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Fracked: Why Chesapeake Energy’s Aubrey McClendon is in Hot Water

Sam Gustin, Time Magazine
Aubrey McClendon, the billionaire CEO of natural gas giant Chesapeake Energy, opened his company’s first-quarter conference call on Wednesday by describing the last two weeks as “very challenging.” That may be an understatement — the last 48 hours alone have been dizzying.

Last week, the Securities and Exchange Commission opened a probe into a billion-dollar personal loan tied to McClendon’s controversial compensation plan, which he now stands to lose, along with the title of board Chairman. Then on Wednesday, Reuters published a startling expose revealing that McClendon ran a $200 million hedge fund trading oil and gas at the same time he was leading the energy giant — raising questions of conflict-of-interest. And now, a U.S. Senator has called for the Justice Dept. to investigate Chesapeake for potential “fraud, price manipulation, conflicts-of-interest, or other illegal activities.” Meanwhile, McClendon has bet the future of Chesapeake, which is carrying over $12 billion in debt, on a rise in natural gas prices that not one analyst polled by Bloomberg — zero — expects will happen…
(3 May 2012)

What Chesapeake’s Woes Mean for Natural Gas: A Q&A With Arthur Berman

Mose Buchele, StateImpact NPR
Chesapeake Energy has been getting a lot of attention lately, and not the good kind…

It seemed like a good time to touch base with Arthur Berman…

In a nutshell, Berman thinks the industry is over-leveraged, over-hyped and bound for a market “correction.”…

Last time we talked, you were discussing these same themes. Namely, companies over-leveraging and the idea that at some point the market might catch up with that. Now, this individual case falls into that general narrative. What kind of impact could this have? If we see Chesapeake in really serious trouble, can that affect the larger industry? The markets? Or specifically, would that affect what’s happening on the ground in a state like Texas?

A: I guess the point that the people in Texas should understand is that Chesapeake Energy drills more wells in the United States than anybody else except possibly Exxon Mobil.

And so I guess the question — and I don’t know the answer because it’s speculative — but if this scandal and this issue for some reason causes Chesapeake to have to cut back the number of wells it drills in Texas, that could be significant just for mineral owners who have agreements with this company and other companies.

They expect that these operators are going to perform because they get a bonus. They get a certain payment for leasing land to the companies, but the real payment comes in the form of a royalty. After the well has been drilled and it’s producing, these mineral owners get a percentage of the production at the top, and that’s where they really making their money. So I think it’s too early to say what the short-term or the long-term effects are, but it’s worth noting that Chesapeake is a huge, huge player in all of the onshore drilling that’s going on, not only in Texas but in the United States. In some ways, I guess it would be reasonable to say that if Chesapeake goes, so goes the overall business picture.
(27 April 2012)
See also:
After the gold rush: A perspective on future U.S. natural gas supply and price – Art Berman
Magical Thinking and Fracking – KunstlerCast #192: Arthur E. Berman, Petroleum Geologist

Special Report: Chesapeake CEO took $1.1 billion in shrouded personal loans

Anna Driver and Brian Grow, Reuters
Aubrey K. McClendon is one of the most successful energy entrepreneurs of recent decades. But he hasn’t always proved popular with shareholders of the company he co-founded, Chesapeake Energy Corp., the second-largest natural gas producer in the United States.

McClendon, 52, helped cause Chesapeake shares to plummet amid the financial crisis when he sold hundreds of millions of dollars in stock to raise cash for himself. Later, to settle a lawsuit by shareholders, he agreed to buy back a $12 million map collection that he’d sold to Chesapeake.

His approach to running his company also is renowned: Among other employee perks, on-site Botox treatments are available at its headquarters in Oklahoma City, Oklahoma.

Now, a series of previously undisclosed loans to McClendon could once again put Chesapeake’s CEO and shareholders at odds.

McClendon has borrowed as much as $1.1 billion in the last three years by pledging his stake in the company’s oil and natural gas wells as collateral, documents reviewed by Reuters show…
(18 Apr 2012)

Special Report: Inside Chesapeake, CEO ran $200 million hedge fund

Joshua Schneyer, Jeanine Prezioso and David Sheppard, Reuters
As chairman and CEO of Chesapeake Energy Corp, Aubrey McClendon has been a powerhouse in the vast U.S. natural gas market, directing the company’s multibillion dollar energy-trading operation and setting output targets for America’s second-largest producer.

Behind the scenes, a Reuters investigation has found, McClendon also ran a lucrative business on the side: a $200 million hedge fund that traded in the same commodities Chesapeake produces.

On Tuesday, two weeks after Reuters reported that McClendon has taken up to $1.1 billion in loans against his stakes in Chesapeake oil and gas wells, the company stripped McClendon of the chairmanship and reiterated that it’s reviewing details of the loans. A statement quoted McClendon, who will stay on as CEO, saying that the move will enable him to focus his “full time and attention on execution of the company’s strategy.”

But for at least four years, from 2004 to 2008, McClendon’s attention extended well beyond his job at Chesapeake…
(2 May 2012)