Oil, shares and anger: One man vs the company he founded

Garnham, who lives in a two-bedroom council flat, recently suffered a bowel
condition that has caused him to lose considerable weight. His 72-year-old
wife works for minimum wage to support them, as they are all but penniless.
He describes it as “a miserable existence”.

But Garnham believes that he should be a multimillionaire. Rightly or wrongly,
he is angered, embittered. Even those close to him laugh that his feeling of
injustice is “probably what keeps him going”. Many a true word is
spoken in jest.

His is an extraordinary story that strikes at the very origins of one of the
most successful companies on the Alternative Investment Market (AIM), the
junior stock exchange.

The story focuses on a range of locations, from the exotic to the mundane,
from Cameroon and Cyprus to Dumbarton and Tring. Prime ministers, current
and former, have been drawn into what boils down to a dispute involving just
a handful of seemingly obscure gentlemen.

Even more surprising is that the dispute surrounds an oil and gas producer,
Bowleven, which, though worth £56m as of last Thursday, has not as yet sold
even a drop of crude.

The loose cannon

Garnham was one of the original founders of EurOil, a company incorporated in
1996 that is today the main subsidiary of Bowleven. By the end of 1997, two
alleged mistakes meant that Garnham was stripped of his directorship and his
19 per cent shareholding in EurOil. This stake would probably have earned
him a few million pounds when Bowleven listed in December 2004. For nearly
12 years, Garnham has been fighting to get back that stake, hiring lawyers,
a forensic accountant and even a PR specialist ? people willing to work for
no fee.

To Bowleven, there is no substance to Garnham’s claims. Even if there were,
the argument comes to nought: the claim is from long enough ago to be time
barred. Bowleven is also known to possess legal opinions that suggest any
claim would, today, account for less than 5 per cent of the company, meaning
it does not have to be announced to the stock exchange.

And the company did acknowledge and detail the dispute in its Aim admission
document five years ago.

However, Garnham’s increasingly erratic actions could be of interest to
Bowleven shareholders. Earlier this year, the company was in talks with an
unnamed bidder to be sold for £130m, a big premium on shares that had
tumbled as commodity prices sunk. The talks terminated in April, but only
after Noble Energy was identified by the press as a likely bidder. And only
after Garnham had fired off an email to Charles Davidson, Noble’s chief
executive.

The email described Garnham’s long relationship with senior figures in the
Cameroon government to whom he had promoted British exports, from designer
shirts to spare parts for tractors. He claims that this work helped lead to
the West African country joining the Commonwealth in 1995.

It also detailed a complaint, naming Bowleven, that Garnham had filed in
Douala High Court in Cameroon. That case was thrown out in 2007, when
Garnham’s lawyer failed to turn up. It is still not certain that Noble was
the interested purchaser, and even if it were, Garnham’s fairly unstructured
rant could look little more than the work of a crackpot. However, Garnham’s
erratic actions would surely put at risk any future negotiations.

Even Caroline Crawford, Garnham’s solicitor, admits: “Peter is a loose
cannon, but only as a result of his absolute belief that he has been wronged.”

And what can now be revealed is that at least one of EurOil’s founders, John
Kennedy, a man who went on to become a Bowleven director and whose wife held
19 per cent of EurOil’s shares, believes that Garnham deserves compensation.

Others fervently disagree, though it is also known that the board discussed
compensation as recently as December 2005. However, Terence Heneaghan, the
then chairman, and fellow directors are understood to have ruled out the
move, arguing that the company owed Garnham nothing.

This is quite some dispute, and one in which every side believes that it is
100 per cent in the right.

Paphos leads to bathos

Bowleven investors passed a resolution on Friday that will see the company
raise $114m to be used to appraise a recent oil discovery in Cameroon. By
2011, Bowleven could at long last be in the business that EurOil was founded
for 15 years previously: producing oil.

It was late 1995 and Garnham contacted Chief Ephraim Inoni, now the Cameroon
Prime Minister, to congratulate him on the country joining the Commonwealth.
There was a second reason for the call: Garnham wanted to know the chances
of winning an oil concession ? essentially offshore sites for exploration
and drilling ? in the Gulf of Guinea if he formed an indigenous company. The
World Bank had called on Cameroon to develop its oil assets and the then
60-year-old spied a money-making opportunity. Inoni responded that it was a
good idea.

A remarkably disparate group of characters then went about creating a company
to take advantage of Cameroon’s oil wealth. In 1976, Garnham had got
chatting to a Cameroon lawyer by the name of Chief Tabetando at a bar in
Tring, Hertfordshire. Essentially they became business partners, and
Tabetando would set up Euro-Cam-ba Oil, the predecessor to EurOil, in
November 1995.

About a year earlier, the Garnhams had met a Scottish doctor and his wife
while holidaying in Paphos, west Cyprus. They struck up a friendship and
Garnham went to visit the couple in their home in Dumbarton. The doctor
introduced Garnham to John Kennedy, a former bricklayer who had become
something of an entrepreneur.

