The Dirty Secret (12 page)

Rikki propped the door open with a box and strolled toward the cruiser, her black boots pounding the pavement with each step. Crossing the street fluidly, her light blue sweater and designer jeans tastefully accentuated her figure without clinging to it. “Just moving in some of my things, getting ready to take over. How are
you
doing?”

The Sheriff’s lower lip bulged with snuff and he lifted a paper cup to his mouth, spitting a stream of vile-looking brownish residue into it. “No complaints.”

As always, a man of few words
, Rikki noted.

Squatting down, she rested her elbows on the open window sill while staying safely away from the Sheriff’s spittoon. “Sometime soon, we need to go over all of our pending cases. Make sure we have everything we need for trial and that we’re all on the same page with things.”

Vaughn nodded, fixing Rikki in the same screwball-eyed gaze that had made her uneasy since she was a kid. Quickly remembering that Vaughn’s scar was beneath his left eye, Rikki focused on his functional right one.

Vaughn’s good eye flashed. “Sure thing, as long as it’s before the end of next weekend. Next Monday is the first day of deer season.” He shot her a toothy grin. “Good luck finding me then.”

Rikki threw back her head and laughed aloud. “So fighting crime takes a back seat to deer hunting around here, eh, Sheriff?”

Vaughn spit into his cup, nodding and grinning sheepishly. “Something like that. Unless something big breaks loose, I figure it can wait ‘til rifle season is over.”

Jack McCallen walked around the corner of the courthouse carrying his own bankers’ box. “Don’t you go distracting my lawyer, Doug! I need her full attention today.”

The sheriff set his spittoon down in the cupholder and waved. “No problem, Senator. I need to hit the road anyway. Ya’ll be good.”

Vaughn shifted the vehicle into gear and Rikki stepped away from the cruiser. Rolling up the window, the Sheriff saluted crisply and drove away.

Meeting Jack on the sidewalk, Rikki tapped his banker’s box. “Looks like you’re about to get a hernia.”

McCallen snorted. “If so, it will be your fault for making me dig through our storage unit for these old records. This lawsuit’s going to be death of me!”

Rikki giggled, picked up her own box and held the door open with her foot. “Quit your belly-aching, Jack. This is a painful, but necessary part of the process. If we don’t produce these records, we have no chance of winning. And you don’t want that to happen, do you?”

“No,” he grumbled, trudging up the stairs. “It’s just a pain in the ass.”

Rikki locked the door and followed suit. “I know. But complaining about it won’t make it any better. Do you think I
like
being cooped up inside on a beautiful day like today?”

“All right, all right. You’ve made your point. I’ll keep my griping to a minimum.”

They wound their way upstairs and entered the prosecutor’s office where half-empty boxes were strewn throughout the place. “Sorry about the mess,” Rikki apologized. “I hope to have a handle on things by the time the Commission meets on Wednesday.”

McCallen set his box down on an empty patch of table space in the conference room. “Is that when they’re appointing you to finish out Joe’s term?”

Rikki hefted the box she was hauling onto the table. “Supposedly. But I won’t know ‘til tomorrow if they got it on the agenda in time.”

A few minutes later, the conference table was clear enough to spread out Jack’s files for review. Methodically, they pored over the documents and separated them into two piles: One for those that had to be disclosed to the plaintiffs and a second for those that did not fall within the scope of materials covered by the discovery requests or were protected from disclosure due to some sort of privilege. All the documents were run through a “Bates” machine and imprinted with unique identification numbers. For each document believed to be privileged, Rikki made notes regarding why it was not required to be disclosed.

Nearing the end of the process, Rikki hunched over the table and rubbed her temples with both hands. “According to the production logs, when did you last generate any marketable volume of gas from the wells on this property?”

Clad in a black and gold Pittsburgh Steelers sweatshirt, Jack paced along the far side of the table. His hands were buried in the front pockets of his mud-stained blue jeans as he closed his eyes, scanning his memory. “Just a little under two years ago.”

