Maverick Todd Kozel in the limelight once again at Gulf Keystone Petroleum

Gulf Keystone Petroleum shares are up 7% to 103.5p after the company was forced to deny rumours that infamous Chief Executive Todd Kozel was on the verge of being ousted and there was also news from the Iraqi elections.

Sky reported yesterday that Kozel could stand down within months.

Kozel has attracted much publicity with his compensation package, raft of share sales and corporate governance issues. As well as a disappointing reserves update at its giant Shaikan oil field in Kurdistan and question marks raised from a CPR (competent persons report) on the company’s assets , a recent $250 million bond issue was mired in controversy after it was revealed that the company would fail to be a going concern this month if the bond issue failed to be completed.

Earlier this year Kozel’s compensation was reduced to less than $3 million, a 60% reduction after earning $14 million in 2012 and $22 million in 2011. John Gerstenlauer, chief operating officer, saw a pay cut from $4.6 million to $1.2 million last year and Ewen Ainsworth, finance director, saw his basic salary fall from $2.9 million to $738,000. Andrew Simon, chairman of the remuneration committee, who took the position following a shareholder revolt and departure of former non-executive director Mehdi Varzi last July, said: “Whilst basic salary levels have been kept low in the past, the benchmarking exercise carried out by Deloitte helped us to conclude that the level of long-term incentives and short-term bonuses were notably above the market range.”

It was also reported that Iraqi political sources said that preliminary results of Iraq’s parliamentary elections the Coalition of Prime Minister Nouri al-Maliki had 67 seats, while a coalition led by Ammar al-Hakim had 48 seats, and the Liberal bloc of the sadrist movement in the three lists 33 seats, leaving the Coalition majority in Shiite National Alliance of 80 seats, compared with 67 seats of the State law. If Maliki won the majority, this will mean that he will have his third term in charge.

The SKY report read –

“One of the most controversial bosses of a London-listed company is being edged towards the exit door following a protracted series of rows over executive pay and shareholder returns. Sky News understands that Todd Kozel, chief executive of the Kurdistan oil explorer Gulf Keystone Petroleum, could step down within months amid mounting pressure from fellow directors and unhappy shareholders.

The timing of Mr Kozel’s exit is not guaranteed. Some board members, however, want an announcement about a succession plan to be made ahead of the company’s annual meeting, which is typically held in July. Insiders said that a number of Gulf Keystone directors had held talks this week about Mr Kozel’s prospective departure.

A number of big shareholders in Gulf Keystone have continued to exert pressure on Simon Murray, the former French legionnaire who chairs the company, to replace Mr Kozel. Last year, it reached an eleventh-hour agreement with M&G and Capital Research Group to appoint a group of independent directors in order to avert a widespread rebellion at its AGM. City sources believe that unless Mr Kozel’s departure is announced before this year’s shareholder meeting, major investors will decide to vote against both the chairman and chief executive’s re-election.

Much of the tension over Mr Kozel stems from his pay packages in recent years, having been awarded £14.4m in 2011 and £8.8m in 2012 despite ongoing losses. The shares have fallen from a peak of 465p in 2012 to 96.75p on Thursday.

Gulf Keystone recently switched its listing from London’s junior AIM market to the main market, which entails more stringent corporate governance requirements. Last month, it raised $250m of debt to fund development work in the Kurdistan region of Iraq. Some bankers believe a sale of the company is inevitable in the medium term.

A spokesman for Gulf Keystone, which reports first-quarter results on May 14, said that Mr Kozel was not about to resign but declined to comment on board discussions about his future.”

In response to these reports, Reuters reported that:

“Oil explorer Gulf Keystone on Thursday denied a media report that its board and investors planned to call for the resignation of founder and Chief Executive Todd Kozel within months. British broadcaster Sky News reported that several Gulf Keystone directors had held talks this week about Kozel’s departure, prompted by a series of rows over executive pay and shareholder returns. (link.reuters.com/wyg98v)

Gulf Keystone spokesman Terence Franklin denied the report and told Reuters there was no substance to these “rumours”. Franklin confirmed the meetings but said he did not know what had been discussed.

Sky, citing sources, said some board members wanted an announcement about a succession plan before the company’s annual meeting, typically held in July. The broadcaster also said a number of big shareholders in the London-listed company want to replace Kozel with Simon Murray, the ex-Glencore chairman who now heads Gulf Keystone’s board.

Murray, who was at Glencore’s helm in 2011 when the resources group listed and oversaw its $39 billion takeover of Xstrata, was appointed chairman of Gulf Keystone in July 2013 to help quell investor frustration over the board’s make-up at the time. He was put in charge of Gulf Keystone’s remuneration committee, a part of the business which could come under shareholder scrutiny.

In March, Kurdistan-focused Gulf Keystone posted a $32 million loss after tax for 2013. Kozel’s salary and bonus totalled $13.6 million in 2012, and he made $7 million through share options that year. Sky cited sources saying major investors would decide to vote against both the chairman and chief executive’s re-election if Kozel’s departure was not announced before this year’s shareholder meeting. (Reporting by Richa Naidu in Bangalore; Editing by Leslie Adler) “ http://www.reuters.com/article/2014/05/01/gulf-keys-petr-ceo-idUSL3N0NN4UB20140501

Still there’s often no smoke without fire and despite the denials it seems that certain members of the GKP board or perhaps one or more institutional investors are agitating for change at the company. Though Kozel as founder of the company has undoubted contacts with the Kurdistan government as well as other valuable spheres of influence in Iraq as was highlighted by the recent bond offer documents,  his antics are clearly an obstacle to GKP being legitimised in the eyes of major oil and gas investors.

Simon Murray was brought in mid last year to help improve corporate governance at the business seems an ideal candidate to take the helm given his pedigree at Glencore and other companies. I doubt if shareholders who have seen the shares fall 75% in the last 2 years will be sad to see Kozel go if change in the management team is forced through in the next few weeks. Certainly, M&G will be very happy to see the back of the American.

Contrarian Investor UK

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