SPECIAL REPORT - Lack of a prenup imperils oil billionaire's fortune
OKLAHOMA CITY (Reuters) - The divorce of oil baron Harold Hamm has had its dramatic moments. Among them: allegations that Harold was unfaithful - and a heated debate over whether the court should order his wife, Sue Ann, to turn over secret video and audio recordings she made of him at home.
But the split of the Continental Resources chief executive's fortune, worth at least $11 billion, could turn on the absence of a single document - and result in the largest divorce settlement in history.
Despite efforts by the Hamms to keep their divorce proceedings secret, Reuters has learned that the couple never signed a prenuptial agreement when they were married 25 years ago.
Such an agreement, common when one or both spouses bring substantial wealth into a marriage, would have spelled out how to divide marital assets in the event of a divorce.
In its absence, the Hamm divorce has taken on dizzying financial complexity. Court documents indicate Harold Hamm, who owns more oil in the ground than any other American, already has turned over 50,000 pages of corporate information to his wife, a former attorney at Continental.
The documents lay out the financial minutiae of Harold Hamm's sprawling energy empire. To divide it, the parties are expected to select a "business valuation" referee, an independent expert tasked with determining the worth of Harold Hamm's stake in Continental and other companies, according to two people familiar with the matter.
The Hamms have settled one big issue: A lawyer for Harold said they have agreed to a "no-fault" divorce. That means the couple probably won't litigate Sue Ann's accusations of infidelity.
Other sources say the Hamms also have reached another agreement: They have decided on a date of separation around May 18, 2012, the date that Sue Ann Hamm filed for divorce. The date of separation could prove key to how assets will be divided, family law experts say. If the couple had separated in 2003, as Harold Hamm argued in previous court filings, any wealth accrued after that date by Hamm, through Continental and other businesses, might not be considered part of the marital pool.
The agreement on the 2012 separation date could be worth billions for Sue Ann Hamm, legal experts say. That's because Continental's value has nearly quintupled since 2007, and under Oklahoma family law, wealth gained through the efforts of either spouse during a marriage would typically be subject to "equitable distribution" between the parties. The phrase means the court will seek a fair, though not necessarily equal, distribution of assets.
Why Harold Hamm,67, agreed to the 2012 date is unclear. Oklahoma attorneys familiar with the case say a settlement could cost him about $3 billion or more.
That's 60 percent higher than the largest reported divorce settlement - News Corp chairman Rupert Murdoch's $1.7 billion pay-out to ex-wife Anna in 1999. Murdoch has filed for divorce from his current wife, Wendi Deng, a spokesman said Thursday, confirming a report by Deadline Hollywood. The media mogul has a prenup, said a person familiar with the matter, but its terms aren't disclosed.
A multi-billion-dollar settlement would vault Sue Ann Hamm, 56, into the ranks of the 20 wealthiest women in America - worth more than Oprah Winfrey, the entertainment mogul whose fortune was estimated by Forbes at $2.8 billion this year.
To finance such a sum, Harold Hamm could be forced to sell a portion of his 68 percent stake in Continental on the open market to raise cash, or sell his interests in a network of firms that do business with Continental. Hamm hasn't commented on how he would finance any settlement.
Raising cash for a $3 billion settlement by selling Continental shares would cut Hamm's stake to less than 50 percent of the company, according to a Reuters analysis.
Hamm would remain the company's single largest shareholder. But a settlement could diminish his control by attracting new and powerful investors to the stock.
Continental spokeswoman Kristin Miskovsky said the company would not comment on the divorce but that "this private matter has not and is not anticipated to have any impact or effect on the company's business or operations."
Even so, Wall Street is watching. RBC Capital upgraded Continental shares in May to "outperform," but it also has warned that the divorce is a wild card. A sale of a large block of Continental shares would probably send the share price down, at least temporarily, said RBC analyst Leo Mariani. But if Hamm put more shares onto the market - increasing the portion of Continental equity available to outsiders - investors might eagerly snap them up.
