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  1. #76

    Default Re: Chesapeake Business Practices

    Quote Originally Posted by KilgoreTrout View Post
    Is it possible to sound more selfish and narrow minded? Wow. Pretty pathetic.

    Of course it is. Might not be worth the effort, but yeah, it could be done if one were motivated to try.

  2. #77

    Default Re: Chesapeake Business Practices

    Quote Originally Posted by MikeOKC View Post
    Mustang, Please read "The Lost Decade" - an article about CHK's problem for stockholders. It spells it out very clearly why it's always "almost hot" but fails to deliver. You are right - it is all about profit. Right now, CHK at times seems to be run for only Aubrey's profit and not that of shareholders.
    The Lost Decade points out financial facts, however, it does not discuss motivation. Our society is becoming far too dependent on immediate gratification. We all want it NOW. Our government is incapable of doing anything beyond the next election and some on this thread care only about what happens now. Chesapeake has taken a lot of grief about instituting a long-term strategy that gives up some short-term gain for long-term investment returns. It's strategy was one of buying up drilling rights for future operations and, perhaps, they overdid it. However, CHK forcast that the price of NG would hold up better than it has. Technological advances resulting in greater production industrywide and lower demand than anticipated has resulted in a glut of gas. Carl Icahn bought into CHK to force them to rid themselves of some of the excess property in favor of better shareholder return and it took them from about $19/sh to over $30. CHK has a long-term plan with long-term goals that have now been adjusted with more focus on oil production. If you look into their profit situation, much of the lag has been wrong hedging practices/wrong bets on the price of gas, not general poor management or long-term planning. You don't get to be the nations biggest producer of NG by being incompetent. No doubt CHK is not Devon, they are two totally different firms managed in totally different ways but long-term, CHK will continue to thrive as long as gas prices hold up.

  3. Default Re: Chesapeake Business Practices

    Quote Originally Posted by mugofbeer View Post
    The Lost Decade points out financial facts, however, it does not discuss motivation. Our society is becoming far too dependent on immediate gratification. We all want it NOW. Our government is incapable of doing anything beyond the next election and some on this thread care only about what happens now. Chesapeake has taken a lot of grief about instituting a long-term strategy that gives up some short-term gain for long-term investment returns. It's strategy was one of buying up drilling rights for future operations and, perhaps, they overdid it. However, CHK forcast that the price of NG would hold up better than it has. Technological advances resulting in greater production industrywide and lower demand than anticipated has resulted in a glut of gas. Carl Icahn bought into CHK to force them to rid themselves of some of the excess property in favor of better shareholder return and it took them from about $19/sh to over $30. CHK has a long-term plan with long-term goals that have now been adjusted with more focus on oil production. If you look into their profit situation, much of the lag has been wrong hedging practices/wrong bets on the price of gas, not general poor management or long-term planning. You don't get to be the nations biggest producer of NG by being incompetent. No doubt CHK is not Devon, they are two totally different firms managed in totally different ways but long-term, CHK will continue to thrive as long as gas prices hold up.
    I understand. But CHK themselves have contributed greatly to the short-term excitement by throwing out (some say ridiculous) projections for even the next year.

  4. #79

    Default Re: Chesapeake Business Practices

    My motivation in buying stock in a company is long term appreciation in value. I could not care less about corporate behavior that does not negatively effect long term stock appreciation. Imbueing companies with human elements such as "good", "bad", "evil" is foohardy at best. Companies exist to 1. Increase owner value, 2. Provide jobs, 3. Produce a product or service.

    If acting "good" increase stock value then fine and nice. If it negatively effects long term appreciation then nope it has got to got. I am very realistic/cynical when it comes to investments. As to my comments on food vs money it is the way it is and is truly pathetic to believe otherwise..

  5. Default Re: Chesapeake Business Practices

    Chesapeake is also a company that walks the walk when it comes to pushing for Natural Gas as an alternative fuel source. While the rest of us debate aimlessly over foreign oil and drool over the fact that gasoline is 10 cents cheaper than it was last month, Chesapeake has been actively building NG fueling stations and converting their fleet to run on natural gas. The company is very aggressive long term on breaking this country's dependence on foreign oil. That also means aggressively promoting itself as an energy company.

    Some on here are treating Chesapeake like Enron. But they are two totally different animals. Chesapeake is a production company. Despite low natural gas prices, they are still turning a profit on production. Enron was an energy trading company that was truly hot air.
    Continue the Renaissance!!!

  6. #81

    Default Re: Chesapeake Business Practices

    Quote Originally Posted by MustangGT View Post
    My motivation in buying stock in a company is long term appreciation in value. I could not care less about corporate behavior that does not negatively effect long term stock appreciation. Imbueing companies with human elements such as "good", "bad", "evil" is foohardy at best. Companies exist to 1. Increase owner value, 2. Provide jobs, 3. Produce a product or service.

