Solo Oil plc – nice work if you can get it

oil-drilling-at-sunset
oil-drilling-at-sunset

This first post (and probably one of the reasons behind the whole blog idea) was prompted by some recent digging around I did following the announcement of the Placing and Open Offer (RNS dated 15-Aug-2018) by #SOLO.

I have a very small holding in the company, which is worth even less now than when I invested a while ago. At that time I had no knowledge or experience of investing in small oil exploration companies and so I opted for a small initial investment in #SOLO, which is not an operator, but invests in a portfolio of early-stage oil exploration companies. I did this as a proxy for doing the research myself – and for the novelty of a potential UK oil discovery within my portfolio. My mistake obviously!

When the Open Offer Circular was published it reminded me that Neil Ritson had just retired as Executive Chairman (RNS 8-Aug-2018) and I was curious to know who else was on the board, to complete the fund-raising and to manage the business going forward, so I decided to find out.

As at the time of writing, the directors (as per Companies House) and their interest in the shares of the company (as per RNS 8-Aug-2018) are:

Jonathan Fitzpatrick (appointed 2-May-2018) 24.1m shares = 4.16%

Dan Maling (appointed  10-Aug-2016) 10.4m shares = 1.78%

Neil Ritson (appointed 6-Dec-2010) subject to RNS 8-Aug-2018 12.4m shares =2.14%

Donald Strang (appointed 17-Oct-2014) 3.9m shares = 0.67%

The same RNS also notes that Alastair Ferguson has taken over as Non-Executive Chairman, but this appointment is not yet showing on the records of Companies House:

Alastair Ferguson (appointed 8-Aug-2018) 12.4m shares 2.13%

A further search of Companies House shows their other current plc directorships, as:

Jonathan Fitzpatrick – None

Dan Maling – None

Neil Ritson – None

Donald Strang – Tobin Bronze plc, HD Shelf Three plc, Gunsynd plc #GUN, Cadence Minerals plc #KDNC, Doriemus plc #DOR, Primorus Investments plc #PRIM

Alastair Ferguson – None (but formerly NED of JKX Oil & Gas plc #JKX 2011 – 2014 as per RNS 8-Aug-2018)

#SOLO reported the new appointments as –

“… a restructuring designed to transition the company for the future’.

Certainly much is being made of Alastair Ferguson’s appointment as a ‘big-hitter’ with lots of experience with BP and elsewhere – at a time when the Company says

“… it wants to monetise its investments, whilst also raising more money to safeguard its portfolio of assets, as those investments are likely to need additional funding soon.”

A cynic may argue that the additional funds are also required to finance the continuing losses, of which directors’ remuneration and central costs are a significant element.

Directors’ biographies are available on the Company’s website and it would appear that Donald Strang was the Finance Director until replaced in that role on the appointment of Dan Maling  in 2016, and now Dan Maling has been appointed Managing Director on the resignation of Neil Ritson as Executive Chairman. From a corporate governance perspective the roles of Chairman and CEO have now been separated, however, there has been no reference to the appointment of a replacement Chief Financial Officer for Dan Maling.

However, there is no shortage of accountants on the senior team as the Company Secretary Kiran Morzaria is also an accountant (and is a former director of the Company). He is also the Finance Director of UK Oil & Gas plc #UKOG and is currently the CEO of Cadence Minerals plc #KDNC.

From this very limited research it appears that there are a number of common relationships between #SOLO and other AIM listed oil companies. Whether or not this is good for the shareholders of any of these companies is unclear, but it occurs to me that if members of the senior team are giving their attention to – and deriving an income from – other ‘competing’ or ‘investment’ companies, then they are unlikely to be giving their full attention to any one in particular. For example, according to the Annual Reports for the below companies, two members of the #SOLO senior team were remunerated as follows:

Solo etc dir rem

Arguably, there may also be a conflict of interest if #SOLO has invested shareholders’ money in any companies that its directors have a financial interest in, such as the Isle of Wight project which involves #SOLO, #UKOG and #DOR.

People who read this post may already know that this sort of situation exists throughout this industry sector (and perhaps it has existed for a long time), but as someone with very limited exposure to this sector – I was not.

I suppose, the real acid test of good management is whether or not the company performs and increases shareholder value over time for the benefit of all its shareholders and not just the board. This is not yet the case with #SOLO as indicated by the following financial summary and share price chart:

Extract of financial data for #SOLO courtesy of Stockopedia
Extract of financial data for #SOLO (courtesy of Stockopedia)
One-year chart of #SOLO share price (courtesy of Stockopedia)
One-year chart of #SOLO share price (courtesy of Stockopedia)

The conclusions I draw are:

… that notwithstanding their sector experience, the senior management team probably don’t have the level of focus on #SOLO that I am looking for as a private investor in the Company and

… given its financial performance to-date, I am not confident it will provide the investment return I am looking for.