Chesapeake Business Practices

[MikeOKC]

There's that Enron mention again. "I can't remember a public company of this size with the number of shell companies used for legal protection, constant questions over management leadership and lack of board oversight, accounting practices that are questionable at best, since, I hate to say it, but Enron of 2000/2001" Probably not the exact quote but as close as I remember it within 60 seconds.

[BoulderSooner]

CHK & McClendon's risky, complex and tangled financial dealings are scary to lots of people, including a bunch of analysts who look at this much more closely than anybody in the general public.

Even without delving into the fine print we know their stock is in the toilet and that McClendon recently lost almost his entire fortune (billions!) in one day. There is also a pretty steady stream of scathing articles from reputable financial sites.

Ask yourself where you have heard comments like these before:




As I've said before, I sure hope this all works out for them but you also can't blame anyone who loves OKC for being a bit worried.

i agree with all of this except the "recently lost almost his entire fortune" part ... AM is still a Billionaire and didn't come close to losing all his fortune

[dankrutka]

\Why would a guy that has been the BEST for the city, company, and overall community for the last 20 years all the sudden be better if he was gone? Absolutely asinine..

Uh... Because he may run the company into the ground thus doing tremendous harm to OKC.

[MikeOKC]

This is the kind of thing that frightens investors.....already talking class action:
http://finance.yahoo.com/news/invest...183900623.html

[Pete]

i agree with all of this except the "recently lost almost his entire fortune" part ... AM is still a Billionaire and didn't come close to losing all his fortune

He DID lose it; he just built it back after CHK gave him a massive bonus, which was the primary reason a lawsuit was filed by some major shareholders.

He had to sell 90% of his holdings due to a margin call.

[ou48A]

At what price would any of you buy CHK stock?
Natural gas will bottom out probably this summer or early fall.
CHK is drilling mostly for oil / liquids. They are still relatively land acreage rich.
But dilution would very much concern me.

[blangtang]

Its not a hedge fund.. its a bank.. Giving out loans now lol. $CHK

I guess if natgas never recovers, $CHK can always pawn whatever McClendon is buying. So there's that...

If investors are pissed about $CHK loaning money to Aubrey I wonder how they would feel knowing it basically underwrites his OKC Thunder?

i don't know what everyone is so worked up about. it's totally normal for a CEO to borrow a billion bucks from his own company #sarcasm

http://stocktwits.com/symbol/CHK

i would say a good price is about 13 bucks, it would be around the 2008 low during the big selloff and it would be about 25% lower which would correspond to the $1.50 price target for nat gas which is about 25% lower than the current $2 bucks or so.

those employees in Oklahoma get some compensation in stock don't they? U would think they aren't might be concerned when stuff like this keeps happening

[MikeOKC]

David Dreman of Dreman Value Investments - He only owns a million shares(!) - wants Aubrey Kerr McClendon and the current Board of Directors OUT.
http://www.reuters.com/article/2012/...EN420520120418

[MikeOKC]

Yahoo Finance "Breakout" looks at the CHK deal with AKM. They are feeling the way most observers are - outraged. This is a video program and should be watched. They make some very excellent points. They are shocked at the CHK response as well. Wondering how the management team can possibly survive this.
http://finance.yahoo.com/blogs/break...165736649.html

By the way, Jeff Macke is extremely well-respected and listened to in the financial community. Watch the video. It's a rough road ahead for Aubrey.

FROM BREAKOUT (just a small part of what they discuss in the video):

Shares of Chesapeake Energy (CHK) dropped as much as 10% today on a Reuters report that CEO Aubrey McClendon may have taken as much as $1.1 billion in previously undisclosed loans secured using his stake of company oil and gas wells as collateral.

Reuters says the loans are being used to finance McClendon's re-investment in the same assets he's using as collateral. It's a leverage scheme only a derivatives trader could love.

It's not simply the fancy accounting driving CHK lower today. In the attached video my Yahoo! Finance colleague Aaron Task and I discuss McClendon's prior double-dealings, including his panicked selling of CHK stock in order to meet a margin call. The 2008 sale of 31 million CHK shares helped drive the stock 40% lower in one week.

If Reuters is to believed, this time could be different for CHK and McClendon; it could be much worse.

CHK's lawyers claim the loans, totaling more than 1 billion, are immaterial to shareholders, comically offering that "if there were any conflicts of interest they would have surfaced by now," as Task notes with a sneer. The lawyers are being "oily," to be polite.

Obviously McClendon had the incentive and ability to minimize the price paid for the the wells. He could indirectly drive it lower by managing the wells in a manner designed to make them appear less valuable than they are. More directly, McClendon could set the price himself and simply underpay. Regardless, the sole reason to make an investment is the belief that an asset is underpriced. By definition, McClendon paid less than he thought the interest in the wells was worth.