    If acting "good" increase stock value then fine and nice. If it negatively effects long term appreciation then nope it has got to got. I am very realistic/cynical when it comes to investments. As to my comments on food vs money it is the way it is and is truly pathetic to believe otherwise..
    Some American companies helped Nazi Germany crank up their war machine prior to WWII by doing business with them. I guess you believe that businesses should have no ethics? They can feel free to contribute to killing people, oppressing people, destroying our environment as long as you make a couple bucks. So, would you invest in a company that makes money at the expense of people's lives? If the answer is no then maybe it's time you rethink your hardline stance that all that matters is money.

    Listen, I want to make money too. Everyone does, but making money off unethical companies can actually bite you in the long run. The problems created can often be more interconnected and holistic than you might think...

  7. #82

    Default Re: Chesapeake Business Practices

    Quote Originally Posted by KilgoreTrout View Post
    Listen, I want to make money too. Everyone does, but making money off unethical companies can actually bite you in the long run. The problems created can often be more interconnected and holistic than you might think...
    In the past 30+ years I have only been burned once by a companies oops. Union Carbide at Bhopal. And even that was not too bad for my portfolio. Every company that has stock, benefits some and makes money at the expense of others. I would reconsider an investment only if it can be proven beyond a reasonable doubt (mine) that their behavior is illegal. If corporate behavior is legal in Macedonia but illegal here the choice is easy. US laws do not apply in Macedonia and yes I would still invest. I do not make the intellectual mistake of holding companies accountable for US laws on their overseas behavior. It is silly to do so. Our laws do not reach them there why should my concern reach there either?

    Do I care that the clothes that we wear, you too KT are made in sweat shops overseas, nope I do not. Way too many folks blow and crow about their choices about only using products that adhere to their paraochial viewpoints. We ALL buy gasoline that was refined from petroelum that was imported from countries that support terrorism but we still drive.

    KT swear off all petroleum based products, gasoline, plastics etc unless that petroelum was positively produced here in the USA and then your thoughts would have some. When you and all of us are supporitng the middle eastern emirates with our petor dollars it is really unseemly to be upset about my robber baron profit attitude.

  8. Default Re: Chesapeake Business Practices

    Quote Originally Posted by MustangGT View Post
    In the past 30+ years I have only been burned once by a companies oops. Union Carbide at Bhopal. And even that was not too bad for my portfolio. Every company that has stock, benefits some and makes money at the expense of others. I would reconsider an investment only if it can be proven beyond a reasonable doubt (mine) that their behavior is illegal. If corporate behavior is legal in Macedonia but illegal here the choice is easy. US laws do not apply in Macedonia and yes I would still invest. I do not make the intellectual mistake of holding companies accountable for US laws on their overseas behavior. It is silly to do so. Our laws do not reach them there why should my concern reach there either?

    Do I care that the clothes that we wear, you too KT are made in sweat shops overseas, nope I do not. Way too many folks blow and crow about their choices about only using products that adhere to their paraochial viewpoints. We ALL buy gasoline that was refined from petroelum that was imported from countries that support terrorism but we still drive.

    KT swear off all petroleum based products, gasoline, plastics etc unless that petroelum was positively produced here in the USA and then your thoughts would have some. When you and all of us are supporitng the middle eastern emirates with our petor dollars it is really unseemly to be upset about my robber baron profit attitude.
    Because, like it or not, we are a country on a planet with other countries. We cannot be a nation that props up rogue companies running around violating the laws of other sovereign nations. We wouldn't tolerate China opening factories in the USA and paying ten cents an hour simply because they're not violating Chinese law - it would be all important that they would be violating US law and we would have every right to do whatever necessary to enforce our laws. The same - shock of shockers - applies to other countries as well.

    Your seeming lack of social conscience is troubling. It sounds very much like Mussolini and his contempt for anything that wasn't Italian and his fascist beliefs that what's best for Italy is all that matters - the rest of the world be damned. America, under every president, has never had the total disregard for the laws of other sovereign countries that you seem to show.

    To bring this back on topic, CHK seems a very good stock for you. Aubrey Kerr McClendon doesn't give a damn about people in Pennsylvania and other places where he is the modern day plunderer of resources with little care for the people that live there. Google 'Chesapeake' and 'Pennsylvania' and read how CHK deals with local people there (and elsewhere) with complete contempt.

    With all due respect, as you've written plainly on your beliefs, you're a perfect match with CHK.

  9. #84

    Default Re: Chesapeake Business Practices

    And you are a not a perfect match but you find excessive time to berate the subject. That tells an observant person how important you find slamming an OK company. As to social conscience my first loyalty is to my wallet. EVERYTHING is secondary to that. Me doth think you protest WAY too much. You and I will never agree on this subject and I am okay with that. You need to be okay with it also. Mussolini and Facism I guess that is the best you can do, I thought you had higher capabilities, we need to go back to the discourse of CHK. You hate them and I find them a profitable enterprise.

    AND THAT IS THAT!!!

