Maurel & Prom Loses $21.8 Million From Single Trader

By Tara Patel

Aug. 29 (Bloomberg) -- Etablissements Maurel & Prom SA, a French oil explorer, reported a financial loss of 14.8 million euros ($21.8 million) in the first half from one employee's web of trades that may lead to a further shortfall of 21 million euros.

The losses and potential shortfall came from ``a series of complex and structured operations initiated by a single individual and performed out of the group's standards and procedures,'' Paris-based Maurel & Prom said in an e-mailed statement today.

``The extremely complex currency trades'' were structured with many buy and sell options ``that are a total aberration for an industrial company like ours,'' Chief Executive Officer Jean-Francois Henin said in an interview. ``There is no explanation for this. Even financial experts are having trouble understanding them.''

The trader is an employee of Maurel who was in the process of being fired, Henin said. While there is not yet any suspicion that he benefited personally from the trades or had a medical condition, Henin said, ``he may have been out to prove that our decision to fire him was wrong because he was the best trader in the world.''

Henin declined to name the trader, who was charged with handling daily financial operations, or the single bank that was handling the operations. The individual has ``left the company and is in the process of being fired,'' he said.

Possible Exposure

The potential additional loss of 21 million euros from the trades that haven't yet been completely unwound is a ``maximum,'' Henin said. The company should know ``within two months'' the full extent of the shortfall, he said, adding that the uncertainty stems from difficulties valuing the trades.

``This is very unfortunate,'' Henin said, adding that the loss from the trade should be seen in the context of comparing it with the $15 million average cost of drilling a well and failing to find oil. ``It's unpleasant but it's the cost of a dry well,'' he said.

The foreign exchange trades contributed to an overall financial loss of 48.7 million euros for the period, including a 10.4 million-euro loss on swaps on crude oil and foreign exchange losses of 17.2 million euros.

Maurel said the individual ``has been identified by the management'' which is studying the ``possibility of recourse.''

Maurel's group shareholders' equity totaled 643.6 million euros at the end of the first half compared with 1.06 billion euros at the end of last year due to a 222.5 million euros adjustment in derivative instruments, the statement said. The company also had a dividend amounting to 137.1 million euros, foreign exchange losses of 59.8 million euros and 31.6 million euros in treasury buybacks, the company said.

Maurel & Prom rose 14 cents, or 1 percent, to 13.89 euros at 9:40 a.m. Paris time.

In January Societe Generale SA, France's second-biggest bank, announced a 4.9 billion-euro trading loss after an employee, Jerome Kerviel, built up unauthorized equity index futures positions.

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net