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 The analysis of Kenneth Button, an expert witness hired by Sue Ann
Hamm, was laid out in court testimony and in a document provided to
Reuters by Oklahoma County Judge Howard Haralson. It is one of the
first pieces of financial testimony to be released from the trial,
which has been conducted mostly in secrecy.
In an uncommon step for a divorce case, Haralson has barred the
public from the courtroom on most days and sealed most of the
evidence. He says he is trying to protect shareholders in Hamm's
Continental Resources from the release of confidential business
information. Through his 68 percent stake in Continental, a leading
driller in North Dakota, Harold Hamm is believed to own the most oil
in the ground of any American.
The document, a trial exhibit marked "confidential business
information," is a 122-page report compiled by Button, a PhD
economist. Haralson released the report after determining it isn’t
subject to the protective order he has placed in the case.
Button's report contends that up to $15 billion of the growth in
Continental's market capitalization during the period he studied is
"active" marital capital, or subject to division between the
spouses. Button crunched data from the years between the couple’s
1988 wedding and February 2014.
Since then, Continental's value has grown by nearly $4 billion more,
adding to the wealth the court may divide, Button said in court last
week. About $2.6 billion of that appreciation would accrue to Harold
through his 68 percent stake in Continental.
All told, Button's analysis suggests that the marital capital
subject to division could add up to some $17.6 billion.
If Judge Haralson accepts Button's reasoning and awards Sue Ann a
significant share of the marital estate, the Hamm split could yield
the largest divorce settlement ever. If Hamm has to sell Continental
shares to finance a large settlement, his control of the company
could be eroded.
Attorneys for Harold Hamm and for Continental didn't respond to
questions for this article. Harold's witnesses will testify later in
the trial, which began last week and is expected to end in October.
What caused Continental's increase in value is critical to the
outcome. Under Oklahoma law, any increase in the Hamms' net worth
resulting from the active efforts of either spouse during the
marriage is considered part of the marital estate.
Continental's impressive growth itself isn't in dispute. According
to Button's report, the Oklahoma-based driller was valued at between
$10 million and $50 million when the couple wed in 1988. It is now
worth around $27 billion.
Sue Ann Hamm's legal team contends that this growth resulted largely
from the active leadership and astute decision-making of Harold. He
is widely credited as a pioneer in developing the Bakken Shale
formation of North Dakota, America's largest oil discovery in
decades.
Harold's attorneys will try to show that Continental's growth
resulted mostly from factors beyond his control. They signaled this
strategy in their cross-examination of Button, pressing the
economist to consider that external forces, such as higher oil
prices and new drilling technologies, were decisive factors in
Continental’s success.
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"ACTIVE" APPRECIATION
Button is trying to undercut Harold's position by comparing
Continental's spectacular growth with that of rivals. The margin by
which Continental's financial returns outpaced those of similar oil
and gas companies should be considered Continental's "active"
appreciation, the Button report says.
It compares Continental's financial returns to those of 76 other
publicly traded U.S. independent drillers.
Continental and these "peer companies," the report says, faced
similar risks, opportunities and market conditions - such as
fluctuating oil prices, choices among technologies and drilling
locations, and methods to raise and deploy capital.
Continental's return on investment was at least 44,271 percent
during the Hamm marriage, Button wrote. The average return among
peers - extrapolated over the same period - was a relatively modest
691 percent, the report says.
Continental's outsize returns compared to its competitors are
"likely the results of difference over time in the specific
operational decisions and actions of the management of these
companies."
Hamm, 68, founded Continental in 1967, two decades before his
marriage to Sue Ann, 58, a former attorney at the company.
Continental has said the divorce is a private matter that hasn't
affected the business and isn't expected to. At the same time,
Continental attorneys have submitted hundreds of thousands of pages
of documents in the trial in support of Harold. They also have
repeatedly persuaded the judge to seal evidence and close the
courtroom to avoid damaging Continental's interests.
(This refiled version of the story fixes date (15th) and spelling of
reporter's name (Heide Brandes)).
(Reporting by Heidi Brandes in Oklahoma City and Joshua Schneyer in
New York. Edited by Michael Williams)
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