  10. Default Re: Chesapeake Business Practices

    Quote Originally Posted by MustangGT View Post
    And you are a not a perfect match but you find excessive time to berate the subject. That tells an observant person how important you find slamming an OK company. As to social conscience my first loyalty is to my wallet. EVERYTHING is secondary to that. Me doth think you protest WAY too much. You and I will never agree on this subject and I am okay with that. You need to be okay with it also. Mussolini and Facism I guess that is the best you can do, I thought you had higher capabilities, we need to go back to the discourse of CHK. You hate them and I find them a profitable enterprise.

    AND THAT IS THAT!!!
    I understand that we can disagree and I'm perfectly comfortable with that. However, I'm not comfortable with the idea that you think I seemingly don't have the right to continue posting material concerning the ongoing question of CHK business practices. Protest too much? I just continue to present the latest AubreyNews and if you want to call that "protesting too much," then that's your right too. I have tried to explain why I am concerned about CHK because of my love for Oklahoma City. You can't just pretend that they're not under a critical microscope over there at 63rd and Western. They are. It's worrying at times. The Oklahoman fails to report anything negative about Chesapeake and/or Aubrey Kerr McClendon. I don't think that censoring the news the way they have regarding all the questions regarding CHK corporate governance is a healthy thing. In the long run, it may be a huge disservice to the people of our city that the local newspaper failed to warn us about certain things. I DO. So, it may look like I am protesting "too much," but it's simply trying, in a small way, to bring these things to light.

    There's a big misunderstanding about why people watch certain corporations. It's not a "grudge" or anything else - it's a concern for my city in the long-run. Period. Also, and this is important, this business about "If you don't own CHK stock then you shouldn't be worrying about anything." That is so wrong. The hometown for any corporate headquarters has a huge stake in how a major company in the town is being run - for better or worse. Also, pensioners have CHK stock in many, many pension funds. It's not only buyers of individual stocks that have an interest financially. Many people forget that - or don't understand it.

    I feel it's vitally important to keep an eye on how things are run at CHK - it's a public company with a huge presence in Oklahoma City and many people will rise and fall with the actions of CHK - and many times, the actions of just one man, in this case Aubrey McClendon.

  11. #86

    Default Re: Chesapeake Business Practices

    First off, you probably wouldn't realize if you supported a company that hurt you or people you know because effects are not always direct.

    Secondly, you never answered my question: Would you buy stock in a company that helped Nazi Germany fund and supply their war machine?

    Finally, just because I use gasoline that has a bad effect does not mean that you should write off making any ethical decisions ever. Your logic is very either/or.

  12. #87

    Default Re: Chesapeake Business Practices

    Mike I can see you are passionate about CHK. I am curious as to why this company interests you so much to the exclusion of others. I have never seen you berate Devon or any other corporate entity. Does that mean they are the perfect no bad company? How about Hobby Lobby any thoughts there? Generally when I see the type of energy you are expending I immediately conclude "axe to grind" in the majority of cases I am correct or having felt "wronged" by the target entity..

    If you are really so concerned about OKC then why not the attention to detail on other companies? Having been an investor in companies for over 20+ years. As to the pensioners leave that to the fund managers to deal with they are smarter than everybody on this board put together. They are pros. Out of curiousity if CHK were to disappear tomorrow what if any negative situations will you be DIRECTLY be subjected to loss of of, loss of income etc???

    KT currently I own stock in the company that produced the poison gas used in the death camps many years ago and my statement to that is SO WHAT? If I had been alive back in WWII and known then no I would not have owned their stock. But to say or infer that it is bad to own that companies stock today is hubris/stupidity of the FIRST magnitude. That is like saying do not own BP becasue of the spill in the gulf which is equally STUPID.

  13. #88

    Default Re: Chesapeake Business Practices

    Quote Originally Posted by KilgoreTrout View Post
    Finally, just because I use gasoline that has a bad effect does not mean that you should write off making any ethical decisions ever.
    That makes all of us hypocrites. At least I have the integrity/character to admit mine. You kinda/almost admitted yours and that is the first step to betterment.

  14. Default Re: Chesapeake Business Practices

    Quote Originally Posted by MustangGT View Post
    Mike I can see you are passionate about CHK. I am curious as to why this company interests you so much to the exclusion of others. I have never seen you berate Devon or any other corporate entity. Does that mean they are the perfect no bad company? How about Hobby Lobby any thoughts there? Generally when I see the type of energy you are expending I immediately conclude "axe to grind" in the majority of cases I am correct or having felt "wronged" by the target entity..

    If you are really so concerned about OKC then why not the attention to detail on other companies?
    Hobby Lobby is a private company. Devon is managed rather conservatively. But that's not the right question to even ask, Mustang.

    Again....

