Longform

Yemengate

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Those same events are again coming back to haunt Hunt Oil under the name of Yemengate.

About 15 years ago, Yemen broke with tradition and finally seemed to settle down.

At the time, there were actually two Yemens. Ma'rib, and the oil field coveted by Hatem El-Khalidi, was in the Yemen Arab Republic, also known as North Yemen. It was a Western-leaning country, with a constitution based on Islamic law and a history of losing its leaders to assassination.

The Northern Yemenis skirmished periodically with the People's Democratic Republic of Yemen, also known as South Yemen. A former British colony, South Yemen dumped its monarchy in the 1960s and evolved into the only Marxist state on the Arabian peninsula. Its leftist political inclinations and ties to the Soviet Union were not appreciated by rich neighbors like Saudi Arabia.

By 1980, the two countries settled into relative calm. In particular, North Yemen was able to quell problems with the cantankerous tribes around Ma'rib. A paved road was even built to the village from the capital of San'a.

The time seemed ripe for someone to plumb the desert around Ma'rib and see if there really was oil in the underground Safir Basin.

El-Khalidi saw a chance for his long-held dream to come true. His Arabian Shield Development Company allied itself with the Dorchester Gas Company, a much larger U.S. oil and gas outfit, and the partners began pursuing rights to the Ma'rib field.

About the same time, according to later court records, the Hunt Oil Company was looking to expand its international holdings. A former colleague of one of Hunt Oil's executives alerted the company to the prospects in Yemen. Hunt Oil decided it, too, was interested in the Ma'rib field.

Arabian Shield hired a well-connected Yemeni businessman, Shaher Abdulhak, and promised him a cut of the profits if Abdulhak helped steer its proposal through the tricky waters of North Yemeni politics. Arabian Shield officials flew to San'a in February 1981 to discuss the deal with government officials. By the time they left, El-Khalidi thought his company was on the verge of winning the government's permission to explore for oil.

But the Arabian Shield proposal suddenly stalled, El-Khalidi recalls. When Arabian Shield officials asked for updates, the Yemeni government seemed to be holding them off.

El-Khalidi says he was stunned when word came from Yemen in the summer of 1981 that the government had signed an agreement with the Hunt Oil Company. Hunt later allowed Exxon and a consortium of companies from South Korea to invest in the project and share profits.

Several years later, El-Khalidi would claim in court documents, he was told by friends and contacts in the Middle East how Hunt managed to win the oil concession: Abdulhak, the Yemeni middleman retained by Arabian Shield, had turned double agent and fed information about Arabian Shield's proposal to Hunt Oil.

Abdulhak could not be reached for comment. In an affidavit filed during the lawsuit, he denied any wrongdoing.

In 1984, El-Khalidi began writing a series of increasingly combative letters to Hunt Oil, outlining his suspicions and asking for a cut of the Yemeni oil deal.

Hunt Oil denied the allegations, and said company officials did not even know Arabian Shield and Dorchester were vying for the contract until late in the game.

Hunt Oil considered it suspicious that El-Khalidi had not raised his protests until after Hunt actually struck oil in the Safir Basin. El-Khalidi's first letter to Ray Hunt, in fact, was written six days after Hunt Oil announced its success in Yemen, even though El-Khalidi stated in the letter that he had heard about Abdulhak's alleged treachery a year earlier.

In 1987, Arabian Shield filed suit against Hunt Oil in a Dallas district court, claiming that Hunt Oil used information from Abdulhak to win the oil rights. Arabian Shield lawyers hoped they could show that Hunt Oil wrongfully interfered with Arabian Shield's right to negotiate fairly for the oil contract. It was an argument similar to the one used by Pennzoil in winning a mammoth judgment against Texaco in one of Texas' most famous civil cases.

Hunt Oil executives not only were alerted to the prospects in Yemen by information from Abdulhak, Arabian Shield's lawyers argued, but may have bribed their way into the deal, using another Arabian businessman as a funnel for money. In the lawsuit, Arabian Shield accused Hunt Oil of using "wrongful and prohibited means" to win the oil contract.

During depositions and discovery, Arabian Shield attempted to show Hunt Oil's bribery. El-Khalidi says Abdulhak told him during the negotiations that Arabian Shield would have to provide up-front money to bribe government officials. El-Khalidi says he refused to provide any. Hunt Oil, he contends, must have greased the skids, given its success in winning the contract.

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David Pasztor

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