Consultant told Regal its Greek oil well was dry

Louise Armitstead

THE embattled AIM-quoted oil company Regal Petroleum was warned that its crucial Greek oil well was “dry” just weeks before it raised £37m from City investors.

A senior oil consultant who tested the Kallirachi-1 oil well, off the Greek coast, said he told Regal management in January 2004 that the well was “not commercial” due to “inadequate permeability in the rock” and “insufficient flows”.

He told The Sunday Times: “I drilled and tested the well and knew that (to) all intents and purposes it could only be classed as non-productive — certainly not a discovery.

“This well was abandoned as it was not considered commercial. Everybody involved with the well knew that it was technically ‘dry’.”

Documents retained by the consultant show that the oil abandonment programme was dated January 21, 2004.

Two days later on January 23, Regal announced that its Greek operation, Kavala Oil had “successfully completed the drilling of an exploration well. Independent experts estimated that the field may contain up to 227m barrels of recoverable oil. The initial results ... confirm the confidence of the directors in the considerable potential of the Kallirachi field.”

The consultant who worked on the well was astonished by the company’s confidence. He said: “We did not carry out any tests which showed any evidence of any commercial quantities of oil being present. We did produce oil to the surface but it was only an egg cup full.”

The significance of this revelation is that Regal’s January 23 announcement was the catalyst for a number of leading investors to buy into the company. In the following weeks, Commerzbank, Capital Research & Management and Lansdowne were among those buying shares.

Then, in late February 2004, Regal raised £37m from a share placing because of “developments in Greece”. It said: “The probable and possible oil-in-place volume at Kallirachi is expected to be up to 650m standard barrels.”

The consultant said: “I was amazed to read in a paper that Regal had raised more than £30m to fund further development wells as a result of their recent discovery off Greece — the well I had just drilled.” He said the evidence on the Kavala well was that it was “simply not possible to extract the oil”.

This weekend, Regal said it stood by its announcements, which were made with advice from “professionally technically qualified advisers”.

Gunter Nolte, managing director of Regal at the time, said: “All the test data were collected and presented by independent experts from Troy Ikoda and Geus. These companies spent months collecting the data and have all the independent records.”

But these experts have distanced themselves from Regal. Troy Ikoda said: “The work we produced was a technical report, not a commercial one. So Regal will have had to draw on other information to make these announcements.”

A Geus spokesman said: “Geus was commissioned by Kavala Oil SA to map the Kallirachi area. Regal/Kavala Oil used (our) 2002 report to site their well but otherwise we had no involvement in the interpretation of the geo- logical data obtained by the Kallirachi-1 well.”

Regal became one of the most controversial companies on the London market last year when Kallirachi-2 also turned out to be non-commercial, causing the share price to plummet

http://www.timesonline.co.uk/article/0,,2095-2125045,00.html