Dereg lives in the Olux Swamp, distant from Olux. Dereg tells the player about a beast living in the swamp as an introduction to the quest: The Shadow of the Beast.
To get to Dereg's house, start at the southern gate of Olux (from the bank through the arch and turning left). Follow the path to the right and straight on. There will be a hill on your way hiding the path behind - just follow it. Turn left immediately after the bridge and continue passing the trees over the next bridge. Turning east will directly lead you to the house (hidden behind some trees).
Stay in the house behind him while reading the chat.