The $4.3 billion tie-up that would merge shale player Atlas Energy Inc. with Chevron Corp. has stirred up a controversy with Atlas' well-heeled joint venture (JV) partner Reliance Industries Ltd., whose management suggested in recent correspondence that it may be considering a counter proposal.

Chevron offered to buy Atlas last November; shareholders are scheduled to vote on whether to accept the transaction Feb. 16 (see Daily GPI, Nov. 10, 2010). However, the CEO of Reliance Holding USA, the U.S. subsidiary of India's largest energy company, claimed in a recent letter that Atlas never mentioned any negotiations with Chevron.

Six months before the Chevron merger was announced, Reliance agreed to pay $340 million in cash and another $1.36 billion in a drilling carry in exchange for a 40% stake in the substantial Marcellus Shale properties held by Atlas (see Daily GPI, April 12, 2010). The two agreed, among other things, to work together for a five-year period and Reliance has an option to buy into any other projects within their area of mutual interest.

Less than two weeks after announcing the joint venture Reliance and Atlas agreed to buy another 42,344 acres in the Marcellus play, with Reliance fronting the $192 million (see Daily GPI, April 23, 2010).

However, Chevron wants to buy all of Atlas -- not just the Marcellus acreage. The merger would give Chevron control not only of Atlas, but Chevron would be the operating partner for the Reliance JV.

Reliance Holding CEO Wvan de Vijver questioned the transaction in a letter sent to the Atlas board of directors in January, which was filed with the Securities and Exchange Commission.

"We do not understand why at no time during the seven months of discussions involving Chevron, during which time we were in regular dialogue as your joint venture partner, did Atlas Energy reach out to Reliance to gauge our interest in a possible company-level transaction," the letter stated.

"We would like to evaluate our options, including whether, as a significant partner for most of the value of Atlas Energy's assets, we may be able to create incremental value for Atlas Energy and its constituencies."

The letter continued, "We believe Reliance, as Atlas Energy's joint venture partner and a company with substantial financial resources, would have been the most natural and obvious potential transaction partner for Atlas Energy. This is especially true in light of the many assurances that were conveyed by Atlas Energy management to Reliance during the joint venture negotiations about Reliance being the preferred partner should Atlas Energy choose to pursue a whole-company transaction."

The Reliance executive has requested access to Atlas' board of directors, management and company documents as soon as possible "so that we can ensure that we are not adversely affected as a result of the proposed Chevron transaction." Reliance retained Perella Weinberg Partners LP and the Kirkland & Ellis LLP law firm to help evaluate whether the company is able to create "incremental value."

In response, Atlas America CEO Edward E. Cohen replied to the Reliance chief on Jan. 14, the SEC filing indicated. Cohen wrote that Atlas was "committed fully to its ongoing joint venture with you, and we look forward to continuing collaboration with you in that context, in accordance with the terms of the applicable agreements." The merger agreement with Chevron, the letter stated, precluded Atlas from soliciting competing bids.

In a Jan. 18 presentation posted on the Atlas website, Cohen said the company spoke with 18 "potential joint venture partners" before deciding to pursue a deal with Reliance. Once the transaction with Reliance was complete, "we thought that was the end of it." However, a few months later, "Knock, knock, here's Chevron."

What Atlas management has since discovered is "when you choose to go into a joint venture, you may actually sell the company," Cohen told the audience.

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