MBI Oil and Gas named in Oklahoma pipeline transaction lawsuit
A Belfield-based oil and gas company has been named in a federal lawsuit that alledges racketeering, conspiracy and fraud in the sale of a pipeline in Oklahoma.
MBI Oil and Gas LLC is one of four entities being sued in U.S. District Court by New York-based Strategic Energy Income Fund III L.P., or SEIF, which claims the parties colluded in a transaction that got around a right-to-first-refusal agreement through dubious means.
MBI Gas and Oil CEO Jim Arthaud, who is also chief executive of MBI Energy Services though the two companies are separate entities, gave no response to the claims of misconduct alleged against his and the other parties, but emphasized in a phone interview Friday that the company was not an operating partner in the pipeline.
Though papers were filed in federal court Monday, Arthaud said he wasn’t notified of the legal action until Thursday and, as of Friday morning, he said MBI Oil and Gas had yet to even be served.
“We will prevail,” Arthaud said.
Ryan Holbrook, corporate counsel for SEIF’s general partner U.S. Energy Development Corp., said the lawsuit stems back to the summer of 2014, when Kansas-based Slawson Exploration Company Inc. entered into a membership interest purchase agreement with Arkansas-based Stephens Energy Group LLC concerning working interests in leases in the Nemaha Ridge Project Area in Oklahoma.
Arthaud said MBI is a non-operating owner with about a 5 percent stake in the pipeline.
Some of these leases were served by a gas pipeline owned by Oklahoma-based Nemaha Gas Gathering LLC and managed by Swanson, with some ownership through membership interests by SEIF, MBI and Alameda Oilfield Services Trust. The latter was created under the Donald C. Swanson Irrevocable GST Trust.
Holbrook said MBI and Alameda then made a purchase agreement with Stephens for their shares of the membership interest in the pipeline, of which Nemaha Gas informed SEIF due to a provision in the operating agreement that gave all owners the guaranteed option of refusing another owner’s sale of interest in order to purchased it itself.
SEIF exercised its right to first refusal and intended on purchasing the interests, of which Alameda held 51 percent.
However, in September 2014, Holbrook said SEIF learned a day before they were to close on the purchase that Slawson and Stephens had directed Slawson’s marketing party of the gas produced to cancel their acreage dedication agreement, which subsequently nullified the marketing party’s gas gathering agreement with Nemaha Gas and damaged the value of the pipeline.
Holbrook said SEIF and U.S. Energy demanded the reinstatement of the contracts that were in place at the time of the exercise of the right of first refusal, but to no avail. Stephens also allegedly represented to U.S. Energy that it no longer had interest in purchasing the interests in the pipeline.
Holbrook said the absence of the previous contracts made SEIF unable to purchase, with any benefit, the membership interests of Alameda and MBI.
He added that weeks after SEIF declined the purchase, the interests were sold to Stephens, and the contracts were reinstated.
“As you can see, there was something going on between those two parties to keep us from buying that pipeline, at least in our view,” Holbrook said.
Under the Racketeering Influenced and Corrupt Organizations (RICO) Act, SEIF is seeking damages from Slawson, Stephens, Alameda and MBI from the matter, though Holbrook said it still had to calculate just how much that constituted.