Oklahoma City-based independent producer Aspen Group Resources Corp. is suing its former chairman and CEO for alledgedly misappropriating funds and engaging in a “patter of conduct to conceal his activities” from the company board.

Aspen, a small producer focused on western Canada and the Midcontinent region in the United States, filed its lawsuit against former chief executive Jack Wheeler two weeks ago in the District Court of Canadian County, OK. The company is seeking to recover all assets that were misappropriated.

“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.”

But the corporate review instituted by Calentine led to the disclosure of improprieties that were significant enough to warrant a lawsuit against Wheeler.

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. In conjunction with the lawsuit against Wheeler, the company also has filed a $500,000 claim with its insurer to mitigate losses suffered because of its allegedly dishonest former executive.

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.

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.”

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.

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