"If a settlement makes more shares available to investors, and increases liquidity with a secondary share offering, big investors might well want to buy more," Mariani said.
The Hamm case is playing out in the small, wood-paneled Oklahoma City courtroom run by Magistrate Judge Howard Haralson, a 52-year-old jurist who speaks sparingly from the bench.
At the outset, the Hamms sought to keep the proceedings quiet. Most divorce cases are matters of public record, say family law attorneys. But the Hamm case was filed anonymously in May 2012 under the names "Jane Doe v. John Doe." A strict protective order and confidentiality agreement keep the vast majority of the more than 200 filings under seal.
Five months after the case was filed, Judge Haralson ordered the Hamms to attach their names to the divorce. It is unclear if Harold Hamm agreed to the anonymous filing or sought to maintain it, and when Continental directors were notified.
After receiving inquiries from Reuters on March 21, 10 months after the case was filed, Continental released a statement acknowledging the divorce. That day, after Reuters first reported on the case, Continental's stock price tumbled 3 percent.
Until shortly before the divorce filing, the Hamms kept a high profile as a couple. Considered oil royalty in Oklahoma, with a growing role in national politics and charitable giving, they continued to travel together with their two daughters to vacation spots in recent years, sending holiday cards that featured family photos, friends say.
They appeared in public, smiling for cameras arm-in-arm. In April 2012, they were feted together at a black-tie dinner during which Time Magazine named Harold Hamm one of the 100 most influential people in the world.
The following month, on a warm, clear Oklahoma City evening, the Hamms hosted Republican presidential candidate Mitt Romney and 700 Republican donors in the mansion they bought together in 2009 in the enclave of Nichols Hills. Romney had appointed Harold Hamm his senior energy adviser. The fundraiser brought in $2 million for Romney, who lauded Hamm for his rags-to-riches path as a wildcatting oilman.
Nine days later, Sue Ann, Harold's second wife and a former executive at Continental, filed for divorce.
Documents reviewed by Reuters show that the relationship had been stormy for years. Most documents in the case are sealed. But a March 7, 2013 filing shows Sue Ann Hamm alleged that Harold "was having an affair" that she discovered in 2010.
Neither Sue Ann nor Harold Hamm would comment on the case. It isn't clear how Harold responded to the affair allegation in court.
At a court hearing in March, a Reuters reporter asked the oil tycoon how he was doing. Hamm replied simply: "Not very good."
The absence of a prenuptial agreement has led to at least seven subpoenas filed by attorneys for Sue Ann seeking documents from Continental and six other companies controlled or partially owned by Harold. The goal: to parse internal records in an effort to value Harold's oil and gas empire.
Publicly traded Continental Resources has been pulled into the case as a result. The company and the six Hamm-affiliated firms have filed a flurry of objections to demands for corporate records, creating a stand-off that led to the appointment in May of a "special master" to mediate discovery disputes.
Former Continental executives have been subpoenaed and scheduled for depositions. And the company's current general counsel, Eric S. Eissenstat, is overseeing demands for corporate records in the case, according to court filings.
Now, the case is moving into the critical "valuation" phase, which could last for months and lead to the sale of billions of dollars worth of Harold Hamm's assets to fund a settlement. In a May 10 statement sent to Reuters, Craig Box, an attorney for Harold Hamm, said, "The Hamms have agreed to a no-fault divorce based on irreconcilable incompatibility."
According to family law experts, "no-fault" under Oklahoma law means Sue Ann's allegations of adultery will no longer be a factor litigated in the case, and the Hamms will move to the division of assets.
They have also agreed to appoint L. Vance Brown, a veteran Oklahoma City oil and gas attorney, to act as the special master overseeing discovery disputes in the case. Brown confirmed his appointment in a phone interview on May 30 but said he hasn't been asked to mediate any disagreement yet.
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.
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.
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)
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