AS A long-term shareholder of Rex International, I would like to add my voice to those who have categorically deplored the company’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’ businesses.

The impression shareholders get is that the management – after many years of trying – 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’ 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’s skill base in maintaining steady production was woefully inadequate.

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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’t see value at this level, because worse news is yet to come – 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.

George Morgan, CFA