- Energy & Minerals planned independence for investments
- Shale pioneer no longer had leadership role at some units
One of Aubrey McClendon’s biggest financial backers was cutting ties with him in the days before he was indicted by the U.S. Justice Department on conspiracy charges, according to a person familiar with the matter.
The Energy & Minerals Group, a private-equity firm led by John Raymond, was working on a plan to be completely independent of McClendon by the end of the month, and as of Feb. 26 the shale pioneer no longer had a leadership role at any of the companies created by the firm and McClendon’s American Energy Partners LP, according to the person, who spoke on condition of anonymity to discuss private investments. McClendon, 56, died in a car accident Wednesday, a day after the indictment was announced.
McClendon’s passing and word of investors severing ties has raised questions about the future of American Energy Partners, the venture he founded with private investors after he was fired in 2013 as chief executive officer of Chesapeake Energy Corp. The company said in a statement Thursday that it will continue in McClendon’s absence.
“We employ a talented team of individuals that will be available to support, if needed, the existing businesses and it will carry on the new business development tradition established by our founder, friend and mentor,” executives including Chief Financial Officer Scott Mueller said in the statement.
Without its principal owner and chief fundraiser, American Energy Partners’ survival “looks difficult," Marcus Rowland, McClendon’s long-time friend and a former chief financial officer at Chesapeake, said in a phone interview. “AEP and Aubrey are synonymous in my mind and in most people’s mind.”
McClendon had raised $14 billion for American Energy Partners from Energy & Minerals and others and hired more than 450 people, according to the company’s website. The business, for which he served as chairman and CEO, created at least a half-dozen limited liability corporations to crack oil and natural gas from shale rocks, the production method known as “fracking" that had helped Chesapeake’s market value soar to more than $35 billion.
“Aubrey’s extraordinary talent and leadership in forming and ultimately guiding each business and management team to independence with such success and scale is unprecedented," Raymond, the son of retired Exxon Mobil Corp. CEO Lee Raymond, said in a statement. “We will greatly miss his perspective.”
McClendon was indicted by a federal grand jury on March 1, accused of working with another company to depress the price of drilling rights in Oklahoma. Prior to his death, he said he would fight the charges. None of the allegations involved McClendon’s time at American Energy.
McClendon sought to recreate his Chesapeake magic through the firm, a closely held entity based near the seat of his former empire in northeast Oklahoma City. Chesapeake had once held 15 million acres of drilling rights and was the second-largest U.S. gas producer. Yet market values plunged as the industry’s success in producing shale gas resulted in a glut of the fuel.
Undaunted, McClendon’s new venture amassed drilling rights on hundreds of thousands of acres, including positions as far flung as Australia and Argentina.
The collapse in commodity prices darkened the outlook for McClendon’s ability to pay returns to his investors. Bonds sold by some American Energy entities have plunged to about 15 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
One of several units formed as part of the venture, American Energy – Permian Basin LLC, lured junk-bond investors in November with one of the highest yields in the U.S. market last year. The unit sold $530 million of notes at par to yield 13 percent, according to data compiled by Bloomberg. That’s $30 million less than the bond sale it attempted in October as investors demanded yields exceeding 10 percent from the struggling oil and gas producer.
McClendon’s role at American Energy Partners began to change in January 2015, when a lieutenant became CEO of one of the units, American Energy Appalachia Holdings LLC. Before his death, McClendon had agreed not to seek a board seat on any of the ventures he’d formed with Energy & Minerals, including Ascent Resources LLC, Traverse Midstream Partners LLC and four other companies, one of the people familiar said. The timing of those moves was not based on the indictment, that person said.
McClendon had no management role in companies that First Reserve Corp., another private-equity backer, had invested in, according to another person familiar with the matter.
The companies spun off from American Energy Partners will probably survive while the fate of other, less mature ventures will depend on their individual circumstances, said Rowland, who left Chesapeake in 2010 and went on to found IOG Capital, a Dallas-based energy investment firm.
“He was a great hirer of high quality people," Rowland said. “I’m sure all of those people are wondering now what comes next."