Regal Petroleum's Greek farce leaves investors at a loss

Shares fall at broker Evolution | Investor Robert Bonnier suffers heavy losses
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Regal Petroleum, an oil and gas explorer, lost 60 per cent of its stockmarket value yesterday after it told the City that one of its crucial oil prospects in Greece was non-commercial.

Regal Petroleum, an oil and gas explorer, lost 60 per cent of its stockmarket value yesterday after it told the City that one of its crucial oil prospects in Greece was non-commercial.

The news sent Regal shares plummeting from 255p to 100.5p and also hit shares of its stockbroker, Evolution Group, which just last month completed a £45m fund raising for it.

Investors are concerned that Regal's Kallirachi prospect may never be able to produce oil at a profit. The company had previously indicated that the site was capable of producing up to 277 million barrels of recoverable oil.

Despite the failure, Regal said it would continue its investment in the Prinos basin off Greece. Frank Timis, the group's executive chairman, said: "Although the Kallirachi-2 appraisal well did not produce hydrocarbons at a commercial rate, it did confirm the presence of hydrocarbons in the basin. We remain confident that additional reserves can be identified by utilising the results of the Kallirachi well in conjunction with existing seismic and well data."

The assurances from Mr Timis are unlikely to offer much comfort to Regal investors, especially those who took part in the company's £45m placing at the end of last month.

Evolution Securities raised the cash for Regal by selling 11.5 million new shares on behalf of the group at 390p. Almost immediately after the deal was completed, Regal shares started to slide.

The episode has also taken its toll on Evolution Securities. Shares in the fast-growing stockbroker slumped 11 per cent, 15.25p, to 121p yesterday.

Although Evolution Securities said that it did not end up holding Regal shares following the fund raising, there is a fear that the broker's reputation has been damaged by the affair. Those investors who bought into Regal at Evolution's fund raising have lost 75 per cent of their money. They are believed to include large institutional groups such as Henderson Global Investors, Merrill Lynch Investment Managers and Capital Group.

However, the fall-out from Regal's failure seems to go beyond the trouble it has caused for its stockbroker. Robert Bonnier, the former chief executive, is also believed to have taken part of last month's placing. The former dotcom star, who since leaving the helm of Scoot has returned to his roots of stock trading, was allotted 300,000 Regal shares.

Like an ever-growing number of traders, Mr Bonnier makes his investments using derivatives called contracts for difference (CFDs). These allow traders to take large positions with a relatively small outlay of hard cash. When a trader's bets are going in the right direction he enjoys significant gains but should things start to go wrong he can rack up huge losses very quickly. In this event, an investor will be asked by his broker to put up more hard cash or liquidate his position.

City professionals believe that the losses Mr Bonnier suffered in Regal yesterday many have put pressure on his other substantial CFD positions and, given the number of shares traded in these stocks, and their collective sharp drop, concluded that he has probably been forced to reduce his stake.

These include the office space group Regus, off 5.25p to 92.5p, computer games company Sci Entertainment, 23.5p lower at 310p, insurer Domestic & General, 20p weaker at 745p, and software specialist Innovation Group, down 3p to 30.75p. At one point Mr Bonnier's holding in Regus stood at 15 per cent and in Innovation closer to 18 per cent, but he has been forced to drastically scale back his exposure to both firms.

The former Scoot boss is no stranger to controversy. His tenure there was marred by it, and ended with the online directories business coming within a whisker of collapse.

The Dutchman, who is now in his late 30s, started his career in the Square Mile at SBC, the Swiss bank that is now part of UBS, in 1992. There he was found to have breached internal compliance rules by acquiring shares in SBC clients and in companies that were being eyed for takeover by the bank's corporate finance team.

In the late 1990's Mr Bonnier was embroiled in the Co-op bribery scandal. In the resulting court case it was alleged that he received a £175,000 fee for helping broker million-pound payments to two executives at the Co-op. He denied any wrongdoing.

More recently Mr Bonnier was fined £290,000 by the Financial Services Authority for market abuse. The fine related to his share trading in Regus.