Activist investors force boardroom spill at Carnarvon Energy

As Woodside and Santos mull a $80bn mega oil and gas mega merger, a Santos joint venture partner – Carnarvon Energy – has suffered a boardroom putsch.

Two activist funds managers have combined to trigger a boardroom spill at Carnarvon Energy, booting out the chairman and chief executive while also winning key concessions that include no new acquisitions, stripping out costs and maximising value at the company flagship asset, the Dorado oilfield in Western Australia’s North West Shelf.

The boardroom putsch and renewed focus on Dorado, which Carnarvon is a minority shareholder in, comes at a crucial time for the oil and gas sector as major players Woodside and Santos consider a huge $80bn merger, with Santos being a major investor in the Dorado project.

Importantly in the wake of the boardroom spill that was revealed on Monday, the reconstituted Carnarvon board – which will now include an executive from one of the activist funds that led the charge – has committed to push away any other distractions to focus on working with Santos to ensure the Dorado site moves quickly to its next development stage.

It is unclear if revelations of talks between Woodside and Santos over a potential mega merger accelerated the pace of the boardroom spill at Carnarvon, as its own shareholders speculate over the future of Dorado within a combined Woodside-Santos gas and oil giant.

On Monday, Carnarvon revealed to the market in an ASX statement that following discussions with its two largest shareholders, Nero Resource Fund and Collins St Asset Management, the managing director of Nero, Russell Delroy, and geologist-turned-explorer William Barker have been appointed as non-executive directors of Carnarvon with immediate effect.

As part of this, Carnarvon chief executive Adrian Cook and Carnarvon director Debra Bakker have agreed to retire from the board. Carnarvon’s chair, William Foster, and director Gavin Ryan will remain on the board, with Mr Foster and Mr Ryan both intending to retire prior to, or at, the company’s 2024 annual general meeting.

Mr Foster will have his chairman’s powers considerably curtailed, with agreement not to exercise his casting vote as chair at any meeting of the directors while he remains in the chair.

Investors welcomed the spill and the tighter focus on its existing asset base, sending shares in Carnarvon more than 11 per cent higher. They closed the day up 11.4 per cent at $0.20.

The boardroom spill happened incredibly quickly. Only last week investors Nero and Collins St wrote to Carnarvon demanding immediate action across a number of corporate and operational issues and at the same time warning the $340m Carnarvon company that if their demands were not met they would spill the board.

Nero and Collins St have also scored major victories outside the boardroom by dragging Carnarvon to the negotiating table to agree to a number of concessions around its operations. Namely, the newly constituted board has agreed to no new acquisitions to preserve its balance sheet, slash its cost base through reducing its corporate and administrative costs and with its joint venture partners to seek to accelerate drilling of the highest priority targets in the WA’s Bedout Sub-basin.

Carnarvon will also look for opportunities to monetise non-core assets as well as speed up development of its promising Dorado project, which it owns with Santos and Taiwanese company CPC Corporation.

Carnarvon is the joint owner of the Dorado project in Western Australia with Santos and sits on $175m of cash after finalising a deal with Taiwan’s CPC to sell a 10 per cent stake in its Dorado and Pavo projects, about 140km off the cost of Port Hedland, for an all-up payment of $US146m.

“We continue to work hard with our joint venture partners, Santos and CPC Corporation, Taiwan, to ensure the Dorado Phase 1 liquids development is FID ready in 2024, and our focus remains firmly on unlocking the significant value that development of Dorado and Pavo will realise for shareholders,” outgoing Carnarvon chairman Bill Foster said on Monday.