Marvin Davis was riding high. As the summer of 1981 approached, the 6-foot, 6-inch, 300-pound former New Yorker was the nation's leading independent oilman. Backed by $ 600 million in investments, his company was drilling more than 400 wells and boasted an all-star roster of investors including former President Gerald Ford and Star Wars creator George Lucas. Eating roast lamb in the wine cellar of a Hartford restaurant, Davis looked triumphant. Sitting across from him was John H. Filer, then chairman of giant Aetna Life & Casualty Co.
Filer could smell a killer investment. By the following year, he had authorized Aetna investments in Davis Oil Co. totaling $ 168 million. But now, Aetna and Davis are battling in a Denver court as arguments in a five-year-old lawsuit are finally being heard. Simply put, Aetna claims that Davis took it for a ride--and it wants the court to award it $ 100 million, plus punitive damages.
Alleging wildly optimistic projections and hidden cost overruns, the insurer is hitting Davis and his company with one of the largest fraud cases ever brought against a wildcatter. The course of Aetna's investments was influenced by several factors, not the least of which was the break in the world's oil and natural gas markets. But Aetna also alleges that it was tricked into increasing its investments with Davis.
SEDUCED? The charges, which Davis denies vehemently, offer a rare glimpse into the oil drilling business that made him one of America's wealthiest men. They also say a lot about how the lure of oil riches could seduce even a supposedly savvy investor such as Aetna, which in 1981 controlled more than $39.8 billion in assets. Indeed, the Hartford-based insurer admits that it made many of its Davis investments even after its own hand-picked team of geologists had advised against them.
Before taking the plunge with Davis in wildcatting, Aetna had invested with him in Denver and San Diego real estate. But, according to Davis' lawyers, Aetna Chairman Filer, armed with little more than some highly complimentary press clippings on Davis, first authorized a $15 million drilling investment in early 1981. Word of success came quickly. Davis, the insurer says, came to Hartford looking for $100 million more to expand his search for oil. The business was "hot," Davis told Filer, according to Aetna's complaint. During an Aetna board meeting called to consider the Davis investment, Aetna says the Denver oil man phoned to report news of a "1 million-barrel discovery" at a Wyoming site "with a total potential for the prospect of 10 million barrels."
Filer retired in 1984, and an Aetna spokesman said neither the insurer nor Filer is willing to comment now. But the spontaneity of Filer's investments surprised even Aetna staffers, according to court papers filed by Davis. So perplexed was one Aetna executive after Filer pledged $50 million at the Hartford restaurant meeting that he half-joked: "Maybe they should send down the napkin that they figured this out on."
As Aetna invested more, it says, Davis' people refused to provide detailed reports. And Aetna says it worried that Davis had misrepresented the success rate at its wells. At Aetna's direction, Houston-based consultants Ryder Scott Inc. studied six wells in which Aetna had a share. It figured the wells had reserves worth $155 million--about one-fourth estimates Davis had given Aetna.
Aetna kept digging and claims it uncovered more problems. The company says a 1984 audit by Arthur Andersen & Co. for Aetna and another Davis investor found discounts from vendors that didn't appear on invoices. Instead, Aetna charges, the discounts were rebated to Davis alone when his partners should have shared them. Once, the auditors found, Davis charged Aetna $230,000 for a $157,000 item and assessed the remaining $73,000 as a "profit to Marvin."
DAY OF RECKONING. Neither Davis nor his lawyers or spokesmen would comment for this story. But papers filed by his lawyers dismiss Aetna's charges. Davis, they say, was fully forthcoming. Moreover, the papers note, Aetna had its own geologists, and having invested $100 million in drilling even before joining Davis, the insurer knew the risks of wildcatting. Davis maintains that Aetna, forced by low oil prices to cancel the 1982 sale of its oil interests, didn't lose money because of him.
In 1985, the two sides failed to settle out of court. In the scuttled deal, Davis would have bought back the oil wells for $35 million in cash and a $15 million note. That fell apart when Davis, who has sold most of his other oil properties, begged off, says a court filing. Now a jury in Denver, where he made his fortune, will decide just how high Marvin Davis should still be riding.