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[2126]

Proxy advisor ISS criticises InterOil CEO pay but sides with board

Angela Macdonald-Smith

Published: May 31, 2016 - 5:33PM

Influential proxy advisor Institutional Shareholder Services has exposed "high" CEO and director pay at InterOil as a "cause for concern" but has sided with the board and against dissident shareholder Phil Mulacek on the merits of Oil Search's $US2.2 billion ($3 billion)-plus takeover deal for its Papua New Guinea rival. ISS said the absence of a better offer and InterOil's limited funding capacity meant the risks in voting down the transaction could not be justified. In a report to clients,

ISS pointed to "some merits" in the claims of Mr Mulacek over the terms of the transaction. But it advised against voting for the former InterOil chief executive's board nominees at the company's June 14 general meeting, noting that may "complicate" the Oil Search deal, which may not be in the best interests of other shareholders. "On balance, despite the dissident's arguments, the downside risk of defeating the transaction without any superior proposals in hand does not appear to be sufficiently justified," it said. Mr Mulacek has criticised the terms of the Oil Search deal, saying it significantly undervalues the company's large Elk-Antelope gas resource in PNG's Gulf Province and its other discoveries.

CEO payment 'excessive' But ISS said that if the Elk-Antelope fields are "truly crown jewel assets" and are being sold at an undervalued price, other interested parties would still have a chance to make a higher offer. It said the $US60 million break in the takeover agreement "should not be a major hurdle to block any potential superior proposals". It noted that voting down the Oil Search deal would likely push InterOil's share price back down to where it was before the agreement was announced, leaving the company probably needing to raise additional funds to fund hefty exploration costs.

In a presentation being made to North American investors this week, Oil Search also points to the financial pressure InterOil was under, noting that it was considering a sell-down of a minority stake in Elk-Antelope as it sought to fund upcoming drilling at the field. The Antelope-7 well is set to cost about $US60 million. But the proxy advisor takes issue with the levels of pay for InterOil chief executive Michael Hession and for board directors, which have surged since Mr Mulacek was chief executive. It described Dr Hession's $US39.27 million payment in the event of a change of control of InterOil as "excessive", noting it is almost four times his pay in 2015, which itself was more than double the median of peers disclosed by the company. At $US10.136 million, Dr Hession's total compensation in 2015 was the highest among its peer group and about 142 per cent higher than the peer median of $US4.18 million. In 2013, in contrast, InterOil had the lowest CEO pay of its peers. Director compensation also became the highest among InterOil's peers since Mr Mulacek was chief executive. InterOil shareholders are due to vote on the Oil Search deal in late July, with two-thirds of votes cast needing to be in favour for it to proceed. Even if the board is spilt on June 14, the vote must proceed.

InterOil seized on ISS's recommendations to again urge shareholders to support the current board "We believe ISS recognises that InterOil's turnaround since Mr Mulacek's departure has delivered results for shareholders and that Mr Mulacek has failed to make a compelling case for change," the company said.

This story was found at: http://www.theage.com.au/business/proxy-...p7ql7.html

[sageo]

Proxy advisor ISS criticises InterOil CEO pay but sides with board

Angela Macdonald-Smith

Published: May 31, 2016 - 5:33PM

Influential proxy advisor Institutional Shareholder Services has exposed "high" CEO and director pay at InterOil as a "cause for concern" but has sided with the board and against dissident shareholder Phil Mulacek on the merits of Oil Search's $US2.2 billion ($3 billion)-plus takeover deal for its Papua New Guinea rival. ISS said the absence of a better offer and InterOil's limited funding capacity meant the risks in voting down the transaction could not be justified. In a report to clients,

ISS pointed to "some merits" in the claims of Mr Mulacek over the terms of the transaction. But it advised against voting for the former InterOil chief executive's board nominees at the company's June 14 general meeting, noting that may "complicate" the Oil Search deal, which may not be in the best interests of other shareholders. "On balance, despite the dissident's arguments, the downside risk of defeating the transaction without any superior proposals in hand does not appear to be sufficiently justified," it said. Mr Mulacek has criticised the terms of the Oil Search deal, saying it significantly undervalues the company's large Elk-Antelope gas resource in PNG's Gulf Province and its other discoveries.

CEO payment 'excessive' But ISS said that if the Elk-Antelope fields are "truly crown jewel assets" and are being sold at an undervalued price, other interested parties would still have a chance to make a higher offer. It said the $US60 million break in the takeover agreement "should not be a major hurdle to block any potential superior proposals". It noted that voting down the Oil Search deal would likely push InterOil's share price back down to where it was before the agreement was announced, leaving the company probably needing to raise additional funds to fund hefty exploration costs.

In a presentation being made to North American investors this week, Oil Search also points to the financial pressure InterOil was under, noting that it was considering a sell-down of a minority stake in Elk-Antelope as it sought to fund upcoming drilling at the field. The Antelope-7 well is set to cost about $US60 million. But the proxy advisor takes issue with the levels of pay for InterOil chief executive Michael Hession and for board directors, which have surged since Mr Mulacek was chief executive. It described Dr Hession's $US39.27 million payment in the event of a change of control of InterOil as "excessive", noting it is almost four times his pay in 2015, which itself was more than double the median of peers disclosed by the company. At $US10.136 million, Dr Hession's total compensation in 2015 was the highest among its peer group and about 142 per cent higher than the peer median of $US4.18 million. In 2013, in contrast, InterOil had the lowest CEO pay of its peers. Director compensation also became the highest among InterOil's peers since Mr Mulacek was chief executive. InterOil shareholders are due to vote on the Oil Search deal in late July, with two-thirds of votes cast needing to be in favour for it to proceed. Even if the board is spilt on June 14, the vote must proceed.

