Drilling Down

American Energy, Not McClendon, Settles with Chesapeake

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OKLAHOMA CITY – American Energy-Utica LLC and its majority investor, The Energy & Minerals Group, announced Tuesday it has reached a settlement with Chesapeake Energy Corp., removing the company as a defendant in the suit Chesapeake filed against its former CEO, Aubrey McClendon.

Chesapeake filed the complaint in February against McClendon, his new company American Energy Partners LP and its affiliates, which include American Energy-Utica. The lawsuit alleges that McClendon “misappropriated” trade secrets from Chesapeake as his tenure as CEO there was coming to an end.

The settlement removes American Energy-Utica, The Energy & Minerals Group, and unnamed parties from the lawsuit, said a statement American Energy-Utica released. The complaint against McClendon and American Energy Partners remains.

McClendon is no longer an officer of American Energy-Utica, which is controlled by The Energy & Minerals Group, the company said. He was not party to settlement discussions and he voiced his displeasure in a separate statement. “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,” he said.

According to published reports, McClendon and the AEU’s majority investor, Energy & Mineral Group founder John Raymond, disagreed on the direction of the company.

In the settlement, Chesapeake agreed to dismiss its claims against American Energy-Utica in return for 6,000 acres of oil and gas leases in northern Harrison County and at least $25 million in cash, American Energy-Utica said. Details of the entire settlement agreement are confidential.

“Although Mr. McClendon is a director and the single-largest noninstitutional shareholder in AEU, he did not approve the settlement and neither he nor AELP were advised of the negotiated terms of this settlement,” American Energy Partners said.

“Mr. McClendon’s well-documented agreements with Chesapeake gave him the right to own and use this information for his own purposes, including sharing it with his employees, contractors, advisers, consultants and affiliated entities,” American Energy said.

Under an agreement McClendon negotiated with Chesapeake’s board of directors, American Energy said, he was entitled to invest in Chesapeake wells. He kept those interests after he was forced to leave the company in 2013. McClendon has called the lawsuit “baseless.”

McClendon was ousted from Chesapeake in a shareholder revolt following revelations that he had used his interests in these wells to help leverage personal loans amounting to $1.5 billion, which he acquired from a major lender to Chesapeake.

Chesapeake accuses McClendon of using information related to unused acreage to which he was not entitled, saying he had no rights to those data. Moreover, Chesapeake says, McClendon used this information to seek support from potential investors in American Energy.

In the fall of 2013, American Energy announced its subsidiary, American Energy-Utica LLC, had raised $1.7 billion in equity that would be used to secure 110,000 acres, mostly in the southern portion of the Utica in eastern Ohio.

Published by The Business Journal, Youngstown, Ohio.