Kennedy essentially put teams of people together to develop projects, and
worked out of the offices of Glasgow architect Cobban & Lironi. For
example, Kennedy and Mark Lironi, who was then a scratch golfer, worked
together on building a Holiday Inn hotel in Glasgow.

Kennedy and Garnham discussed the Cameroon opportunity. Well connected,
Kennedy knew a petroleum engineer in Calgary, Don Vandergrift. Together,
Garnham, Tabetando, Lironi and Vandergrift would become directors of EurOil
when it was formed in early 1996. Kennedy decided against becoming a
director, but continued to be involved.

The company’s share structure meant that Garnham held a 51 per cent stake
while Tabetando and his Cameroon contingent had 49 per cent. Later, this was
reorganised so that the shares were divvied out equally.

Lironi, Tabetando and Vandergrift got 19 per cent stakes, as did Kennedy’s
wife. Another 19 per cent was acquired and registered in the name of a
Jersey trust known as the Luxembourg Settlement, of which Garnham is the
main beneficiary. Cantrust (CI), today known as Vistra (CI), is the trustee
of that settlement. A further 5 per cent was given to Roger Brewster in lieu
of balance of interest Garnham owed him for a loan on another venture.

The costs were tremendous. “Underdogs” ? civil servants ? had to be
paid “tips”, a common practice in Cameroon, for their help on
issues such as geology and research. Telephone bills could reach £1,500 a
quarter due to the calls to Cameroon, while flights were expensive. The
company had still not been awarded an oil concession, and wouldn’t win a
permit until 1998, after Garnham had left EurOil. The company was struggling
to meet its expenses and this is where the problems began.

The classic share

Kennedy estimated that EurOil needed £20,000 to keep operational. Garnham came
up with £25,000, but he had done this by arranging the sale of one of his
own shares for £50,000.

Garnham’s landlord, the late Theodore Meyer, bought the share through his
Classic Investments vehicle. The purchase was made even though it was
difficult to attach any real value to the share given that the company had
no assets. The other half of the money covered some of Garnham’s debts and
expenses. However, the other directors were not informed of the sale. Lironi
says this meant that Garnham “broke the rules”, and a spokesman
for Bowleven adds that the sale was “made without the other
directors’/shareholders’ agreement”.

McClure Naismith, the legal adviser to EurOil, is understood to have argued
that should the company come under due diligence, Garnham’s actions would be
thoroughly reviewed ? and dimly looked upon ? by any potential joint-venture
partner.

As a result, at a board meeting in Tring on 6 March 1997, Garnham resigned as
a director. The minutes of the meeting record: “Peter Garnham does not
wish to continue on the board due to the rigorous financial scrutiny which
will be required by our funding partners.”

In a statement, Kennedy, whose voice since has been badly damaged by throat
cancer, says: “The punishment Peter received for selling one £50,000
share to Classic Investments was far too severe considering that EurOil
received more than half the money.”

EurOil was advised to find a chairman who was recognised internationally for
work in the oil sector. This was to be Terry Heneaghan, another old
acquaintance of Kennedy’s, who was chief executive at listed oil exploration
and production company Pittencrieff Resources. Heneaghan left Pittencrieff
in June, and soon after started as a consultant to EurOil before becoming
chairman in 1998.

Garnham says that from the March meeting onwards, he was provided with limited
information on the company as he was no longer a director. For example, he
claims to have been unaware of Heneaghan’s involvement in 1997. He also
recalls being told off by some of the other main characters for “talking
too much” about EurOil’s plans and prospects.

The cash call

At 8pm on a Friday night in November 1997, Garnham received a fax giving
Cantrust 14 days to pay for a portion of his shares. Under the company’s
articles of association, directors could ask shareholders to pay for up to a
quarter of their share holdings within two weeks.

Cantrust and the other four main shareholders would have to pay £24,325 each,
while Brewster needed to find £6,400. Strapped for cash, Garnham could not
pay for Cantrust’s shares. However, he believed ? and still believes ? that
these shares were already fully paid up. Indeed, he has in his possession a
series of share certificates that state these shares were fully paid up.
Garnham says that they were essentially granted to him as paid up in
exchange for his work at EurOil.

The problem for Garnham is that the company’s legal firm, McClure Naismith,
found that a series of fully paid up shares were, in fact, issued
incorrectly. Brewster thought his shares were also fully paid up and he even
challenged the cash call before forking out the £6,400. Share certificates
belonging to others, such as Lironi and Kennedy’s wife, were also recognised
as being nil paid up even if they stated otherwise.

A spokesman for Bowleven says: “The error [of shares being issued
incorrectly] was established by McClure Naismith between June 1997 and
November 1997, and formally corrected. The correction procedure is noted in
Board Minutes dated 4 November 1997. McClure Naismith provided advice and
assistance to the Board of EurOil on the procedure and liaised with local
Cameroon solicitors to check that everything was correct under Cameroonian
law. The company has obtained a number of opinions since then which have
confirmed that to be the case.”

The other directors and shareholders “capitalised loan notes” to pay
off their portions of the cash call. In essence, this meant that the other
shareholders did not have to stump up any cash. The expenses they had
incurred were considered loans to the company and were recompensed out of
share capital, covering the cash call. For example, Vandergrift had spent
£37,899 in “directors and consultants expenses” as well as
£62,500 in “technical expenses”.

