Rumors about Chesapeake Layoffs

[betts]

I heard Chesapeake is laying off landmen, but it sounds like they'd hired way more than is practical anyway. I also heard that somebody local bought up a bunch of the Chesapeake stock Aubrey was forced to sell.

[Turanacus]

I have nothing against Aubrey, but from I read in the WSJ - he's broke, he had to sale a billion dollars worth of stock for $32 million -OUCH! I would be pissing my pants if I had only hundreds of millions instead of billions.

[Turanacus]

I'm usually not much of an article copy-n-paster but felt this might warrant it as this company's health greatly affects our economy.



Chesapeake CEO Sells Holdings
By BEN CASSELMAN

As natural-gas giant Chesapeake Energy Corp. revealed more financial problems Friday, the company disclosed that its co-founder and chief executive, Aubrey McClendon, had been forced to sell substantially all his shares to meet margin calls.

Mr. McClendon had been a major holder in his company, owning about 33.5 million shares as of Sept. 30, a stake of more than 5%. Between Wednesday and Friday, he sold 31.5 million of those shares -- 94% of his holdings -- for $569 million, according to regulatory filings. Those shares would have been worth nearly $2.2 billion at their July peak.

Mr. McClendon said in a prepared statement Friday that he had "frequently" purchased shares of stock using margin loans from brokerages, purchases he said showed his "complete confidence" in the company. But shares of Chesapeake have collapsed this year. Shares closed Friday at $16.52 on the New York Stock Exchange, down 43% for the week and well off their 52-week high of $69.40, reached in July.

"These involuntary and unexpected sales were precipitated by the extraordinary circumstances of the world-wide financial crisis," Mr. McClendon said in the statement.

Reached by email, Mr. McClendon declined to elaborate. He co-founded the Oklahoma City-based Chesapeake, the largest producer of natural gas in the country, in 1989.

Mr. McClendon's sales came as the company was already reeling from the one-two punch of the credit crunch and falling natural-gas prices. Last month, the company announced plans to reduce its spending and sell assets to conserve cash.

On Friday, Chesapeake said it plans to sell $2.5 billion to $3 billion worth of assets in the fourth quarter and is cutting spending beyond its September announcement. It has also drawn down its entire revolving line of credit.

Chesapeake said it would slash another $1.5 billion from its 2009 and 2010 capital budget and was also making additional cuts to its 2008 spending. The move came less than three weeks after announcing it would cut $3.2 billion from its capital budget over the same time and a day after Mr. McClendon said in an interview that the company had no plans to further reduce capital spending.

As of Sept. 30, the company had $1.5 billion in cash and said it expects to end the year with $2.5 billion to $3 billion -- less than the $5 billion to $6 billion Mr. McClendon predicted in an interview Thursday.

[Turanacus]

Aubrey K. McClendon liked to boast that he hadn't sold a single share of Chesapeake Energy Corp. in years. As the company's founder and chief executive, he was a frequent buyer, borrowing against his holdings to accumulate more as the natural-gas company boomed. The value of his stake soared above $2 billion.

Then came the stock market meltdown and, last week, the calls on those loans. After a series of rapid-fire sales, Mr. McClendon now owns less than $32 million in Chesapeake shares. And investors are hoping the company, the nation's largest and most aggressive producer of natural gas, doesn't suffer a similar comedown.

"I got caught up in a wildfire that was bigger than I was," Mr. McClendon said Saturday. He declined to discuss his personal finances in detail, but said his personal situation was stable. "I'm fortunate that I have other resources and I'll be fine ," he said.

Across the country, a number of executives and other insiders, including Viacom Inc.'s Sumner Redstone and a director of Coca-Cola Enterprises Inc., are facing cash demands from their stockbrokers and banks, demands that are requiring them to sell shares to repay borrowings.

No one so far has flamed out quite as spectacularly as the 49-year-old Mr. McClendon, whose company is based in Oklahoma City.

On Friday, Chesapeake disclosed that Mr. McClendon, who is also chairman, had been forced to sell 31.5 million shares -- or 94% of his 5.8% stake -- to meet a margin call. Those shares, worth $2.2 billion when Chesapeake's stock hit $69.40 on July 2, were sold over three days last week for just $569 million. The stock closed at $16.52 Friday, down 76% from the July peak close.

Chesapeake relies heavily on debt to finance its operations but Mr. McClendon said his company won't get caught in the same inferno he did.

None of the company's debt comes due before 2012, he said, adding that the company expects to end the year with at least $2.5 billion in cash. And it plans to increase its gas production by 16% next year without borrowing or selling shares.

"I was very careful to make sure that I had the company protected against a 100-year flood," he said. "I had a completely different risk profile than the company did."

