Blowout
Page 38
So consider Harold Hamm at that moment, whose net worth had climbed up around $20 billion by the summer of 2014, with more and better wells coming on line all the time. His newest well in the Bakken was producing a record number of barrels per day. He had just won his signature victory in the Oklahoma state legislature: horizontal drilling tax breaks forever! But still he felt like Ayn Rand’s John Galt, with all those envious small-minded bureaucrat number crunchers picking at him, these parochial, obstructionists putting limits on American business’s God-given freedoms. How many lesser oil and gas and coal producers would be casualties of this War on Fossil Fuels? Well, he could play rough if he had to. And he would.
Holland got Hamm’s rough treatment at a remove. When Austin or his new colleague Amberlee Darold popped up in public with a statement, or a paper, they were usually whack-a-moled back into their quiet hole by their bosses at OU and OGS. Holland felt as if Dean Grillot and Director Keller were looking over his shoulder more than ever. “They helped me with presentations, they’d take a look and change—for the public, change wording and that sort of thing,” he explained in his 2017 deposition. “They would tell me that they had gotten a bunch of calls, complaints, after I’d given a news conference about some earthquake or something, and they’d say they had gotten a lot of complaints and that we need to really watch how we say things….I also had points where the dean of the college asked to see my presentations to scientific meetings and would then wordsmith my presentations….At one point I was asked to withdraw an abstract from a scientific meeting in Arkansas because the topic was earthquakes triggered by hydraulic fracture.”
What Holland maybe didn’t fully appreciate was the exact nature of the pressure that Grillot and Keller and Boren were getting and then passing on down to him. Hamm had not just written a $20 million check to the University of Oklahoma; hell, he was paying Boren around $350,000 in cash and stock that year alone to sit on the board of Continental Resources, which was about as much as Boren made as a full-time university president. When Harold Hamm spoke, everybody in the administration at OU felt more than obliged to hear him out. Like when Hamm called Grillot into a meeting at Continental Resources headquarters in downtown Oklahoma City on an unseasonably cool day in July 2014. Maybe Hamm was irked about what Amberlee Darold told a reporter from Time magazine for a story on the booming earthquake insurance industry in Oklahoma. “It’s known that fracking can cause earthquakes and has caused earthquakes,” was her quotation, in print, in a national magazine. “There’s no question with fracking.” Or maybe he was upset about Holland and Darold’s recent public presentation, under the OU banner, which included these ditties: “Most seismologists believe the drastic rate change is NOT due to natural seismicity….We do see earthquakes likely triggered by hydraulic fracturing…we do see some potential cases of induced seismicity from disposal wells…scientists generally agree that this triggered seismicity poses the greater risk (larger magnitudes).”
Whatever it was, Hamm was clearly itching to be heard that July day. When Grillot was waiting to be escorted up to Hamm’s office, he saw President Boren on his way out. Grillot later made note in an email that Hamm would shortly be talking with Governor Fallin about putting the OGS under more reliable (industry-friendly) overseers than the academics at the University of Oklahoma. But when Grillot made his report of the meeting to OU’s vice president for external relations and planning, the top-line item was much more, uh, sharply pointed. “Mr. Hamm is very upset at some of the earthquake reporting,” Grillot wrote in an email a few hours after the meeting broke up, “to the point that he would like to see select OGS staff dismissed.”
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The university administration had the good sense to not immediately start axing employees explicitly because they refused to toe the oil and gas party line, but Harold Hamm still appeared to be in control of the bigger story. He dispatched his company’s vice president for geology, Glen Brown, to mitigate the damage being caused by these reckless scientist loudmouths. The “natural swarm” of earthquakes, Brown explained, is “of very small magnitude and very small impact. Quite frankly, the way that people are talking about it is over-exaggerating what’s going on.” Brown was also running around Oklahoma City saying the swarms could very well have a global cause, that is, according to one reporter who heard his pitch, “major tectonic shifts in the earth’s crust, triggered by earthquakes in Japan and Haiti.” Okay, sure, Japan did it. And Haiti. Definitely nothing closer to home.