Garnham/Cantrust’s failure to pay up meant his 19 per cent shareholding was
deemed forfeit. The Bowleven spokesman says: “Whether there was any
indebtedness due to Peter Garnham, who was no longer a director, is
irrelevant; there was no indebtedness due to Cantrust and they were the
registered shareholder. Presumably, Mr Garnham could have assigned his
interest in any monies due to him at that time to Cantrust and thus paid up
the shares that way. But he did not do so and Cantrust’s shareholding was
accordingly forfeited.”

Heneaghan adds: “The company did everything according to law and Garnham
had every chance to stump up for his shares.”

In minutes dated 4 December 1997, the board did award Cantrust options on 85
shares that could be bought at £1,000 a pop at any time over the next five
years, “in recognition of Cantrust’s contribution to the company”.

The Bowleven spokesman says that the award was made “on the basis of
representations by Chief Tabetando on behalf of Mr Garnham and in
recognition of his long standing personal friendship with Mr Garnham”.
In accepting the options, the EurOil directors believed that the situation
was resolved. Charles Malet de Carteret, the Cantrust trustee, wrote to the
board on 4 December acknowledging that the options were “granted in
substitution for the nil paid company shares which have been forfeited”.

However, that same day, Garnham sent a letter of his own stating the options
were accepted “under protest”. Garnham says: “I was
confronted by a situation where I had to make a quick decision. I asked my
solicitor what to do and he said ‘You haven’t got any money, accept the
options, if only to stay in the game’.”

No options

Yet another dispute emerged, this time over expenses owed, with Garnham
claiming £27,549.62. He later received about £5,000.

In 1999, Garnham was declared bankrupt as a result of unrelated work in
Cameroon, two months after the investors had exchanged their EurOil stakes
for Bowleven shares. The new company’s name came from the Bow River, which
runs through Calgary, and the River Leven, which runs close to Kennedy’s
home in Dumbarton.

A year later, Garnham was stripped of his share options. He had hired a
forensic accountant, John Papi, to look into his claims. At a board meeting
on 13 November, minutes show it was resolved that Cantrust would have the
options cancelled from 5pm two days later unless there was “written
confirmation that they [Cantrust] accept that the forfeiture of their EurOil
shareholding (190 nil paid shares) was done properly and in accordance with
the articles of EurOil”.

Tabetando did not agree to the cancellation of the options. In a note to the
board, Tabetando said: “I have a strong moral obligation to object to
the cancellation of the Certificate of Share Options.”

A Bowleven spokesman points out that Garnham didn’t challenge the
cancellation. Garnham says that by this stage, he was only interested in
recovering the original shareholding.

Since then, Garnham has remained vocal, taking, and failing in, a court action
in Cameroon.

In a further blow, Papi issued a deposition to the court backing the board’s
version of events. Papi says: “I feel extremely sorry for Peter. He’s
worked hard pursuing the case, but it’s on the wrong premise. It’s a
Cantrust matter, not a Peter Garnham issue.”

Garnham counters that he is the representative of Cantrust. It is also true
that he is authorised by the trustees to act on this matter.

His British solicitors contacted Bowleven for information in 2003, by and
large getting short shrift. Just last month, his public relations man wrote
to Joe Clark, a former Canadian prime minister who is now a Commonwealth
special envoy to Cameroon, asking if “he might be able to help”.

Most of the main characters have left Bowleven, even if they retain a
stakeholding. Kennedy, for example, resigned after falling out with other
members of the board, while Heneaghan left in December 2006. Heneaghan was
involved in a massive bust-up with Philip Rhind, a South African who was
chief executive from 2004 to 2006. Rhind was dismissed for alleged gross
misconduct. Shortly after his dismissal, he claimed to have a “red
button” dossier which he passed to the Bowleven board. More than 50
pages long, the dossier is believed to have referred to the Garnham-Cantrust
situation. Bowleven and Rhind eventually settled out of court.

Today

Tabetando is the chairman of EurOil, which is listed as a 100 per cent owned
subsidiary of Bowleven. A senior tribal leader, Tabetando’s words carry
weight in Cameroon, and he is patron of the Cameroon Association of English
Speaking Journalists. Lironi’s golf handicap has slipped to five, while
Vandergrift, who declined to comment for this article, lives in Calgary.

Bowleven is essentially in the hands of a very different group of people. The
current chief executive, Kevin Hart, admitted earlier this year that the
company “was in need of resuscitation” when he took over in 2006.

Garnham continues to work on what he alleges was an unfair loss of his shares.
Kennedy, who remains in his beloved Dumbarton, now openly backs him: “Peter
deserves compensation for being deprived of his shares.”

The Bowleven spokesman says: “The [1997] share call was validly made. The
point is that the shares were not paid up and that position was accepted at
the time by all of the shareholders, including Cantrust.”

But Garnham is determined to fight on. He has more letters, emails and
allegations to fire off. Garnham is still around, ready to cause trouble.

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