Tethys Petroleum Ltd (LSE: TPL) announced today that the firms founder, Dr David Robson, has agreed to step down from the firms board in the face of intense pressure from activist shareholder Pope Asset Management, which controls approximately 18% of Tethys shares.
The firms shares have climbed 11% today following Wednesdays announcements, which also confirmed that company secretary and executive director Liz Landles will stand down, while the firms chief executive, Julian Hammond, and chief financial officer, Denise Lay, will remain in their roles.
The firms non-executive board directors have also agreed to stand down, on the eve of an Extraordinary General Meeting to be scheduled in December, when shareholders will be asked to vote on electing four replacement non-executive directors nominated by Pope.
Is this good news?
I think that this could be good news for Tethys Petroleum shareholders. Under Dr Robsons leadership, Tethys shareholders have endured significant dilution without much operational progress: the current plan to sell 50% plus one share of the firms Kazakhstan production assets to a Chinese investment firm, HanHong, is a good example.
Although this sale will raise $75m immediately, it will deprive the firm of the benefit of the expected rising cash flow from these assets. This makes it far more likely that Tethys will be unable to meet its share of the costs of its highly prospective Tajikistan exploration programme, in which it is partnered with Total SA and CNPC, without further diluting shareholders.
However, its possible that the much-delayed HanHong deal may not complete: Tethys recently reported that it had agreed a new extension on the sale, which has not yet been rubber-stamped by the Kazakh authorities.
A new board might veto this deal in favour of new debt funding or perhaps a strategic investment in Tethys Petroleum itself, which I believe would be preferable to selling a majority share of the firms only cash-generative assets.
The attraction with Tethys is that it has the potential to be a big success: the firms exploration assets in Tajikistan have unrisked mean prospective resources of 27.5bn barrels of oil equivalent.
Tethys still owns 33% of these assets more than enough to transform the company into a solid mid-cap player, if next years planned exploration is successful.
Im still cautious about recommending Tethys Petroleum as a buy, but I am encouraged by todays news and back Popes planned boardroom changes.
Investing in small cap resource stocks such as Tethys is always risky, and if you’re a shareholder, you need to position yourself to profit from future gains, without losing your shirt if things don’t go to plan.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.