Oily Deals: Pattern Emerging in Questionable Arkoma Gas Transactions

by Wythe Walker Jr. and David F. Kern  on Monday, Mar. 31, 2014 12:00 am  

So far, those “personal relationships” have resulted in three public service commission investigations — two by the Arkansas PSC and one underway in California.

The Arkoma deal single-handedly has yielded three lawsuits against Arkla: two filed in 1983 that were consolidated and settled for $750,000 in attorney’s fees and this January’s $80 million class-action ratepayers’ lawsuit filed by Springdale attorney Thomas A. Mars.

Mars’ lawsuit claims Arkla violated its mandate to purchase gas at the lowest available price in structuring the Arkla-Arkoma deal with Jones. Arkla thinks enough of Mars’ reasoning to have already made preliminary attempts to settle without success. (For how much? Mars won’t say.)

Although the December 1982 Arkla-Arkoma agreement has received most of the publicity, insiders say Jones first received favoritism from Arkla in late 1981 in Haskell County, Okla., during a redrill for Federal King Well -2. Mars’ suit says the Federal King redrill set the pattern that Jones would repeat over and over again.

In essence, Jones would use his inside track with Nelson and Harrell to sell gas to Arkla for fat profits, while other oil sellers were locked into low prices that only Arkla could raise. (Asked about these charges over the past six months, Jones and Nelson have both repeatedly denied allegations of favoritism.)

“You’re dealing in nothing but Arkansas politics,” Jones says. “It’s being made news to demean Mr. Nelson.”

Why would Arkla grant Jones special privileges? What motivation could Nelson and Harrell have?

Mars’ PSC complaint details numerous business links between Jones and Arkla. From 1979 to 1984, Jones, Nelson, Harrell and Arkla were connected in a series of interlocking business arrangements. In 1983, Jones would even go so far as to join the Arkla board of directors.

The Pattern

Jones and Michael V. McCoy first formed Arkoma Production on April 29, 1981, to conduct oil drilling, exploration and production. Five months later, Arkoma wrote Sun Gas Co. in Oklahoma City asking for the rights to redrill an existing Sun well it operated in Haskell County. That well, Federal King Well -2, was producing only 50,000 cubic feet of gas per day. Nearby wells drawing on the same reservoir were churning out 60 times as much.

As main operator of the well, Sun wanted greater production, but all production was dedicated to the Arkla pipeline, and Arkla would pay only 20 cents per thousand cubic feet (MCF) to Sun. Sun had already asked for a higher gas price from Arkla to justify the redrilling costs but had been turned down.

In contrast, Arkoma’s letters to Sun assure Sun that Arkoma can get Arkla to pay the highest gas price available under the Natural Gas Policy Act, so a new well can be drilled. All Sun has to do is allow Arkoma to get in on a share of the new well’s profits. (It’s not known what Arkoma paid Sun for its participation.)



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