Lack of a Prenup Imperils Oil Billionaire’s Fortune – CLR

By Joshua Schneyer, Brian Grow and Jeanine Prezioso Jun 14, 2013, 7:49 AM 

SECOND MARRIAGE

The 13th child of Oklahoma sharecroppers, Hamm started his career at age 20, scrubbing scum from oil barrels. A few years later, he drilled a 75-barrel-a-day gusher in his home state, and the profits helped him pay for university classes in geology.

He founded Continental in 1967, two decades before he and the former Sue Ann Arnall were married. The couple wed in Las Vegas in April 1988, six months after Harold Hamm’s first divorce was granted and a few weeks after a court-imposed cooling off period ended, public records show.

Back then, Hamm wasn’t the billionaire he is today. Court records in the 1987 divorce estimated his net worth then was $16 million, 1.5 percent of the current value of his shares in Continental alone. Sue Ann, who was 31 when she and Hamm married, was an attorney with a law degree from the University of Tulsa who handled land deals for Continental.

Years after the Hamms wed, Continental’s biggest breakthrough came in the late 1990s, when Harold Hamm helped discover the Bakken field of North Dakota. The discovery, the largest new U.S. oil prospect since the 1960s, helped Continental lead a resurgence in U.S. oil production and prompted some in the oil industry to dub Hamm “The King of the Bakken.”

“He is one of the smartest oilmen I’ve ever met,” said Lew Ward, chairman of Ward Petroleum and a fellow oilman from Enid, Oklahoma, who has known Hamm since the 1960s. “He thinks and acts faster than the average person.”

Today, the Bakken yields nearly 700,000 barrels a day, roughly 10 percent of American output. Continental controls more than 1 million acres in the formation, which stretches from North Dakota to Montana. The firm also owns oil and gas rights in several other states, including Oklahoma.

Continental has said the entire Bakken region, which is being developed by several companies, may contain 24 billion barrels of oil. That would be enough to meet U.S. oil demand for more than three years.

SEPARATE LIVES

Even as business boomed, the Hamms’ marriage suffered, court documents show.

In 1998, 10 years after marrying, Harold received a tip that Sue Ann was looking to hire a divorce attorney, according to a person familiar with the matter. Concerned her divorce petition could cripple his expanding business, Harold decided to beat Sue Ann to the courthouse, the source said.

Documents in Harold’s 1998 divorce filing show that the oilman asked a judge in Garfield County, Oklahoma, to order a psychological evaluation of Sue Ann and grant him custody of their two children and the family home in Enid. Harold also requested that the court issue a restraining order to prevent Sue Ann from “harassing” him.

“(Harold) fears that (Sue Ann), unless restrained, will damage Plaintiff’s business interest and otherwise waste and dissipate assets of the parties accumulated during their marriage,” according to an October 1998 filing by his lawyer, Richard Wagner.

The divorce claim was withdrawn on December 15, 1998; court documents do not explain why.

Problems resurfaced again in 2003, Harold’s lawyers said this year. That’s when Sue Ann left the Hamm house in Enid and relocated some 100 miles away to an Oklahoma City suburb with the couple’s two daughters, according to documents filed this March by Harold’s attorneys.

“Sue Ann left Enid, and left Mr. Hamm,” Carl McCurley, a lawyer for Harold, said during a court hearing in March. The couple has lived “separate lives” for the past decade, and Harold Hamm stayed in Enid in 2003, he said. In court filings, his lawyers claimed their union had been “loveless” since the 1990s, calling it a “marriage in name only.”

By 2007, court documents show, Sue Ann began monitoring Harold’s conduct by gathering electronic surveillance of her husband in the Hamms’ Enid home.

In a December filing, Harold’s lawyers demanded that Sue Ann turn over “home video or audio recordings” of him. One bill for surveillance was for $9,866.09, the filing shows.

Attorneys for Harold sought the surveillance tapes as part of an effort to show he had in effect separated from Sue Ann Hamm years ago, rather than in 2012. The content of the tapes, the legal team argued, would show that the Hamms had stopped behaving as husband and wife.