Experts said it was hard to separate the company's prospects from those of its chief executive and largest individual shareholder. "He's lost his luster, no question," said Dan McSpirit, an analyst with BMO Capital Markets in Denver.

Mr. McClendon has deep roots in the oil and gas industry. His middle name, Kerr, is one of the most famous in the Oklahoma oil patch -- but he and a partner built Chesapeake from scratch. They founded it in 1989, took it public in 1993, and nearly drove it into the ground in 1999 after betting heavily on a Louisiana gas formation that didn't work out.

He made big changes after that debacle, but his basic strategy of borrowing to buy lots of drilling acreage, often at high prices, has never varied.

Charles Maxwell, an energy analyst who has been on Chesapeake's board since 2002, said he and other directors sometimes see their role as keeping Mr. McClendon's enthusiasm in check. So when Mr. McClendon earlier this year asked to increase spending by nearly $1 billion to pursue a new opportunity in Louisiana, Mr. Maxwell was skeptical.

But Mr. McClendon convinced him that someone would spend the money and lease the land. Mr. Maxwell became a believer, saying "We just decided it would be us."

Mr. McClendon has become not just the face of his company, but also of the entire U.S. natural-gas industry. Handsome and charismatic, with unruly blond hair and an informal manner, he has appeared before Congress promoting natural gas and starred in television ads endorsing T. Boone Pickens' plan for natural-gas-powered cars.

He also has a record of stirring up controversy, sometimes far from the energy industry. He has been a major contributor to conservative causes, including Swift Boat Veterans for Truth, which ran ads attacking Democratic presidential nominee John Kerry in 2004.

And he is part of the ownership group that infuriated sports fans in Seattle by buying the Supersonics basketball team in 2006 and moving it to Oklahoma City.

His company shares Mr. McClendon's penchant for publicity. Chesapeake has sponsored ads attacking coal-fired power plants as "filthy," hired actor Tommy Lee Jones to promote its drilling efforts in Fort Worth, Texas, and announced plans to launch a daily online news program about natural-gas production that a spokeswoman once called "Aubrey's personal idea."

Mr. McClendon said he and Chesapeake had good reason to make their case vocally. "We've got more skin in the game than anybody else," he said. "I personally have more skin in the game than anybody else."

[metro]

MODS, anyway we can change the title of this thread? I don't think it's appropriate to start flaunting bad news that isn't even true at this time. We don't need to be spreading around rumors of layoffs at one of our biggest and best employers in this city, when there hasn't been any press stating layoffs are coming.

[Luke]

I don't think this board wields THAT much power.

[Steve]

Guys, you'd be surprised at who is reading this board. And that brings me to ask you - the "new media" - what responsibility, if any, is there for a board like this to ensure the information is correct?
Yes, I'm firing up the flame-thrower, just a tidbit. I will be the first to admit I keep a close eye on this site and others as part of my daily newsgathering. But Metro's comment is an intriguing turn, one I've not seen to date, and I've been wondering at what point, if ever, this sort of discussion might start up.
To be clear, I'm making no accusations, I'm not trying to insult anyone on this board. I'm simply asking - with the rising importance of sites like this, is there a responsibility to guard against bad rumors and muckraking?

[Kerry]

Can't we just post a correction notice in some unrelated thread - kind of like the New York Times does.

[BFizzy]

I suppose I should have titled it "Chesapeake Layoffs Rumor".

[BFizzy]

No, I take that back because it's not a rumor. Steve confirmed that they laid off at least 3 and probably will lay off more in the near future.

[metro]

I would say 3 contract employees being laid off isn't exactly newsworthy for a Major Fortune 500 company, now 300 or 3000 layoffs would be. Steve, I agree with you, hence my original post above. I think the site should take some credibility being "new media."

[jbrown84]

Yeah I think mods should be responsible to change thread titles that are misleading or untrue. Just helps our credibility.

[Kerry]

Maybe newspapers and "new media" should have a section called "Things we got wrong in the last 7 days" That way the correction stays out there longer than the error did and people can go to the same spot everyday to see what needed correcting.

[Some Guy]

Regarding personnel cuts:

"Mr. McClendon said the company is slowing its acquisition of new land and plans to cut about a quarter of its 4,000 land men, private contractors hired to lease land on behalf of the company." (Wall St. Journal 10-10-08)


Regarding future hedged production:

"Chesapeake also has so-called knockout swap contracts on more than one-third of its 2009 production, and those deals don't obligate the buyers to take gas when prices drop to $6.28 per thousand cubic feet of the heating and power-plant fuel, according to analyst Joseph Allman of JPMorgan Chase & Co. in New York. U.S. gas futures dropped to $6.65 today and have plunged 50 percent since the end of June.

