David gambled with Goliath in a landmark North Slope oil lease fight. Goliath won.

In 1967, a Fairbanks man gambled on the oil and gas rights to nearly 5,000 acres on the North Slope. The cost? About $1 an acre.

A year later, after the discovery of the largest oil field in North America a few miles from these leases, pharmacist Tom Miklautsch and consultant/oil broker Cliff Burglin had sold a half-interest for a $2 million down payment — with more to come — to the General American Oil Co. They said they had turned down offers of $250,000, $500,000 and $1 million.

In today's dollars, the $2 million would be about $13 million.

Before long, the Fairbanks pharmacist found himself  profiled as "millionaire Tom Miklautsch" on "CBS Evening News" and a Life magazine reporter called him the recipient of "the biggest windfall oilmen can remember."

Reporters from afar wrote at length of the get-rich-quick miracle story. Miklautsch had been $1,200 in debt when he showed up in Fairbanks in 1952. It was Burglin who put together the oil lease bid, in exchange for 20 percent.

"We bid on areas of the fringes," Miklautsch once said.

A syndicated columnist who said Miklautsch "gambled small and won big" concluded his column with an offhand but prophetic comment about gold rush fortunes that the hero loses in the end.

Prospering or failing?

More than two decades would pass before the real value of the leases became clear, but only after lawsuits about ownership and the interpretation of contract language in settlements drafted by experts.

I thought of this episode when reading the recent story on how speculators in Alaska's oil fields — many of whom followed Burglin's lead — either prosper or fail, depending upon research, tolerance for risk, government rules and luck.

Miklautsch and Burglin held on to a share of those early leases until 1989, when the limited partners sold the final piece to Exxon. The leases turned out to be on what became known as the Point McIntyre oil field, which wasn't discovered until 1988.

Burglin, Miklautsch and investor Chuck Hamel received a total of $6.7 million for the final piece. But they later claimed that Exxon knew the property was worth much more and owed them $100 million. Exxon denied any wrongdoing and said it had followed contract terms. The courts agreed.

Early tests on a 1988 well on the field showed it could produce 1,500 barrels of oil per day. By March 1989, however, new information had pushed the estimate to 3,700 barrels per day. Exxon called the well "encouraging," but it did not disclose the details to Burglin.

An additional well drilled that summer was even better. "The success of this well significantly increased the expected value of the field," the Fifth U.S. Circuit Court of Appeals said on Oct. 21, 1993.

Burglin and the others accepted Exxon's offer without first getting an independent valuation of their interests or waiting until the completion of the well finished in July 1989, which they could have done, the court said.

"Burglin requested that Exxon close the deal before April 15, 1989, in order to accommodate his tax needs. Miklautsch and Hamel also had needs for ready cash at the time," the court said.

‘Completely drained’

Not long after the men sold, the scope of the oil find was announced on the field, about 2 miles north of the Prudhoe Bay discovery well.

The court ruled that the agreement signed by the parties allowed Exxon to decide what was confidential.

Burglin, who died four years ago, said in a 2003 interview that he got an additional $300,000 from Exxon in a 1997 settlement just before the trial, a fight that left him "mentally, physically and financially drained, completely drained."

Settling turned out to be the right thing to do. Hamel and CFM Corp., the company that acquired Miklautsch's interest, stayed in the case, but a jury deliberated less than three hours before deciding against them. Hamel declared bankruptcy in 1998 after Exxon went to court seeking $800,000 in attorneys' fees.

As for Miklautsch, who died in 2010, newspaper stories about him in this century were all about his legal troubles with the IRS and his involvement in insider loans with Alaska Statebank, which failed the same year that he sold to Exxon, a period when the Alaska economy was hard hit by a collapse in oil prices.

In the 1990s, he left the country shortly before he was indicted on bank fraud charges. He spent nearly 10 years as a fugitive, working as a Christian missionary. The FBI said he had access to nearly $3 million at the time he fled.

He was arrested in 2003 as he got off a flight from Switzerland at Los Angeles International Airport and was convicted of one count of bank fraud at 78, serving five months in jail.

In trying to protect his wealth as a younger man, he made questionable investments, attorney Eric Sanders said.

"He was easy pickings," Sanders told the court in 2003.

His attorney told the judge he had set up a trust fund for his family with the millions he got from Exxon years earlier and "doesn't have the money to buy a bag of peanuts in the Cook Inlet jail." So his daughter paid his legal bills. Two years later, $453,808 in restitution was paid to the Federal Deposit Insurance Corp. as part of his sentence.

The oil field that played a part in all of this became a "bonanza with an estimated value of $4,783,800,000," a 2002 Supreme Court decision about oil field costs on the North Slope said. The field peaked in 1996 and began a steep decline thereafter.

Columnist Dermot Cole can be reached at dermot@alaskadispatch.com. 

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