Chesapeake Business Practices

[HangryHippo]

That's harsh. I'm skeptical that Aubrey stays away for four years though...

[OKCTalker]

Non-compete agreements are more enforceable when they are specific in terms of activity, geography and duration. That said, I don't think that Aubrey is going into the natgas exploration business. Not many other more established players are doing well in that space right now - he'd be a smart, experienced startup, but needing OPM. Being a bad steward of OPM is what got him into this mess in the first place.

Besides, he's facing significant legal liability from a variety of directions, and any money judgment could take away anything he's earned. CHK wouldn't indemnify him personally for claims, any personal G/L coverage would be limited, and any attempt to exempt personal assets would be unwound. He'll be fighting legal battles for some time, and some will involve him pointing fingers at CHK, and them pointing them right back at him.

Net worth? Including contingent liabilities I believe that he's massively underwater, but he's relatively young, smart, charismatic and fighting for his reputation. It'll be a long road.

[jbrown84]

Archie Dunham is very competent….
That’s probably good news for OKC.

Not if he has no interest in keeping the company here...

[ou48A]

Energy prosperity at work for OKC… I hope it can continue.


RIGZONE - Oklahoma City Fears an End to Chesapeake's Largess

Thursday, February 07, 2013

OKLAHOMA CITY - At the 100-acre headquarters of Chesapeake Energy Corp., cranes continue to erect new glass-walled buildings and the company is seeking a sushi chef for what will be the fifth restaurant on its campus.

But the buzz here is that the nation's second-biggest natural-gas producer is cutting back on spending. And that worries some of its 5,000 employees here, as well as local government officials, nonprofit leaders and even some sports fans, all of whom have benefited from the largess of Chesapeake and its co-founder and chief executive, Aubrey McClendon.

Mr. McClendon, a native son of Oklahoma City, was ousted last week by directors insisting on financial austerity. His departure follows Chesapeake's decision to cut in half its charitable contributions, which totaled more than $56 million in 2010 and 2011 combined, within three years and to chop $190 million in overhead within 24 months.

The natural-gas company's finances have suffered from low prices for natural gas, compounded by its heavy spending to find and pump greater amounts of more-lucrative oil.

The company plans to sell assets to raise at least $5 billion this year to pay for its drilling and to reduce debt, which at the end of September exceeded the company's current $13 billion market capitalization.

Directors of local nonprofits, from food banks to arts organizations, that have received donations for years from Chesapeake and from Mr. McClendon say they are worried.

"It's hard not be concerned," said Lori Dickinson, president of the Foundation for Oklahoma City Public Schools, which doles out school supplies and pays for programs for city schoolchildren. Chesapeake accounts for 15% of its budget.

Energy companies, including Devon Energy Corp. (DVN), SandRidge Energy Inc. (SD) and Continental Resources Inc. (CLR), have helped drive an economic expansion here in recent years. The companies have recruited workers from across the country and have built big headquarters. Unemployment in the metro area was 4.7% in December, compared with the national average of 7.8%.

But Chesapeake has taken a leading role in transforming a city that used to be dismissed as a cow town. Its name is on the arena that is home to its professional basketball team, the Thunder, a major source of civic pride. The team reached the finals of the National Basketball Association's championship last year, losing to the Miami Heat.

Mr. McClendon, who helped bring the team from Seattle and owns 19% of it, has pledged to donate to Oklahoma schools the amount of fees Chesapeake pays for naming rights multiplied by his ownership stake in the team for at least this year and last.

"Oklahoma City's national and international perception has changed because of the Thunder," said Jim Couch, the city manager. A framed team jersey, autographed by the players, hangs on the wood paneling of his office.

"It's been pretty public that they're going to shed some assets," Mr. Couch said of Chesapeake. "How that goes and what means for Oklahoma City, I don't know."

Michael Kehs, a Chesapeake spokesman, said: "Our commitment to being a helpful and engaged corporate citizen will continue." Chesapeake employees will continue to volunteer their time local organizations, and the corporation will make financial and in-kind contributions, he added. A spokesman for Mr. McClendon declined to comment.

Mr. McClendon has his own financial issues to contend with. He owed at least $846 million in loans at the end of 2011, according to a regulatory filing in April.

He used most of the proceeds to participate in a perk that allows him to acquire a small stake in every well Chesapeake drills as long as he pays his share of the costs, which totaled $457 million in 2011.

The perk sparked controversy last year after disclosures that Mr. McClendon borrowed from firms that invested in Chesapeake, and he and the board of directors agreed to end the practice next year.

A board review hasn't found any misconduct, the company said last week.

Despite an exit package of almost $50 million, to be paid out over four years, Mr. McClendon's cash needs are likely to remain high. He is again investing in the company's new wells this year. A state filing in January indicated that he and his wife have repaid a 2009 loan from George Kaiser, a Tulsa oil magnate. Mr. McClendon has pledged as loan collateral many of his assets, including a wine collection and a warehouse full of old gasoline pumps and oil memorabilia, and has plans to develop lakefront property in Michigan.