`With natural gas close to $6.60, we think the concern about Chesapeake's knockout swaps is legitimate,' Allman said in a note to clients." (Bloomberg 10-10-08)

[hoya]

I honestly don't think there can be any form of responsibility, other than our own personal responsibility to present whatever information we might have as honestly as possible.

Most of us on this board have no professional connection to the media, and log in to this site only because we are interested in the goings on in our city. We can't be expected to hold to the same standards as a professional (i.e., unbiased objective reporting, extensive fact verification). We can only be held to the basic standards we expect of all people (honesty, no intention to purposefully mislead or do harm).

There may be some fallout from people posting sensitive or potentially damaging information, but as long as the intent isn't to damage, I don't see a problem with it. Part of the benefit of "new media" is that we get a clearer view of what is actually taking place. I think this site loses a lot of its value if it becomes a simple press release for the OKC Chamber of Commerce, or Chesapeake, etc. This site offers a bit of a glimpse of "the inside scoop", unfiltered, for better or worse. I think people who read this site understand that.

[BFizzy]

I would say 3 contract employees being laid off isn't exactly newsworthy for a Major Fortune 500 company, now 300 or 3000 layoffs would be. Steve, I agree with you, hence my original post above. I think the site should take some credibility being "new media."

Apparently, the Wall Street Journal thought it was newsworthy.

[jbrown84]

Well said, hoya. I agree with all of the above.

[Turanacus]

I think the site should take some credibility being "new media."

this is my favorite part, pretty funny

good call Metro

[wsucougz]

Steve, I agree with you, hence my original post above. I think the site should take some credibility being "new media."

It's an open discussion forum. Call it whatever you want, but readers should be smart enough to do their own due dilligence. You can quickly imagine how this would become a slippery slope for the mods - I say leave it wide open.

Of course there will always be exceptions that are just way over the line.

[Pete]

I did change the thread title to "Rumors about Chesapeake Layoffs" rather than "Chesapeake Layoffs", which is a bit misleading.

As for the role of this site and the moderators that oversee it, there are obviously lots of gray areas.

One of the great ways this site serves the community is to get information out there that might not come from conventional channels. Just on the Chesapeake subject alone, I've posted a proposed master plan of their campus (emailed to me anonymously) and portions of an email sent by McClendon to CHK employees. Neither has appeared anywhere else and add greatly to the topics at hand.

Also, this site is very much about opinion. I think it's important to provide a place where those concerned about the community can fully express themselves. It's a modern day town forum with the largest possible amount of participants and with the easy ability to add facts and get real answers to specific questions.

However, I also feel a responsibility to safeguard against unsubstantiated rumors stated as fact. There was recently something posted about a local financial institution (very negative statements about their financial position) that were completely false and misleading. After changing the thread title to more accurately reflect this, I decided just to delete the thread altogether. If someone had googled this particular company, this negative thread would be one of the first things to pop up, and that's clearly not right. And in fact, I was contacted personally by a representative from this business that raised his concerns in a very nice way.


We'll continue to do our best to balance between being an open forum and safeguarding against completely unfair and untrue rumor. But where unsure, I think it's always best to err on the side of letting information flow, at least until we're sure there are untruths that have the potential to harm.

[BFizzy]

I thought the purpose of this site was to post rumors, so that we can learn about possible OKC happenings before they are officially confirmed. That is the only reason I come to this site.

If Chesapeake lays off more people, will you change the name of the thread back? Nevermind... I don't really care about the name of the thread. It's just that there are many other threads on this board that started off as rumors and came to be true. The names of those threads were never changed.

[Luke]

As a discussion board, I consider all the comments here as valid (or as invalid) as anything I overhear at Starbucks or anywhere else conversation is had.

It's just a discussion board.

[metro]

Apparently, the Wall Street Journal thought it was newsworthy.

Agreed, but still no EMPLOYEE layoffs. They mentioned about 1,000 layoffs for contract labor, but no EMPLOYEE layoffs, as in their HQ employees. That is when we should really get concerned. I think when the majority of the lay folk read this thread, they are thinking of the HQ here in OKC and not the thousands of contract workers and laborers all over the US. Still sucks about the reduction in contract labor, especially for their families. I hope they get back on their feet soon.

[Pete]

I thought the purpose of this site was to post rumors

Rumors are fine but when they are 1) disproven or 2) likely harmful with no real validation, then sometimes it's appropriate to either make that clear or remove them altogether.

[Chefdavies]

I know my father works for a company that works with chesapeake and he is talking like he may be let go or, basically take a holiday for awhile. I know this is a rumors, but I have heard from a very reliable source, when she was working in the accounting dept at Chesapeake...well bascially things didnt add up... take it for whatever that meant, but she backed it up with statements like "bigger than Enron," dont know if she was just trying to scare the ppl in the room. What happens to the Thunder? lol