuneration report. Assuming the meeting gets a circa 60 per cent turnout, the board would be within inches of a first strike.

Karoon later confirmed the first strike, with 26.4 per cent of votes against the resolution. The vote means Peter Botten, Karoon’s chairman, and the rest of the board, will face a spill motion next year if a second strike is dealt. A strike requires 25 per cent of votes to be cast against the executive pay scheme.

Considering Karoon had secured support from four major proxy firms – ISS, Ownership Matters, ACSI and Glass Lewis – which said they intended to tell their influential client base to vote in favour of all nine resolutions, the size of the swing against the board is notable.

Dividend demand

An activist consortium including Samuel Terry Asset Management and Sandon Capital had urged fellow shareholders to vote against eight of the nine resolutions including the remuneration report in the weeks leading up to the meeting.

The pair said the company, which they say has evolved from explorer to producer, should return capital to shareholders via dividends or buybacks, They’ve also railed against recent acquisitions such as Who Dat and the capital raises to fund them.

Speaking to Street Talk shortly after the AGM, but before the final figures were released, Botten described the vote as “disappointing” but insisted the issues were historical, centred around the incentivisation of management to deliver an acquisition (which has now been completed).

“It’s disappointing to have what might turn out to be a strike,” he said.

“As a board, we take we’ve taken on board the sensitivities of that and I think we’ve already acted frankly on addressing some of those sensitivities … This year, there is a very strong focus on operational excellence and that’s what we need to do to give confidence to shareholders.”

Botten also pushed back on activist demands surrounding capital management, saying paying out high dividends over a sustained period would effectively “liquidate” the company and leave it with a “rapidly declining production base”.

Representatives from Sandon rejected this accusation at the meeting, saying they were making a reasonable request of the company – asking it to balance cash returns to shareholders in the form of buybacks and dividends.

July deadline

Karoon has committed to outlining a framework for shareholder returns in July 2024, implemented at its August half-year results – a timeline activists have previously described as “kicking the can down the road”.

“I’m sure people would have loved to have us give a dividend number today, but I think there’s quite a lot of work and sensitivities to be run to allow us to get to a really strong and informed position,” Botten said, arguing it was important for the board to understand the half-year numbers before decisions were made.

Sandon’s Gabriel Radzyminski said he was “keenly awaiting the July announcement to learn exactly what we can expect to receive from August onwards”.

Long-serving director Peter Turnbull suffered a 28.7 per cent vote against his re-election. The elections of Melissa Holzberger and Joanne Palmer were given the thumbs-up.