And Continental Resources didn’t exactly have to roll the boulder up the mountain when it came to selling its self-exculpatory story in the state. When the Democratic candidate running against Mary Fallin for governor in 2014 suggested that the new science on induced seismicity was compelling and that state officials should be obligated “to make sure industries are applying safe practices,” the editorial page of the state’s largest paper—The Oklahoman—shot him down: “Most unacceptable is the notion that the science has been done. In fact the research is only beginning.”
The Republican state representative from the earthquake-swarmed area around the town of Jones told Newsweek that the science was sure to find frackers and wastewater disposers innocent of any and all seismicity-inducing malfeasance. He was quite philosophical about it all. “The Earth, and the science of how everything works, is so big. We are so minute,” said Representative Lewis Moore. “For us to think that we have so much to do with these things is almost ludicrous.”
There were signs in the fall of 2014 that Harold Hamm might be losing his grip on his own story. An eagle-eyed set of reporters from Reuters caught on to an odd series of edits in Continental Resources’ official literature. Deleted from the time line on Continental’s website was an entry about Harold Hamm’s critical personal role in striking oil in Oklahoma in 1974. Also gone was any mention of Continental’s game-changing decision to make a big move into the Rocky Mountain region in 1993. The website now ceded partial credit to another company for a key discovery in the Bakken and scrubbed its brag about Continental being the first to complete a long horizontal multi-frack in North Dakota. Even more jarring was a deletion in Hamm’s personal bio in Continental Resources’ latest proxy statement: “As founder of the Company, Mr. Hamm is one of the driving forces behind the Company and its success to date. Over the course of the Company’s history, Mr. Hamm has successfully grown the Company through his leadership skills and business judgment.” All that crowing was there in 2013. Gone in 2014. The exercise in revision seemed like a planned campaign to minimize the previously mythic eminence of Harold Hamm. Which is exactly what it was. And it was all because, turns out, Harold didn’t have a prenup.
The revisionist history about Harold Hamm’s role in building Continental Resources was part of a carefully executed legal strategy that was designed to keep his soon-to-be-ex-wife from dipping too deeply into his trove of assets. The Reuters team made the discovery near the end of the nine-week trial of Hamm v. Hamm, which was taking place at the county courthouse in Oklahoma City. The journalists had plenty of free time to do enterprise reporting, because the judge had decided to close almost all of the divorce proceedings to the press and the public. Much of the evidence at trial involved proprietary information about the company’s finances and operations. “There’s no sense destroying a company over a divorce trial,” the judge explained. And so, a sign was affixed to the door of courtroom 121: “Do Not Enter.” This was disappointing to rubberneckers. Speculation outside the courthouse had been pretty frothy, even before the trial commenced—and not on account of the emotional matrimonial mishegoss. She said he was unfaithful; he said the marriage was loveless for years. Ho hum. It wasn’t human drama driving interest in Hamm v. Hamm; it was epic financial drama. The numbers involved were just enormous.
The Hamms’ combined net worth at the beginning of the trial in August 2014—with Continental stock prices at all-time highs and
the price of West Texas crude still up around $100 a barrel—was estimated at $20 billion. If Sue Ann Hamm’s attorneys managed to peel off a quarter of that for their client, it would be the biggest divorce settlement on record, anywhere, anytime. Other high-end divorce attorneys were panting about a payout to Sue Ann Hamm that could go as high as $6 billion or even $8 billion. Smarter money had it around $3 billion. “The question is,” said one perhaps envious high-end divorce lawyer from neighboring Texas, “will Mrs. Hamm come out of this trial filthy rich, or filthy, filthy, filthy rich.”
Harold Hamm had been worth a little more than $50 million when the couple married in 1988. By the time Sue Ann filed for divorce in May 2012, the couple’s billions of dollars in assets were almost all in Continental Resources stock. That stock had appreciated in value 894 percent in just seven years. The financial outcome of the divorce, according to informed observers, would turn on “active appreciation of property” versus “passive appreciation of property.” Active appreciation includes all of the asset appreciation due to the wit and genius and leadership skills and business judgment of one or both spouses. Mrs. Hamm was entitled to some of that. Passive appreciation is all of the asset appreciation that had accrued by the wheel-of-fortune method, beyond one’s control—like other people’s inventiveness, or the rise in real estate values, or the fluctuating price of oil. Mrs. Hamm had much less, if any, claim on the wealth that had accrued in this way. And so Harold was doing his ham-handed darndest to play down any of his own role in building up the share value of Continental Resources.
