The number, nature and duration of the breaches demonstrate a systematic pattern of conduct evidencing a reckless disregard for the AIM Rules by Regal.
Due to the size and high profile of Regal, the breaches gave rise to significant publicity and caused considerable damage to the integrity and reputation of AIM as a whole
Just a couple of the factors the Aim market’s Disciplinary Committee considered in its decision to censure and fine Regal Petroleum £600,000 for a string of misleading announcements related to a failed Greek oil well
But we can’t help feeling the fine, while the biggest in Aim history, is not enough to prevent this happening again in London’s highly speculative oil and gas sector.
And it also does not reflect the market impact of Regal’s breaches, which occurred over a period of two years from June 2003 and, we should not forget, cost shareholders millions of pounds.
Consider the following from Tuesday’s report.
Regal’s share price, which was just over 100p at the end of June 2003, peaked in March 2005 to over 500p (an increase of over 500%), including a 166% rise in the period from January 2004 to April 2004;
- the overall value traded (price and volume) of Regal’s shares was consistently at least 200% higher than the sector average throughout the Relevant Period, exceeding sector average by 1900% in March 2005;
- three fundraisings (raising a total of over £100 million) were conducted by Regal during the Relevant Period following announcements that were in breach of the AIM Rules;
- the share price fell by over 60% on 18 May 2005, when the actual test results of the Kallirachi-2 well were finally announced;What’s also surprising is that the FSA decided to wash its hands of the case:
These matters led the Exchange to initiate an investigation into Regal’s compliance with the AIM Rules during the Relevant Period. Subsequently, the Financial Services Authority (“FSA”) decided to investigate the same matters. The Exchange has co-operated with the FSA in relation to this matter and there has been co-ordination of the respective investigations. On 23 January 2008, Regal announced that the FSA and the Exchange had agreed that the FSA would discontinue its investigation in light of the Exchange’s proposed referral of this matter to the ADC.
As is the fact that Frank Timis, the chief executive of Regal between June 2003 and May 2007, is not mentioned once in the 12-page report, nor is Regal’s nominated adviser Evolution , even though the the Committee made the following observation.
While the primary responsibility for information notified to the market remained with Regal, each of the announcements appears to have been provided to Regal’s nominated adviser in draft prior to its release.
In fact it is somewhat unfair that current Regal shareholders are being forced to pick up the tab for this string of misdemeanors, while Regal’s previous management appear to have got off scott free.
Still the report does have its uses: namely that it should serve as reminder as to the risks of taking at face value drilling reports from highly speculative oil and gas plays.
Here are just a couple of the dozen or so examples from today’s report.
On 23 January 2004, Regal announced that drilling had been “successfully completed” and “the presence of hydrocarbons has been detected”. The announcement stated that the initial results “confirm the confidence of the Directors in the considerable potential of the Kallirachi field”. The announcement also included the statement that “Independent experts estimated that the field may contain up to 227 million barrels of recoverable oil”.
Regal’s share price rose 58% on the day of this announcement.
In breach of AIM Rule 9, Regal failed to take reasonable care to ensure that its 23 January 2004 announcement properly reflected the actual test results from the Kallirachi-1 well. The announcement gave a misleading impression as to the commercial potential of the Kallirachi field. Although hydrocarbons had been “detected”, the results from the Kallirachi-1 well were disappointing and the well had not flowed oil or gas in commercial volumes from DST-1 or DST-2, both of which were completed prior to this announcement. The test results did not confirm the “considerable potential of the Kallirachi field”.
And:
On 6 April 2004, Regal announced that there were “expected recoverable reserves of up to 240MMbbls in the Kallirachi oil discovery” and that “the discovery of the exciting Kallirachi prospect … has provided considerable upside to the potential of Regal becoming a leading hydrocarbon producer in the region”.
This announcement was misleading and Regal failed to take reasonable care when making it, in breach of AIM Rule 9.
The 6 April 2004 announcement conveyed the impression that Regal had made a significant oil discovery in Kallirachi and that it had been established that the Kallirachi field was commercially viable. This was not the case and nor was it supported by the conclusions of the Kallirachi-1 Report.
The 6 April 2004 announcement also misleadingly focused on the upper estimate and failed to explain why this figure had increased from the previously reported estimates contained in the Kavala Evaluation Report. The announcement also omitted a description of the best and low prospective resource estimates of the Kallirachi ProspectPlease take note.
Related link:
Regal ‘pleased to divorce company from the past‘ – The Times
AIM Disciplinary Committee Decision – Regal Petroleum