Maurel & Prom Loses $21.8 Million From Single Trader

By Tara Patel

Aug. 29 (Bloomberg) -- Etablissements Maurel & Prom SA said unauthorized trading by an employee cost the French oil company 14.8 million euros ($21.8 million) in the foreign exchange market and could lead to losses of more than double that amount.

The person was in the process of being fired and made ``extremely complex currency trades with many layers of 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 actions by the Maurel staffer come seven months after Societe Generale SA, France's second-biggest bank, announced a 4.9 billion-euro trading loss from employee Jerome Kerviel's unauthorized equity bets. Maurel could end up with a further shortfall of as much as 21 million euros once the positions are unwound, Henin said.

The trading loss dented first-half profit from continuing operations, which rose 52 percent to 21.1 million euros, reflecting higher oil prices that have led to record earnings for energy companies. Maurel shares rose after the company also said today that oil production could double by the end of the year.

``Maurel announced good news on operations,'' said Emma Ritter, an analyst at Exane BNP Paribas in London, citing a planned increase in production in Gabon.

Maurel rose 21 cents, or 1.5 percent, to 13.96 euros at 12:30 p.m. Paris time. The shares are down 2.3 percent this year, giving the company a market value of 1.7 billion euros.

The Trader

Henin said that while the trader may not have benefited personally from the bets or have a medical condition, ``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 handled daily financial operations, or the bank carrying out the transactions. He said the irregularities were discovered Aug. 20 and that the trader's employment with the company is being terminated. Maurel hasn't filed criminal charges against the person, he said.

Maurel said it's studying the ``possibility of recourse.''

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

Financial Loss

``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.

Net income in the first half fell to 21.1 million euros from 812.1 million, after Maurel sold almost all Congolese oil field stakes to Eni SpA in February last year for $1.4 billion.

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 production rose to 15,098 barrels a day, including Venezuela, which could double to 30,000 barrels a day ``as soon as the end of 2008 due to added output from Gabon,'' the statement said.

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