Embattled oil and gas company Chesapeake Energy announced Friday that it has agreed to sell midstream pipeline assets to private equity firm Global Infrastructure Partners for more than $4 billion in cash.
The deal comes as Oklahoma City–based Chesapeake—the nation’s second-largest producer of natural gas behind market leader Exxon Mobil—struggles to cope with more than $13 billion in debt and an inquiry into nearly $1 billion in alleged personal loans to CEO Aubrey McClendon, a frequent face on TV screens these days thanks to his courtside perch at 18,200-seat Chesapeake Energy Arena during Oklahoma City Thunder home games. McClendon owns 19.2 percent of the NBA Finals–bound franchise.
All this has meant lots of works for Chesapeake’s outside lawyers. McClendon, coined by Forbes as “ America’s Most Reckless Billionaire‚” in a cover story last year, has retained former SEC director of enforcement and current Duane Morris securities and white-collar partner Marvin Pickholz to represent him in an inquiry into the alleged personal loans. McClendon, as popular a figure as any in Oklahoma City, has sought to win over skeptical shareholders and other investors.
Reuters— which first reported on Pickholz’s hire, as well as McClendon’s alleged borrowing up to $1.1 billion against his stake in thousands of Chesapeake wells— also noted earlier this week that former SEC lawyer and Bracewell & Giuliani white-collar defense and regulatory enforcement partner Patrick Craine had been hired by Chesapeake in connection with the SEC’s McClendon probe.
As it happens, Bracewell is also advising Chesapeake on the proposed sale of its pipeline assets to GIP, a New York–based private equity firm formed in 2006 as a joint venture between Credit Suisse and General Electric.
Bracewell corporate and utilities partner Michael Telle, business and regulatory practice chair G. Alan Rafte and cohead Gregory Bopp, tax head Elizabeth McGinley, employee benefits partner Bruce Jocz, antitrust partner Daniel Hemli, and antitrust counsel Jacqueline Java are leading a team from the firm representing Chesapeake on the transaction. The firm has a long history of advising Chesapeake, having handled a trio of deals in April for the company that yielded $2.6 billion in cash, as well as working on Chesapeake’s Utica Shale joint venture with EIG Global Energy Partners.
In addition to Bracewell, C. Ray Lees and Michael Meleen from the Commercial Law Group in Oklahoma City are also advising Chesapeake on its current deal with GIP. The Am Law Daily named Lees a Dealmaker of the Week last year for his work advising Chesapeake on its $4.75 billion sale of interests in the Fayetteville Shale to Anglo-Australian mining giant BHP Billiton.
Wachtell, Lipton, Rosen & Katz and Wilmer Cutler Pickering Hale and Dorr also advised Chesapeake on that transaction, according to our previous reports, and Lees represented the company earlier this year on its $2.3 billion sale of Utica Shale assets to France’s Total. ( Shannon Self, a childhood friend of McClendon’s and former Chesapeake board member, is a cofounder of the Commercial Law Group and predecessor firm Self, Giddens & Lees.)
Bloomberg reported Friday that Wachtell, which has handled several large M&A deals for Chesapeake over the years, remains standing counsel to the company’s board of directors on corporate governance matters. Locke Lord litigation partner Craig Weinstock in Houston is serving as counsel to an audit committee of Chesapeake’s board that is conducting an independent review of the alleged loans to McClendon, according to Bloomberg. Spokeswomen for Wachtell and Locke Lord did not immediately respond to requests for comment.
Chesapeake announced last month that it would replace McClendon as chairman of the company and end an arrangement that allowed him to purchase a 2.5 percent stake in every well drilled by Chesapeake. The company acknowledged in SEC filings that the regulator had begun an “informal inquiry” into whether the program could create conflicts of interest.
Chesapeake shareholders, who have seen their stock lose 20 percent of its value since the beginning of the year, gathered in Oklahoma City on Friday to vote on shaking up the company’s board. Recent securities filings by Carl Icahn’s Icahn Enterprises, who bought a 7.6 percent stake in Chesapeake last month, and Southeastern Asset Management, which owns 13.6 percent of the company, show that both intend to nominate new independent directors that will answer to shareholders and not McClendon, whose lavish personal expenditures were covered in a detailed Reuters special report on Thursday.
Henry Hood has served as Chesapeake’s general counsel since 2006. Frank Keating, a former governor of Oklahoma who also served as associate attorney general at the Justice Department during the administrations of both Ronald Reagan and George H.W. Bush, serves on Chesapeake’s board. Two other board members, Richard Davidson and V. Burns Hargis, a former partner at leading Oklahoma firm McAfee & Taft, offered to resign on Friday.
The company’s GIP transaction is structured so that Chesapeake will sell its entire 45 percent stake in Chesapeake Midstream Partners (CMP) for roughly $2 billion, while also divesting itself of assets in subsidiary Chesapeake Midstream Development (CMD) for another $2 billion. Chesapeake said in a statement announcing the deal that the pipeline sales would help the company raise cash and reduce expenses by $3 billion over the next three years.
Jones Day corporate partner Jeffrey Schlegel in Houston is leading a team from his firm advising CMP and CMD on their sale to GIP. A Chesapeake spokesman did not respond to a request for comment on the company’s myriad outside legal advisers. ( Orrick, Herrington & Sutcliffe has handled securities litigation for Chesapeake, according to sibling publication The Am Law Litigation Daily.)
Latham & Watkins M&A partners Edward “Ted” Sonnenschein and Eli Hunt in New York are leading a cross-country team from the firm advising GIP on the deal that includes energy transactional partners Charles Carpenter and Ryan Maierson, equity finance partner Andrea Schwartzman, bank finance partner Craig Kornreich, global tax chair David Raab and tax partner C. Timothy Fenn, and employee benefits partner David Taub.
Joseph Blum, a former Latham partner who became general counsel of GIP five years ago this month, is leading an in-house team working on the transaction that also includes associate general counsel David Mascari.
GIP’s acquisition of the Chesapeake assets is expected to close by June 29, 2012, only three days after a potential Game 7 of the NBA Finals is scheduled to be played. That game would feature McClendon’s Thunder against either the Boston Celtics or the Miami Heat.
According to Reuters, McClendon used his stake in the Thunder and revenue generated by the team as collateral to secure personal loans from Bank of America and Wells Fargo in 2009 and 2010. Reuters also reports that Chesapeake—which bought the naming rights to the Thunder’s home arena last year in a 12-year deal worth roughly $36 million— artificially inflated the market for the team’s playoff tickets by buying $3.2 million worth of tickets during the regular season.