Rikki winced. “I thought you said it was
one
year.”

Jack shook his head. “The mineral owners’ last
royalty checks
were cut about a year ago. But only a marginal amount of gas is reflected in the production logs for the past eighteen months, probably just free gas provided for the mineral owners’ homes. Our records don’t indicate we’ve sold much gas from those wells during the past 30 months or so.”

“You know what that means, don’t you?”

McCallen sighed. “Yeah. It looks like we haven’t been fully developing or marketing the gas from those wells for almost two years.”

Rikki put aside the folder and nodded. “Not good. But then again, it’s been nine months since they filed suit to cancel the lease, and they were harassing your crews well before that.”

Jack whirled on his heel and faced her. With his hands spread apart, palms upward, he declared, “How could we get gas from those wells after they shot at us and ran us off the land?!”

“If the jury believes your crew’s testimony, that’s fine,” she replied. “The plaintiffs wouldn’t be able to hold that period of time against you. It all comes down to whether your actions marketing the gas from those wells to third parties and exploring the possibility of drilling additional wells on the property were reasonable. But
reasonable
is in the eye of the beholder, which means the judge might deny our motion for summary judgment and let a jury look at the facts for themselves.”

McCallen’s face turned red. “We’re going to have to go to
trial
on this damn thing?”

Rikki stiffened. “If the production logs and sales invoices don’t show more gas going through the wellhead meters than the plaintiffs have used in their own homes, I’d say so.”

Jack looked dumbfounded. “You’ve got to be kidding me! That means this suit will still be hanging over my head until July! I thought it all would be wrapped up by May!”

“That’s still a possibility. But our judge hates to take cases away from a jury.
Especially
when you’re dealing with property rights.”

McCallen closed his eyes, slumped his head and leaned forward, resting his hands on the back of a chair across the table from Rikki. “I can’t make it that long,” he said softly.

Rikki cocked her head, turning her left ear toward him. “What did you say?”

Jack raised his eyes. “I can’t make it that long. Between the expenses from this lawsuit, the cost of trying to get other old leaseholds back into production before
they
lapse, and trying to make payroll, I’ll be bankrupt by July.”

Rikki sat silently for about twenty seconds. “I had no idea things were that tight, Jack. Why didn’t you say something to me about it earlier?”

“And what could you have done about it, if you
had
known?!” he half-shouted. “The plaintiffs have made it clear from the get-go their only objective in this suit is to get my lease canceled. Not modified, not broken into a bunch of smaller leaseholds.
Canceled
. And we both know that’s because one of the big boys is trying to backdoor me by promising to sweeten the pot if bidding on that leasehold comes open again.”

Rikki didn’t deny his assertion. “So what are you going to do? Can you get a credit line to make it through this suit and get the other leases back in production?”

McCallen laughed bitterly. “I’ve applied for loans with every bank within a hundred miles of here. I’ve even talked to banks in Columbus and Pittsburgh. No takers.”

“How much money have you asked for?”

“Three million. The problem is, the bankers all know about this lawsuit because it’s disclosed on my application as a contingent liability. Plus my credit scores took a hit last year when I had to juggle some bills to replace the drill rig that blew up.”

“I remember that.” Rikki’s absent-mindedly tapped an ink pen on the table, first one end, then the other, pondering her client’s predicament.

“And while we’re discussing my financial illiquidity,” Jack segued. “I want you to look at this email.” He reached into his rear pocket and extracted a piece of paper folded into quarters.

“I still don’t know what to make of it.”

Rikki unfolded it and began reading:

Partnership Opportunity
From: [email protected]
To: [email protected]
Date: Sat, 15 Nov 2:31 pm
Attachments: mccallen.xls

Dear Mr. McCallen,

In exploring new investment opportunities, our analysts have identified your company as a potential partner. The purpose of this email is to provide you with some information about us, and to gauge your interest in joining forces.