Mr. McClendon's departure, coupled with Chesapeake's spending cuts, have prompted anxiety among some employees, which Chairman Archie Dunham moved to address last week. He told employees in an email that the board isn't planning to eliminate its child-care facility, shut down its 72,000-square-foot gym or sell its campus restaurants.

Except for a recent increase in the gym-membership fee, which the company won't divulge the size of, the flagship campus isn't showing signs of a financial squeeze.

Modern, glass-walled offices are going up next to Chesapeake's red-brick, Georgian-style buildings and will house employees currently working elsewhere in the city. A fifth restaurant called Skyline, will be perched on the top floor and offer a view of downtown six miles away. Chesapeake has posted job openings for a sushi chef and cooks to serve Mongolian and Italian offerings.

But some members of Chesapeake's board, controlled since June by directors nominated by its largest shareholders, have raised eyebrows at the company's amenities. Chesapeake, however, has long argued that they are key to attracting talented employees and maximizing productivity.

Some Thunder fans have speculated Chesapeake's spending diet could hurt the basketball team it sponsors. But the company has a sponsorship agreement that runs for at least a decade under which it pays between $6 million and $7 million a year in sponsorship fees and naming rights to the Chesapeake Energy Arena.

The team is a big hit with Oklahomans like Gary May, who drove an hour to see the Thunder play the Dallas Mavericks here on Monday. The 57-year-old contract driller pumped his fist as the hometown team scored, en route to a 112-91 victory.

Mr. May said he is sorry to see Mr. McClendon leave Chesapeake. But taking in the glitz of the arena, and thinking of his glimpses of Chesapeake's sprawling campus, he marveled at all the funds that went to things other than producing oil and gas.

"There's probably a lot of money spent where it didn't need to be spent," he said.

[CitySlickR]

If only nat gas would have stayed high ... sigh

[ou48A]

Not if he has no interest in keeping the company here...

Why do you say that?
We have other energy companies doing well enough in OKC.

[HangryHippo]

I am quite worried that Archie will want to move CHK to a bigger city.

[BoulderSooner]

I am quite worried that Archie will want to move CHK to a bigger city.

no chance

[onthestrip]

This part from that article makes me really question how much Aubrey is actually worth and whether he really could put together a few million in cash in a short time. Guess it doesnt much matter really but it makes me think that Aubreys best days are behind him and I question whether he will be much of a player in the oil and gas business in the future.

Mr. McClendon has his own financial issues to contend with. He owed at least $846 million in loans at the end of 2011, according to a regulatory filing in April.

He used most of the proceeds to participate in a perk that allows him to acquire a small stake in every well Chesapeake drills as long as he pays his share of the costs, which totaled $457 million in 2011.

[SharkSandwich]

I heard there were some layoffs today. Not sure how widespread.

[warreng88]

One of the biggest problems with Chesapeake as with a lot of larger organizations is the lack of communication between management and employees. Here is the what happened with me while I worked there.

I started employment at CHK on March 7, 2011 in the lease records group. I was given my work by a coordinator and had to give my work back to them for them to check. I reported to the supervisor who reported to the Lease Records Supervisor but the coordinators also reported to the supervisors. At one point in time, we were told we could go and work elsewhere and make more money, but would have to do more work (duh!)

Everything you ever heard about CHK is true: they worship Aubrey, you work your tail off, but the benefits are amazing. Every other week they had a party on the lawn with free all you can drink beer, wine and all you can eat food. The fitness center was easily the best I have ever seen. 72,000 square feet with tanning booths, two cardio rooms, a full basketball court, half basketball court, a golf simulator, rock climbing walls, sauna, lap pool, squash courts, spin room and a very impressive weight room. The restaurants were top notch and cheap.

My direct supervisor was let go in September of 2012. I was pulled into my new supervisor's office the next day and was told all the things I had done wrong since I started. No "good job on this, this is where you can improve." I was then told this was being done to all the people she was taking on. I checked with them and that was not true. In November, I was told I was making too many mistakes. I told her I never got the work that was wrong back so I didn't know I was making any mistakes. She told me she would make sure I got it all back so I could make sure I didn't make the same mistakes. On December 21st, I was pulled in for my semi-annual review and was again told I was making too many mistakes and would need to stop making them or disciplinary action would be taken. I again told her I had not gotten anything back so i didn't know what to correct. I then nonchalantly asked if I should start looking for another job and she nodded, but said there would be enough basic work to keep me there for a while.

We were off on Christmas eve and day, were closed on the day after due to the storm and I had already planned on taking off the Friday, so I only worked Thursday the week after Christmas. We were off on New Year's Eve and New Year's Day and my wife got food poisoning on New Year's Day so I was up all night with her. They have something called flex time where if you have an appointment or come in late, you can make it up later that week so I got to work at 10 am. Around 1:00 I was called into my supervisors office to tell me I was released from my employment. So, a day and a half after I was told there would be enough basic work to keep me around, I was let go. I am not sure if she was lying to me at the time of the review or they had to make cuts after the first of the year, but either way a reason would have been nice even though we are a right to work state and I don't have to be given a reason to be let go.