    If you weren't an active investor, didn't keep up with the national financial media, etc. there is a real good chance that you wouldn't know half of the things I (and a few others) have reported on in this thread. I have explained about the complete blackout (censorship) of negative news about Chesapeake Energy in The Oklahoman and other news outlets here in Oklahoma City. So, and this isn't really that difficult, I have used this thread as a small way to keep people informed about the issue of corporate governance at CHK and the many concerns raised by people throughout the financial community.

    Why not another Oklahoma City company? Because, to the best of my knowledge, there's not another company that has a CEO who has become (and unknown to most people in Oklahoma City) the poster boy for rogue CEOs and poor/questionable corporate governance among corporate entities in the entire country! There is complete censorship on this issue in OKC because of the influence that Aubrey Kerr McClendon has in our community.

    It's worrisome. And if something happens because of all these questions, it won't be because I wasn't warning people. Why do people get involved in anything, MustangGT? I haven't personally been wronged in any way by CHK or AKM - but that's not the litmus test for getting involved in a situation of this magnitude. This has attracted the attention of so many across the country - but the news is censored in CHK's hometown newspaper. So, here I stand. Unapologetically shining the light in Oklahoma City.

    It's really that simple and without ulterior motives or intrigue.

  15. #90

    Default Re: Chesapeake Business Practices

    And here I stand investing in companies that I believe will lead to long term appreciation. I am well aware of the governance situation at CHK and this thread really educated me about nothing I did not alredy know for quit some time, you were a day late and a dollar short to my office. I have many frineds who work for CHK and the industry in general. Still I invest and believe there is a great prospect for long term appreciation.

    Aubreys actions are no mystery to people who pay attention and apparently we both do. The difference is I do not care as long as the stock price is rising long term. As to the news outlets here in OKC the Oklahoman is no help and the Gazettes is a bottom of the birdcage rag with no redeeming relevance except to social gadflies. I read that screed to get a laugh at the stupidity of the owner, editor, and writers.

  16. #91

    Default Re: Chesapeake Business Practices

    This is the cover story for the latest addition of Forbes:



    Billionaire Wildcatter, Risk Addict Aubrey McClendon Has Bet It All On Shale
    This story appears in the Oct. 24 edition of Forbes magazine.

    Before we sit down to a dinner of steak and fries, billionaire wildcatter Aubrey McClendon handles the wine bottles arrayed on the table of Oklahoma City’s well-worn Deep Fork Grill. “This one’s okay, a $10 wine. Here’s another $10 wine.” He grins: “It’s up to you, Chris: We can drink cheap wine, or we can drink good wine.”

    McClendon’s proposition was rhetorical. He co-owns the restaurant and had already picked the wine, which was decanted two hours ahead of time. Only the royal stuff: a 1989 Petrus, a 1989 Haut Brion and, conspicuously, a 1982 Lafite Rothschild. Easily ten grand worth of tipple.

    Erudite and confident, with rimless glasses pinned to a face that looks far younger than his 52 years, McClendon is charming. And he’s not shy about spending money. Professionally, he’s combined those attributes to stunning effect, building Chesapeake Energy into the nation’s second-biggest producer of natural gas after ExxonMobil, pumping 3 billion cubic feet per day out of the 13.7 million acres it controls—a landholding roughly equivalent to West Virginia.

    The more time you spend with *McClendon, the more your head spins, less with classy spirits than dazzling stats. Chesapeake boasts a $17 billion market cap, on track to generate $2 billion in profits on $9.5 billion in revenues. It employs 12,000 people, not including 4,500 land scouts scouring every acre of America for drilling potential and added 3,300 employees so far this year. FORBES estimates McClendon’s personal fortune exceeds $1.2 billion, including his 2.5% personal stake in nearly every Chesapeake well, real estate and 19% of the NBA’s Oklahoma City Thunder, which he helped move from Seattle to his hometown amid much acrimony. He is without a doubt the most admired—and feared—man in the U.S. oil patch.

    But he’s also the most reckless, the alpha wildcatter with an off-the-charts risk tolerance. It proved nearly fatal in 2008, when extreme leverage, aggressive financing and plunging oil and gas prices combined to crush Chesapeake shares by 80%. McClendon was forced to sell nearly all of his own shares to meet margin calls. The company had to write down billions.

    Even as Chesapeake has rebounded heroically, acquiring and *developing vast new shale formations responsible for boosting gas supplies to alltime highs, I’ve been critical of McClendon, called him everything from dangerous to overpaid and suggested that the company he built would fare better without him.

    Determined to show otherwise, McClendon, who maintains that “a key to success in any walk of life is having a short memory and a thick skin,” responded with the Bordeaux-fueled charm offense. He threw open the doors of Chesapeake, making available two dozen executives—the chief operating officer, general counsel, senior engineers, the pipeline chief, even Chesapeake’s athletic director—as well as the mayor of Oklahoma City, the former state attorney general and the architect who helped design Chesapeake’s beautiful campus. We took a helicopter out to a drilling rig. We filled up an SUV at a compressed natural gas station. Chesapeake even unilaterally moved me to a nicer hotel downtown (FORBES picked up the tab, of course).

