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  

This news angered Stephens’ Spence A. Leamons, and he sent a letter Nov. 10, 1981, to the other minority owner in the well, Exxon Co. USA.

“Sun asked Ark-La [sic] for an improvement in the gas price so this unit could be redrilled, and Ark-La rejected their proposal. Sun then [sold its interest] to Arkoma who was able to get Ark-La to make some upgrading in the gas price. I suspect that Stephens and Exxon would be rejected if they asked for an improvement in the gas price.”

The letter goes on to say, “Frankly, we think this whole business stinks. ...”

By Jan. 5, 1982, the deal was completed, and Arkoma owned 75 percent of the new well. Insiders say this pattern was repeated by Jones and Arkoma throughout the Arkoma basin.

The Billion-Dollar Bonanza

In December 1982, Jones would strike it rich with the Arkla-Arkoma gas deal.

For $15 million, Jones bought half of Arkla’s interest in 28,500 acres in the Aetna and Cecil gas fields. The transaction also gave Jones sweeping powers over Arkla because of its requirement that Arkla buy 75 percent of all the gas Jones could find to sell it in a five-state area. By 1986, the lucrative deal was estimated by Arkla executives to be worth potentially $1 billion.

For good measure when the deal was struck, Jones promised to kick in $30 million over the following four years in drilling and exploring costs. Nelson told the board that Jones was taking exploration risks that Arkla couldn’t afford and that no one could know how successful the new wells would be.

Nelson missed the mark horribly. On the wells Arkoma would drill in the Arkoma Basin, The Dallas Morning News reported that a computer analysis showed that the company hit gas 95 percent of the time — a fantastic success rate in an industry where the average is 15 percent for new exploration.

Last week, Arkla’s chief geologist at the time, Leonard E. Jordan, testified under oath in a deposition to attorney Tom Mars that he strongly disapproved of the deal and only signed off on it because Harrell, his superior, pressured him to. (Nelson has always maintained that Arkla’s entire geologic team favored the deal.)

In another twist, Jordan and another Arkla officer told Mars the deal was signed on Dec. 30, 1982, before the board’s vote the following day. Nelson has repeatedly said he sought the Arkla board’s approval on the Arkoma deal before it was finalized Dec. 31.

The Persistent Pattern

 

 

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