Wichita officials have been negotiating to extract oil from beneath Century II with a man who has had unpaid state taxes, loan defaults and debt recovery judgments in the past 10 years.
A second key figure in the negotiations ran a company that has a tax dispute with the state.
City officials had no idea about those issues until The Eagle found the financial cases in Sedgwick County District Court last week — weeks after city planning officials began discussing a mineral rights lease with the men.
Representatives of the drilling company say David Leben, who has a history of money problems, has limited association with the project and no financial interest in it. But a city official says Leben presented himself as the leader of the deal.
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Now, the drilling project once seen as a funding source for major city projects appears on shaky ground, with several city officials saying they won’t partner with any driller who has financial issues.
Council members say they are unhappy that city staff has not yet vetted the backgrounds of the oilmen who have sought the project, Leben and Alan DeGood.
Leben acknowledges a history of financial problems: a foreclosure for $468,000; two loan defaults totaling $195,000 in 2004 and 2005; debt recovery judgments; and two state income tax warrants totaling about $12,000 filed in 2007 and 2008 in Sedgwick County District Court. He said he is making payments on the taxes.
DeGood is a veteran Wichita oilman whose name is on the paperwork filed with the city for the project. American Energies Corporation, where he served as president, faces a state income tax warrant filed in February for $95,557.51 over a dispute about whether natural gas wells produced enough to warrant severance taxes.
He said tax warrants are common for natural gas drillers during such disputes. He has no personal financial cases in Sedgwick County District Court.
DeGood said he is a petroleum geologist for Trek-AEC, the only company bidding to drill for oil under Century II. Trek is a Texas company formed in July 2012 out of a merger with Wichita-based American Energies Corporation.
He said he knew about Leben’s financial problems, which Leben attributes to fallout from what he called a “nasty divorce.”
But DeGood said Leben doesn’t work for and has no financial interest in Trek-AEC. Project consultant Greg Ferris also called Leben a limited outside consultant and said his financial history had nothing to do with the project.
Leben agreed he has no current financial interest in Trek-AEC. He said he is representing it as a contract petroleum landman to acquire mineral rights leases. DeGood and Leben confirmed that Leben sold “the prospect,” an industry term for a possible oil find, to Trek-AEC and will have a financial interest in the Century II project if the company strikes enough oil.
City planning director John Schlegel, who has headed the lease negotiations along with City Manager Robert Layton’s office, said Leben “presented himself as a principal in the project” during meetings about the oil drilling.
Schlegel and the two oilmen disagree broadly over accounts of the first meetings between the city and Trek-AEC.
Schlegel said Monday that his office had been dealing with Leben, representing Trek-AEC. But DeGood and Leben said Schlegel was confused about who was who.
Leben said, “Schlegel thought Alan was me and I was Alan. His jaw dropped Tuesday when he found out what was what.”
Schlegel said that Leben presented himself to city officials as the leader of the deal. Leben and DeGood appeared together in meetings with his office, with “Leben doing all of the talking … with some authority,” Schlegel said.
“Nobody discussed titles. I just assumed he was a principal,” Schlegel said.
DeGood, however, signed Trek-AEC’s response to the city’s request for drilling proposals, Schlegel said.
Council member Janet Miller, in whose District 6 the well would be drilled, downplayed the confusion, calling it the “unique” result of an unprecedented city search for an oil driller.
‘Whispers and rumblings’
The financial issues are troubling to City Council members who say they don’t have enough information to approve proceeding with the drilling project, and no background information about the men pursuing it.
“Certainly, I’d share some concerns … knowing we haven’t been briefed enough to know where we’re at and fully understand what needs to take place if we decide to go forward,” said council member Jeff Longwell, a longtime proponent of drilling for oil downtown.
“This certainly would bring a lot of concern to any of the council members.”
Schlegel called the council concerns legitimate. He said the planning office just recently, using vetting worksheets developed for the city’s economic development office, sent out the first round of vetting paperwork to Trek-AEC.
“I think that’s a legitimate criticism, and it’s a good one in hindsight,” Schlegel said.
“Because this was a unique thing, a lease agreement for mineral rights, I guess we can be criticized for not having thought to do the vetting sooner.
“Well, I guess you’ve just done my vetting,” he told The Eagle.
Layton said last week that he’d “begun to hear whispers and rumblings” about Leben’s financial problems, but praised DeGood’s long history in the Wichita oil industry.
The Century II drilling idea is the brainchild of David Leben’s late father, Ted.
In 1969, Ted Leben drilled a demonstration well on the Century II site. When the veteran Wichita oilman died in 2010 at 91, he left behind geological work that suggested millions of barrels of oil are still under the downtown convention facility, David Leben said.
“A lot of oil,” Leben said.
Layton, Longwell and Miller said this week that the city doesn’t want to lease city land to any driller with a history of financial troubles.
“We will not recommend pursuing this project unless we feel we have credible partners,” Layton said.
“If this proves to be true, this information would certainly raise concerns about whether these are individuals the city should choose to do business with,” Miller said.
“I would not ever vote to go into a contract with someone who has financial issues like you have described,” Longwell said. “We’re not looking to team with anybody like that.”
Leben said it would “be a shame” if the project died on the back of his past financial difficulties.
“This could be an icon for Wichita,” he said.
“I’m just a guy trying to rebuild his life.”