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  

With the 1982 Arkla-Arkoma deal firmly in hand, Jones and Stephens Production would strike an agreement in the spring of 1983 similar to the Federal King Well redrill. This time it would involve Stephens’ holdings in the Cecil and Aetna fields.

Locked into long-term agreements with Arkla, Stephens was getting only 16 cents per MCF on the Aetna field and 55 cents per MCF on the Cecil field. After negotiating with Jones, the old contracts were broken on April 28, 1983, and Arkoma and Stephens began sharing in gas now being sold to Arkla under new Jones-negotiated agreements.

The Jones-controlled gas would sell for the dramatically higher price of $3 per MCF. Arkla ratepayers would pay the difference as the cost of gas purchasing would be passed on in higher monthly bills.

In early 1983, the U.S. Securities & Exchange Commission conducted an informal inquiry into the Arkoma transaction that resulted in no action. That summer, after The New York Times did a lengthy piece in July, the Arkansas PSC would launch its first investigation into the transaction, eventually concluding that although many individuals alleged the deal was tainted, the PSC couldn’t find any clear wrongdoing.

Last fall, the PSC launched its second investigation after learning that Arkla paid Arkoma $174.8 million to release it from the December 1982 contract that Nelson had described as the best deal the company ever made.

Go West, Oil Man

Pacific Gas & Electric last fall began conducting an investigation into four gas suppliers, including Jones, amid allegations of kickbacks and favors. The California Public Utilities Commission, the state regulatory agency, also launched a parallel investigation into a series of major gas transactions involving Jerry Jones.

The Arkansas Democrat estimated Jones’ contracts with the California utility are worth $41 million a year to Arkoma.

A gas purchasing officer for PG&E, Eugene E. Satrap, was fired and then reinstated to a new job last fall and has been associated with an ongoing PG&E investigation into gas purchasing contracts. The Dallas Morning News reported that Satrap has visited Jones’ private duck-hunting lodge in Arkansas and stayed regularly as a guest of Jones in Little Rock. In his capacity as gas purchasing officer, Satrap negotiated a number of contracts with Jones and his companies.

Most significantly, in 1984 Satrap and McCoy bought interests together in a series of mineral leases in Franklin County, Texas. Satrap borrowed $99,000 from Stephens Security Bank in Arkansas (which is not associated with the Stephens family) to finance the deal.

PG&E officials have not formally named Satrap in the investigation but confirm that it focuses on gas purchasing practices, and Satrap’s attorney called his new job “a demotion.” PG&E policy prohibits gas supply managers from joining any of the utility’s gas suppliers in investments and from accepting gifts that are more than nominal.

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