    He may have changed my room, but McClendon didn’t entirely change my view of his company. What’s impressive: He got off the mat to lead the charge of America’s natural gas revolution. What’s troubling: McClendon doesn’t seem to have learned from his near-death experience. (See also “In His Own Words: Aubrey McClendon Answers 25 Questions“)

    McClendon could have had an easy life in the energy business. His great uncle Robert Kerr, a governor of Oklahoma, founded oil giant Kerr-McGee; his dad became an executive there. But after graduating from Duke with a major in history, a minor in accounting and a short stint watching a more-entrepreneurial uncle crash out during the 1982 oil bust, McClendon set out on his own as a landman. The lowest level of oil-business dealmakers, landmen scout acreage, figure out who owns the mineral rights and then lease it, paying the owner a bonus plus the promise of a royalty.

    After too many bidding wars with another young landman, Tom L. Ward, the 23-year-olds threw in together, and in 1993 Chesapeake went public. (Ward split with McClendon in 2006 and started his own company, SandRidge Energy. Ward sidesteps questions about disagreeing with McClendon: “I have no doubt they know what they’re doing. They’re a smart management team.”)

    Through the 1990s Ward and McClendon gobbled up land across Texas and Louisiana and utilized new horizontal drilling techniques. But they mostly came up dry—a huge problem when oil and gas prices slumped, especially as they were wildly leveraged, with debt levels exceeding assets. By the end of the decade company shares had lost 90% of their value.

    But McClendon’s landman background would prove fortuitous. Most energy company CEOs are geologists and engineers: For decades successful wildcatting meant figuring out where the oil and gas was. But technology has made finding and extracting the stuff easier, and birthed a boom in drilling shale—thin layers of rock a mile or more underground that reach for miles across the landscape. With enough estimated shale gas to satisfy 20 years of supply, industry greatness now revolves around grabbing vast amounts of land (the biggest field, the Marcellus Shale, stretches from New York to West Virginia). “I felt like I had a natural advantage over most of them,” says McClendon, “because I understood how to put together a very formidable land machine to capture the flag in big plays.”

    McClendon’s land machine was humming along in July 2008, when oil peaked at $147 a barrel and natural gas at $14 per thousand cubic feet. That summer he did a joint venture with Plains Exploration, valuing some of his property in Louisiana’s Haynesville Shale at $30,000 an acre—a level unseen before or since. Its stock flying—it would soon hit $70—Chesapeake raised $2 billion in an equity offering.

    Ever confident, McClendon doubled down: His personal balance sheet resembled Chesapeake’s as he borrowed against his existing holdings to buy another 750,000 shares in that offering. Lousy timing: By October, as the economy imploded, with energy prices falling in lockstep, Chesapeake’s stock price halved, and McClendon was hit with margin calls. As 30 million of his shares (more than 90% of his holdings) were liquidated, Chesapeake’s share price halved yet again, down to $12. (A class action alleges the company didn’t clarify the risks posed by McClendon’s margin loans.) As his fortune vaporized, McClendon didn’t flinch. “I never saw him blink,” says Michael Stice, CEO of Chesapeake’s pipeline company. “He was a rock.”

    It helped, of course, that McClendon’s handpicked board quickly salved his hardship. For 2009 he was rewarded with a $100 million pay package, including a $20 million stock grant. The company paid another $12 million in cash to buy his personal collection of antique maps of the American Southwest. Most critically, he also got $75 million, over five years, toward an unusual perk that allows McClendon to invest his own capital (or in this case, the capital that the company gave him for this purpose) alongside Chesapeake for a 2.5% stake in every well the company drills. He can’t pick and choose—it’s all or nothing. He’s been doing this since Chesapeake’s founding, giving him personal well stakes worth some $500 million, key to his resurgent $1.2 billion fortune.

    “You could say I’m the only CEO in America who truly participates alongside his company in the day-to-day business activity on the same basis as the company,” says McClendon. Then he adds, a bit sanctimoniously, “Would we have had the financial collapse in 2008 if every CEO of a bank, of a mortgage company or a securities firm had been forced by his board to participate personally in some proportionate part of every loan made, every mortgage-backed security sold or every real estate deal financed by those firms?”

    A fair point that Wall Street reformers have made—but one that mischaracterizes his own exposure. Yes, he and his shareholders are aligned when it comes to the wells. But McClendon’s participation has nothing to do with Chesapeake’s exposure above the ground, and it’s those highly complicated land deals that present an enormous risk—and need a deeper look.

    On a hot August morning a couple of Chesapeake execs and I take off in a helicopter heading out west from Oklahoma City. Rigs once again dot the landscape, but they’re going after far deeper and trickier targets, like Woodford Shale or the Granite Wash, than drillers did back in the early 1980s heyday. This is Chesapeake’s real estate grab at work.

