History
Arete turned from a shell-like holding company into a small oil and gas buyer, paid for a huge 2009 deal with asset-sale proceeds and costly preferred stock, and went quiet in 2019.
2002-2006: From holding company to oil and gas
In August 2002 shareholders approved a 1-for-20 share consolidation, cutting shares on issue from 498 million to 24.9 million while keeping the 500 million authorised limit, so most of the room to issue new shares was kept. The same meeting settled claims with chief executive Thomas Raabe and a former officer.
By late 2004 Arete was repositioning towards energy. In December it tied up a 45-day exclusive right to buy three drilling and re-work prospects in Texas and Oklahoma, but had found no one to fund them. In March 2005 it walked away after its financing consultants judged them too risky. In May 2005 its majority-owned subsidiary Colorado Oil and Gas agreed to buy 13 producing wells across five Colorado fields from Tucker Family Investments, DNR Oil & Gas and Tindall Operating. Those three sellers became its main counterparty for the next decade.
In June 2006 Arete announced a spin-off of its Avatar Technology Group shares to shareholders of record in July. In August the NASD said a late quarterly report made it ineligible for the OTC Bulletin Board; it paid a $4,000 fee and appealed, and was granted a hearing. Late filing would dog it for the rest of its life. In September it paid $330,000 for the TOP gathering system, 4.5 miles of Wyoming pipeline, funded by $400,000 from two of its directors and one outsider.
2009-2011: The 243-well deal
In April 2009 Arete signed to buy 243 wells (46 producing, 197 undeveloped) from the DNR and Tindall group, far larger than anything it had tried. It did not close for two years. When it did, in May 2011, the price was $10 million, but Arete paid only $500,000 in cash. The sellers financed $9.5 million on a note due five weeks later. DNR is owned by Arete director Charles Davis. A 100-to-1 reverse split had been approved in April 2011.
Arete could not pay the note. On July 29, 2011 it signed a restated deal at $11 million, with $900,000 paid up front and three further installments of $3.7 million, $3.2 million and $3.2 million due between August and October. The properties would transfer only on full payment, and up to $25 million of extra payments could be owed. The first installment was pushed back to August 31, and the company changed auditors.
The package was paid for partly by breaking it up. In late August DNR sold certain interests to a third party and applied Arete's roughly $5.0 million share of the proceeds to the sellers' installments, covering the first installment and part of the second. Arete expected a gain of about $2.66 million. On September 30 it made the final payment, funded by a $5.2 million private placement of 15% convertible preferred stock, which ranks ahead of ordinary shareholders.
2012-2015: Insider loans and dilution
Cash stayed tight. In October 2012 Arete borrowed $455,000 at 12% from Apex Financial, owned by shareholder and consultant Nicholas Scheidt, pledging three-quarters of its oil and gas income and future sale proceeds. In May 2013, with Scheidt now chief executive, it took a further $1 million at 7.5% on the same security. An SEC investigation opened in July 2013 and was ended in August 2015 with no enforcement action recommended.
In July 2013 Arete cut the conversion price on the 15% preferred from $3.35 to $0.75. Holders, including directors Davis and Scheidt, swapped 497.5 preferred shares for 5.2 million ordinary shares and gave up their dividends. Shares on issue rose from about 8.0 million at the end of 2012 to 13.6 million a year later. In February 2014 it secured its first bank money, a $1.5 million CityWide Bank line backed by seven wells and Scheidt's personal guarantee, and formalised director advances as notes.
2015-2019: A new purchase and a quiet end
In December 2015 Arete agreed to buy producing leases in Sumner County, Kansas and Kimball County, Nebraska from Wellstar for $1.1 million cash plus a million shares, its first acquisition since 2011 and from a seller unconnected to its directors. It closed on December 30, and the same day broke escrow on a new 7% Series A2 preferred issue, raising $1.7 million. Effective December 31 Arete settled with the Tucker, DNR and Tindall group for $303,329 in cash plus preferred shares.
In December 2017 auditor Hein quit after one year, having warned of substantial doubt about Arete's ability to keep operating and of weak controls; Haynie & Company took over. On April 10, 2019 Arete, short of working capital, sold five small Kansas and Wyoming working interests for $300,000 to a truck-wash company half owned by its chief executive, with the other directors negotiating the price. Its bank line was cut to $523,000 and extended to 2020. That was the last report it filed.
Written from the 21 story beats below (2002 to 10 Apr 2019), which come from the company's own announcements and filings.