Apache Fights Shareholders’ Cert. Bid In Stock Drop Suit

Jun 2023 // Law360

Law360 (June 20, 2023, 9:53 PM EDT) — Oil and gas company Apache Corp. has argued against certifying a class of investors who sued the company in Texas federal court saying it made misleading statements about an exploration project that jacked up the price of its stocks and triggered major losses when the project fell through.

Instead, Apache said in a response filed Friday, the company “encountered substantial and unforeseen economic headwinds, including record-low natural gas prices, that caused Apache to stop production efforts” after years of “detailed geological and geophysical work.”

The company had simply expressed “its optimism for a project, only to, in hindsight, reach disappointing results,” Apache said.

In February 2021, a Massachusetts-based pension group filed suit, accusing the energy giant of lying about the prospects of an oil and gas extraction project located in the Permian Basin of West Texas and New Mexico.

In the suit, the investors said Apache executives began making enthusiastic statements in 2016 about the availability of oil and gas in the proposed drilling area, and continued making those statements into 2018 despite observations in industry publications that the company’s investments were having diminishing returns.

Apache’s statements, said the investors, were made based on “unrealistic assumptions” about the amount and composition of oil and gas at Alpine High, the project central to the suit.

When problems began to surface, Steven Keenan, Apache’s senior vice president of worldwide exploration, quickly resigned and the company’s stock price fell from $39.07 a share on April 22, 2019, to $7.76 on March 12, 2020, according to the complaint.

On April 10, the pension fund Plymouth County Retirement System, which was joined by trustees of the Teamsters Union No. 142 Pension Fund, asked a judge to certify its class of shareholders.

But Apache hit back at the investors in its response Friday, saying the class cannot be certified after Feb. 22, 2018, which is the day the plaintiffs say Apache CEO John Christmann told analysts that the project would really “hum” even with lower gas prices at the time.

Also on that day, according to the investors’ complaint, Apache issued a press release with its 2017 fourth-quarter results, noting that Permian oil volumes had grown 10% from the previous quarter and total Permian production had achieved a new record.

But even if the statements were misrepresentations, as the plaintiffs alleged, they did not have any price impacts, Apache argued Friday.

Citing analysis from its expert witness, Lucy Allen, Apache said that there was no statistically significant price movement on 12 of the 13 trading days after the Feb. 22, 2018, statements that could not be explained away by unrelated circumstances.

And there were no “back-end” price impacts either, according to Apache, which noted that the precipitous drop in its stock prices was caused instead by falling commodity prices that affected the entire industry.

Moreover, the company said that, in order for the plaintiffs to show that several disclosures made by Apache after Feb. 22, 2018, caused the stock prices to dip, they would need to demonstrate that the disclosures were “corrective of the alleged misrepresentation.”

The so-called “corrective” disclosures the plaintiffs pointed to — Apache’s initiation of natural gas production volume deferrals from Alpine High, the resignation of Keenan and a post on a website that repeated public information — did not address alleged misleading statements the company made about the commercial prospects of Alpine High, Apache said.

That “mismatch” is fatal to the investors’ class certification attempt, according to the company.

Representatives for the parties did not immediately respond to requests for comment Tuesday.

Plymouth and Teamsters 142 are represented by Austin W. Manning, Naumon A. Amjed, Daniel Rotko, Gregory M. Castaldo, Johnston de Forest Whitman Jr., Joshua Edward D’Ancona, Michelle M. Newcomer and Richard A. Russo Jr. of Kessler Topaz Meltzer & Check LLP, David R Kaplan and Sara DiLeo of Saxena White PA, and John S. Edwards Jr. and Thomas R. Ajamie of Ajamie LLP.

Apache is represented by David D. Sterling, Amy Pharr Hefley, Anthony Joseph Lucisano and Charles Frank Mace of Baker Botts LLP.

The case is In re: Apache Corp. Securities Litigation, case number 4:21-cv-00575, in the U.S. District Court for the Southern District of Texas.

By Renee Hickman

–Additional reporting by Lauren Castle. Editing by Melissa Treolo.