How Chesapeake Energy, the Kings of Fracking, Double-Crossed Their Way to Riches

[cali]

Thanks to a series of shady deals with former subsidiaries—and massive cuts in royalties to unsuspecting landowners—the controversial shale gas firm is now awash in cash.

At the end of 2011, Chesapeake Energy, one of the nation’s biggest oil and gas companies, was teetering on the brink of failure.

Its legendary chief executive officer, Aubrey McClendon, was being pilloried for questionable deals, its stock price was getting hammered and the company needed to raise billions of dollars quickly.

The money could be borrowed, but only on onerous terms. Chesapeake, which had burned money on a lavish steel-and-glass office complex in Oklahoma City even while the selling price for its gas plummeted, already had too much debt.

In the months that followed, Chesapeake executed an adroit escape, raising nearly $5 billion with a previously undisclosed twist: By gouging many rural landowners out of royalty payments they were supposed to receive in exchange for allowing the company to drill for natural gas on their property.

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http://www.thedailybeast.com/articles/2014/03/13/how-chesapeake-energy-the-kings-of-fracking-double-crossed-their-way-to-riches.html

[CBGLuthier]

1. That office complex of theirs is a quarter mile from my house

They have spent the past ten years bullying property owners to take over a chunk of land. When a Subway restaurant refused to leave they boycotted them until they finally gave up. They have built enough office space for ten companies and also developed commercial properties nearby. I think McClendon was a world-class crook attempting to create a real estate empire on the back of the gas company.

[jsr]

2. This is a must read.

[cali]

3. is there a sleazier more destructive industry currently operating in the U.S.?

[jsr]

4. The 'fracking pioneer' is also a lowlife crook. He's working on a startup:

http://blogs.wsj.com/moneybeat/2014/02/21/a-5-billion-valuation-for-aubrey-mcclendons-ohio-startup/

Feb 21, 2014
A $5 Billion Valuation for Aubrey McClendon’s Ohio Startup

Mobile messaging service WhatsApp isn’t the only closely held company this week to notch an eye-popping valuation.

An oil-and-gas business launched in April by former Chesapeake Energy Corp. Chief Executive Aubrey McClendon has quickly achieved a $5 billion equity valuation, according to the terms of convertible bonds that it said this week it had sold. The firm has raised about $2 billion in equity, including the $750 million convertible bond, giving its investors a $3 billion paper profit — in less than a year.

To be sure, at $5 billion, the Ohio business’s valuation is largely based on promise. Neither American Energy Partners nor its Utica subsidiary has released financial results, and it’s unclear if either has significant revenue yet.

[DURHAM D]

5. Oil and gas companies have always screwed farmers and ranchers

out of royalties but this takes it to a whole new level.

Must read. Thanks for posting.

[cali]

7. yes, I thought I knew the worst of it, but evidently I didn't.

[Paladin]

6. I know whereof I speak on this:

Even within the U.S. energy industry, Chesapeake has a bottom-of-the-barrel shitty reputation. Those of you who own mineral rights, don't ever enter into lease agreements with Chesapeake---it's not a question of whether they will fuck you over, it's just when.....

[DURHAM D]

8. Yep.

The offered lease agreements are truly a study in creative writing. When reading through one I am always reminded of what my father would say - "If they are in the oil and gas business and their mouth is moving they are lying".

jftr - He was in the business for many years (1930s - 1960s) but got out because he could not stomach it anymore.

I have friends that work for Devon and Chesapeake and if you get them a little cocktailed at parties that can tell some tales.

[Paladin]

9. No question that printed-form oil & gas leases favor the energy companies.

That's why I always advise landowners to consult with a lawyer who's familiar with oil and gas law. It's money well spent: most oil companies will agree to higher royalty rates, specific surface damage provisions, etc.

I have friends at both of those companies you mentioned, as well.