Mrs. Hamm was an attorney who had been an executive at Continental for years. She’d been active in the business, and she knew all about the operations and the value of the company. Her lawyers were said to be ready to present plenty of “active appreciation” expert testimony, attesting to her husband’s business acumen and his nose for oil. Just read the glossies. Mrs. Hamm’s main expert witness had this telling fact to proffer: energy companies had turned, on average, about a 700 percent return investment in the last twenty-five years; Hamm’s Continental Resources had returned 44,000 percent. Gotta be genius! Mrs. Hamm’s attorneys also promised to present as evidence that now-erased golden oldie from previous Continental proxy filings: Mr. Hamm has successfully grown the company through his leadership skills and business judgment.
Harold’s attorneys would beg to differ. Even though the press was shut out of the courtroom, the quotable Texas divorce attorney was happy to explain to reporters the gist of Hamm’s legal team’s argument: “[Harold] didn’t invent fracking or the new horizontal drilling technology or cause the price of oil to increase because of turmoil in the Middle East. These are all factors that Hamm’s lawyers and experts are going to point to as being mostly responsible for the increase in the company’s value.”
In early November 2014, after more than nine weeks of trial testimony, all but three days of it closed to the public, the judge announced his decision. Sue Ann Arnall was not well pleased. She would definitely be appealing the judgment, her attorneys insisted. Harold Hamm, on the other hand, emerged from court a happy man. His divorce bill had come in at just under a single billion dollars. Just one! The judge ordered Hamm to hand over to Mrs. Hamm about $23 million in real property, including their sixty-four-hundred-acre ranch in California, and to write Sue Ann a check for $322 million by the end of 2014, and then to write her one $7 million check, minimum, every month, until the remaining $650 million was paid up. Oh thank God, is that all?
But then, the very week that judgment was handed down, the ground under Hamm’s feet started getting seismically active, metaphorically speaking. The price of West Texas crude had been dropping, from $105 a barrel in July to down near $75 by mid-November. Hamm was misplaying the drop, in a very public way. He let it be known that he had sold all his hedges; he was all in on the future of oil. “We feel like we’re at the bottom rung here on prices,” he explained on a call to analysts in early November, “and we’ll see them recover pretty drastically, pretty quick.” What happened next went a long way toward proving the argument his own divorce attorneys made in court. Harold Hamm was wrong, on both counts. The price of crude continued its drop, pretty drastically, pretty quick, falling from $75 in mid-November to $66 at the beginning of December and then to $50 a barrel by January 5, 2015. Continental Resources’ stock had dropped to $34.65 on January 5, which was less than half its value in the summer of 2014. Half of Harold Hamm’s wealth had drained away in the four months following his billion-dollar divorce settlement.
On January 5, 2015, Harold decided that he wouldn’t dribble out Sue Ann’s settlement in $7 million increments, after all. She wasn’t supposed to get anything at all while her appeal was pending, but he decided he would take one big swing at ending this thing once and for all. That day, he issued her a personal check, drawn from the Harold G. Hamm Trust, for the entire amount of the divorce settlement. It took two lines to hold the handwritten number: “Nine Hundred Seventy Four Million Seven Hundred Ninety Thousand Three Hundred Seventeen and 77/100—————.” The offer was not received in the spirit Hamm had hoped. Sue Ann Arnall did cash the check, but issued a public statement: “Accepting the payment of less than 10 percent of our estate does not negate the principles at stake; my principles have not changed. I still believe the trial court’s award was not fair and equitable….I will not dismiss my appeal and do not feel that my right to appeal should be denied because I have accepted, in the interim, a small portion of the estate that we built over more than two decades.”
