A good reporter – or for that matter, any person with a sense of fairness – knows there are at least two sides to every story.
I’m going to do something unusual for this column and devote it entirely to telling you the “other side of the story.”
It’s important because long- awaited testimony at the Alberta Securities Commission (ASC) hearing into the collapse of Blue Range Resource Corp. raises some serious concerns not only about the way the ASC staff conducts its investigations, but how the media report on them.
Blue Range made headlines almost five years ago when the Calgary-based natural gas producer was acquired in December 1998 in a hostile takeover by tiny Big Bear Exploration Ltd.
A month after the $299- million deal closed in February 1999, Big Bear took a $152-million write-down, slashed Blue Range’s oil and gas production and reserves estimates by 20 per cent, and sought protection from creditors for its new acquisition.
Big Bear later sold Blue Range’s assets out of creditor protection to Canadian Natural Resources Limited for $235 million.
ASC staff conducted an investigation and produced a laundry list of allegations against Gordon Ironside and Robert Ruff, former chief executive officer and chief financial officer, respectively, of Blue Range.
ASC staff alleged that Blue Range’s top brass had improperly categorized well leases (thereby understating the company’s debt), overstated gas-production figures, failed to adequately disclose gas- production declines and obligations in gas contracts, and failed to disclose that the company was experiencing a cash-flow problem prior to its takeover.
It cannot be over- emphasized that all of these allegations were exactly that – allegations only, yet to be proven in a hearing before the ASC.
The national media played the story big. Fuelled by comments made publicly by ASC staff, the story was branded as the “Blue Range fiasco” and compared with the Enron energy- trading scandal in the U.S.
Last week, an ASC tribunal held its 75th day of hearings on this sad and sorry matter. For the first time since the hearing began, Gordon Ironside, Blue Range’s former CEO, and his lawyer, Stanley Carscallen, had the opportunity to dispute every one of the ASC staff’s allegations.
They insisted that Blue Range’s well leases were properly and correctly categorized, based on the best business practices and accounting rules of the day, using the same methods as those used by several other companies – methods scrutinized and approved by independent auditors.
Yet ASC staff, in concluding that the leases had been improperly categorized, never shared their methods of accounting with Ironside or Ruff nor once asked them about allegedly missing information in Blue Range’s financial statements, Carscallen said.
And what about the ASC staff allegation that Blue Range’s execs had overstated the company’s gas reserves?
Carscallen said Blue Range had consistently used the same reserves-reporting method since the company’s inception, including when it was first listed in August, 1987, on the Alberta Stock Exchange.
This reporting method was fully disclosed to securities regulators, auditors, bank managers, loan underwriters and anybody else that needed to know. Nobody ever raised any red flags about it, he said.
“There was never any double-counting,” Ironside testified.
What about the ASC staff allegation that Blue Range’s executives had failed to disclose that gas production had declined, and details of the company’s obligations under gas contracts?
Carscallen said that Ironside did, in fact, publicly disclose the company’s revised, downward gas-production forecast to analysts and shareholders at an annual general meeting – the “normal and usual” practice of disclosure at the time.
As for details of Blue Range’s gas contracts, the company’s disclosure practices met all ASC rules and requirements of the day, Carscallen said.
What about the ASC staff allegation that Blue Range failed to tell anyone about a cash-flow crunch prior to the Big Bear takeover?
Blue Range was facing no such “liquidity crisis” prior to the takeover, Carscallen said. The company was a “thriving business enterprise,” with 80 employees, a market capitalization worth $200 million and an annual oil and gas exploration budget of $100 million.
The “real liquidity problem,” Carscallen argued, “was a function of the actions and decisions of Big Bear’s management” in writing down the company’s production and reserves – its financial value, in other words – shortly after the takeover. No bank wanted to loan Blue Range money after that, he said.
Carscallen, in a 90-minute opening statement, said both Ironside and Ruff are “sick at heart” after almost five years of what the lawyer called “scandalous allegations,” negative media coverage and the ASC staff’s description of the Blue Range story as an Enron-style accounting scandal.
The ASC hearing process isn’t meant to be punitive, Carscallen noted, but in this case it “may have been punitive beyond all description for these respondents.”
Carscallen plans to call a long list of witnesses, including independent gas-market experts, company CEOs, bank managers, business evaluators and energy analysts, to corroborate “what really happened at Blue Range.”
The hearing will continue well into 2004.
I don’t know what really happened at Blue Range. The final chapter of this story has yet to be written.
I have known Gordon Ironside for about four years. I’ve had dinner at his house on a couple of occasions and enjoyed his company and that of his family and friends. I don’t know Robert Ruff.
I wasn’t a shareholder in Blue Range and all I knew of the company was what I read in the media coverage.
But I do know this.
Whether it’s Ironside, Ruff or anybody else, every person in this country has the right to be considered innocent until proven guilty. It is a fundamental principle of democracy and fairness.
It is a principle that, in this case, both the ASC staff and the national press seem to have overlooked in their zeal to be not only investigator, but also prosecutor, judge and jury.
