23 May Chairman Peter Botten faces shareholder revolt at Karoon Energy AGM

Source: The Australian

By: Tansy Harcourt

Karoon Energy has suffered a first strike at its annual general meeting – with more than 26 per cent of shareholders voting against its remuneration report, amid growing anger that the company has put growth through acquisitions ahead of returning capital to shareholders.

Investors Sandon Capital, Samuel Terry and Karoon founder Bob Hosking have called for Karoon to start paying dividends rather than pouring all its oil cash flows back into the company; following last year’s equity dilutive fund raising to fund the purchase of Who Dat in the Gulf of Mexico.

Chairman Peter Botton said the onus was on him to prove the Who Dat purchase was worthwhile despite its returns being below the company’s mid-teen internal rate of return target.

“If we are not successful I will go and find something else to do,” Mr Botten said after Sandon Capital’s Gabriel Radzyminski asked whose heads would roll if the Who Dat acquisition failed to deliver.

“Some days you are in the sun and some days it’s raining,” mused Mr Botten. “We have to demonstrate that Who Dat brings the sun to shareholders.”

The embattled oil and gas company’s AGM was a heated affair that dragged on for two hours and forty minutes. Almost a quarter of shareholders also voted against paying non-executive directors higher fees; the performance rights of chief executive Julian Fowles; and the re-election of director Peter Turnbull.

Mr Botten said it highlights “the need to engage with shareholders’ and said the board would review the company’s short and long-term incentives before the next AGM and provide details on a capital management program in July, ahead of its half-year results.

But for all the company’s comments that it understood shareholders wanted change, its messaging remained obfuscatory at best.

The company has been asked on multiple occasions to detail what financial hurdles would need to be met before it started returning money to investors, and responded with a straw man argument to a demand that has not been made.

“We do not believe the liquidation of the company through the payment of unsustainably high dividends over a three-to four-year period is supported by a majority of the shareholders,” Mr Botten said.

In an interview afterwards, Mr Botten said that “the activist shareholders, at least some of them, are focused on having a very high rate of return through dividends, proposals with Samuel Terry and others are at an extremely high rate that are maybe sustainable for three to four years, but that really restricts the business and strips the business of money and assets over a very short period of time”.

Mr Radzyminski pushed back strongly against the idea that investors were looking to liquidate the company. On the contrary, he said the successful global oil companies all return money to shareholders and that a firm like Karoon, which generates over US$200m of free cash flow on a market cap of $1.5bn, should clearly be paying dividends too.

“We are not calling for the company to be liquidated,” the Sandon Capital chief investor said. “We are calling for them to pay a meaningful amount of free cash flow back to shareholders.”

As a comparison he pointed to Shell, which bought back 17 percent of its shares on issue in the past two years and offers a 3.75 per cent dividend yield. Chevron last year returned to shareholders nearly 10 per cent of its market capitalisation in dividends and buybacks, and Exxon Mobil in the first quarter of 2024 paid out 76 per cent of its free cash flow.

Karoon has two main assets, the Bauna Project in Brazil, and the recently purchased Who Dat. Investors have feared the company will make another acquisition rather than start a capital management program.

Mr Botten said “acquisitions have been deprioritised” while it beds down Who Dat, but confirmed it continues to screen external growth opportunities.

Last week, Karoon CEO Julian Fowles told The Australian the company is targeting 50,000 barrels of oil a day over the next years, up from current levels of 35,000 barrels per day.

Karoon had flown largely under the radar for much of its two decades as a listed explorer but now it is a producer with strong cash flows, shareholders have demanded that it also shift from growth through acquisition to rewarding investors.

Mr Fowles said “these two are not mutually exclusive”.

Karoon shares closed down 0.3 per cent on Thursday at $1.83 each.