Lawyers for Houston-based Apache Corp. failed to convince a federal judge to toss out a proposed securities class action claiming that company leaders misled investors about an announcement in 2016 of “transformational discovery” of a West Texas shale play called Alpine High.
U.S. Magistrate Judge Andrew M. Edison of the Southern District of Texas, in an opinion issued Thursday, recommended that the case move forward because the plaintiffs’ complaint is sufficiently detailed and specific in its allegations that company officials knew the information they made public in 2016 was “materially false.”
Lawyers for Baker Botts, the Houston law firm that represents Apache, are expected to ask U.S. District Judge George Hanks of Houston to reject Judge Edison’s recommendation.
Groups of investors, led by trustees of the Teamsters Union No. 142 Pension Fund and the Plymouth County Retirement Association, allege Apache was involved in “a massive fraud centering on an oil and gas field in the Texas panhandle.”
Judge Edison, in his memorandum, said the plaintiffs have “sufficiently alleged that defendants made materially false or misleading statements.”
“Over my career, both as a lawyer and as a judge, I have had the opportunity to review a vast number of securities class action lawsuits,” Judge Edison wrote. “Despite their usual length, many of those filings are cut-and-paste jobs that unquestionably fail to properly allege a false or misleading statement.
“This is not one of those complaints,” the judge wrote. “The consolidated class action complaint provides a detailed discussion of the alleged misrepresentations at issue and explains the reasons why defendants allegedly knew at the time they spoke publicly that those statements were materially false.”
Apache claims that their executives had no intent to mislead – an issue that Judge Edison said is “a close call.”
The investors claim in their complaint that Apache “endured a prolonged financial slump” in the early 2010s even as the exploration and production industry in Texas capitalized on advances in hydraulic fracturing.
“Apache allegedly did not make a single notable discovery during the fracking boom,” according to court documents. “As a direct result, the company’s stock price languished.”
The plaintiffs point to a Houston Chronicle article that said Apache “found itself on the outside looking in” and that management “knew Apache had to get back its swagger if it was to reverse its fortunes. It had to return to the business of risk, and it had to make a headline-grabbing find.”
To make “a headline-grabbing find,” the investors claim that Apache focused on Alpine High, which is in Reeves County. The energy company announced in September 2016 that Alpine High in Texas was a “transformational discovery” and “world class resource play” with immense production capabilities.
For three years, according to the plaintiffs, Apache claimed the Alpine High would “deliver incredible value to Apache and its shareholders for many, many years to come.”
Analysts and industry media, according to court documents, said the “massive shale discovery” was Apache’s “largest catalyst opportunity” for the coming years and put Apache “back in the game” after a “rough time keeping up with competitors.”
The investors alleged that the claims by Apache leaders fueled the company’s soaring stock price, which hit $69 in December 2016.
The lawsuit also names some Apache executives – including CEO John Christmann IV, executive vice president Timothy Sullivan and CFO Stephen Riney – as individual defendants. In all, the plaintiffs claim that Apache executives reaped more than $75 million in Alpine High-linked compensation.
“Unbeknownst to investors, defendants’ statements were false,” the plaintiffs claim. “In reality, Apache’s own production data and analyses of the Alpine High play never supported defendants’ public representations. As Apache was ultimately forced to admit, Alpine High was virtually barren.”
“High was so devoid of oil and gas that Apache was forced to cease all drilling at the field in 2020, take a $3 billion write down, and slash its dividend by a staggering 90 percent,” the plaintiffs claim in court records.
The result, according to the investors: Apache’s stock was decimated. The stock price closed at $4.46 on March 17, 2020 — a decline of 93 percent.
Lawyers for Apache contend that many of the alleged misstatements contained in the lawsuits, which are actually the combination of two complaints, “constitute forward-looking statements protected by the Private Securities Reform Litigation Act’s safe harbor provision.”
Forward-looking statements are not actionable under the PSLRA’s safe harbor provision if the statement is accompanied by “meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement.”
PSRLA also requires plaintiff to show that the forward-looking statement “was made with actual knowledge . . . that the statement was false or misleading.”
Judge Edison said that PSRLA’s safe harbor provision was not “a panacea” for Apache.
The lead lawyers for the plaintiff include David R. Kaplan of Saxena White in San Diego; Naumon A. Amjed and Daniel Rotko of Kessler Topaz Meltzer in Wayne, Pennsylvania; John Saul Edwards Jr. and Thomas Robert Ajamie of Ajamie in Houston; Jeremy A. Lieberman and Joseph Alexander Hood II of Pomerantz in New York.
Baker Botts partners David D. Sterling and Charles Frank Mace are leading the defense for Apache and the individual defendants. Other Baker Botts lawyers involved are Amy Pharr Hefley and Anthony Joseph Lucisano.
The case is In re Apache Corp. Securities Litigation, NO. 4:21-cv-00575