Oklahoma City-based Aspen Group Resources Corp., a small independent producer focused on the Midcontinent region of the United States and western Canada, revealed last Friday that it has filed a lawsuit in the District Court of Canadian County, OK, against Jack Wheeler, the company’s former chairman and CEO. Aspen alleges that Wheeler misappropriated funds and assets and “engaged in a pattern of conduct to conceal his actions from the board of directors.”

The lawsuit, which seeks to recover all assets misappropriated from Aspen, is the result of an internal investigation overseen by a special committee appointed by the board. In conjunction with the lawsuit against Wheeler, Aspen also has filed a $500,000 claim with its insurer to mitigate losses suffered by the company because of an allegedly dishonest executive.

Meanwhile, Wheeler filed a countersuit against the company over issues stemming from his resignation last fall. Wheeler served Aspen in various capacities as chairman, president, CEO and director from September 1999 until his resignation in October 2002. Aspen said it intends to vigorously defend itself.

Aspen has delayed the release of its latest financial report, but it reported losses in the first nine months of 2002. In the third quarter of last year, Aspen reported a $6.8 million net loss on $1.5 million in revenue. It has blamed mainly higher than expected production costs and relatively low commodity prices for its negative results.

Over the last couple of years, Aspen made a substantial number of purchases, the largest being Canadian-based Endeavor Resources in March 2002. Endeavor is now its Canadian operating subsidiary. The spending spree led to debt accumulation and that began to impede cash flow, which in turn was not allowing Aspen to invest in production. As production fell, costs were going up. Aspen began to take some write downs on new properties in the third quarter and began a process of rationalizing assets and paying down a large amount of debt.

“It has not been a very a good situation,” said a source who asked not to be identified. “It’s been a busy time for Mr. [Robert] Calentine, the new CEO, as far as redirecting the company. When he came in, they instituted a review of everything in the company, from transactions to current production staff. The company was not performing, and the buck stops at the top chair.

“The company was going in the wrong direction. There was dissatisfaction with [Wheeler’s] ability to continue to run the company. And, I think, with discretion being the better part of valor, he resigned.”

The corporate review instituted by Calentine subsequently led to significant staff reductions, refocusing the business and the disclosure of improprieties that were significant enough to warrant the lawsuit against Wheeler.

Aspen’s plan now is to streamline operations, pay down debt and become a profitable operation again. The company has about 30 Bcfe of proved gas reserves and 932,208 bbl of oil reserves. “There’s plenty of work to do with the holdings they have,” the source said. “They need to get profitable, get production back and then go forward with the growth side of it afterward.”

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