WE refer to &ldquo Open letter to Rex International Holding&rsquo s directors and management&rdquo by George Morgan, published in The Business Times, Mar 24, 2023.

 

Rex International Holding has been and will be in the oil and gas space for many years to come, and will continue to develop its portfolio of assets. Its latest addition was at the end of 2022 with the acquisition of a 10 per cent working interest in the producing Yme Field in Norway.

 

The group is now producing more than 9,000 barrels per day. This does not speak to inactiveness. Our targets for 2023 to 2024 are to increase our production and reserves. New drillings and additional acquisitions of oil and gas assets are being evaluated, and we will keep the market updated as soon as plans are firm.

 

But the company cannot remain oblivious. Oil and gas are finite resources coupled with an environmental impact. With climate change, the world is not going to continue to look favourably at hydrocarbons, and the company notes that it is increasingly difficult to get financing as more investors are placing further importance on environmental, social and governance (ESG) factors that are in line with enhanced disclosure requirements of listed companies.

 

While the company will continue to press on with exploring and producing oil, it will need to diversify its main business of hydrocarbons to sustain in the long run, to allow the company to continue to prosper for all stakeholders.

 

It has long been the company&rsquo s goal to find other high impact investments that can secure the company&rsquo s longevity after the use of oil and gas. As stated in our Dec 30, 2022, announcements, the two business diversification investments made during 2022 constitute about 4.14 per cent of the company&rsquo s audited net tangible assets (NTA) as at Dec 31, 2021. That means that almost all the company&rsquo s assets are still within oil and gas.

 

The company has a professional team in place to handle exploration and production. We are blessed with a richness in experience and various backgrounds and perspectives.

 

The production stoppages in Oman have been explained in the company&rsquo s 12 press releases over the period of Dec 10, 2022, to Sep 7, 2022, and in the company&rsquo s full-year financial results announcement released on Mar 1, 2022.

 

The company&rsquo s latest proposed investment in Moroxite T AB was identified as an &ldquo interested person transaction&rdquo (IPT) pursuant to Chapter 9 of the Listing Rules, for which there are safeguards for minority shareholders.

 

The proposed investment will be tabled for the approval of shareholders at an extraordinary meeting to be convened, at which the interested persons and their associates will abstain from voting. The investment in Moroxite T AB will be at the discretion of the minority shareholders.

 

The proposed investment in Moroxite T AB was to seize business opportunities to invest in projects that have unicorn business potential with limited risks, without any material change to the company&rsquo s business profile and risks, as a sustainable business diversification strategy, given the volatility in oil prices over the past decade and growing sentiments regarding action against climate change and hydrocarbon exploration and production.

 

Furthermore, the company notes that it was not required to make an announcement under Chapters 9 and 10 of the Listing Rules for its further investment into Xer Technologies as the total consideration of up to US$4 million represents approximately 2.04 per cent of the group&rsquo s audited NTA as at Dec 31, 2021, being US$196.74 million, which is less than 3 per cent of the audited NTA as at Dec 31, 2021, and further, the transaction constitutes a non-disclosable transaction.

 

However, the company had elected for transparency, to make an announcement to inform shareholders of the group&rsquo s business diversification efforts. It is to be noted that the commitment to inject the further investment into Xer is subject to the achievement of certain technical and sales milestones by Xer.

 

IPTs are not disallowed under the Listing Rules. Every business proposal and its risks and advantages are debated by the board. The board has endeavoured to ensure that the interests of the company and its minority shareholders are protected, such as setting very clear milestones internally as risk mitigation measures.

 

Lastly, one point we can concur with Morgan is that we are all interested in a higher share price, and we believe the company to be undervalued.

 

Dan Brostrom

 

Executive Chairman

Bond issuance  June 2021  US58 million

Excluding shares issued for strategic investments.

Co was very successful in its IPO and prrivate placements.   

 

 

Rex International Holding announced on March 24 that there were some discrepancies between is unaudited condensed interim financial statement and audited financial statement for the 12 months to Dec 31, 2022.

 

The material variances between the Group&rsquo s audited financial statements and the unaudited financial statements were due to the completion of the purchase price allocation for the acquisition of the Yme Field in Norway.

 

AS A long-term shareholder of Rex International, I would like to add my voice to those who have categorically deplored the company&rsquo s diversification into loss-making, non-oil and gas-related businesses through acquisitions of shares from family members of management.

 

Like the vast majority of shareholders, I have no interest whatsoever in these types of unlisted investments in drones and biotech businesses. But, if I had, I would invest through a professional venture capital manager with a proven track record who selects portfolio companies from a broad universe of startups rather than just from his family members&rsquo businesses.

 

The impression shareholders get is that the management &ndash after many years of trying &ndash has given up hope of making the core oil and gas business a sustainable success, or of exercising performance options, or finding a trade buyer. There is also the sense that, now in their golden years and preparing for retirement, the management is resorting to finding ways to transfer wealth from shareholders to family members.

 

Even if these investments have been carefully constituted to be compliant with the letter of all applicable laws and regulations, this type of behaviour by the management hits rock bottom in the corporate governance spectrum. Not to mention, it is a gross betrayal of shareholders&rsquo trust in them. More simply put, it is unethical.

 

It is not too late for the management to change course, put a stop to the distraction of these non-core-related party transactions, roll up their sleeves and get back to work in the core oil and gas business. The company still has adequate cash on its balance sheet, claims to be sitting on vast probable and unproven reserves in Oman, and boasts of proprietary technology that gives it a competitive edge in oil and gas exploration. So why not use that technology to find more oil to supplement the rapidly depleting proven reserves there?

 

After years of doing only exploration and acting as a non-operating minority partner, once it started its own production in Oman, it turned out that the company&rsquo s skill base in maintaining steady production was woefully inadequate.

 

At the same time, the appalling production stoppages in 2022 when oil was at over US$100 a barrel have never been satisfactorily explained. This seems to indicate a pressing need to upgrade skills and personnel in the production area to ensure that this type of disruption never happens again.

 

If the existing management lacks the requisite energy for the task or is simply now too old, they should do the decent thing on behalf of shareholders: just sail off into the sunset and retire to allow the company to select new and energetic professional management with the vision to pursue achievable goals exclusively in the oil and gas sector.

 

Finally, the company has a share buyback mandate. With the stock trading at such bargain basement prices, failure to use the mandate now gives the distinct impression that the management doesn&rsquo t see value at this level, because worse news is yet to come &ndash possibly even revelations of fraud, as some fear. If this is not the case, start buying back shares now! I know it is too much to ask, but it would also be really helpful, if the management were to show even greater confidence by adding to their personal shareholdings in the company.