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The companies change but royalty remains in the corporate name and bearing of a man determined to rule

by Tom Sieber

Sitting in his office, just a brisk stroll from the open expanse of Green Park, Regal Petroleum’s chief executive David Greer, formerly of Royal Dutch Shell, is well rehearsed in brushing off the incident from a year ago that saw him compared with David Brent and credited with the ‘worst motivational memo ever’.

The furore was created by an internal e-mail, leaked to a website critical of Shell and widely circulated in the media, which was intended to motivate staff working on the difficult Sakhalin Island project in Russia, on which Greer, 50, worked as a number two. In it he revealed that he despises ‘cowards’ and he urged staff to: ‘Lead me, follow me, or get out of my way’.

The affair brought him further embarrassment when it emerged that, in it, he had borrowed heavily from a speech that US General George Patton had given to inspire his troops on the eve of D-Day. In the event it proved to be one of the last acts of a 28-year career at Shell.

If you were to base your assessment of him purely on what you’d read in the papers then, you would not hold out much hope of him successfully repairing the reputation of a company such as Aim-listed Regal Petroleum.

Chasing respectablity

Regal’s name was mud in the City after the hotly anticipated Kallarachi-2 well in Greece, heavily promoted by the company, which raised £40 million of fresh cash from investors in the run-up to the result, turned out to be a duster.

The chairman at that time and founder of the company, Romanian Frank Timis, is still a major shareholder and, although an FSA investigation into the incident has been discontinued, the company is still awaiting a decision from an Aim disciplinary committee.

Greer, though, an uncompromising Glaswegian, is confident he has the skills to transform the company into the ‘respectable, mid-tier oil & gas company’ he believes it should be. And when I question whether his experience at Shell lends itself to working for a company on the junior market he visibly bristles: ‘I bring passion in everything I do – leadership more than just management – dedication, experience. I wish I’d done this five years ago.

‘I’ve always been an agent of change. In Manilla, for Shell, I helped develop a $1.6 billion project from scratch, and that didn’t happen by accident. To me this is just another operating unit in need of transformation.’

Signs of progress

There have been definite signs of progress since he took over in November last year, in particular a successful fundraising of $160 million, completed in January, which should allow the company to make a start in developing its MEX-GOL and SV gas condensate fields in the Ukraine independently.

Although the company has interests in Egypt and Romania, Ukraine clearly represents the company’s jewel in the crown, and realising its potential is certainly the key focus for Greer. Like rival JKX Oil & Gas, the company is able to benefit from the price convergence that should see domestic gas prices reach parity with European prices by 2011. And with current resource estimates ranging from 170 million barrels of oil or equivalent (mmboe) to 350 mmboe-plus there is no doubt the inherent value is there – Regal has a 75% stake and is operator. Until now, very little progress has been made in realising that potential, with work delayed by a lack of cash, perhaps a lack of will, and a licensing dispute that dominated the period from 2005 to 2006.

The previous management resolved that issue in December 2006. When I ask if Greer has any concerns in this area his answer is unequivocal: ‘No, this development will represent a major contribution to domestic gas production and given the pressure from Russia and Gazprom it is in their interests for us to be successful.’

The fields produce more than 1,200 BOE a day – but much of the excitement surrounding them is associated with the upside in a deeper horizon that has yet to be fully tested.

The company estimates production could eventually peak at at least the equivalent of 50,000 barrels a day. As an indication of the potential, last year saw two bids tabled – one from Shell, the other from Czech group MND. The latter bid $330 million for 50% of the assets. After it walked away, the former offered $410 million for 51%.

Taking control

Neil Ritson, Greer’s predecessor as chief executive, had agreed the deal with Shell to co-develop the fields. When the news hit the market on 21 November, it was welcomed as a further step towards rehabilitation. It proved less than popular with key shareholders, including Timis, who felt Shell was getting the asset cheap. By the next day, under shareholder pressure, Riston had gone, to be replaced by Greer. On 23 November Shell walked away, leaving Regal to go it alone.

Despite seemingly having a role in his appointment, Greer strenuously denies that Timis still has any influence at the company, and, as part of the fundraising in January, got Timis to agree a pact of non-interference for two years – the fundraising also diluted his holding in the company – down to 14%. I ask Greer if Regal is actually capable of developing the asset on its own – last month they acknowledged they had received a very preliminary offer. ‘Do I look like a guy who’s ready for retirement? I want to maximise value for shareholders.’

As Greer is keen to point out he brought a team of ex-Shell men to Regal, many of whom are used to working on major developments, to help him do that. ‘I don’t think the previous management’s expertise really lay in development, they were principally explorers,’ he adds. Regal will drill three development wells in the fourth quarter – with results expected at the end of this year/beginning of next.

Important changes

Clearly a big part of Greer’s work will involve improving the company’s reputation. To that end Citigate Dewe Rogerson was appointed as PR advisor in January and a rebranding exercise is under way. When I suggest these only represent cosmetic changes he responds forcefully: ‘If we’d only done that I would agree but we have got rid of the crap assets (in Greece and Liberia), raised money in difficult markets, we’re now more technically geared and have improved the corporate governance, which is very significant. I would say they are important changes.’

In a sign of the company’s continuing rehabilitation Merrill Lynch has initiated coverage of the stock with a ‘buy’ recommendation and a target price of 390p, roughly 65% higher than the current 237p level. It points to the company’s ‘exceptionally attractive absolute and relative valuation’.

The initiation note goes on to list Greer’s achievements in the first six months of his tenure – highlighting in particular the agreement with Timis, the bringing on board of a well-qualified technical team, acquiring 3D seismic over the MEX-GOL and SV fields, the equity raising and preparation for a move to the main market.

Despite a recent upswing in the share price Regal is, to an extent, still a victim of its chequered past. Company research, based on reserves, suggests it is seriously undervalued compared with its peers. On this basis Greer feels able to say that: ‘For this company the only way is up.’

Final piece of the jigsaw

Certainly, Merrill Lynch is positive about Greer and the company: ‘the recent appointment of David Greer as CEO (formerly Shell Director of E&P projects) as the final piece of the jigsaw which should see Regal finally realise this asset’s significant potential.’ After all, its not as if Greer’s career at Shell wasn’t successful overall, despite the David Brent comparisons. He was awarded an OBE for his work on the oil giant’s Malampaya deep water gas to power project in the Philippines, while his achievements there also saw him win the UN Sustainable Development Award from the World Business Council.

Greer has obviously made significant progress since taking over at Regal. Still, there remain challenges ahead in realising his ambitions for the company. While he has made a good start, Regal’s past and Greer’s notoriety ensure some market watchers will eagerly await his first slip up.

30 second Regal Petroleum

• Founded in 1996 by the Romanian entrepreneur Frank Timis

• Floated on Aim in September 2002 raising £10 million

• Kallarachi-2 appraisal well spudded in October 2004 but came up dry just months later – Timis stands down amid much acrimony

• Legal action delayed Ukraine operations in 2005/06, although dispute eventually resolved in Regal’s favour

• Neil Ritson takes over as CEO in October 2006, focusing on Ukranian assets

• Controversial proposed sale of Ukraine assets last November led to shareholder coup and appointment of David Greer as CEO

WOULD I BUY SHARES IN REGAL? YES