The deal was meant to lead a small Irish oil exploration company to potentially lucrative new oil fields in high-risk Iraq and Libya. Instead, a reverse takeover by investors surrounding a high-profile Lebanese-American businessman is now at the centre of a legal battle. 

Dublin-based oil exploration company Petrel Resources PLC said it secured a High Court injunction this Friday against the overseas investors taking part in an ongoing process to take over a majority stake in the company. Court records show that Petrel is represented by McEvoy Corporate Law in a case against Roger Edward Tamraz, Michel Fayad, Said Mehraik and Chase Nominees Ltd.

Petrel’s first public mention of Tamraz and Fayad came in a stock market announcement on July 30, 2019, when the company raised €559,861 through the issue of new shares to the two businessmen representing 29.99 per cent of its enlarged capital. This gave them the right to appoint two directors, and Fayad subsequently joined the board.

“Significant financial and hydrocarbon experience in the MENA region”

Horgan stated at the time: “The group of new investors in Petrel bring significant financial and hydrocarbon experience in the Middle East and North Africa (MENA) region.” Petrel chairman John Teeling added in his next half-year statement in September that the new backers “may inject additional capital and projects on agreed terms.”

In the months following the announcement of the new investors’ involvement, Petrel’s stock exploded on London’s AIM market. Its value was multiplied by more than 17, jumping from 1.35p on July 29 to 24p on Christmas Eve.

So what went so wrong that the company has now taken to the High Court to stop its new backers from selling their shares? The sequence of events since that initial July 30 announcements sheds some light on the unravelling of the relationship.

The following day, Mehraik and Fayad formed Netoil Inc Ltd, a Bulgarian-registered company with an address in Dubai. The articles of association describe them as French nationals born in Lebanon. 

Tamraz joined them and is now Netoil’s chairman. This is according to Netoil’s website, which features details of Tamraz’s numerous past investments in oil and gas as well as hotels, property and banking stretching from central Asia to the US. The website also includes photos of Tamraz with political connections such as US President Donald Trump’s lawyer Rudy Giuliani and United Arab Emirates Vice President and Prime Minister Mohammed bin Rashid Al Maktoum, and press clippings speculating on his chances to run for Lebanese president.

“At the time of the initial agreement in July, this price represented the fair market value of the stock.”

Petrel directors

On November 1, Petrel Resources called an EGM, revealing that the entry by Tamraz and his associates into the capital of the Clontarf-based company was the first step in a plan to carry out its reverse takeover. Petrel directors recommended that shareholders approve step two of the deal, which would see a new share issue increase the stake of “private equity investors and friends and business acquaintances of Mr Roger Edward Tamraz or Mr Michel Fayad” to 51 per cent.

The proposal was to issue the new shares at the same price of 1.25 cent each as agreed in step one of the deal, despite the fact that they were by then trading around 7p. “At the time of the initial agreement in July, this price represented the fair market value of the stock and in the Board’s view continues to do so on fundamentals, particularly given the regulatory uncertainty over existing Petrel projects in Ireland, Ghana, and Iraq, together with a reasonable expectation of quality investment-grade deal flow from the new shareholders, as well as enhanced financial credibility and funding capabilities arising from their involvement,” directors advised. They attributed the rise in share price in the intervening time to the involvement of Tamraz and his partners, adding that this supported the plan. 

Lock-in agreement

“Moreover, Netoil and the principal members of the Concert Party (being the Locked-in Parties) have agreed to be locked in for a period being the earlier of 12 months from the date of Admission or the date of completion of a Substantial Transaction so unlike other shareholders will not be able to trade their shares (including those subscribed in the earlier July Placing) until it is clear what benefit they have brought, as hoped, to the Company,” Petrel’s EGM notice also stated.

The company waived the obligation for the new shareholders to make a takeover offer for its entire capital, and the new shareholders stated their intention to keep chairman John Teeling and the management team in place at their base in Clontarf. The strategy was to combine experience from both sides of the deal to develop oil and gas projects in the Middle East, including in Libya and Iraq.

