Chesapeake Energy: A Big Driller That's Had Some Problems

Background

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Chesapeake Energy is one of the largest natural gas drillers operating in Pennsylvania. It owns about 200 producing wells here, but has also been fined more than $1 million for various violations.

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

Chesapeake is based in Oklahoma City, Oklahoma. On its website, the company boasts its “the second-largest producer of natural gas” and “most active driller of new wells” in the country. 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.

The company has had its share of problems. In May 2011, it was on the receiving end of the largest fine in Department of Environmental Protection history, 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. Pennsylvania Public Radio has reported Governor Corbett asked a Chesapeake executive to step down from his Marcellus Shale Advisory Commission, due to the company’s high-profile accidents.

Chesapeake has faced scrutiny for controversial loan programs. As 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.