InterOil seized on ISS's recommendations to again urge shareholders to support the current board "We believe ISS recognises that InterOil's turnaround since Mr Mulacek's departure has delivered results for shareholders and that Mr Mulacek has failed to make a compelling case for change," the company said.

This story was found at: http://www.theage.com.au/business/proxy-...p7ql7.html

  2126 - Part of last sentence " Mr. Mulacek's departure has delivered results for shareholders"  . What kind of a person writes this kind of crap ?  Results in pps under MH has been disasterous !!  I guess some of these "glorious idiots"  believe we will swallow anything . Hope a better offer is "around the bend" .

[ArtM72]

 2126 - Part of last sentence " Mr. Mulacek's departure has delivered results for shareholders"  . What kind of a person writes this kind of crap ?  Results in pps under MH has been disasterous !!  I guess some of these "glorious idiots"  believe we will swallow anything . Hope a better offer is "around the bend" .

I'll answer that question.  A misinformed person writes that kind of crap.

Email the writer and suggest where her article might need an update.  Hession gave no public indication of need to sell down IOC to finance its share of Papua LNG. You can point her to IOC's Goldman Sachs' Energy Conference of Jan 6-8, 2016 presentation by IOC, slides 16-17 that demonstrate IOC's financial strength on the path through Papua LNG  construction afforded by the Total SPA.  You could suggest to her that IOC points out in that presentation they had multiple discoveries and promising leads in areas outside PRL-15, over 90% of which would be transferred to Total and OSH under this deal without any apparent consideration.

[2126]

Art and Sageo:

You both seem to imply that the writer of the article is responsible for the quote that you are discussing. If you look at the article, you will see that the sentence in question ["Mr. Mulacek's departure has delivered results for shareholders"] is from the IOC PR department.

[ArtM72]

Art and Sageo:

You both seem to imply that the writer of the article is responsible for the quote that you are discussing. If you look at the article, you will see that the sentence in question ["Mr. Mulacek's departure has delivered results for shareholders"] is from the IOC PR department.

I view people who reTweet  or forward emails or quote from others without qualifying in some way the content sos relayed are providing tacit approval of that content and take upon themselves a level of responsibility for that content. If a writer puts a quote in an article, while he or she isn't taking full responsibility for that quote, publishing it without further comment is tantamount to asking you to take that quote at face value.  Since I don't believe professional journalists or those who aspire to be such have an interest to mislead or would knowingly simply put out that quote without qualification I believe there is ignorance involved.

If anyone questions whether professional journalists have ethics I point you to http://www.spj.org/ethicscode.asp.  An interesting read.

[Getitrt2]

I don't know why they think the stock's going back down, which would have no cash effect, would leave the company "probably needing to raise additional funds to fund hefty exploration costs". Those funds would come from the certification payment and/or sales of interest in discoveries, as with Elk-Antelope.

[Palm]

The price will go back down if the deal is voted down because it's only where it is now because of the negotiated deal. Simple logic. And IMO should the deal go bye-bye without a pending new deal, pps will drop into 20s as rumors of deals got it over 30 prior to the announced deal. And if the deal goes down it's very possible Total finds ways to delay Ant 7 drilling/testing and the cash bleed would continue. Then you have possibility of Hession being gone and no one wanting to come sit in the chair.

Cash would very much be affected by a deal being voted down. Very much.

[admin]

 Then you have possibility of Hession being gone and no one wanting to come sit in the chair.

Mulacek?

You also assume Total wants to stall on the drilling, trying to hang on to the cash for as long as possible. I agree that this is a possibility, but on the other hand, they have one of the cheapest LNG projects here, they might want to get a move on before others do and steal the lunch.

It's only a month or so ago that Total's CEO and it's PNG department head confirmed the original timelines.

[admin]

Mind you, when the timelines were confirmed by these Total execs they were aware of what was about to unfold, no doubt.

[ArtM72]

The price will go back down if the deal is voted down because it's only where it is now because of the negotiated deal. Simple logic. And IMO should the deal go bye-bye without a pending new deal, pps will drop into 20s as rumors of deals got it over 30 prior to the announced deal. And if the deal goes down it's very possible Total finds ways to delay Ant 7 drilling/testing and the cash bleed would continue. Then you have possibility of Hession being gone and no one wanting to come sit in the chair. Cash would very much be affected by a deal being voted down. Very much.

All of what you say is likely true, but I still choose to believe when Total's CEO says A7 will be complete and certification in progress by the end of this year it will happen. In fact, I suspect that OSH and Total might choose to stop the well in progress and/or proceed immediately to certification.  After all, it was Hession that pushed for A7, not the others.

The implications of voting No in the event the current board is retained needs to be a major topic of conversation.  Demanding immediate access to the details of the OSH appraisal for Pac LNG is first order of business. Plan that any farmdowns will of neceissity consider that liquidated damage clause and thus may be limited in size.  Hession will somehow have to be removed.