Buccaneer of the black stuff: profile

The chairman of Aran Energy says he will fight hard to resist the hostile bid launched by Arco. But, as David Bowen writes, he has plenty to gain - win or lose; Michael Whelan
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The Independent Online
MICHAEL WHELAN, the chairman of Aran Energy, is having a good lunch at one of the City's better in-house dining rooms. It is a month into his battle to fight off a takeover bid from the American oil giant Arco, and he is enjoying the scrap.

With his soft Irish accent and patrician looks, the 63-year-old Whelan has as good a chance as anyone of talking his way out of his current predicament. He has, he hints over a brace of pre-prandial sherries, cards up his sleeve that will make Arco's 61p offer seem derisory.

He has all the arguments off pat, and appears only a little nervous when questioned about the apparently strange combination of a pounds 200,000-plus salary for himself and no dividends in 20 years for his shareholders.

By the time cheese is served, he is also offering reassurance for those who point out that his options - all 7.9 million of them, on top of the 3.2 million shares he owns outright - are more than would normally be granted. "Because I have so many shares, I am always going to act in the interests of the shareholders," he says.

This also means that if Arco raises its bid enough, he will be able to withdraw gracefully with a pleasantly chubby wallet. At the current bid price, he would get pounds 4.7m after paying pounds 2m to exercise his options. At 80p, he would get pounds 2.2m more. In his own self-interest alone, it is worth his while fighting to get the price up.

The stupidest thing Arco did, he implies, was launching a pre-emptive hostile strike. He was five minutes away from boarding his yacht in west Cork on Saturday 19 August when he received a phone call from London telling him a Sunday paper was going to announce the bid. "I said nonsense; the chairman of a bidder would always phone the target's chairman to tell him first."

But he soon discovered the story was true and returned to his London headquarters.

Arco claims it had tried to contact him, but Whelan insists: "To this moment I have never had a call from them." All of which means that the Americans missed a possible friendly conclusion. "They will never know what our response might have been," he says.

Although he is trying to keep the argument firmly on "shareholder value" turf, there is another battle that will also have to be won - it is called Ireland.

Whelan is an Irishman, but he has more than his share of enemies in his home land, and Arco is busy capitalising on that. Aran's undeveloped Connemara field is fav- ourite to produce Ireland's first commercial oil, and Arco says it will get it out of the ground more quickly than Aran can. Whelan denies this; he went into the industry 20 years ago to produce Ireland's first oil, and he does not want to be beaten now.

Michael Whelan was born into a comfortable farming family in Athenry, County Galway, in 1932. He went to Castle Knock, an Irish public school, then University College, Dublin, where he graduated in economics and law. He was called to the bar at the King's Inn, Dublin, but soon decided he needed a more lucrative job to support his new marriage. So he joined Shell and worked in Canada until he won a fellowship to Columbia University in New York, where he took an MBA.

An Irishman with an MBA was a rare beast in the 1950s, and he was soon asked by the Irish transport minister to take over Aer Lingus's new commercial operation in the US. "I turned it from having the worst to the best load factor on the North Atlantic route," he says. He also scuppered a plan to call First Class the Flying Casket service; in Dublin they did not know a casket is a coffin to Americans.

He came back to Ireland to run the whole airline's commercial side, and was then asked by the government to become marketing director of the Borde Failte, the tourist board.

By the time he was 30, he was a big fish in a small pond. Newspapers ran "Young Man at the Top" articles on him, and he became a regular on the speech circuit.

It was after giving a speech that his life changed: his driver crashed into a wall and Whelan went through the windscreen. He was out of action for a year and, while pondering his future from his bed, he decided to set up the first Irish exploration company.

Backed by Stephen O'Flaherty, an Irishman who had made millions by snapping up the right to sell Mercedes and Volkswagen cars in many markets after the Second World War, he started Aran Energy in 1972. As his company had a staff of two, he needed partners to find the oil. BP signed a deal, so he started to call the company Aran BP. It was an early example of a great Whelan skill - to make Aran seem bigger than it was. "BP's director of exploration hit the roof when he saw our signs," he says. Aran was floated on the Dublin exchange in 1976, and investors queued to buy shares. In 1979, it seemed their faith was to be rewarded when BP and Aran struck oil in the Connemara field off the west coast.

"From 1979 to 1982, there was great euphoria that oil was going to flow," he says. But it became clear the technology to extract it from deep water was not yet ready, and when the oil price collapsed in the mid-1980s, BP withdrew. Aran had Ireland's only oil field, but no way of exploiting it.

Its share price, meanwhile, fluctuated frantically, and Whelan's shareholders began to lose patience. They noticed he was not going without, even though he had paid no dividend. In 1983, he sold 250,000 shares, giving him pounds 42,500 and leaving him with only 1,400 shares. But at the same time the board gave him the option to buy 3 million at various prices. There was uproar at the annual meeting.

Since then, as one of the few Irish tycoons, he has been under constant scrutiny from the Dublin press. He was pilloried when it emerged he had been given a pounds 232,000 company loan to buy a house; and this year, when he became chairman as well as chief executive, he was pilloried again. His advisers hint that infighting in the tiny world of Irish high finance has played its part: Whelan has enemies with powerful voices.

In 1980, Aran had bought a stake in the Kinsale gas field off Cork, which provided its only income for several years. Then in 1985, Whelan decided to shelve his Irish plans and shift his attention to British waters.

On 13 May 1985, he swooped on a UK oil company, Petrolex, 15 hours before it was due to agree a takeover bid by Saxon Oil.

Whelan, now labelled a buccaneer, shifted his headquarters to London and set about building up his North Sea presence; Petrolex already had a tiny stake in the giant Forties field. He did not want to operate the fields (though he later became an operator in the Gulf of Mexico), but he did want a portfolio of minority stakes. This meant he could sit round the table with the oil majors, and he needed all his natural self-confidence to hold his own.

"I had to come across as a credible big businessman," he says.

But his real skill was seeing an opportunity and grabbing it; he was not an accountant, but he could spot a financial break at a mile. He took full advantage of the tax relief on drilling, and his biggest coup came in 1992 when he bought a 14 per cent stake in the Dunlin field which, because of a technicality, gave him a 26 per cent share of the income. "We saw that before anyone else," he says proudly.

As a result of these investments, Aran "produced" 6 million barrels of gas and oil in the North Sea last year. This, Whelan says, will finally allow Aran to pay a dividend this year, which will be a big relief for his long-suffering shareholders. The past 20 years have, he admits, been "a period of frustration, for us and the shareholders."

In 1991, he started moving back towards the Irish game, snapping up licences in the so-called Atlantic margin. The reasoning, he says, is that the technology is now available to tackle deep waters. One of these stakes, west of Shetlands, is about to yield oil, and he believes oil will at last flow from Connemara in 1998.

If he loses to Arco, now would seem a good time for Whelan to bow out. He has a comfortable life, with houses in Mayfair, Dublin and Cork, and has been happily married for 40 years. He has four children - a psychologist, an oil exec- utive, a PR man and a trainee Jesuit priest. He sails a 33- foot yacht in Cork and, if he has to cash in his chips, he will undoubtedly buy a much bigger one.

But he will not settle down, he says. He has decided the Middle East is once again the place to be, and has been talking to various (nameless) governments. Even if he is ousted, he will soon be off doing deals. "The oil industry is not well known for people retiring," he notes. "Paul Getty, Armand Hammer and Leon Hess were at their peak in their '70s, '80s, and '90s."

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