RH Petrogas Independent Review: Key Findings and Investor Implications

Executive Overview

RH Petrogas Limited (RHP), a Singapore-listed upstream oil and gas company, has concluded an extensive independent review conducted by PricewaterhouseCoopers (PwC) following a series of whistleblower complaints. The findings, covering the period from 1 January 2021 to 31 March 2024, reveal a range of governance, operational, and compliance issues at the company’s Indonesian subsidiaries, Petrogas (Basin) Limited (PBL) and Petrogas (Island) Limited (PIL).

Key Issues Identified

• Dealings with Minority Shareholder and Related Parties: There were substantial payments (USD 36.8 million over three years) to companies potentially affiliated with the minority shareholder and its controlling family (“Family A”). These payments increased significantly year-on-year but were not clearly tied to arms’ length transactions or proper market benchmarking. Notably, contracts may have been awarded to affiliates in lieu of dividend payments, with dividends only paid to the minority shareholder in 2023 and 2024. While the company argues no related party transaction requirements were breached, PwC recommends legal review due to the opacity and potential conflicts of interest.
• Procurement Misconduct and Irregularities: The procurement process for a major bundled core drilling services contract (awarded to a consortium including a related party) showed several irregularities, including:
  • Bundling of seven contracts, leading to increased costs from USD 2.1 million to USD 2.8 million
  • Backdating of contracts, manipulation of owner’s estimates, and questionable vendor selection
  • Lack of clear cost savings, with price increases not properly disclosed or justified to decision-makers
  • Consistent awarding of contracts to the same set of vendors, raising questions over competition and fairness
• Oil Spill Concealment and Data Manipulation: A significant oil spill in January 2021 was not reported to Singapore management or regulators, as required by policy. There were also instances of manipulation of production data. Management denied knowledge, but evidence suggests otherwise. Two versions of reports (one for internal use, one for Singapore HQ) were prepared, with the oil spill omitted from the latter.
• Bribery and Lobbying Allegations:
  • Multiple allegations of attempted bribery of government officials, including a request for a laptop tied to a regulatory decision.
  • Company management maintained lobbying relationships with the influential “Family A” for regulatory interventions.
  • PwC found no direct evidence of improper payments in the sampled periods, but the risk and associated governance weaknesses remain material.
• Employment Misconduct and Retaliation:
  • Alleged conflicts of interest in hiring (including claims of nepotism and undue benefits), some corroborated by unusual increments and travel allowances.
  • Documented retaliation against whistleblowers, including downgrading performance appraisals outside of normal HR processes.
• Leadership and Governance Failures:
  • Unilateral appointment of a new President-Director (PD) and re-appointment of the former PD as Senior Advisor with unclear terms and possible overlap of roles, bypassing proper board procedures.
  • Significant delays and missteps in disseminating whistleblowing policy and handling whistleblower complaints, including breaches of confidentiality and exposure of whistleblower identities to implicated individuals.
  • Material mistrust and lack of transparency among board members, with key information withheld from the board.
• Internal Audit and Controls Weaknesses:
  • Internal audits failed to identify significant control lapses flagged by PwC, raising questions on the effectiveness and independence of the internal audit function.

Potential Price-Sensitive Matters and Shareholder Implications

• Regulatory and Legal Risks: The findings highlight extensive governance and compliance risks, including potential breaches of corporate governance code, possible related party transactions, and regulatory reporting failures (e.g., oil spill cover-ups). These may lead to regulatory sanctions, legal actions, or penalties in Singapore and Indonesia.
• Operational and Financial Impact: Payments to related parties, increased procurement costs, and possible inefficiencies may have negatively impacted margins and cash flows. The company’s controls over procurement, HR, and whistleblowing are materially deficient, potentially affecting its ability to secure future projects and maintain trust with partners and regulators.
• Leadership Instability and Board Dysfunction: The unilateral and opaque handling of CEO and PD transitions, coupled with poor board dynamics and mistrust, pose risks for future decision-making, strategic direction, and ability to respond to crises.
• Reputational Risk: The public disclosure of these findings, including allegations of bribery, nepotism, data manipulation, and whistleblower retaliation, may adversely affect investor confidence, share price, and the company’s standing with stakeholders.
• Whistleblower Protection and ESG Concerns: The company’s failure to protect whistleblowers and address their concerns adequately may have long-term consequences for its ESG rating, workforce morale, and external partnerships.

Immediate Recommendations for Investors

1. Monitor Company Disclosures: Investors should closely follow the company’s SGX announcements, especially any updates on regulatory investigations, board changes, and remedial actions.
2. Watch for Legal Proceedings: The recommendation for seeking legal advice on several findings suggests potential for litigation or regulatory enforcement, which could be price-sensitive.
3. Assess Governance Reforms: The company’s response in updating its Nomination and Remuneration Committee terms of reference, whistleblower policy, and procurement controls will be critical.
4. Evaluate Management Stability: Ongoing leadership changes and board dynamics should be a focus area for investors concerned about long-term value and strategic execution.

Conclusion

The PwC independent review has surfaced a range of serious governance, compliance, and operational issues at RH Petrogas. The findings are materially price-sensitive and could impact the company’s share value due to regulatory, legal, and reputational risks. Investors are strongly advised to monitor further developments, company disclosures, and take these findings into account in their investment decisions.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. The information has been compiled based on the PwC independent review report provided to the Audit Committee and SGX RegCo, and may be subject to further verification or updates. Investors should conduct their own due diligence and consult professional advisers before making investment decisions. The reporter and publisher accept no liability for any actions taken based on this article.

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