I start my new job at a bank making 20% more than what I was making at CHK tomorrow.

[Pete]

Thanks for sharing, Warren. Really sorry you lost your job but it sounds like it may have been a blessing in disguise.


I've been around companies like Chesapeake before, mainly tech companies out here in California. Many of them show up on the "best places to work" lists for a while simply because they are very generous with pay and perks. But the truth is, companies that go overboard with these things always seem to have something to hide.

All is fantastic until that inevitable first bump where they can't simply keep throwing money at people and problems, and then the pressure gets turned way up, the layoffs start and suddenly in many ways they are far worse employers than those that are simply responsible businesses that can maintain an even keel -- and thus provide continual, steady employment over a long period of time.

I've seen this happen so many times that I am now very suspicious of companies that lavish their employees. My first thought is, "Why are they trying so hard? What are the problems they are seeking to mask?"

[OKCTalker]

Warren - Thanks for sharing your story, which echoes those from others who work/have worked for CHK. There are long lists of what they offer employees, what they expect in return, and of other people who are willing to take your job.

It's unfortunate that you weren't given the opportunity to improve. Most employees want to succeed, as do their wise employers and managers. Even if there are 100 people standing in line for your job, a wise manager will do what he/she can to make it work.

Greener pastures. Good luck at the bank!

[HangryHippo]

Well, this is some much-needed good news for CHK.

[Just the facts]

So now they are out a really good CEO for no reason. What a bunch of morons.

[Pete]

Misconduct and poor judgment are two totally different things.

[Just the facts]

Misconduct and poor judgment are two totally different things.

Never understimate someone's desire for short-term gains at your long-term expense.

[onthestrip]

So now they are out a really good CEO for no reason. What a bunch of morons.

You probably think the same for Tom Ward too.

[OKCTalker]

"Separately, Chesapeake said a board review concluded that the company didn't violate antitrust laws with its 2010 leasing activities in Michigan, which have been the focus of an inquiry by the U.S. Department of Justice."

I think that the USDOJ, the Michigan Attorney General, a grand jury, jury and judge will want to have a say in that.

[HangryHippo]

"Separately, Chesapeake said a board review concluded that the company didn't violate antitrust laws with its 2010 leasing activities in Michigan, which have been the focus of an inquiry by the U.S. Department of Justice."

I think that the USDOJ, the Michigan Attorney General, a grand jury, jury and judge will want to have a say in that.

Undoubtedly, but this is good news and hopefully the DOJ comes to the same conclusion.

[Just the facts]

You probably think the same for Tom Ward too.

I'm still waiting for the facts to come in but I suspect they will find no wrong doing as well. I think it is some Wall Street hacks trying to make a quick buck by manufacturing scandal so they can manipulate stock prices. THAT is what should be investigated.

[onthestrip]

I'm still waiting for the facts to come in but I suspect they will find no wrong doing as well. I think it is some Wall Street hacks trying to make a quick buck by manufacturing scandal so they can manipulate stock prices. THAT is what should be investigated.

Facts to come in...? Have you not been reading the sandridge thread and the articles in it? Just like Aubrey, there might not necessarily be anything illegal but there is certainly wrongdoing and some highly questionable practices.

And are some Wall Street hacks behind this? Maybe, maybe not. But you dont see them going after Harold Hamm, Larry Nichols or any Tulsa energy companies. There is a reason they went after Aubrey and Tom, its because they are basically stealing from shareholders. How else do you explain Ward getting paid $70+ million the last 3 years even though the stock has tanked. Or the fact that Ward has unlimited usage on company jets. Or the fact that Ward made $260,000 last year from Sandridge when they bought his "personal" Thunder tickets. Or they fact that his board made of up of his pals are paid the same as Exxons, who is a larger company by a factor of 143. Or the big one, the fact that his sons company (who up until 2 years ago had the same address as Sandridge) holds 478,000(!) acres in the same play as Sandridge does. Not to mention the acreages his son has already sold to sandridge.

Im a Sandridge shareholder, and even being a lifelong OKC area resident Im inclined to vote for a board shake up, even if it could mean some bad news for OKC. I just cant tolerate blatant greed and theft.

[Just the facts]

Maybe you should sell your stock in Sandridge.

[Teo9969]

So now they are out a really good CEO for no reason. What a bunch of morons.

There is a reason, and it has nothing to do with all the "impropriety" that Reuters and other media tried to assign to AKM. CHK is out a really good CEO because the new board can't stomach the amount of leverage AKM believes in using to run a company. That's really not that surprising for a board who has to answer to shareholders of a company the size of CHK.

[blangtang]

The earnings release is tomorrow in the AM, might find out some new stuff...