{"id":6884,"date":"2012-05-29T09:15:33","date_gmt":"2012-05-29T14:15:33","guid":{"rendered":"http:\/\/stateimpact.npr.org\/oklahoma\/?p=6884"},"modified":"2012-12-19T14:59:47","modified_gmt":"2012-12-19T20:59:47","slug":"chesapeake-energy-everything-you-need-to-know-about-the-worlds-biggest-fracker","status":"publish","type":"post","link":"https:\/\/stateimpact.npr.org\/oklahoma\/2012\/05\/29\/chesapeake-energy-everything-you-need-to-know-about-the-worlds-biggest-fracker\/","title":{"rendered":"Chesapeake Energy: Everything You Need To Know About The \u2018World\u2019s Biggest Fracker\u2019"},"content":{"rendered":"
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Joe Wertz \/ StateImpact Oklahoma<\/p>\n

Chesapeake Energy's Oklahoma City headquarters.<\/p>\n<\/div>

This post was co-reported by StateImpact Pennsylvania\u2019s Scott Detrow<\/a> and StateImpact Texas\u2019 Terrence Henry<\/a>.<\/em><\/p>

If you’ve been hearing a lot about Chesapeake Energy Corporation and its eccentric CEO Aubrey McClendon as of late, you might have some questions. What is this company? Who is McClendon and what\u2019s the deal with his wine and antique map collection?<\/p>

To tackle some of those questions and more, StateImpact reporters in Oklahoma, Pennsylvania and Texas teamed up to create a reading guide to Chesapeake Energy\u2019s recent financial woes.<\/p>

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What is Chesapeake Energy?<\/h3>

It\u2019s a drilling company, the second-largest natural gas extractor in the country.<\/p>

Chesapeake is an energy producer that focuses on unconventional onshore oil and natural gas plays in the U.S. The company’s roots are in natural gas. However, near-record low prices for natural gas have forced the company to shift focus to oil and production of other valuable liquids.<\/p>

Chesapeake employs about 13,000, according to the company\u2019s Securities and Exchange Commission filings. About 4,600 people work at the company\u2019s corporate headquarters in Oklahoma City. Chesapeake also has regional corporate offices in Texas, West Virginia and Louisiana, as well as 60 field offices throughout the U.S.<\/p>

As recent news reports have pointed out, Chesapeake is also something of an investment firm. The company regularly flips the land it purchases, selling it to other drilling companies.<\/p>

Chesapeake is an aggressive spender and has continued to expand, despite the fact that natural gas prices are at a ten-year low. That expansion is a big reason why the company holds more than $13 billion in debt.<\/p>\n

Who is Aubrey McClendon?<\/h3>

Aubrey McClendon is the founder and CEO of Chesapeake Energy. Until earlier this month, when news reports began questioning his business dealings, he also was the chairman of the company\u2019s board.<\/p>\n

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Scott Detrow \/ StateImpact Pennsylvania<\/p>\n

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McClendon started working on his own as a landman \u2014 the guy who goes door-to-door signing land leases for energy companies \u2014 \u00a0in 1982. In 1989, McClendon and Tom Ward \u2014 now CEO of SandRidge Energy \u2014 pooled $50,000 together and founded Chesapeake, a natural gas-focused company that played a cutting-edge role in the country\u2019s current hydraulic fracturing boom.<\/p>

McClendon is something of a natural gas evangelist, and is happy to mix it up with anti-drilling activists. Of Chesapeake, he once bragged to Rolling Stone<\/em><\/a> that \u201cwe\u2019re the world\u2019s biggest frackers.\u201d Here\u2019s what he told the Wall Street Journal<\/em><\/a>, when the paper asked about drilling opponents calling for hydraulic fracturing moratoriums: “You want to go ban fracking for a year? Knock yourself out.\u201d Limiting the supply of natural gas would only drive up its price, he said, and that \u201cwould be marvelous for our share price.”<\/p>

McClendon has a wide range of tastes and business interests. He loves fine wine. In fact, McClendon\u2019s interview with Rolling Stone<\/em> was conducted over a $400 bottle of Bordeaux. And McClendon owns almost 20 percent<\/a> of the Oklahoma Thunder basketball team, where he has a courtside perch.<\/p>

McClendon and Chesapeake have been in the hot seat before. When natural gas prices plunged in 2008, the company’s stock price followed. McClendon had borrowed heavily against his shareholdings, and was forced to sell 30 million shares \u2014 more than 90 percent of his holdings \u2014 to meet margin calls. This erased most of McClendon’s $2 billion fortune, Forbes<\/em> reported<\/a>.<\/p>

But the company wanted to reward McClendon for $1 billion in joint venture deals he helped secure. So the board gave him a $110 million pay package. Seventy-five million was for well interests (more on that later), and $20 million was for a stock grant. The \u00a0company also handed over another $12 million to buy McClendon’s collection of antique maps from the 19th century.<\/p>

The map purchase didn\u2019t sit well with many Chesapeake shareholders, some of whom sued the company demanding reforms to its compensation practices. In a settlement, McClendon agreed to buy back the maps, with interest.<\/p>\n

I hear he\u2019s taken out some unconventional loans.<\/h3>

That\u2019s an understatement.<\/p>\n

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Brett Deering \/ Getty Images<\/p>\n

Chesapeake Energy CEO Aubrey McClendon and Oklahoma City Thunder owner Clay Bennet courtside during an Oklahoma City Thunder game.<\/p>\n<\/div>

In March, the Pittsburgh Post-Gazette<\/em> reported<\/a> \u00a0that Aubrey McClendon was taking out loans against the company\u2019s West Virginia holdings. This month, \u00a0Reuters expanded the story by reporting<\/a> that this was happening in multiple states: \u00a0McClendon has taken out more than $1 billion in loans, using Chesapeake\u2019s 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 \u2014 and the fact they weren\u2019t disclosed to shareholders \u2014 raised questions about whether McClendon\u2019s mixing of his personal and business dealings constitute a conflict of interest.<\/p>

McClendon was able to purchase personal stakes in Chesapeake\u2019s wells through an initiative called the \u201cFounder Well Participation Program.\u201d Chesapeake shut the program down<\/a> shortly after it became public.<\/p>

McClendon didn\u2019t see anything wrong with purchasing personal stakes in his company\u2019s wells. \u201cAmerican business would be run better today if there was more alignment between CEOs’ interest and the company,\u201d he told the Wall Street Journal<\/em><\/a> before Chesapeake shut the Founder program down. \u201cFor example, would the financial crisis of 2008 have occurred if the CEO of Lehman and Morgan Stanley and Goldman and Citibank had to take a very small percentage of every mortgage-backed security … or every loan they made?”<\/p>\n

What other creative borrowing has gone on?<\/h3>

McClendon and Chesapeake won\u2019t be paying back many of these loans using money. Instead, \u00a0they\u2019ll be using oil and natural gas, in an exchange called a \u201cvariable production payment,\u201d or VPP.<\/p>\n

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