Sign up to BQ Breakfast to receive our daily news service:
Algy Cluff

Algy stakes his claim

Tuesday 25 September 2012 9:00

Kenny Kemp

Oil industry legend Algy Cluff is back scouring for assets in the North Sea after making his mark in the Buchan Field in the 1970s. Here tells BQ why.

Algy Cluff is described as the exotic oilman, often dubbed ‘The Man with the Midas touch’. Certainly his life story would make a lavish Technicolor biopic tracking the twists and turns of this veteran entrepreneur.

He is still admired in Aberdeen for his gumption in discovering gushers of oil in the North Sea, but it was his quest for gold in Tanzania and his mining exploits across Africa which made him front-page news.

Early this year, having turned 72, he turned his back on Cluff Gold and set up Cluff Natural Resources, his fifth company to be listed on an internationally recognised stock market – and he is looking again at the North Sea, to see if he can repeat his jackpot of the 1970s.

Two years ago, he created Cluff Geothermal, with managing director George Percy, in the North East of England, which is conducting geo-scientific sampling at Shiremoor, North Tyneside, and Eastgate in County Durham.

He might be older, wiser and with a lot more wispy grey hair, but he still displays the flair of a maverick entrepreneur who has been able to beguile the most cynical investors in his quests for oil and for gold.

“I am an entrepreneur, not a manager. I like building businesses up and then I get bored to death when it comes too procedural rather than entrepreneurial things. I judged, as I have done several times before when I have been taken over, so the decision has been forced upon me. I judged my task was done at Cluff Gold. So I said ‘Sorry, I’m off and I want to start a new operation’,” he explains.

Despite the gruff exterior, and his refusal to smile for our camera, Algy Cluff is an engaging character who doesn’t take life too seriously, poking fun at the contradictions of business life and the hypocrisies of global politics and economics.

“With Global Natural Resources, I am gradually re-assembling some of my old team and this is primarily an oil and natural gas company. And we are looking all over the world. We are hoping to do a deal in the North Sea but I won’t just do a deal because people expect me to do a deal. I will not pay through the nose for it. One has to be extremely careful about value,” he explains sitting in his book-lined board room in the Sanctuary, beside Westminster Cathedral.

“My inclination in a way has always been to grow by discovery and not acquisition.” However, there is clearly an incentive for the septuagenarian to get a deal done. Algy’s remuneration stands at £120,000 a year but jumps to £200,000 once the first acquisition is in the bag. In the event that he doesn’t make an acquisition in the first six months, his fees are reduced to £80,000.

“Having looked at one or two North Sea deals, I am getting more inclined to start building up a portfolio of exploration interests and putting them into the ground rather than line other people’s pockets,” he says.

“With a lot of the deals these days basically you are paying someone else’s bills. They can’t raise the money themselves and there is going to be a torrent of fundraising in September onwards. There are so many companies which can’t meet their cash calls in whatever business they are in,” he adds.

“The banks are not helping at all and the fund managers are on strike, in the sense that they are exasperated by the big companies and their lack of a dividend policy.

"And they are fed up with being told lies or the sheer incompetence of a lot of smaller companies. Very unusually will they back pure exploration and you have to have cash flow or imminent cash flow to attract their attention or their support. I am keeping my powder dry.

"We have just rejected a deal but we have enough firepower for the right one, when it comes along at a good price. Some people are too greedy and we just decided to leave it alone,” he says.

On the morning BQ visited Algy Cluff, he was preparing to welcome two companies: one from onshore Egypt and the other from the Caribbean. But he refused to be drawn on the company names, preferring to keep things close to his chest.

“I am not being complacent, but we are in the fortunate position of doing things on our terms rather than somebody else’s.” But his undying love of Scotland – he has his Highland estate with its baronial mansion at Gruinard on Strathcarron – was born in the glory days of Cluff Oil in the 1970s, when he decided to take an immense gamble.

“I remember most vividly the paralysis which affected the early executives in BP and Shell,” he says.

“Not one single individual left BP, Shell or Burmah to go to the City of London, and no doubt Edinburgh and Glasgow, and say ‘We want to start a new oil company, will you back us?’” The merchant banks were waiting for an avalanche of risk-taking executives, which never transpired.

“It happened every day in the United States. Adventurous people with expertise and knowledge leaving Texaco and ConocoPhillips and starting up oil businesses. That’s why there are 30,000 oil companies in America,” he says.

“Here, notwithstanding the evidence on our doorstep that there was going to be a huge oil boom in the North Sea, no-one left to start an entrepreneurial oil company in the UK. I was staggered by that.