Petromica is a privately-held Bahamian limited liability company focused on energy investments. Over the past five years, our gross revenues and net profits have grown significantly. During the last fiscal year, Petromica’s net profits totaled $45 million and our investments’ net worth exceeded a quarter of a billion dollars. For more information, including independent financial audits, visit our website at www.petromica.com.

We’ve thrived by identifying opportunities that more conservative firms might deem too risky and acting aggressively to exploit them. After examining the publicly available information, we believe McCallen Resources offers us a prime opportunity to obtain significant investment returns at a tolerable risk. Moreover, partnering with your firm would allow Petromica to expand its footprint into the Appalachian Basin, which we believe possesses some of the most under-developed natural gas deposits in the world.

Please review the attached spreadsheet our analysts have prepared in the course of their research. If the same accurately reflects your company’s current financial condition, please be advised that Petromica would be interested in partnering with McCallen Resources (“MR”) along the following general lines:

1. Petromica would invest a total of $25 million dollars in MR for the purpose of fully developing its existing inventory of mineral leases, focusing on drilling new wells at depths exceeding 6000 feet on existing leaseholds and an emphasis on horizontal wells penetrating into the Marcellus Shale.

2. In exchange for its investment, Petromica would get a 49% equity stake in MR.

3. MR’s current management team, including yourself, would continue to exercise full control of MR’s day-to-day operations for a period not less than 2 years.

4. MR would utilize a portion of Petromica’s investment to completely eliminate its existing debt, improve MR’s objective net worth and make the firm a more attractive target for outside investors.

5. MR’s current ownership would have an option to repurchase Petromica’s 49% equity stake in the firm at the end of 2 years for the sum of $31,750,000, which would constitute an annual return on our investment roughly equal to 12%.

Please be advised we are currently exploring other investments in the Appalachian Basin and we intend to finalize a deal to expand into that region as quickly as possible; if not with your firm, then with another. If you can confirm the accuracy of our financial data on MR and would like to discuss this proposal further, please contact me at your earliest convenience via email. Or you can reach me on my cell phone at (703) 925-1420.

Sincerely,

Alex Beria
Executive VP, Mergers & Acquisitions
Petromica, LLC

Rikki laid the email down and looked at Jack. He was staring back at her, tight-lipped and awaiting her response.

“So have you done any research on these guys?” she asked.

“Just a little. Not much on this Beria guy, but Petromica looks like it’s the real deal.”

Rikki opened her laptop and banged on the keys. “Let’s have a look-see at their website,” she said. Jack stood behind her, staring down at the screen.

Petromica’s easily identifiable black and gold logo was prominently featured at the top left corner of the company’s homepage and the entire layout oozed with professionalism. Quickly clicking through the website, Rikki found it easy to navigate and full of detailed information, including financial data and several recent press releases.

Satisfying her urge to double-check the veracity of Petromica’s claims, Rikki swiftly ran two of the press releases through her favorite internet search engine. Much to her surprise, the information touted in the releases was consistently reported elsewhere in the mainstream media.

Rikki spun around to face Jack. “Okay. It looks like Petromica is legit and could come up with that kind of cash. The bigger question for me is why would they contact Jack McCallen out of the blue with a business proposition?”

“I have no idea. But they’ve done their homework: That spreadsheet is identical to the one I’ve given to banks with my loan applications for the past three months.”

“Is it accurate?”

McCallen looked offended. “You think I want to go to prison for bank fraud?!”

Rikki swatted him on the thigh and laughed. “Heck, no, doofus! You’d look downright
awful
in an orange jumpsuit, and I don’t think you’d like the food much either.”

A smirk emerged on Jack’s face and he shook his head amusedly. “Leave it to you to find humor in the thought of me going to jail.”

Rikki shrugged, playfully feigning a lack of concern. “That’s what friends are for, Jack. So tell me this: From a financial standpoint, does their proposal make good business sense?”

“For them or for me?”