    McClendon’s land machine starts with 4,500 agents supported by a unique database of 20 million property records, scanned from a century’s worth of county courthouse ledgers. McClendon’s team can figure out who owns title to land in prime shale territories—without the competition knowing they’re looking. “It’s hard to compete with them, they send an army,” says Richard Hunter, vice president at Carrizo Oil & Gas, a smaller Houston rival. “You need to get there a couple days before they do.”

    Over the past five years Chesapeake has entered into 600,000 leases covering 9 million acres, paying out $9 billion in lease bonuses to landowners in the process—so much land that it would take Chesapeake 30 years to drill it all. And the more new shale plays uncovered, the more land McClendon continues to acquire. Chesapeake has piled on $10 billion in long-term debt and raised billions more through financial finagling to gobble up its acres. McClendon argues it’s money well spent because there’s only a small window to get good acreage for low prices. As Jeff Mobley, his investor relations spokesman, explains: “If we lived within cash flow we’d miss the opportunity.”

    But think about it: what value is it to shareholders for Chesapeake to be sitting on gas fields it won’t get around to drilling for a decade or more? Especially when every year it has to pay interest on the debt it took on to acquire the acreage. It’s like if General Electric built a factory to make LED lightbulbs then just kept it in mothballs.

    As with other levered financial concoctions, that dicey strategy works only if the price of the underlying asset stays high. When the market booms, it’s fine. Consider the Eagle Ford Shale play in south Texas, where Chesapeake spent $1.7 billion to acquire 700,000 acres in 2010. The industry fell in love with the spot because much of it contains “wet” gas rich in liquids like propane and butane that sell for a big premium to natural gas. In November 2010 McClendon forged a joint venture in which China’s state-owned Cnooc paid $1.1 billion upfront for a one-third stake in Eagle Ford and pledged to put up $1.1 billion more to pay for drilling costs. Presto! Chesapeake got back nearly all its initial investment, hitched a ride on drilling costs, yet still managed to hang on to two-thirds of the play.

    Since 2008 McClendon has raised more than $10 billion through asset sales and $6 billion in drilling carries via similar joint ventures with the likes of BP, Statoil and Total. He’s raised billions more issuing stock (expanding shares outstanding by an average 12% a year versus 2% for the industry). But it’s still not enough, and the difference comes from borrowing—Chesapeake’s debt-to-capital ratio of 40% is the highest in its peer group.

    It gets more exotic from there, as Chesapeake avails itself of innovative financial tools on a massive scale. Chesapeake is set to raise some $500 million this year in the IPO of a royalty trust, where investors buy the rights to future proceeds from specific fields. And they are big in options and derivatives, collecting premiums today by selling call options down the road. Such hedging has generated $7.7 billion in realized gains since 2006. But some contracts, like selling 2015 crude oil calls at $85 per barrel, would leave a lot of money on the table if oil prices soar again.

    More notably, it’s raised $5.6 billion from so-called volumetric production payments, or VPPs—selling the rights to 15 years or so of future production from a particular field in exchange for cash upfront. Ches*a*peake’s peers don’t often engage in such odd financing; they don’t need to. “No one’s done as many as we have,” boasts finance chief Domenic Dell’Osso. Adds investor relations guy Mobley: “If there’s incremental value to be gained, we’re willing to be more complicated.”

    Some Chesapeake skeptics compare the company to Enron, something that sends the usually affable McClendon into a “highly insulted” rage. “We are the definition of the anti-Enron,” he says. “They sold all their oil and gas assets; that’s all we have.” In the largest sense McClendon is correct: Enron is a two-syllable synonym for fraud, and as much as Chesapeake’s tactics can be criticized, they are transparent, and I’ve never found anything or heard anyone that suggests illegal behavior.

    Instead much of the similarity is cultural: Just as Enron in Houston a decade ago, Chesapeake is the surging company in an energy-reliant town, popping its name on the local pro sports arena, filling up the skyline (McClendon’s campus feels more like a university, with 20 low-slung buildings, mostly in Georgian style) and gobbling up the local smartest guys in the room. Some of those comparisons also stem from complicated accounting. Sharp-penciled analysts like Phil Weiss at Argus Research and Bob Brackett of Bernstein Research both consider those VPPs to be off-balance-sheet debt—loans to be repaid in gas instead of cash. Through them, Brackett says, Chesapeake is “effectively helping to achieve [its promised] debt reduction by sweeping debt from on-to off-balance-sheet vehicles.” (The company disputes this.)

    S&P and Moody’s also consider VPPs to be off-balance-sheet debt. Last year, when Chesapeake used VPP proceeds to retire debt, Moody’s balanced that out by counting the VPP as new debt. It also tagged Chesapeake on retiring $2.6 billion in debt with proceeds from issuing convertible preferred stock, counting it as 50% equity and 50% debt. Audit Integrity, a watchdog group, ranks Chesapeake’s accounting “aggressive.” Carl Icahn saw the danger. In 2010 the activist investor bought a 6% stake for $1 billion and agitated for slashing the debt. By the spring, he’d convinced McClendon to sell $6.7 billion in assets and sold his own shares—for a $500 million gain.