Less than a month later, The New York Times pulled back the curtain just enough for a very unbecoming glimpse of what had really transpired in that Oklahoma County divorce court. (When an Oklahoma divorce makes the national section of The New York Times, it’s never going to be good.) “Some in the courtroom started calling [Harold Hamm’s] the ‘Jed Clampett defense,’ after the lead character in ‘The Beverly Hillbillies’ TV series who got rich after tapping a gusher in his swampland,” wrote Robert Frank, who failed to note that Clampett had tapped that gusher with a rifle shot, quite by accident. Then one day he was shootin’ at some food, and up through the ground come a bubblin’ crude. “During his testimony, the typically commanding Mr. Hamm, who had been the face of the company for decades, said he couldn’t recall certain decisions, didn’t know much about the engineering aspects of oil drilling and didn’t attend critical meetings.” Harold’s lawyers told the court that, by their calculation, “only five to ten percent of [Harold’s] wealth came from his own effort, skill, management, or investment.”
The hits on Harold Hamm kept coming. On March 3, 2015, Energywire’s Mike Soraghan began reporting out the fruits of a recent open records request. He had in hand, among other things, emails from the University of Oklahoma and the Oklahoma Geological Survey that revealed the meetings Hamm had demanded with the state scientists and the university faculty overseeing their work. Soraghan noted Hamm’s gifts to the university and the director’s fees Continental Resources paid to OU’s president, David Boren. And made a pretty compelling case that Hamm had been strong-arming the OGS leadership and scientists. Boren declined comment when the first of the stories broke. Hamm demurred, too, through his previously courageous spokeswoman. “It is what it is,” said Continental’s VP Kristin Thomas, as Soraghan continued adding to the sordid story. “OGS is a public agency, paid for by taxpayers. They have hundreds of meetings. It is not a conspiracy.”
The story got some more national pickup that spring, but Hamm remained fairly mum. He said nothing about it at Forbes magazine’s Reinventing America Summit, where Forbes humbly billed him as “the Face of the American Dream.”
All the press surrounding the OGS did draw out the head of New Dominion, who had been the chief architect and proponent of the “dewatering” process that occasioned so many injection wells in central and north-central Oklahoma. Energywire’s Soraghan reported on correspondence that made
the very strong case that the founder and president of New Dominion, David Chernicky, had been alerted to the possibility of injection-well-induced earthquakes way back in 2007, after a magnitude 3.0 temblor hit near Tinker Air Force Base. The quake was very near where the company was injecting 100,000 barrels of wastewater a day back into its two injection wells, which were named Deep Throat and Sweetheart. “Speaking for myself, that earthquake hitting right next to the twinned disposal wells,” an OGS staffer named Dan Boyd later wrote, “nailed the correlation.” Boyd got a meeting with Chernicky, who was pleasant enough and agreed to give over some logs and pay for seismic monitoring at the site to study the correlation. But Boyd never forgot Chernicky’s nonchalance. “He came in in a golf shirt and shorts, a John Boehner tan, and he brought three or four phones,” Boyd said. “He would stop the meeting to get on the phone; he must’ve done that 15 times.”
The heads-up from Boyd and the OGS didn’t clip New Dominion’s wings, not considering that a New Dominion injection well was among the most likely triggers of the magnitude 5.7 monster earthquake in Prague in 2011, a fact that was getting plenty of play by the spring of 2015, when Chernicky came out swinging in an interview with Bloomberg. He sang the praises of “dewatering,” which had revived tired old abandoned oil fields. “I try to pick the ugly girl at the dance,” Chernicky told the Bloomberg reporter. A charmer was Chernicky. He was even more colorful talking about the absurdity of “induced” seismicity. “The meager amount of science put forward is so flawed it can’t even be considered science,” Chernicky said. “It’s emotion.” He trotted out Jean Antonides and his horseshit theories about the rapid pressure changes in underground aquifers caused by the drought-monsoon cycles. And leaned on the equally horseshit theory about the tectonic shifts happening all over the globe—look at Japan and Haiti! When confronted with the notion that he was just kicking up dust so he wouldn’t have to take any of the blame for the earthquakes, Chernicky bristled. “He insists nature’s on his side,” the Bloomberg profile concluded. “If humans can cause an earthquake,” Chernicky said, “then they ‘can probably fart and shift the orbit of the planet, too.’ ”