Chesapeake Energy at the crossroads

Scott Tong May 23, 2012

Chesapeake Energy at the crossroads

Scott Tong May 23, 2012

Kai Ryssdal: T. Boone Pickens, oil man of long standing and a generally smart energy guy, said this on our Morning show the other day.

T. Boone Pickens: Natural gas has been a disaster.

Boone was talking prices. Natural gas is about a cheap as it’s ever been right now. It’s gotten so bad Pickens has sold his stake in the second biggest natural gas producer in the country, a firm called Chesapeake Energy. That, to be honest, is the least of Chesapeake’s problems. It’s got massive debt and growing mistrust among investors. Shares are off 30 percent since January. The company’s once and future fortunes depend largely on the fate of its outspoken and troubled founder and CEO, Aubrey McClendon of Oklahoma City.

Marketplace’s Scott Tong went there to learn about the man… and his city.

Scott Tong: I came to Oklahoma, the land of oil, gas and prophets. What I didn’t know is prophets is spelled with a PH.

Patrick McGuigan: In the scriptural sense.

That’s columnist Patrick McGuigan at the state capitol, speaking of local visionaries like Aubrey McClendon, the founder of Chesapeake Energy -– one of the men who saw the future of natural gas.

McGuigan: They were prophetic in making the shift from coal to natural gas for power generation.

So hear the word of Aubrey McClendon directly. He spoke recently to TV show “Oklahoma Horizon.”

Aubrey McClendon: It’s not just that we have a better product from an environmental perspective. And it’s not just that we have a product that’s domestically made rather than internationally made. It’s now about one-tenth the cost of oil.

McClendon may have bet too big on natural gas. But folks here talk of McClendon the man, philanthropist, state-fair guy. McGuigan and his wife often run into him there.

McGuigan: Pam and I would show up and go to get our roast corn. And son of a gun, if walking across the plaza, there’s Aubrey McClendon, getting his roast corn fix.

McClendon’s other addiction: pro basketball. At the city arena — Chesapeake Energy Arena -– McClendon’s praised for helping lure the Seattle SuperSonics to the promised land of OKC, where they’re now the Thunder.

Fan Tommy Samuel says the team, and McClendon, have put this place on the map.

Tommy Samuel: It’s going to be one of the major cities. So when they get a football team, oh they’re gonna be set. Nobody’s gonna be driving to Dallas no more.

You’d figure McClendon, the part-owner, watches from a fancy corporate box.

Mike Turpen: Oh, come on now. Come on.

Til Mike Turpen corrects me. He’s former state attorney general, frequent philanthropy partner of McClendon.

Turpen: They sit in what the Lakers would call the Jack Nicholson seats. They’re right there, courtside.

Turpen talks of McClendon as a gambler. Which is seen as a good thing, if you know your Oklahoma history.

Turpen: The great Oklahoma land run, 1889. Those people were all risk takers looking for a new beginning. We believe in a god of second chances in the great state of Oklahoma.

McClendon joined the modern land grab -– for energy. His company paid top dollar for drilling rights across the country. It became America’s No. 2 natural gas producer. And in the process, it loaded up on debt.

Tulsa investor Jake Dollarhide.

Jake Dollarhide: They’re the riskiest. Absolutely. I mean, that’s Aubrey McClendon’s style.

He recalls a recent speech by McClendon.

Dollarhide:Mr. McClendon took the mic and thanked shareholders. He said I want to thank you if you’ve been with us from the beginning. He said, and you know what? Frankly I’m surprised you’re still alive. I’m surprised you haven’t had a heart attack, ’cause our price has gone to zero at least twice in our publicly-traded history.

And down it goes again, as the price of natural gas has collapsed. Chesapeake did not protect, or hedge, against low prices. And now it’s borrowed billions more to pay its lenders, and wants to unload prime properties to keep the company going.

Energy economist David May.

David May: Chesapeake kind of brought this on themselves by paying too much. From my perspective, everything is related to math. You can’t go on forever doing the wrong thing.

On top of that, the feds are looking into potential CEO conflicts of interest: McClendon traded energy futures personally while the company did, too. He and Chesapeake borrowed from the same lenders.

But you don’t feel tension at the campus of Chesapeake Energy. Workers here throw Frisbees at lunch, jog on the spongy company track. No one talks on tape, but privately many affirm their faith in McClendon and his company. Meantime, more big buildings are going up -– costing more money. What happens now? There are whispers of layoffs, contractors not being renewed, vendors paid late. Analysts won’t be surprised if Chesapeake gets bought. Or if McClendon quits. Or if he indeed turns things around — there’s word he just flew to China to find investors.

In Oklahoma City, I’m Scott Tong for Marketplace.

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