    The land business amounts to a shadow company within Chesapeake, sucking in some $6.5 billion in cash a year for land acquisitions and spitting out $5 billion in proceeds from acreage sales. That’s almost as much cash in and cash out as the supposedly core oil-and-gas business. But you wouldn’t know it from the income statement. No land acquisitions or sales show up there.

    That’s because Chesapeake uses the so-called full-cost accounting method rather than the more common “successful efforts.” Full cost is legit, but it has the effect of obscuring the extent of Chesapeake’s land deals and the impact of the debt load it carries to finance them. Instead of being listed as expenses deducted from revenue, all of Chesapeake’s big costs—of land and drilling and its $700 million a year in interest payments—are capitalized on the balance sheet.

    The effect is that net income looks higher (or lower, depending on the deal). If Chesapeake used successful efforts, the proceeds of selling land would flow through the income statement and end up as higher earnings per share—$14 billion since 2008. Instead that $14 billion is deducted from its carried costs, effectively reducing its cost basis on the rest of its acreage. This is how Chesapeake can boast the industry’s lowest cost reserves.

    The accounting method also hides mistakes—like the $325 million Chesapeake spent buying land in Michigan in 2010, thinking that it had found a hot new play. It hadn’t. Chesapeake now faces 100 lawsuits for trying to back out of some leases.

    Even when the company finds gas, it sometimes doesn’t pay to drill. For instance, the company needs natural gas prices of only $2.25 per thousand cubic feet to break even in the Marcellus (prices are currently around $4). But in Louisiana they need $3.50 and in Texas, $4.50. Yet McClendon’s crews have been drilling at a breakneck pace in the latter two, even at a loss.

    Why? Use it or lose it: Chesapeake must contractually sink at least one well on each leased section within three years or forfeit the rights. Extrapolate this across the nation’s gas plays and it’s easy to see why prices may stay low and why McClendon’s land machine, the heart of Chesapeake’s greatness, could take the company over a cliff.

    The other possibility, the tantalizing one that makes McClendon such a magnetic figure, is that he could solve America’s short-term energy needs. Shale plays are thought to hold enough gas to satisfy 20 years of U.S. demand, and McClendon tirelessly boosts plentiful, clean-burning natural gas as a magic bullet that can rid America of dirty coal and imported gas. He has taken his case to state houses, Congress and the public, through his ubiquitous TV ads.

    Listening to him proselytize, while sipping the finest wine on Earth, it’s easy to forget the epic paychecks or that Chesapeake has twice gone into cardiac arrest on his watch. “We have found something that can liberate us from the influence of OPEC, that can put several million Americans back to work, liberate us from $4 gasoline,” McClendon says. “Is it too good to be true? Sometimes it seems that way.”

  17. #92

    Default Re: Chesapeake Business Practices

    Read Chesapeake's reaction to the Forbes piece:
    http://www.okgazette.com/oklahoma/ar...ur-guest_.html

  18. #93

    Default Re: Chesapeake Business Practices

    Quote Originally Posted by urbanity View Post
    Read Chesapeake's reaction to the Forbes piece:
    http://www.okgazette.com/oklahoma/ar...ur-guest_.html
    If Chesapeake has disputed several parts of the Forbes story as being inaccurate, as the company told the Gazette, then why is it posted on the front page of its website?
    Chesapeake has also been promoting the Forbes story on twitter too. Makes no sense.

    http://www.chk.com/News/Articles/Pag...01_Forbes.aspx

  19. #94

    Default Re: Chesapeake Business Practices

    Update: Chesapeake spokesman, Forbes journalist respond to posted article:

    http://www.okgazette.com/oklahoma/ar...st-part-2.html

  20. #95

    Default Re: Chesapeake Business Practices

    There is an article in today's Journal Record reporting that CHK is going to pay a settlement in the 2008 lawsuit brought by shareholders regarding the huge compensation Aubrey received that year.

    You may recall he was the highest paid CEO that year despite the fact the CHK stock price struggled. The big payout also came immediately after he lost most his fortune through a CHK stock margin call.

  21. #96

    Default Re: Chesapeake Business Practices

    I wasn't able to find out much as far what the terms of the settlement are, which still has to be approved by the trial court. Nobody is talking. I'd be interested in hearing from anybody out there who knows more.


    Chesapeake to settle shareholder lawsuit

    By Brianna Bailey
    Oklahoma City reporter - Contact 405-278-2847

    OKLAHOMA CITY – Chesapeake Energy Corp. is in the process of settling a shareholder lawsuit over CEO Aubrey McClendon’s 2008 compensation package that topped $112 million, according to court records.

    Attorney Marc Gross, who represents shareholders in the lawsuit, and Jim Gipson, a spokesman for Chesapeake, both declined to comment on the pending settlement this week.