“Then I thought, this is an opportunity.” John Gordon Cluff was born in April 1940, educated at Stowe School before joining the Grenadier Guards, becoming a captain serving in Cyprus, West Africa and Malaysia, where he first saw some entrepreneurial opportunities in rubber plantations.

“I had done something serious, because I made some money while serving in the British Army, which you are not supposed to do,” he says with a raucous laugh. While serving in emerging Malaysia, he bumped into Charles Letts in a bar in Singapore. Now aged 96 and one of the Scottish diary dynasty, Letts was the owner of rubber plantations, which were owned by Scottish and English companies at this time.

“He said to me, ‘You guys in London don’t realise that these companies you value on the stock market on the basis of their earnings - and they make £100,000 a year - are actually property companies’. So they were all worth a fortune as the cities were expanding and getting into gear. The only way a young and enterprising country like Malaysia could expand was through building new homes on the plantations.”

Algy wrote to Harold, his father, from his jungle base, tipping him off. His father bought a pile of shares in the plantations which were then bought as Kuala Lumpur and other cities expanded rapidly.

“My father made a ton of money out of it, and when I left the army, he gave me the profits so I didn’t need a job.” He went off to America and worked as a political speechwriter for a Congressman in New York.

It wasn’t a success because the politician lost his seat and Algy returned to London looking for something to do. It was then that the UK oil industry beckoned. The fourth round of awards for blocks in the North Sea was being advertised. [In 2012, it is the 27th round].

“I realised there were no British companies showing any interest apart from the big players such as BP and Shell, and they were getting whatever they wanted. Of course, they found oil with every hole they drilled in the early days.

"I put this consortium together with my friends and we put in an application for 20 block licences in the hope that we might get one. We got the whole lot.

"We were absolutely staggered, after the euphoria there was a lot of panic about how we were going to fund it,” he says with another trademark laugh.

Algy formed CCP North Sea Associates, with Cluff Oil Ltd managing the exploration, and approached Barings Bank. The bank was delighted to help raise the money saying they had been waiting for UK nationals to come to them but he was the first.

“The money for the first hole was raised: Block 21.1 in August 1974 and cost £650,000. We thought we were being ripped off royally. It would cost £65m today. And we discovered oil with our first hole in the Buchan Field, and everyone made a lot of money. Except me.”

The Buchan Field is 120 miles north-east of Aberdeen and was only the 14th commercial oil field in the North Sea, and is still producing oil today, and Cluff became an overnight hero in Aberdeen. His associates all sold out, the company was bought by TriCentral, which was taken out by BP.

“So it eventually ended up with BP. It was exciting times. I was on the rig when they discovered the oil. I came back with a tiny sample of oil in a Colman’s mustard pot, which I still have.”

Now Algy Cluff is returning to the North Sea, sparked by Round 27, which closed for applications on 1 May 2012.

It has been a record-breaking round in terms of applications, with 224 submitted for the 418 blocks of the UK Continental Shelf, the largest number since offshore licensing began in 1964.

“I would like to go back into the North Sea in the gas sector. The gas sector is very complementary to the small companies. This is in shallower water and a much better fiscal regime.The heavy oil out in the Minches, off the Hebrides, is for the big boys. They can offset their exploration losses against big profits,” he says.

“That’s too much for me. Cluff Oil’s North Sea windfall led to a disastrous move into China, which cost him a fortune. He was invited by the Chinese government, who lacked the technical know-how to drill offshore, to explore the South China Seas. In 1980, Cluff Resources began the search for the massive untapped oil fields but, in the event, there were no geological formations to seal commercial quantities of hydrocarbon.

“I remember meeting Sir Murray MacLehose, the Governor of Hong Kong, who was another Scotsman and a tall chap with a hawk nose. I was introduced as ‘Algy Cluff, who is looking for oil off the coast of China.’ He replied bluntly: ‘There’s no oil off the coast of China’.

"I thought he was a stupid idiot, however he was absolutely right. There was not a drop, we should have listened,” he says roaring again with laughter. It was the biggest waste of expenditure in the history of the oil industry, with nothing to show for all the effort.

“It was a very interesting episode for a young man. We were very proud because we were the only independent oil company that was given an operational role in China. It was all BP and Shell. I learned a lot,” he says.

While he didn’t find oil, he discovered money with the Hong Kong & Shanghai Bank, again with its Scottish connections, which allowed him to raise funds for the next phases of his entrepreneurial journey, taking him to dusty Africa and the gold mines of Tanzania.

