A Delaware court ruled that private equity firm
The ruling was the latest setback for what could be the pipeline sector's second public listing since 2017.
"Because of the determinations made in this decision, EnCap cannot proceed with the Up-C IPO as currently structured," the Delaware Court of Chancery said.
In a Sept. 25 post-trial decision, the court sorted out rival requests for declaratory judgments that would help interpret the limited liability company agreement for Caiman Energy II LLC, which in turn would guide the Blue Racer IPO. Williams Cos. Inc. is a partner with EnCap Flatrock Midstream and Oaktree Capital Management LP in Caiman Energy II, a private equity firm that owns 50% of Blue Racer. First Reserve Corp. holds the remaining 50% stake in Blue Racer, which it acquired from Dominion Energy Inc. in 2018.
Williams Field Services Group LLC, a subsidiary of Williams, was the plaintiff in the court case. EnCap Flatrock Midstream and Caiman Energy II were among the parties on the other side. Williams pursued the lawsuit to preserve its competitive edge in the Marcellus and Utica shales, Bloomberg reported in August. Williams said it wanted court guidance to protect its "rights" and prevent Blue Racer from encroaching on its midstream territory per a 2012 bylaw negotiated with other shareholders. EnCap and its allies supported Blue Racer's listing plans as is.
The Delaware Court of Chancery ruled that EnCap can implement certain steps in the planned IPO but lacked the power under the LLC agreement to implement others. "This decision further concludes that EnCap cannot rely on a cooperation clause in the LLC agreement to compel the plaintiff to give up its contractual rights," the court wrote.
The court said it was too early for it to address issues of Williams' standing to assert a claim. EnCap had argued that, because Williams will not have a membership interest in Caiman II after the IPO, it does not have standing.
The parties must prepare a final order that puts in place the rulings of the court decision. The court said if there were other matters that must be resolved before the final order, the parties must submit a plan for resolving the matter at the trial level. (Delaware Court of Chancery docket 2019-0350-JTL)