    The parties agreed to settle the lawsuit and dismiss all claims soon after the shareholders petitioned the Oklahoma Supreme Court to look at the case in September, according to court documents filed in the case.

    Several large investors filed lawsuits over McClendon’s 2008 pay, including pension funds for Louisiana school employees, New Orleans municipal workers and employees of York County, Pa. The lawsuits were later consolidated in Oklahoma County District Court.

    McClendon’s compensation package in 2008 included a $76.9 million bonus and a $32.7 million stock award, drawing the ire of many investors in a year the company’s stock price fell 60 percent. His 2008 earnings made McClendon the highest-compensated CEO in the country that year.

    The shareholders claimed in the lawsuit that Chesapeake’s board of directors breached its fiduciary duties to the company by awarding the generous pay package for McClendon.

    The board approved McClendon’s compensation soon after he was forced to sell off most of his stock in the company to meet margin calls in October 2008.

    District Court Judge Twyla Mason Gray tossed the lawsuit out of court in February 2010, ruling that the shareholders hadn’t asked Chesapeake’s board of directors to return McClendon’s 2008 pay package to the company before suing.

    The Oklahoma Civil Court of Appeals upheld Gray’s ruling in August. The shareholders then petitioned the Oklahoma Supreme Court in September, but have since reached a settlement with the company, according to court records.

    The settlement still has to be approved in Oklahoma County District Court, according to court records.

    Two more investors, Lee Arnold of Missouri and California resident James Clem, filed separate lawsuits in September in U.S. District Court for the Western District of Oklahoma over McClendon’s pay. Both of the lawsuits are still pending.

  22. #97

    Default Re: Chesapeake Business Practices

    Thanks as always, Brianna. You do a great job.


    I would expect the terms of the settlement will never be made public; that is usually a required condition of the party that is settling. However, since pension funds were involved and they have to report to those their participants, some information may be available down the line.

  23. #98

    Smile Re: Chesapeake Business Practices

    [QUOTE=Pete Brzycki;477491]Thanks as always, Brianna. You do a great job.


    I would expect the terms of the settlement will never be made public; that is usually a required condition of the party that is settling. However, since pension funds were involved and they have to report to those their participants, some information may be available down the line.[/QUOTE

    Many thanks

  24. #99

    Default Re: Chesapeake Business Practices

    UPDATE 2-Chesapeake CEO to repay $12 mln for map sale
    Wed Nov 2, 2011 10:53pm GMT Print | Single Page [-] Text [+]
    * Settlement needs court approval

    * Also places restrictions on executive stock trades

    By Anna Driver

    Nov 2 (Reuters) - Chesapeake Energy Corp CEO Aubrey McClendon plans to reimburse the company $12 million it paid to purchase his antique map collection in 2008 as part of a settlement with shareholders angered by the transaction.

    The preliminary settlement, filed in Oklahoma state court on Tuesday, also places restrictions on senior management's right to hold company stock in a margin account or make speculative trades with Chesapeake shares.

    The settlement requires court approval, after which ownership of the maps will revert back to McClendon.

    McClendon, who founded the company and is one of the industry's most visible proponents of natural gas, was forced to sell 94 percent of his Chesapeake shares in 2008, amounting to 6 percent of the company's outstanding stock, to meet margin calls.

    That same year, the company's board awarded a $75 million bonus to McClendon in a year when its stock fell 60 percent. The sale of his map collection to the company in 2008 also netted McClendon a $4 million profit.

    Influential proxy advisory service ISS this year opposed McClendon's reelection to the company's board, citing unresponsiveness to investors and compensation issues.

    At this year's annual meeting in June, more than 40 percent of the company's shareholders rejected Chesapeake's executive pay plan, and McClendon was reelected with 78 percent of the vote.

    Before the settlement, Chesapeake had already taken some steps in respect to its governance practices. It hired a compensation consultant and a lead independent director this year.

  25. #100

    Default Re: Chesapeake Business Practices

    "At this year's annual meeting in June, more than 40 percent of the company's shareholders rejected Chesapeake's executive pay plan, and McClendon was reelected with 78 percent of the vote."

    ------
    how bout them maps!

    anyway i havent paid too close attention lately, but...

    Cramer had him on again on Mad Money today. I didnt realize they (CHK) were trying to play catch up, change strategy, and shift their company focus toward the oil plays to become more "balanced". It sounds like a bit of a scramble to diversify now with nat gas at 52 week lows....fair enough.

    Sandridge was ahead of the game in this regard, so i find it interesting that CHK is sort of loosely following the SD gameplan as far as spinning off these MLPs which are high yielders but somewhat murky, for funding needs....all in all it can't hurt to be diversified energy wise. However regarding the CHK share price, i was surprised to hear Aubrey say they are going to be spending more in 2012 than they expect to take in, but its all due to fund the ventures into the oil plays, which is what SD has been doing for a few years, but its in a murky financing environment and thats why the share price of CHK is under some pressure lately.

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