An open letter to Tony O’Reilly Jnr.

August 20, 2016 | Posted by

Dear Tony,

From a former supporter and sympathiser of yours, my writing this open letter to you illustrates just how dire I perceive the situation to be re management and execution at Providence Resources.

To see (at the time of writing) the stock price decline to just 9.75p – now some 20+% less than the recent placing price, whilst the price of oil and the sector in general has increased modestly, is the clearest signal possible that investors continue to vote with their feet regarding their perspective on specifically your, and also your fellow Board members ability to ultimately monetise the company’s assets. I also believe that it is not a coincidence that the renewed selling we have seen has come so soon after the RNS announcing the replacement share options award to the Board.

To award yourself 12 million options, and in so doing effectively wiping the slate clean on the prior tranches that are so far under water that they are plumbing the ocean depths, is yet another two fingered salute to your very long suffering shareholders. It also simply beggars belief and frankly kills what remains of any credibility you had with your shareholder base that after a now near 99% fall in the stock price over the last 4 years (far in excess of the sector and almost every other O&G E&P company) that you commit less than 1 month’s salary (£29,000) to the recent capital raise. This, on top of taking decent single digit millions out of the Company in salary and emoluments over the same period in which your shareholders have been almost wiped out aswell as bringing the company to the point of collapse following the loss if the Transocean appeal (which we believe, on advice, was not adequately disclosed in advance to shareholders and leaves legal avenues open to us re an action against you and your Board) simply stretches credulity to the extreme.

With the new stock option awards, you have now created a one way asymmetric skew on the success of Druid and/or a farm in on Barryroe: if both are failures then you still collect your not inconsiderable salary (and that I believe is approaching half a million euros a year) and the freshly struck options would just simply lapse. If however there is positivity on either of these fronts and a re-rating occurs then you are in clover. Comments that the stock price has to rise near 5 fold in order to achieve any personal reward from these options does not wash with me or indeed many other investors from my conversations with them. The value placed by “the market” on the company’s reserves is quite simply so absurdly low that of course any positive catalyst after so many years of abject failure in concluding the key Barryroe farm-in is likely to be transformative. In short, you are not aligned with shareholders, you are benefiting from their largesse.

Additionally, for the Institutional Shareholder Service to recommend voting against a Company’s Board member re-election (as was the case re Philip Nolan and James McCarthy) and thus raise material concerns regarding independence on the Providence Board is a loud and clear message that change is required. Collecting $70m in the recent capital raise and the Company thus being given a renewed lease of life is not a vote of confidence in you and your Board and licence to a one way ticket via the options on a Barryroe farm-in for you personally, it is a desire to finally see the Company’s exceptional licenses and real prospects for the nascent Irish oil and gas industry to come to fruition. I return to my opening comments – the market does not see you as the man to do this Tony. That message is wrought loud and clear in the stock price.

As a large private shareholder and with the support of a number of other similarly material private shareholders and further, as is evident from the ISS’s comments, good governance direction on our side, I respectfully request that you finally take heed of the message that the stock price is sending you and do the decent thing for all PVR shareholders in resigning and having James McCarthy carry out a thorough search for a new CEO and Chairman to replace himself too. That I personally am exposed to a larger current equity stake in the Company than you, I believe licenses me to level these criticisms at you.

The Company’ currents EV/2P value (pre the capital spend on the Druid drill) is, from what I can see, one of the lowest of any O&G company globally. It is time to allow a capable and respected new CEO to take the company forward with a renewed initiative and vigour shorn of the “O’Reilly legacy” that continues to create a discount to the stock price. By extension, from what I can see, industry preparedness to move forward with partnerships with PVR are also being hindered while you remaining in situ. You have your options now and the company has adequate resources to move forward so you would still share in the upside and share handsomely given the volume of options you awarded yourself if you did move aside.

In life we generally have 2 choices both at the minutiae level and at the “big picture” level – do the right thing or do the wrong thing. I implore you to finally do the right thing for all PVR shareholders.

Yours sincerely


R Jennings

Director, Align Research