The breakup between Aubrey K. McClendon and Chesapeake Energy Corp. (NYSE: CHK) always seemed a tad bitter under the surface.

On Feb. 17, nearly two years after McClendon resigned as company CEO, Chesapeake rolled out the resentment in a lawsuit filed in Oklahoma state district court. It accuses McClendon of “secretly stealing” the company’s Utica Shale playbook and using it to acquire properties with his new company, American Energy Partners LP (AEP).

McClendon and AEP said in a Feb. 17 press release they would vigorously respond to the “baseless legal action commenced by Chesapeake.”

"It is beyond belief that the company that I co-founded 25 years ago and where I worked tirelessly to build it into one of America's largest and most successful oil and gas producers has now decided to add insult to injury almost two years to the day after my resignation by wrongly accusing me of misappropriating information,” McClendon said.

In McClendon's last days as Chesapeake’s CEO, the suit says 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.

Chesapeake contends in the suit that the pilfered trade secrets allowed AEP to cut off the company’s business plans and negotiations and allowed McClendon to acquire acreage there instead.

In October 2013, American Energy – Utica LLC (AEU), an affiliate of AEP, said it raised $1.7 billion in private equity commitments and term loan proceeds. Proceeds would initially buy 105,000 net acres in the Utica in eastern Ohio.

McClendon Counterclaims

McClendon said that when he agreed to leave Chesapeake in January 2013, the company made a deal with him to pay his compensation benefits and provide him with an extensive array of information about the more than 16,000 wells, and the related leasehold acreage and future wells, he jointly owns with Chesapeake.

“That information includes land, well, title, accounting, geological, engineering, reservoir, operating, marketing and performance data,” McClendon said in a statement.

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.

McClendon said the suit is meritless given that he was:

  • Entitled to own and use the information in his possession by contractual right;
  • Given broad and deep information rights consistent with past practices;
  • Provided nearly 20 terabytes of information by Chesapeake under the terms of his separation agreement; and
  • Has paid Chesapeake nearly $2.5 billion in connection with the jointly owned properties and is still a working interest owner in more than 16,000 Chesapeake wells, making him the company's single largest partner.

“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 said.

McClendon and AEP will assert their own claims against Chesapeake.

McClendon attorney Matthew A. Taylor said its filings will show that any information in McClendon’s possession is rightfully his pursuant to the terms of the agreements entered into between the parties. “In fact, the separation agreement between the parties makes explicit and repeated reference to the data and services owed to Mr. McClendon, recognizing that the sharing of information is ‘essential’ and in fact ‘beneficial to the company’. We are 100% confident that Mr. McClendon and AEP will prevail in this dispute.”

McClendon said that not only does he rightfully possess Chesapeake information, but that the company has failed to live up to its obligations under the terms of the agreement he made with Chesapeake in early 2013.

“Under those agreements, he is entitled to much more information from the company, but the information is not yet in his possession because of Chesapeake's refusal to provide it,” AEP said.

Chesapeake has refused to provide more than 1,000 assignments of leases to McClendon for interests in wells for which he has been billed and for which he has paid more than $100 million on a net basis to Chesapeake.

It has also converted to its own use revenue due him that has been paid to Chesapeake by third parties on at least 63 other wells. McClendon will enforce his rights under the agreements, AEP said.

“We strongly disagree with Mr. McClendon’s and AEP’s allegations and will address them in the appropriate forum,” said Gordon Pennoyer, a spokesman for Chesapeake.

Lawsuit Contention

Chesapeake’s lawsuit says McClendon’s separation agreement gave him access to information limited to interests he “jointly owned" with the company.

“Open acreage which has not even been acquired is, by definition, not 'jointly owned,’" the suit says.

McClendon and Chesapeake announced on Jan. 29, 2013 that McClendon would retire in April 2013. About 36 hours after his announced departure, the suit accuses McClendon of beginning to misappropriate confidential information. McClendon founded AEP in April 2013.

On Jan. 31, 2013, McClendon located an email chain more than a year old that included a report and map of open acreage unleased by Chesapeake or its competitors in the Utica Shale play at the time.

McClendon asked that his now current AEP assistant print out the map on larger sized paper so that he could utilize the information to Chesapeake's detriment and blind copied himself the information in an email, the suit says.

In a regular meeting of Chesapeake's Utica asset team—the last of its kind that McClendon attended while still CEO of Chesapeake—McClendon asked a Chesapeake employee how he would recommend capitalizing on a new geological discovery Chesapeake made about the play. The employee recommended that Chesapeake purchase certain acreage outside of Chesapeake's previously targeted area.

On his last day at the company, McClendon asked another Chesapeake employee to provide him with the contact information of the relevant negotiator for one of the acreage owners, the suit says.

“McClendon specifically requested that [the employee] not provide that information by e-mail,” the suit contends.

The suit also says McClendon misappropriated information pertaining to the Western Mississippi and Cheyenne Atoka plays in eastern Colorado.

“These were new plays for Chesapeake that were highly confidential, even inside Chesapeake,” the suit says.

Chesapeake seeks damages amounting to its actual loss as well as the amount by which each of the defendants were “unjustly enriched,” the suit says.

“Alternatively, plaintiff seeks a reasonable royalty for Defendants' unauthorized disclosure and use of Chesapeake's trade secrets.”

McClendon left Chesapeake under tense circumstances. His involvement in personal financing arrangements and ability to invest in Chesapeake’s Founder Well Participation Program (FWPP) were scrutinized prior to his leaving. The FWPP gave McClendon the opportunity to invest in individual company wells.

McClendon served as CEO since the company’s inception in 1989 and as chairman of the board until 2012.