Sue Ann Hamm’s attorneys objected. “Surreptitious adultery, even repeated adultery with the same partner, does not terminate a marriage or constitute legal separation,” they wrote in a response.

Now, however, the point is likely moot. Given that the Hamms have agreed on a date of separation and to a “no-fault” divorce, the allegations of infidelity are unlikely to be a significant factor in a trial, unless either party seeks to prove that the other spouse squandered marital wealth on extramarital affairs, say family law experts.

What remains: determining how much Sue Ann Hamm is entitled to receive. That determination could revolve in part around how important a role she played in Continental’s burgeoning business.

‘EQUITABLE DISTRIBUTION’

An attorney and long-time employee of the company, Sue Ann Hamm once held the title of “vice president, crude oil marketing,” according to a 1997 letter she wrote to the Minerals Management Service, a former unit of the U.S. Department of the Interior. The same year, she testified to Congress as Continental’s emissary, demonstrating a sophisticated understanding of U.S. energy markets.

Still, a Reuters review of Securities and Exchange Commission filings by Continental since 1996 reveals neither a reference to Sue Ann Hamm as an executive nor as a related party – the wife – of the chief executive.

Three former Continental employees say her job was never clear. “Sue seemed to play a minor role. I never quite understood what she did,” said Kendra Ognibene, Harold’s personal assistant at Continental from 1996 to 2000.

While Harold’s profile has grown in oil markets over the last decade, Sue Ann faded from the scene publicly. She has listed herself as a “homemaker” in political campaign contribution documents since 2010.

Jon Hester, an attorney for Sue Ann Hamm, would not comment on her roles at Continental and when she left the company. Continental would not comment on her role either.

Now, Judge Haralson must decide to what degree the nearly 500 percent increase in the value of Continental’s shares was due to the hard work of Harold and the support of Sue Ann, and to what extent it was the product of outside forces.

A 1995 Oklahoma Supreme Court decision in another divorce case could prove pivotal, say family law experts.

In the case, Thielenhaus v Thielenhaus, the court found that “enhanced value” of a spouse’s property can be divided between the couple if it stemmed from “efforts, skills or expended funds of either spouse.” But that value cannot be divided if it derived from an investment managed by third parties or “appreciation, inflation, changing economic conditions, or circumstances beyond the parties’ control” – in other words, from dumb luck.

If the judge found that outside factors inflated the value of the Hamm estate, Harold would keep the lion’s share of the enhanced value. Paradoxically, this means one of America’s savviest entrepreneurs would benefit by persuading the judge that much of his multi-billion-dollar fortune just fell into his lap.

Harold Hamm owned the vast majority of Continental’s stock before he married Sue Ann in 1988. By 1999, he still owned 91 percent, and today directly owns 68 percent, according to SEC filings. In 1988, U.S. oil prices averaged $16 a barrel, compared with $95 in May 2012, when the Hamms agree they separated, according to U.S. Department of Energy figures.

Harold could argue that the meteoric growth in Continental’s value during the marriage was largely due to market forces, not to his own work, and therefore should be excluded from the marital capital pool, say family law experts.

But the vast majority of Hamm’s wealth has accrued since Continental went public, and such an argument could be undermined by a look at Continental’s peers. Since their May 2007 market debut, Continental shares have soared 463 percent. Over the same time, a popular exchange-traded fund that invests in dozens of independent U.S. drillers – the iShares U.S. Oil & Gas Exploration and Production ETF – has risen just 31 percent.

Hamm’s own public statements highlight his role in discovering the Bakken oil field, the core of Continental’s wealth. He and his engineers have said that their 2004 Robert Heuer well in Divide County, North Dakota, was the first commercially successful well in the Bakken.

“This one proved that a Bakken well could be a commercial success,” Hamm told the Bakken Oil Report, a trade publication, in 2011. “It helped usher in a new era in the American oil industry by unleashing the development of the enormous Bakken oil field.”

Continental’s public filings underscore Harold Hamm’s outsized role. In its 2013 proxy, the company wrote, “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.”

(Reporting by Joshua Schneyer in Enid, Oklahoma, Brian Grow in Oklahoma City and Jeanine Prezioso in New York; edited by Blake Morrison)

Courtesy of Reuters

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