The way to maximize CHK shareholder value would have been to auction off the assets to the highest bidder or, should a reasonable bid fail to materialize, do nothing. Instead, a portion of assets belonging to CHK shareholders were sold to the company CEO at an undisclosed price.

You do the math.

Going forward McClendon now has the interest on a $1.1 billion loan to service. He needs cash every month—and lots of it. With natural gas trading at historic lows, it's not in CHK's best interest to be maximizing output into weak demand. A CEO with the vig running on $1.1 billion has entirely different concerns than your average "Buy and Hold" investor.

If Reuters is to be believed, Aubrey McClendon has nakedly taken advantage of his position as CEO of Chesapeake to profit at shareholder expense. Were his actions legal? Spun correctly and under the letter of the law, there's a good chance they were.

Was McClendon abusing his role and victimizing shareholders to his own personal benefit? Yes; yes he was. That's why so many shareholders are voting with their feet today.

[MikeOKC]

I hate to keep posting here, but there's a lot happening...and this should frighten us all....

I just got off the phone with someone who said this is good news for one company: TOTAL. The French MegaCompany (one of the Supermajor energy companies) could take advantage of this investor crisis and takeover CHK in a heartbeat. They are flush with cash, could "buy it and shelve it" until things look up for natural gas. Hyperbole? Maybe a little, but he said the purchase would allow Total a foothold that they've wanted for a long time (as shown by their partnerships with CHK). He said, "Don't count it out. This is when companies get blindsided."

CHK needs new top management and a new board to shore up the share price and offer confidence. Oklahoma City can't afford to lose CHK due to Aubrey Kerr McClendon's recklessness and shady dealings. Despite what many have said about me and CHK, I do not want Chesapeake to fail or be bought and moved. That would hurt Oklahoma City in the worst of ways. I honestly don't want to say, "I told you so," I love Oklahoma City too much and am excited about its future. But BIG changes are needed over on Western. Sooner rather than later. Like - tomorrow.

[MikeOKC]

-

McClendon just lost one of his best friends: Mad Money's Jim Cramer.

He just said he was "shocked" to learn about this. He said if he was on the Board of Directors, he couldn't support him. He pointed to a chair and said, "Aubrey McClendon sat right here in this chair (pointing), right here, and said he was sorry for the lack of transparency and all that went on with the compensation debacle of a few years ago." He's done it again. Cramer's clearly disappointed as he thinks Aubrey is a "visionary" in NatGas, but is bewildered by this - clearly a sense of betrayal.

[OKCTalker]

Board: Aubrey McClendon, Richard Davidson, Kathleen Eisbrenner, Burns Hargis, Frank Keating, Chares Maxwell, Merrill Miller, Don Nickles & Lou Simpson.

Who's going to object? Their board compensation exceeds that of any publicly-traded company that I know of, in fact, exceeds even the CEO's pay at almost all publicly-traded companies.

Whoever has the most to lose by a corporate collapse will be the first to call for a change, and perhaps one or more already have.

[onthestrip]

nothing in your post is close to the truth

Did you even read the article? How is he not using chpk as his personal bank account? Borrowing over a billion dollars because he cant fund his FWPP costs himself? Definitely sounds a little shady. And if youve read any more of this thread you will see quotes and links to other people saying the same. I mean, chpk is the only company known to allow the ceo to own a personal share of each well (the FWPP program).

This must be the same guy that said that Russell Westbrook shoots too much.. and that Paul Thompson should have replaced Jason White in the 2003 National Championship, and that he was upset when Landry Jones decided to come back for his senior season..

Why would a guy that has been the BEST for the city, company, and overall community for the last 20 years all the sudden be better if he was gone? Absolutely asinine..

Ive always been a fan of Russell, so no. And Im an OSU guy so I could care less about Paul and Landry. But you know what? If Russell were traded, Paul was inserted in that game, and Landry went pro, many of my friends would still have a job. Not so much when Aubrey bankrupts chpk.

No doubt he has been good to the city, he has done great things for okc and employed many people. I just dont want it to go away because of his irresponsible actions.

[soonerguru]

I don't know where to put this thread (and I'm sure it will be moved), so I started in the most-read forum on okctalk.com, the Urban Core forum, because I believe this story is extremely important for everyone on this forum to read and comment on.

At the basic level, it seems as if McClendon is rather cavalier with stockholders' investments. It also seems as if CHK's board is the ultimate rubber-stamp to his personal whims. Why does this guy need to borrow so much money? Can he not get by on a $100 million a year or whatever his "highest paid CEO" salary provides?

