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Chesapeake CEO Aubrey McClendon

Chesapeake Energy: A big driller that's had some problems

Background

Chesapeake Energy is one of the largest natural gas drillers in Pennsylvania. It operates close to 800 active wells here and has also been fined more than $1 million for various violations.

The company has seen its share of problems.

Most recently Chesapeake is facing allegations it’s cheating Pennsylvania landowners out of royalty money. Chesapeake has denied this. However, its the subject of several class action lawsuits and an ongoing investigation by state Attorney General Kathleen Kane. The company was also recently subpoenaed by the U.S. Department of Justice, seeking information about its royalty practices.

ProPublica published an investigation into the struggling company, detailing how it raised cash by slashing royalty payments.

Chesapeake is based in Oklahoma City, Oklahoma. On its website, the company bills itself as “the second-largest producer of natural gas” and “most active driller of new wells” in the country. Former CEO Aubrey McClendon founded Chesapeake in 1989. Both McClendon and Chesapeake’s political action committee have financially supported Governor Tom Corbett. The PAC gave the Republican $12,000 during the 2010 gubernatorial campaign. McClendon donated $5,000 that year, and also provided Corbett with an indirect $450,000 contribution during his 2004 campaign for attorney general.

In May 2011, the company was on the receiving end of the largest fine the Department of Environmental Protection had given out at that point (Range Resources has since received a larger fine). Chesapeake was fined for a February 2011 Washington County tank fire, and contaminating several drinking wells in Bradford County. Chesapeake voluntarily suspended hydraulic fracturing operations for three weeks in April and May 2011, after a Bradford County well spilled hundreds of thousands of gallons of fracking fluid.

In 2012 Chesapeake faced scrutiny for a controversial loan program allowing its CEO at the time, Aubrey McClendon, to borrow money against the company’s wells, and use that same funding to purchase additional stakes in those holdings.

StateImpact Pennsylvania reported in a post about the financial problems:

In March, the Pitts­burgh Post-Gazette reported  that Aubrey McClen­don was tak­ing out loans against the company’s West Vir­ginia hold­ings. This month,  Reuters expanded the story by report­ing that this was hap­pen­ing in mul­ti­ple states:  McClen­don has taken out more than $1 bil­lion in loans, using Chesapeake’s land hold­ings as col­lat­eral. And as Reuters doc­u­mented, he is using that money to expand his hold­ings in those very same wells. The cir­cu­lar loans — and the fact they weren’t dis­closed to share­hold­ers — raised ques­tions about whether McClendon’s mix­ing of his per­sonal and busi­ness deal­ings con­sti­tute a con­flict of interest.

McClen­don was able to pur­chase per­sonal stakes in Chesapeake’s wells through an ini­tia­tive called the “Founder Well Par­tic­i­pa­tion Pro­gram.” Chesa­peake shut the pro­gram downshortly after it became public.

McClendon resigned from the company in the spring of 2013. Former Anadarko executive Doug Lawler was named as Chesapeake’s new CEO.

He pledged to rein in costs and focus the company on financial discipline. Lawler conducted a ”comprehensive review” of the company — which resulted in hundreds of layoffs throughout the country including staff in Bradford County.

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