Nicholas Schorsch entering oil and gas business through a limited partnership

Real estate investor is joining forces with Chesapeake Energy's former CEO to raise up to $2B

Dec 16, 2013 @ 3:19 pm

By Bruce Kelly

nicholas schorsch, reits, nontraded reits, oil and gas, aubrey mclendon, chesapeake energy, limited partnership
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Noted real estate investor Nicholas Schorsch is getting into the oil and gas business in a big way, teaming up with Aubrey McClendon, the former chief executive of Chesapeake Energy who left that company in April after citing “philosophical differences” with its board.

The registration statement for the new limited partnership, American Energy Capital Partners, was filed late Friday with the Securities and Exchange Commission. The offering seeks to raise up to $2 billion, with 100 million shares to be registered and a proposed maximum price of $20 a share.

The limited partnership “intends to use the proceeds of this offering to acquire, develop, operate, produce and sell working and other interests in producing and nonproducing oil and natural gas properties located onshore in the United States,” according to the SEC filing.

The partnership is the first oil and gas program sponsored by its sponsor, American Realty Capital, and its various affiliates.

Mr. Schorsch and his partner, William Kahane, are co-founders of American Realty Capital, the sponsor of almost a dozen nontraded real estate investment trusts and other such illiquid companies. ARC will sponsor the new partnership, and both Mr. Schorsch and Mr. Kahane are directors of the new fund.

Mr. McClendon will manage the partnership's operations through AECP Management, which he founded in July.

Tony DeFazio, a spokesman for Mr. Schorsch, said Monday that he wasn't available to comment on the new venture.

However, Mr. Schorsch on Friday told The Wall Street Journal that he was upbeat about the deal.

He cited his fundraising capabilities, including his wholesaling broker-dealer, Realty Capital Securities LLC, as a low-cost way to raise capital for the oil and gas business.

“It's a good time for the retail investor to get involved,” Mr. Schorsch said, according to the Journal report.

Mr. McClendon's “skills and capabilities as an oil and gas man are extraordinary,” Mr. Schorsch said.

The offering document showed potential conflicts of interest.

For example, Mr. McClendon, while the manager of the partnership, will continue “acquiring, owning, operating, developing and selling oil and gas properties for [his] own account.”

Also, the partnership may acquire oil and gas properties in which Mr. McClendon also owns an interest, and he “may make decisions with respect to [his] interest in these properties that are not in our best interest.”

Distributions, or dividends, may also be paid “from any source, including an unlimited amount from the proceeds of this offering and from borrowing,” according to the offering document.

Using offering proceeds or cash from borrowing to pay investor distributions has been seriously frowned upon in the nontraded REIT industry.

Investors must purchase at least 250 shares of the offering or $5,000 worth. American Energy Capital Partners intends a targeted distribution of 6% per year, or $1.20 a share.

Mr. McClendon was one of the founders of Chesapeake Energy in 1989 and built it into a natural gas powerhouse, second only in natural-gas production to Exxon Mobil Corp.

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