Dallas-based Energy Transfer filed a lawsuit in Reeves County against eight Blackstone Inc. entities for allegedly aiding and abetting a fraud committed by one of its portfolio companies, EagleClaw Midstream Ventures.
The 27-page lawsuit filed Friday claims that around the time private equity firm Blackstone bought EagleClaw in 2017, it also invested in other projects that competed with EagleClaw’s first-in-line buyer, Energy Transfer.
Prior to its acquisition, EagleClaw had a purchase agreement with Energy Transfer. In 2018, the agreement was amended to ensure “Energy Transfer always would get the first liquids processed by EagleClaw every day, regardless of EagleClaw’s construction of new plants, any future connection to other long-haul pipelines, or any producer that later decided it wanted to try and take its volumes in kind.”
Blackstone formed a joint venture with Targa Resources Corp. to build a new long-haul pipeline called the “Grand Prix” that would take natural gas liquids from the Permian Basin, just like Energy Transfer’s pipeline. As part of its investment, Blackstone promised EagleClaw would provide major volumes of natural gas liquids to the new pipeline.
The lawsuit alleges Blackstone agreed to forgo distributions from the new pipeline if EagleClaw failed to deliver the volumes, which in turn motivated Blackstone to direct EagleClaw to maximize the volumes that it delivered into the joint venture pipeline, even if it meant diverting volumes that Energy Transfer was contractually entitled to receive first.
According to the lawsuit, in EagleClaw’s words, the Blackstone scheme forced EagleClaw to “rob Peter to pay Paul.”
Energy Transfer claims that Blackstone hired a “Blackstone loyalist,” Jamie Welch, as chief financial officer and later as chief executive officer of EagleClaw. While Welch served as a senior officer for EagleClaw, he allegedly continued getting additional and separate compensation from Blackstone.
“Because it stood to make more money by directing natural gas liquids to its own pipelines, Blackstone and Welch used their positions of control to conspire with and direct EagleClaw to divert to Blackstone’s own assets, huge volumes of natural gas liquids that EagleClaw had committed to Energy Transfer,” the lawsuit reads. “Blackstone and EagleClaw (with Blackstone advisor Welch at the helm) worked in concert to maximize Blackstone’s profits by wrongfully depriving Energy Transfer of valuable natural gas liquids to which it was entitled.”
In early 2018, Blackstone and ISquared Capital began negotiations to combine EagleClaw and Pinnacle Midstream, which ISquared owned, and to then have the combined company acquire Caprock Midstream to create one of the largest privately held midstream companies operating in the Delaware Basin.
“Acquiring Pinnacle and Caprock was a way for Blackstone to secure more volumes of Y-Grade for Grand Prix to secure its desired midstream double dip. In fact, getting more Y-Grade for Grand Prix was a key tenet of Blackstone’s ‘investment thesis’ for buying Caprock,” the lawsuit reads.
In November 2018, Blackstone and ISquared announced the joint acquisition of Caprock and the combination of EagleClaw, Pinnacle and Caprock into a single midstream company.
“Blackstone caused Energy Transfer to lose substantial volumes of Y-Grade to which it was contractually owed,” the lawsuit reads. “… Blackstone took these actions, and directed EagleClaw to take these actions, for the purpose of maximizing Blackstone’s profits.”
Energy Transfer hopes to recover “massive sums that Blackstone wrongly diverted to itself by directing, aiding and abetting EagleClaw’s fraud and breach of its obligations to Energy Transfer.”
Along with claims of aiding and abetting, Energy Transfer is claiming Blackstone committed civil conspiracy.
Energy Transfer claims that it became aware of Blackstone’s involvement in the alleged schemes within the past year.
The energy company is seeking a jury trial.
R. Paul Yetter, Justin Tschoepe, David Gutierrez and Henry Humphreys of Yetter Coleman are representing Energy Transfer.
Counsel for Blackstone has not filed appearances at this time. Blackstone did not immediately respond to a request for comment.
The case is Energy Transfer GC NGL Product Services LLC v. BCP Raptor Manager LLC, Blackstone Energy Management Associates II LLC, et al., 26-01-26020-CVR.