OGC warning fuels controversy over share sales

OGC International, the second-biggest offshore services company in the North Sea, looked set to spark controversy yesterday after issuing a profits warning just months after directors made substantial profits from share sales.

The Aberdeen-based group saw its shares plunge 87p to 135p, just 5p above its flotation price three-years ago, on news that it had failed to win several large North Sea contracts, while warning that others would be delayed at a time of tightening margins. Against previous expectations by analysts that profits this year would match the pounds 14.2m for 1995 announced in March, UBS, OGC's own brokers, are understood yesterday to have halved their forecast for the current year to pounds 7m.

OGC said it hoped to maintain the dividend at last year's level of 6.3p a share.

The announcement is none the less likely to raise eyebrows given substantial share sales recently by directors at prices well above 200p. In March, the day after the preliminary results were announced, both Richard Wilson, chairman, and James Davidson, a non-executive director, sold 200,000 shares at 218p, each grossing pounds 436,000 on the sales. They were joined by Sir Richard Morris, another non-executive, who sold his entire holding of 3,000 shares at 221p for pounds 6,630. He has subsequently announced his intention to leave the board.

Those sales were followed up in May, when executive directors took advantage of the end of the three-year lock-in period to exercise their rights over options issued at 130p at a time when the shares were 250p, nearly double the current price. John Hyslop, managing director, exercised his right over 150,000 options, making a paper profit of pounds 180,000, and locked in most of his gain by immediately selling 120,000. Finance director Douglas Gill exercised 100,000 and sold 80,000, netting a notional pounds 120,000, while Timothy Slattery sold all of his 100,000 options.

Philip Stevens, a director of corporate finance at UBS, which advises OGC, said he was satisfied the directors had had no inkling of what was coming and pointed out they still retained substantial stakes in the company. The option sales had been made to pay capital gains tax liabilities. "They may have taken out a little bit of money, but it was only a little. We were very happy with that in the circumstances when they did it."

A spokesman for the company said the profits warning was prompted by several factors. AOC International, the main operating company, had been unsuccessful in bidding for three big North Sea contracts, two in the Norwegian sector and one on the British side. Their loss had coincided with two or threeother projects being put back by four to five months. The delay meant OGC would book only around 20 per cent of the anticipated income on the business.

On top of that, the so-called "cost reduction initiative for the new era" agreed between oil companies and contractors was continuing to squeeze margins.

Overheads had been increased in the expectation of winning the North Sea business.