Does anyone who is educated on corporate law care to comment on the ramifications of this story?

http://newsok.com/chesapeake-stock-d...rticle/3667568

And here's a teaser:


Chesapeake stock dips on news of CEO's loans

Chesapeake Energy Corp.'s stock price lost nearly $640 million Wednesday after it was revealed that CEO Aubrey McClendon has used his personal stake in Chesapeake wells as collateral for loans.

Chesapeake Energy Corp. shares tumbled 5.5 percent Wednesday After a published report showed that CEO Aubrey McClendon has borrowed up to $1.1 billion against his stake in Chesapeake wells.

Shares of Chesapeake Energy Corp. fell to a new 52-week low Wednesday before recovering at the end of the trading day following a report about $1.1 billion...
Reuters reported Wednesday that the loans were to fund McClendon's investment in Chesapeake's Founder Well Participation Program, under which McClendon can take a 2.5 percent stake in every well drilled by the company.

[Snowman]

I don't know where to put this thread (and I'm sure it will be moved)

This is already being discuses on the Chesapeake Business Practices tread in the Local Business forum.

[dankrutka]

THere's a long thread on CHK's business model in the local businesses thread. It's on the main page right now. Not hard to find.

[soonerguru]

This is one of my favorite bits from the Reuters story:

"McClendon continues to treat his employees well. In recent years, he built a 50-acre red-brick campus in Oklahoma City as Chesapeake headquarters. It boasts a 72,000 square-foot state-of-the art gym, visiting doctors who provide lunchtime Botox treatments for employees, and dentists to whiten teeth."

What a bizarre fantasy world he's building. He's like the oil and gas version of Willy Wonca. Seriously, though, the article makes clear the company is $10 billion in debt, and scrambling to sell assets. Can some accounting whiz please explain to us simpletons how this is really nothing to worry about?

[soonerguru]

This should not be in the "local businesses thread," in my opinion. This isn't an article about a local bakery, this is a damning piece about one of the top three employers in Oklahoma City. Don't be parochial about this.

[dankrutka]

This should not be in the "local businesses thread," in my opinion. This isn't an article about a local bakery, this is a damning piece about one of the top three employers in Oklahoma City. Don't be parochial about this.

Which is also a local business. Local business does not equal small business. And, yes, Aubrey McClendon seems completely detached from reality at this point. He should change things, if nothing else, to present the appearance of sanity.

[ljbab728]

This should not be in the "local businesses thread," in my opinion. This isn't an article about a local bakery, this is a damning piece about one of the top three employers in Oklahoma City. Don't be parochial about this.

SG, no one is being parochial. You said yourself that you weren't sure what thread to put this story in. It really has nothing to do with urban OKC discussions and it is a local business. The only other possible areas would be general civic issues or current events.

[soonerguru]

Aubrey McClendon is clearly an adrenaline junkie. That's fine. Maybe he should walk a high wire for a living, but he's playing with other people's money now. Something tells me this company is toast. Perhaps it's the in-house botox treatments. Maybe it's the kool-aid-drinking mantras of the employees who work there. I don't know. But I've had REALLY BAD VIBES about this shady company and its sycophantic Republican board of directors for some time.

I agree that McClendon has done many outstanding things for OKC, but if he runs this company into the ground, the final written chapter will be terrible for our dear city. Even worse than if he had never started the company. A buyout or bankruptcy of CHK would be devastating to OKC in orders of magnitude similar to the Penn Square Bank failure.

Would you trust your life's savings with Aubrey McClendon? I wouldn't even trust him around my daughter. The guy clearly can't manage his own abundant personal resources, so why would we think he can effectively manage the resources of a multibillion dollar public company?

[betts]

I hate to keep posting here....

The lady[sic] doth protest too much, methinks.

[soonerguru]

SG, no one is being parochial. You said yourself that you weren't sure what thread to put this story in. It really has nothing to do with urban OKC discussions and it is a local business. The only other possible areas would be general civic issues or current events.

I understand what you're saying, and technically you're correct, but the possible failure of one of OKC's three biggest employers has everything to do with our city and its urban renaissance. If CHK goes tits up, OKC is screwed.

[ljbab728]

I understand what you're saying, and technically you're correct, but the possible failure of one of OKC's three biggest employers has everything to do with our city and its urban renaissance. If CHK goes tits up, OKC is screwed.

If you think the failure of one business in OKC means we're screwed you are sadly mistaken. It wouldn't be wonderful but we would survive quite nicely.

[soonerguru]

If you think the failure of one business in OKC means we're screwed you are sadly mistaken. It wouldn't be wonderful but we would survive quite nicely.

I hope you're right, but I doubt it. CHK is a huge employer and they pump an assload of money into local nonprofits. Also, they own a massive amount of real estate in town. I actually think that if they failed it would be worse for OKC than the Penn Square Bank fiasco.