Already under legal fire from his former company, Aubrey K. McClendon was blindsided April 14 by an ally and one of his own affiliate companies in his legal fight with Chesapeake Energy Corp. (NYSE: CHK).
Private equity firm and McClendon backer The Energy & Minerals Group (EMG) helped hammer out a confidential settlement between Chesapeake and McClendon’s affiliate, American Energy – Utica LLC (AEU).
The settlement cedes land and up to $25 million to Chesapeake.
McClendon, who Chesapeake accuses in a civil suit of stealing trade secrets related to the Utica Shale, was kept in the dark about the negotiations.
McClendon, Chesapeake’s former CEO and co-founder, is a director of AEU and the single largest non-institutional shareholder, but no longer an officer.
In a news release on his website, McClendon and his company, American Energy Partners LP (AEP), said McClendon “did not approve the settlement and neither he nor AEP were advised of the negotiated terms of this settlement.”
“AEU apparently chose to settle with Chesapeake before any discovery was taken, evidently for the business purpose of mitigating further damage that Chesapeake’s litigation has been having on AEU’s business and financing activities,” the April 14 release said.
“AEU has the right to resolve the case in this fashion, but this resolution should not be mistaken as reflecting an informed view of the merits of Chesapeake’s claims or a concession of any liability by any party to Chesapeake.”
Chesapeake filed suit in February against McClendon and various parties, including AEU, AEP, McClendon Energy Operating LLC and “John Doe Investors 1-20.” The suit says McClendon took sensitive information about the Utica and other discoveries.
In the settlement, Chesapeake dismissed the suit against EMG, AEU and the John Doe investors in exchange for the assignment of about 6,000 acres in northern Harrison County, Ohio, and a combination of cash and contingent cash payments not to exceed $25 million.
“Chesapeake has informed Energy & Minerals Group that litigation remains ongoing against American Energy Partners LP and other parties and will be prosecuted accordingly,” EMG said.
Chesapeake’s suit says that in McClendon's last days as CEO he misappropriated “highly sensitive trade secrets from the company.”
He was also creating new companies and soliciting investors, the suit says.
“McClendon committed this theft by requiring his assistant to print highly sensitive maps and prospect data, which he took with him as he left Chesapeake,” according to the suit, obtained by Hart Energy.
The detailed acreage data consisted of Chesapeake's confidential and proprietary analysis of the wet, dry and oil windows of the play and grading of "tier l" and "core" open acreage in the Utica.
McClendon attorney Matthew A. Taylor said a countersuit is being planned that will show any information in McClendon’s possession is rightfully his and that Chesapeake owes him additional information.
In October 2013, AEU raised $1.7 billion in private equity commitments and term loan proceeds. Proceeds were used to initially buy 105,000 net acres in the Utica in eastern Ohio.
McClendon said he rightfully possesses an extensive array of information about more than 16,000 wells and the related leasehold acreage and future wells he jointly owns with Chesapeake, including land, well, title, accounting, geological, engineering, reservoir, operating, marketing and performance information.
The deal further gave McClendon the right to own and use this information for his own purposes, including sharing it with his employees, contractors, advisors, consultants and affiliated entities, AEP said.
“Under my agreements with Chesapeake, I am entitled to possess and use the 20 terabytes of information I own. It is a sad day to see Chesapeake stoop so low as to sue its co-founder for having information that was earned, paid for and provided through my contracts with Chesapeake," McClendon has said.
McClendon said his agreements with Chesapeake gave him the right to own and use this information for his own purposes, including sharing it with his employees, contractors, advisors, consultants and affiliated entities.
On April 7, McClendon launched a special purpose acquisition company described in its prospectus as a “blank check company” targeting oil and gas or any other industry.
The company, called Avondale Acquisition Corp., is raising $200 million in an IPO for acquisitions in the oil and natural gas industry. McClendon is chairman of the special purpose acquisition company's (SPAC) board and its sole owner. After the IPO, he will retain a 20% stake.
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