Who are Natlata?

Natlata Partners is a private investment company that seeks out investments with a focus on Russia and CIS countries that appear to be distressed or are at an early stage of development and which will clearly benefit from effective management and proven sector experience.

Who is Maxim Korobov?

Maxim Korobov is a Russian businessman with over 20 years of experience in the oil & gas sector. He has strong connections with Tomsk, the area where PetroNeft operates. He is very familiar with the specifics of Oil & Gas E&P in West Siberia and has a successful track record with other Oil & Gas companies in the region.

Why is Natlata interested in PTR?

Natlata is interested in Petroneft for two main reasons: firstly, in our view, it is an undervalued company which has good assets but which has clearly been underperforming. It would seem that a different team is needed to deliver value to shareholders. Secondly, the assets are located in a region with which we are extremely familiar. We know how to use this knowledge to improve the company’s performance.

When did Natlata first purchase shares in PetroNeft?

Mr Korobov first purchased shares in PetroNeft in 2007 and currently Natlata is the largest shareholder of PetroNeft, holding 29.47% of the issued share capital.

It has been said that this is another attempt by Natlata to take control of the company on the cheap with only a minority holding. Is this true?

This is completely untrue. It was not Natlata who drove the share price down but Petroneft’s performance and market factors. Petroneft is a public company and its shares can be purchased by anyone, yet whilst many shareholders chose to sell, Natlata can see the potential of the company, if properly managed, and has been buying. If our motions are agreed at the General Meeting the Board will end up with two new independent directors (David Sturt and Anthony Sacca) in addition to two existing directors (Gerard Fagan and Thomas Hickey) and one Natlata nominee (Maxim Korobov). At the moment we have three former Marathon people jointly holding just 4.43% who dominate the Board and no other shareholders’ representation.

Will your nominees be truly independent?

They will be independent in all meanings of the word, charged to look after the interests of all shareholders. Natlata has no contractual relationship with either of the two proposed independent directors. We have selected them purely on the basis of their relevant experience and reputations. If necessary, we can arrange for any shareholder to contact them with their questions prior to the EGM. We are confident the directors will remain similarly open post the appointment.

Does Natlata plan to make a full offer for PetroNeft?

Our focus right now is on the issues that we believe to be of most critical and urgent importance to the business. We want to replace the directors that have overseen the protracted destruction of value at PetroNeft, and rebuild the company for the benefit of all shareholders.

What contact have you had with PetroNeft?

Since the last EGM in May 2014 we have been a silent but supportive shareholder of PetroNeft. We made a number of offers to help by suggesting to strengthen the Board with some of the best people in the industry to help with G&G and production issues (David Sturt) and corporate/financial practices (Anthony Sacca). However, the Board did not pursue this in a reasonable timeframe, and indeed, several times postponed the promised deadline for a decision on our suggestion.

However, since we sent our requisition request on 17 February 2016 we have had further contact with the company. At this late stage we felt that their proposals were too little, too late, when it is clear that real change is needed at PetroNeft. As a compromise, we suggested that, among other points, Dennis Francis remained on the board, as Non-Executive Chairman. This proposal has not been accepted.

Who will be the new Chairman, CEO and CFO in your proposals?

We propose David Sturt as the new non-executive Chairman of PetroNeft. David is a highly experienced Oil and Gas industry professional with nearly 30 years of experience gained at Conoco-Philips, Hess, PetroKazakhstan, Dragon Oil, Exillon Energy, VistaTex and Azimuth. He has a proven successful track record of technical work, building and growing oil and gas companies across the world, and a wealth of experience in modern drilling technology.

We propose Maxim Korobov to be the interim CEO, at least until such time as we have a better understanding of the real reasons behind PetroNeft’s continued failings. Maxim is a businessman with over twenty years of Russian Oil and Gas experience and strong connections with Tomsk, the area where Petroneft operates. Maxim Korobov served as Vice President of Eastern Oil Company (EOC) and head of EOC Trading House; President of Tomsk Oil and Gas Company; and head of the oil and gas team at Rossiisky Kredit bank.

The board will appoint a suitable senior finance director to take on the role of the CFO. This does not necessarily have to be someone sitting on the Board.

If our proposals are successful we will also carry out a professional search for any other members of the board that we consider necessary and will allow shareholders to vote on them at the AGM later in 2016.

What do you think the current management have done wrong?

The current board has presided over years of diluting shareholders and failing to deliver. They failed to provide appropriate direction to PetroNeft over a number of years and have consistently failed to increase production and achieve the promised targets. Since the farm-out of half of Licence 61 to Oil India, the money has been spent, targets were not achieved, the company continues to be non-transparent and the management still does not admit accountability for its failures. Total production has barely risen and obviously only 50% of this now accrues to Petroneft.

In our previous campaign we pushed for seismic and horizontals. These have been applied and all the money spent, yet there is no noticeable growth. Ambiguous and unclear press releases combined with optimistic forecasts do not allow shareholders to reach a conclusion on whether continued failures are a result of bad technical and operational management or inflated assets potential. It is clear that the executive management responsible for years of degradation and non-performance would be replaced in any company run by a truly independent board of directors.

In the past five years, Petroneft’s share price has declined by approximately 96% (as at 29 Feb 2016). Even in the current low-oil price and troubled geopolitical environment, this is a staggering decline. It should also be remembered that Petroneft did not shine even in the environment of high oil price and global economic growth. The share price first declined to the current levels when we had $100-plus crude and has barely risen at all in between.

What are your plans to turn the company around?

If we are successful with our proposals at the EGM, our first task will be to carry out a fair and professional evaluation of the company's problems and, based on the results, getting the right people to restore and grow the value.

Will other shareholders have a say in your plans?

At the 2016 AGM, provisionally in August, we will make a full presentation of our plans to turn around the company and we will invite shareholders to decide if these are the right ones. We will also welcome suggestions from shareholders at any other time.

What will happen to the operational control of Licence 61 if Natlata succeeds with its proposed board changes?

According to the terms of the Farmout to OIL in 2014, OIL has the right to become the Operator of Licence 61 should there be a substantial change in the management team of PetroNeft within three years of the deal, if OIL believes these changes not to be in its interests.

We are of course reaching out to Oil India to discuss the right way forward for the company. We are sure that they, like all stakeholders, want essentially the same thing, which is an improvement in operational performance. It should also be remembered that the question of control of Licence 61 is not in itself straightforward and depends on many variables beyond the change of some directors, including, for example, anti-monopoly legislation in Russia.

Do you plan to take the company private?

We believe that there is significant value in the assets of the company and with the right management we can increase the company’s value to the benefit of all shareholders. Our aim is to increase shareholder value and not to take the company private.

Have you spoken to the other major institutional shareholders? Do they support what you are doing?

We have not spoken to many shareholders in PetroNeft recently, but from the general conversations we have had, it is clear that many institutional as well as retail investors are very supportive of what we are trying to do. We welcome hearing from all people who, like us, want to rescue and develop PetroNeft, to share their views and ideas on how to improve this company for the benefit and profit of all shareholders.