On November 21, shareholders approved the plan and an admission date was set for the new shares the following week. Netoil would become the largest shareholder in Petrel, with 30 per cent, while Tamraz and Fayad would each hold a personal 7 per cent stake. Mehraik was to hold 3.5 per cent. Along with five more associates, they formed the concert party acquiring 51 per cent of the company for a grand total of €1.36 million.

The rest of last year elapsed without further updates, with transactions assumed to conclude as planned – and the market responding with a three-fold increase in Petrel’s share price between the EGM and Christmas.

Then things began to unravel.

“The electronic register suggests that 5.25 million of the Deutsche Bank Shares have been traded.”

Petrel directors

On January 8, Petrel alerted shareholders that payment for the step two shares to the so-called ‘Tamraz group’, expected by January 6, 2020, had not yet been received. “The shares have been issued and allotted, but not yet delivered in the form of share certificates to the intended shareholders. These certificates are being retained by Petrel Resources plc until payment is received,” a stock market announcement stated.

Petrel directors were also “urgently seeking an explanation” after their analysis of the share register showed “4 million shares may have been sold over recent days in a possible breach of a lock-in entered into by the Tamraz group over their existing holdings of shares previously subscribed as a condition of the second tranche”.

On Tuesday, a further update on the search for the missing shares revealed that “between 17 December and 23 December 2019 the ‘Tamraz group’ transferred 37,336,538 ordinary shares of Euro 0.0125, in the capital of Petrel Resources plc, into the custody of Deutsche Bank Switzerland (Deutsche Bank Shares) held in Chase Nominees Limited”. Petrel directors added: “the electronic register suggests that 5.25 million of the Deutsche Bank Shares have been traded”. 

Petrel’s share price had hit its peak during the period referenced, trading between 20p and 24p.

Its directors added: “The Company’s lawyers have reminded the ‘Tamraz group’ of their obligations pursuant to the Lock-in and share notification requirements and have been informed that the ‘Tamraz group’s’ US and English lawyers are currently investigating, as a matter of urgency, how these transfers/sales were possible.”

In their latest update to shareholders this Friday, directors said they had made a successful ex-parte application to the High Court in Dublin for an interim injunction and notified Tamraz and his associates. “The directors believe that this interim injunction effectively blocks all trading in the locked-in shares pending disclosure of relevant documents and conclusion of an investigation,” they announced.

The payment due for step two shares remained an “outstanding issue”, Petrel also reported.

What is Petrel worth?

Petrel Resources is a tiny oil exploration company. It was founded in the early 1980s to prospect for oil off the coast of Ireland. Like the rest of the industry, it didn’t have much success. In the 1990s it was revived and tried again in Iraq and offshore Ghana. 

The company took part in the early 2000s exploration boom. Undeterred by Petrel’s failure to exploit any of its assets, investors bid up the share price to £15.50 at the height of the boom in 2007. 

The financial crisis, the end of the commodity boom, and the lack of oil brought the share back down to earth in the following decade. In June of this year, the shares were trading at 0.8p, giving the company a market cap of £836,000.

Where did £836,000 come from? As is common with failed oil explorers, it has zero revenue. Its only costs are £300,0000 per year of administrative expenses. 

It does have some assets: Petrel owns 30 per cent of a joint venture to explore off the coast of Ghana, which has been held up for the last 10 years by the Ghanaian government. This summer, an update vaguely referenced positive conversations with the relevant minister. It also owns 100 per cent of “Western Desert Block 6” in the Wasit province of Iraq and an asset off the coast of Ireland. The Iraqi and Irish governments are holding up further exploration of those wells. 

The oil concessions are booked at £2.5 million, and the company has £380,000 in cash. In valuing the company at £836,000 earlier this year, the market was saying it wasn’t optimistic about getting much value from them. 

It had been a disappointing journey for shareholders. As chairman John Teeling put it in the annual report in 2018, “oil and gas grassroots exploration has proven to be an expensive experience for Petrel shareholders. There is little interest in the sector.” One can see why the company and the shareholders were keen to hear from Tamraz.