HSBC owned 33% of Cluff Resources, although at one presentation in Beijing it was reported that Cluff Resources owned a third of the major bank, “I didn’t disabuse the Chinese of this error!” Cluff Resources set up major mines in Zimbabwe, including the Freda Rebecca Mine, then the Ayanfuri Mine in Ghana, and the Geita mine in Tanzania in 1995 [The biggest gold discovery in Africa since the Second World War].

The company was taken over the following year by Ashanti Goldfields of Ghana for £80m.

“If we hadn’t been taken over, we would have been a very big company but that’s capitalism for you. I do regret this in some way. I had a very good relationship with the workforce in the mines. We set up workers’ committees and made sure the conditions were good and as safe as they could be.

"I felt guilty that we had delivered them to a big company where they paid production bonuses and ripped the heart out of these things, while we were simply ambling along.” During his time in Zimbabwe, he became a friend of the now-despised Robert Mugabe, the country’s president.

“I formed a very favourable impression of him in the early days. He was pre-Mandela and full of reconciliation in the beginning. He protected the white farmers at first, but they never met him half-way. There were 5,000 farmers and they could have given half their land. The indigenous Africans had fought a bitter civil war and won it and now they wanted what was promised by the London agreement. After a while, he gave up.”

The Lancaster House agreement in 1979 promised US$35m compensation which was not handed over by the UK government to the farmers.

He says Prime Minister Tony Blair and Clare Short, the Secretary of State for International Development, aggravated the situation, rather than solving it.

He felt they did not handle the situation well in Zimbabwe. In 1980, Algy Cluff bought the ailing Spectator, set up by Dundonian Robert Rintoul in 1828, which opened the door into a rarefied political and cultural world, where he rubbed shoulders with senior political figures, agenda-setters and journalists.

“It was great fun. It was a very difficult distraction. It was losing money hand over fist. I had to keep it going and it was costing me £1m a year.

“I took my eye off the ball but in the end we got it right with successive editors: Alexander Chancellor, Charles Moore, Dominic Lawson and then Boris Johnson, in their different ways helped the magazine’s renaissance.”

The secretive Barclay Brothers bought it out when they took over the Telegraph Group and Cluff, who was chairman, was asked to step down after 25 years. By this time, it was making £500,000 a year.

“We had a tough job keeping it going. It was a tribute to the management side because Luis Dominguez and James Knox, who is now managing director of The Art Newspaper, and lives in Ayrshire, did a great job.

"We had immense difficulty getting money out of the banks and I could have closed it down many times. But we battled on.”

From 1996 until 2003, Cluff was the co-founder and chairman of Cluff Mining Limited, renamed Ridge Mining which was bought by Aquarius Platinum in 2009.

Then in 2003, he set up Cluff Gold, which was listed on AIM, with market capital of £107m.

The company concentrated on Africa with mines in Burkina Faso, the Cote d’Ivoire, and Sierra Leone, and Algy was chairman until April this year.

The Cluff diaspora has spread into dozens of other international companies, and has created a number of multi-millionaires along the way.

The recent riots and deaths of 34 people at Lonmin’s platinum mine at Marikana has turned the spotlight on conditions for workers in South African mines.

Algy Cluff knows only too well about the volatilities in the mining sector when global prices fluctuate.

“Every time I turned up at the mines they thought they were getting a pay rise, so it was better to stay away! My finance director would say ‘Don’t go!’” he says.

Closer to home, he is excited about geothermal energy in the North East of England, with deep bore-holes on the edge of a radio-thermal Weardale granite, which might provide vast amounts of heat and power for thousands of homes on Tyneside.

The managing director is George Percy, who has a geography degree from Edinburgh University, and an expert in early-stage sustainable and renewable energy projects in the UK.

“There’s sodden wind farms all over the place yet nobody has ever drilled down three kilometres into granite rock to see if there is a huge source of heat that we can exploit. Newcastle University has drilled a hole as a proof of concept, but it’s a complex commercial process in the UK with approvals and planning permission.

"It drives the Australians and South African back to where they come from,” he says. He still has remarkable energy, getting up early and enjoying his three young children.

He is married to Blondel Cluff, born in England to Anguillan parents, who spent 18 years practising in the City and was a special adviser to the Bank of England.

She sits on the board of Cluff Geothermal and the West India Committee, founded in 1735, which is working to provide welfare – and re-instate Scottish Highland Games to Jamaica.

Something that Usain Bolt might be interested in pursuing. Algy Cluff is an original. An entrepreneur who has made a mark of life, but he still loves the thrill of the chase. Let’s hope he strikes it lucky in the North Sea once again.