* EIG sends letter to investors defending loans
* Letter sent before Chesapeake board distances itself from
By Jennifer Ablan and Svea Herbst-Bayliss
April 26 EIG Global Energy Partners, the
investment firm that loaned hundreds of millions of dollars to
Chesapeake Energy Corp Chief Executive Aubrey McClendon, sent a
letter to some of its investors this week telling them the
arrangement was a good deal, a person familiar with the
In the letter, EIG Chief Executive R. Blair Thomas told
investors that two energy funds set up by the firm had loaned
money to McClendon and that the financing deals were proper, the
Thomas sent the letter in response to an exclusive Reuters
story last week revealing a series of loans to McClendon that
enabled the high-profile natural gas executive to co-invest in
wells being drilled by Chesapeake.
The EIG letter was sent before Thursday's announcement that
Chesapeake intends to end a program that gives McClendon a 2.5
percent stake in every one of the company's thousands of wells
in 2015. The loans from the EIG funds enabled McClendon to
continue his participation in the company's "Founder Well
Chesapeake also said Thursday that its directors had never
reviewed or approved McClendon's mortgages on stakes in those
wells. A lawyer for the Oklahoma City-based company earlier had
said the board of directors was "fully aware" of McClendon's
The letter from Thomas was received this week by a number of
pension funds that invested in the EIG-sponsored funds: EIG
Energy Fund XIV and EIG Energy Fund XV. At least one public
pension fund that invested in Energy Fund XV was holding a
meeting Thursday to discuss the situation, according to second
source, a person familiar with a pension fund who did not want
to be identified.
Thomas, in the letter to investors, blamed the media for
"making something out of nothing" in its reporting on the
McClendon loans, said the first source, who lacked the authority
to discuss the letter and declined to be identified.
EIG did not respond to a request for comment.
Two pension fund representatives, who were not permitted to
speak about the investments publicly but were familiar with the
EIG marketing materials, said that EIG's limited partners were
well aware of the loans to McClendon and that EIG has gotten
high marks for transparency by sending quarterly updates.
Reuters earlier reported that EIG Energy Fund XV loaned $500
million to McClendon, while EIG Energy Fund XIV loaned $375
million to him.
The U.S. Securities and Exchange Commission has opened an
informal inquiry into the Chesapeake well participation program.
The inquiry is being led by the SEC's Fort Worth, Texas,
Some Chesapeake shareholders and corporate governance
experts are saying the loans from the EIG funds could pose a
conflict of interest because the investment management firm also
has been a financier of the natural gas company.
More than a dozen public pension funds invested in the EIG
Energy Fund XV, which raised about $4.1 billion from investors
in the United States, Europe and Australia. Some of the state
pension funds that put money into that fund include ones from
Alaska, Connecticut, Louisiana, Maryland, Minnesota, Missouri
and Texas, according to research firm Preqin.
The EIG Energy Fund XV, the firm's newest one, was pitched
to pensions as a chance to capture some of the profits generated
by those wells.
In January 2011, EIG split off from TCW, a large investment
management firm best known for its bond mutual funds. Prior to
the split, TCW had a long history of raising money for the oil
and gas sector.
Thomas and two other EIG partners had worked for TCW before
the split. TCW, under an agreement with EIG, continues to
collect some of the revenue from the firm, which specializes in
raising money for energy companies.