Chesapeake Energy stock continues to fall

Scott Tong May 17, 2012

Jeremy Hobson: The nation’s second largest natural gas company, Chesapeake Energy, has seen its stock plummet almost 40 percent this year. And this week it’s been borrowing billions of dollars at high interest rates just to make ends meet.

Marketplace’s Scott Tong joins us now from Chesapeake’s home base of Oklahoma City with an explanation.

Scott Tong: Good morning Jeremy.

Hobson: Well tell us about the problems that have led Chesapeake Energy to this point, where they are just looking all over for cash.

Tong: Well this is a natural gas company which is inherently a risky business in energy. And what people here tell me is, they took too much risk. First of all, the company spent too much money leasing a ton of land to drill on and then they borrowed a whole lot of money to finance it. And then, while other companies were drilling many other commodities including crude oil which sells for more and is more profitable, this company had all of its eggs in the natural gas basket. So when the commodity price tumbled, they paid the price for it.

Hobson: And Scott the company has been in the news a lot lately because of problems related to the CEO, Aubrey McClendon. What’s that all about?

Tong: Well first of all, he is known as being a gambler in the energy business. So people are saying, he’s the one that make the risky decisions that got the company into this position in the first place. And what’s in the news is some questions of conflict of interest. That Aubrey McClendon borrowed from the same bank that the company did. That he was trading in these complicated derivatives that the company was doing as well—all these create these perception questions and the SEC is looking into this. And it’s just another reason for investors to say, you know, no thanks and they have pushed the price of the stock way way down.

Hobson: And you’ve been talking to employees — are they scared about the future for them?

Tong: They’re not. They think it’s business as usual. They believe in their CEO, they believe in their company. And they think they’re going to ride this out. Maybe they understand this business, maybe they’ve drunk the Kool-Aid, but… we’ll see.

Hobson: Marketplace’s Scott Tong in Oklahoma City. Thanks a lot.

Tong: You’re welcome.

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