Dawney & Co Releases Open Letter to AWE Ltd Shareholders

BRISBANE, Australia, Feb. 16, 2017 /PRNewswire/ — Today, Dawney & Co releases an open letter to shareholders of AWE Limited. The content is as follows:

Dawney & Co Pty Ltd ("Dawney & Co", "we", "us" or "our")
AWE Limited ("AWE" or "the Company")

Fellow Shareholders,

At the time of writing AWE's share price was circa $0.55.

We refer to our letter dated 4 October 2016 and subsequent statement released on 2 November 2016. We have written this open letter because the AWE Board has chosen not to engage with us.

Corporate Activity:

There is currently an abundance of corporate activity in AWE's realm that we feel the Board is not prepared or willing to capitalise on (an early decision for an early bonus beats a drawn out result every day):

  1. In the latter part of 2016 the Board of Origin Energy (ORG) decided to divest/IPO their upstream assets (including those held in partnership with AWE). This decision has stirred interest from numerous potential trade and financial buyers.
  2. The Board and shareholders of Alinta Energy, a buyer of AWE gas, are planning an IPO.
  3. Quadrant Energy (backed by Macquarie and Brookfield), a West Australian gas producer, is exploring IPO and trade sale options.
  4. New Zealand Oil & Gas was a 27.5% partner in Tui and, like AWE, accepted an offer from Tamarind for their interest. The NZOG Board has been proactive in realising other assets and returning capital to shareholders. A quote from NZOG's quarterly report regarding the sale of their 15% interest in Kupe gas: "The sale allowed New Zealand Oil & Gas to achieve the present value of future cash flows while removing the risk of exposure to a single large asset dominating its portfolio". The sale, approved by an 87% vote in favour, completed on January 1 with NZ$100M to be returned in May.

Meanwhile, the AWE Board remains closed and complacent. As noted in our letter, the Board swiftly rejected the $0.80 per share takeover approach by Lone Star in May 2016. In the same disdainful manner, during December 2013 the Board rejected a friendly 1.9:1 merger proposal from Senex Energy Limited (SXY) (effective offer price received of six month VWAP $1.37 per share and 12 December 2013 close of $1.44 per share). With the exception of Managing Director Biggs all present Directors were part of that Board. We sense a pattern is emerging; in both circumstances, the Board reasoned underlying value and better times ahead. They then faced impairment of $246.2M in FY15 and $291.7M in FY16.

Intentional or not, it appears the Board has a hostile and dismissive attitude toward merger and acquisition approaches. This is disconcerting for shareholders and not how we want the investment community or potential future bidders to view the Company.

"Investing for the Long Term":

At the Annual General Meeting, Chairman Phillips declared "your Board governs the Company for the medium to long term shareholders and not short term traders". We assumed his criticisms were aimed at our unanswered communications. We raised the FY16 $291.7M impairment of assets and asked if those assets were, at the time of investment decision, considered long term in nature; Mr. Phillips responded "yes". Mr. Phillips also commented that AWE is entering an investment phase. With $772.1M of issued capital resulting in $436.7M of accumulated losses (-56.6% ROI), the long-term investment strategy is clearly not working and should be reviewed.

We would like to formalise our response to Mr. Phillips:

Before any investment, we analyse the fundamentals and direction of a prospect and make a judgment call about its future. While analysing AWE we formed a view that the Board has presided over substantial value destruction and that shareholders would be best served realising their assets before additional losses are incurred. Our campaign is based entirely on preserving shareholder value, regardless of the time period we've been invested. We agree AWE has valuable assets, but value doesn't change positively unless good management and catalysts are creating it. It is what a buyer is prepared to pay at a point in time.

Non-Executive Director McEvoy:

At the AWE Annual General Meeting Mr. McEvoy stated that after a 40-year career he was ready to retire from the Board of Directors. However, he has signed on for a further term as the retirement of Chairman Phillips took precedence. We question how motivated and committed Mr. McEvoy will be in his twilight years.

Further, Mr. McEvoy is a Non-Executive Director of Seven Group Holdings (the largest shareholder of Beach Energy which is said to be looking over Origin Energy's upstream assets). With corporate activity brewing, which shareholders will benefit most from Mr. McEvoy's focus, Seven Group or AWE? AWE could be seen as a second prize for unsuccessful Origin upstream bidders. Has Mr. McEvoy discussed this at Seven Group Board level?


When Chairman Phillips retires from the Board, the continuing Director shareholdings will be Biggs 10,000 shares, 920,282 cash share rights, McEvoy 30,000 shares, Williams 80,000 shares, Betros 70,000 shares, Penrose 50,000 shares. A total of 240,000 shares equal to 0.045% of the Company (the latest 3B confirmed 528,156,857 on issue). Each of these Directors have held high level Executive positions over their careers and yet collectively own only $134,750 worth of AWE shares (240,000 x $0.55 per share). There has been little buying. Having rejected two offers ($1.37 and $0.80) on the basis of underlying value, why haven't these historically successful Executives invested more of their net worth at recent prices?

On another note, Perennial Value, a long-term value investor, ceased being a substantial shareholder on 7 December 2016 with final reported sales at 63.25/63.5 cents per share. Evidently, we're not the only shareholders concerned about the Boards direction.

Fading Catalysts:

  1. OPEC and Non-OPEC members agreed to a production cut. While positive for energy prices and the industry generally, AWE continues to lag.
  2. The AWE Board announced the "completion of asset sales" and a 33% reduction in provisioning. This has not satisfied the market.

Asset Values and Cash Flows:

Although the Board impaired net assets to $0.54 per share and rejected much higher offers, they have failed to provide ample information supporting their decisions. When asked at the AGM by another shareholder to discuss contracted gas prices and expected cash flows available for distribution Chairman Phillips told the meeting he was not able to provide those details.

As the Board won't open up to shareholders or engage with interested M&A parties we believe it is time for change. We invite like-minded shareholders to contact us.


Mitch Dawney
Managing Director
Dawney & Co Pty Ltd

E: [email protected]
W: www.dawneyco.com.au