A few thoughts on natural gas mega-driller Chesapeake Energy and the news that co-founder Aubrey McClendon is stepping down as CEO. There are undoubtedly cheers and jeers (from both inside and outside the industry).
The differing opinions come because we’re not just talking about a polarizing issue -- fracking. We're talking about a polarizing man -- McClendon is a known energy gambler; an Oklahoma wildcatter who speaks his mind.
"Chesapeake Energy is Aubrey McClendon. Aubrey McClendon is Chesapeake Energy."
"There is no separation between Chesapeake Energy and Aubrey McClendon," is how analyst Jake Dollarhide put it. I heard this all over Oklahoma City -- the OKC -- when I visited the company's headquarters for a story.
Steinbrenner and the Yankees, Jones and the Cowboys, McClendon and Chesapeake.
It echoed on the corporate campus, where the architecture is modeled after McClendon’s alma mater Duke University, where young workers play Frisbee at lunch, where I bought a soda at perhaps the nicest company cafeteria I’ve ever seen.
And people know his story: the local OKC boy made good. A man who came from oil-patch money (the Kerr-McGee chemical fortune), but struck out on his own as a lowly lease-selling landman before co-founding Chesapeake Energy, now the No. 2 gas driller in America. He gives new employees copies of Dan Yergin’s famed energy book, The Prize. He attends the county fair and eats roast corn. He helped bring the Oklahoma City Thunder NBA franchise to town -- and built it into a championship contender.
And with the exception of Thumder basketball phenom Kevin Durant, McClendon may be the most loved man in town. He gives lots to local charities, he’s established at least one. He’s bringing the city back. So…
In OKC, if you don’t like him you’ll have to whisper.
Whispers like one woman I talked to outside an Oklahoma City Thunder game -- at, yes, Chesapeake Arena. In between cigarette drags, this self-described former longtime Chesapeake employee said McClendon’s wealthy relatives helped run the show at the outet, and that behind closed doors he’s not the nice-guy CEO people say he is.
Was she willing to talk on tape? Nevvurrr.
Another energy exec in town used his quiet, not-for-attribution voice last spring, suggesting Chesapeake and McClendon deserved the bad press and stock sell-off they were feeling then. Chesapeake had been so aggressive leasing land to drill they pushed up prices for the whole industry.
Plus, lots has been made of McClendon’s sky-high salary back in the day, his perks and use of the company jet, his personal borrowing from a firm already doing business with Chesapeake (file under potential conflict of interest).
And yet, insiders say his ouster may still be more about his business decisions than his personal ones.
"We wouldn’t be talking about this if the company weren’t in trouble,” one energy hand told me. He said lavish lifetstyles are how the oil and gas biz works: boom-bust, over-the-top compensation. No story there.
The problem at Chesapeake was Aubrey McClendon's questionable business decisions
How could Chesapeake, on McClendon's watch, have borrowed so much to drill natural gas? Why was the company so late transitioning into other, more profitable parts of the business, like oil and natural gas liquids? How could the company have canceled its hedges, its insurance, against low prices just as prices collapsed in early 2012?
“He went into 2012 naked,” notes one observer, and the company paid for it.
Says this observer: one reason stocks surged on the news is Chesapeake had rid itself of an executive whose “decision-making was totally questioned.”
And without that executive, Chesapeake may now recover substantially, if natural gas prices keep rebounding as they have been of late. Another option? The debt-saddled company could be acquired by a cash-rich suitor: Last summer there were rumors McClendon was flying to China to find investment partners. After all, Chesapeake has land and expertise, but no money. Chinese state-owned energy firms have money, but lack U.S. gas lands and the expertise to drill it.
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