The following statement was requested to be sent to all shareholders of Block Energy plc (the Company).
The statement sets out the rationale for the proposal of the resolutions that:
The resolutions are supported by a group of concerned shareholders representing around 20% of the shares in the Company.
Long-term underperformance caused by operational and governance failures
Chairman needs to be replaced by a new independent Chairman to provide fresh leadership
Shareholders must submit proxies WITHOUT DELAY to be received before 9 August 2021
Over the last 12 months, concerned shareholders, including GP Jersey, representing approximately 20% of the issued share capital of Block Energy (“the Company”) have been in communication with Company management with regard to the underperformance of the share price (DOWN c.87% since May 2019); operational failures; corporate governance concerns; and the reliability of its market disclosures.
Recently, questions have been raised about the motivation of the concerned shareholders whose aim has always been to ensure that the Company is well placed to return value for all shareholders. These concerned shareholders are not seeking to take over the Company, merge the Company with another, sell the Company’s assets, or provide any non-equity finance, such as debt.
The success of the Company, and efficient operations run by a capable management team, is the only goal of the concerned shareholders. To support this, a number of these shareholders participated in the December 2020 fundraise of £5 million, demonstrating their support for the Company.
This contrasts with the Directors of the Company. Almost all the stock acquired by these Directors has been through the exercise of options at nil or nominal cost pursuant to the Company’s salary sacrifice scheme or through bonuses awarded rather than investing their own funds.
The concerned shareholders believe there are significant long-standing issues that the Board have failed to address. These include:
1.Failure of Operational Management – Despite investing over £20 million of shareholders’ money, the operational performance of the Company is of major concern. All three wells drilled have encountered problems, and despite requests, the Company has not explained how it will prevent a repeat of these issues.
There are important questions to be asked about the performance of the Company’s operations, including issues with the intervention on well WR16z. No announcement has been made which suggests that the intervention failed. Why has the market not been updated?
2.Corporate Governance Failures – The concerned shareholders have raised questions on serious governance issues, including a lack of clarity in market communications, for example, in the disclosure of information about gas sales agreements (GSA) and on director’s dealings.
A change in circumstances surrounding the GSA has not been communicated to the market despite a change to pricing having taken place in May 2020 under the provisions of a revised GSA. The c.40% reduction in pricing has major value implications for the Company and it is not clear if there are other undisclosed changes to the terms of the revised GSA. It is concerning that this information has not been provided to the market for 11 months, during which time the Company raised additional funds from shareholders.
In an email dated 24 February 2021, the Chairman stated in response to queries from the concerned shareholders: “Currently, we have nothing more to report and are now hampered by insider knowledge of activities that have occurred since the last RNS announcement.” The Chairman also confirmed on telephone calls with shareholders that the Board was in possession of “insider knowledge”.
After this admission, a series of directors’ dealings took place. It is not clear how these dealings would take placein accordance with AIM Rule 21 and the Market Abuse Regulation given that no price sensitive information was announced to the market.
None of these failures have been adequately addressed by the Chairman. As a result, the concerned shareholders have been forced to request an independent forensic audit and investigation to be conducted around the Company’s disclosures and historic practices. This requirement only arose due to the Company’s failure to respond to reasonable requests for information.
3.Transparency and Disclosure – Over an extended period, the Company has not answered a number of material questions raised by concerned shareholders. The Company appears to have a poor record of disclosing key information to shareholders.
For example, shareholders’ understand from sources in Georgia there is a concern that oil from Block Energy operations was sold in Q1 2021 and that the buyer is not one of the two operating refineries in country. The terms of this transaction, and who the oil was sold to, has never been disclosed to the market. The Company should provide details of all oil sales in country to alleviate any concerns and set the record straight.
4.Failure of Leadership – The concerned shareholders believe that a failure of leadership, and inadequate challenge of the management, has resulted in the operational problems, poor governance, and the chronic underperformance of the share price.
Two independent non-executive directors, one only appointed in December 2020, have resigned in quick succession. This is a fundamental threat to the integrity, independence, and viability of the Board, and indicative of a complete breakdown in governance. Ultimate responsibility rests with the Chairman, which is why concerned shareholders believe urgent change is necessary.
That such circumstances have been allowed to go unremedied is unacceptable. The Company should have acted to alleviate shareholder concerns expressed on multiple occasions in detailed correspondence.
As a result, the resolutions propose the Chairman is removed from office immediately and that Mr Charles Valceschini (an independent non-executive previously appointed by the Board) be appointed as non-executive Chairman to implement a fresh approach designed to maximise shareholder value. We consider the Chairman’s leadership has been a significant feature of the Company’s underperformance.
The focus of the concerned shareholders is to improve the Company’s share price and build shareholder value. To achieve this, concerned shareholders believe that this requires a fresh start and strong leadership from a chairman, and as such, recommends that all fellow shareholders vote in support of the resolutions at the General Meeting.
A website has been set up by concerned shareholders at www.blockenergysupport.group with additional information.