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Nostrum tweaks pay and reduces guidance

Investors in the Kazakh driller have had a frustrating year
December 5, 2018

Nostrum Oil & Gas (NOG) has attempted to quell frustration with the group’s remuneration policies, in a bid to head off growing investor discontent in the serially underperforming Kazakh driller.

IC TIP: Sell at 131p

In response to the vote and “feedback received from shareholders and shareholder advisory bodies" prior to its annual general meeting (AGM) in June, Nostrum has agreed to renounce long-term incentive awards for non-executive directors, and rejigged the remuneration committee so that it is now comprised solely of non-executives. While all resolutions passed at the AGM, 24.8 per cent of investors voted against approving the directors' remuneration report, and 34.5 per cent voted against Nostrum’s remuneration policy.

According to Nostrum, shareholders were concerned with the performance and vesting periods for long-term incentive plans, the independence of the board, and provisions accelerating the vesting of awards in the event of the company’s sale. Investors also sought “additional clarity that targets for certain bonuses were agreed in advance by the remuneration committee”. The company’s latest annual report shows that chief financial officer Tom Richardson was awarded £100,000 last year in recognition of “his outstanding performance in connection with the refinancing of the group’s debt”.

The arrival of Nostrum's response, almost six months after the AGM, followed another underwhelming third-quarter update. Although production had climbed for the first time since the start of 2017, forward guidance has taken another hit. Ongoing drilling and reservoir issues have prompted the company to cut its three-rig drilling programme, and downgrade 2019 production guidance to 30,000 barrels of oil-equivalent per day (boepd). Net debt remains lofty at $1bn.

Nostrum also informed investors that while the perennially-delayed GTU3 gas treatment project would be “mechanically complete” by the end of December 2018, final commissioning had been pushed back to 2019, and at an extra cost of $30m.

The update wiped a fifth off the group’s shares, which now trade below the lowest levels seen since the oil price collapse of 2014-16. At 131p, they are also 50 per cent down since August, when a nominally positive deal to purchase and process third-party production helped to arrest a year-long decline in the company’s value.

Panmure Gordon oil and gas analyst Colin Smith said third-quarter figures were “actually a decent set of financial results which exceeded our forecasts”, but described the production guidance and the potential implications for field performance as “very negative”.