Chesapeake Business Practices

[PWitty]

I can guarantee you that any wells they are drilling right now are going to be generating a nice return on the initial capex.

Pete, I think what your friend was referring to was the assets that CHK is SELLING, not developing. Obviously when they sell they are not able to recoup the cost they paid to obtain a lot of the acreage they have because they bought in at a time when prices were high. Now demand is much lower and CHK doesn't have much leverage when buyers know they need to sell. So yes, in all their asset sales they are losing large amounts of money based on what they purchased it for. But now that their funding gap has been closed, that isn't as important as it used to be. That is entirely separate from the return they are generating off of their well production. Like I said, now that rig counts are down and they aren't having to drill like crazy to try and hold leases, they are focusing in areas where they are generating a very nice return.

Of course all this is in their investor presentations if you look.

Edit: I didn't mean the last sentence in an insulting way, just pointing out that a lot of this is detailed in their investor presentation on their website if anyone is curious. The August presentation even has a graph showing their company wide return on the wells they drill based off of their initial capex and the current production. The previous few months presentations even showed the average rate of return in all their main fields, but they seem to have taken that out in the current one.

[pw405]

Interesting find: layoffs happening already out of state: Chesapeake Energy Corp. Layoffs.

[LuccaBrasi]

I talked with a CHK mid level management person this week who told me there is growing fear of some substantial local layoffs very soon. Additionally, the CEO released a new organizational structure just today, and the internal word is he has a definite new focus of where to take the business and anything outside of that core focus will soon be reduced or eliminated. Their comment to me was "more cleaning house". Also, they mentioned the internal word is a huge scale back of philanthropic support, and some of the buzz now is will there be Xmas lights this year since they usually start at the end of August putting those up. I'm guess there will not be any more lights, or if so, greatly scaled back from before. That all being said, they mentioned that once the CEO is done with the complete reorg, the company will be a big time cash cow, therefore the stock will continue to do well. In this person's opinion, they will one day be very ripe to be bought out once some their debt is reduced, but their thought now is just hoping to survive the cuts that are feared to come very soon.

I'm sure Pete or someone can look this up and verify, but I heard a rumor yesterday that Aubrey filed for a PUD this week on the land he owns along the Broadway Extension. Maybe this has been mentioned before and I've missed it, but just throwing it out there.

[Pete]

CHK has to report annually to the OKC Economic Development Trust as they receive incentive payments for job creation.

Just saw that in January of this year they had 4,722 (!!) employees in OKC.

I'm sure that number is smaller now, but that is massive amount of jobs.

[soonerguru]

Is the Oklahoman reporting at all on the layoffs? I haven't seen anything at all except discussions about share price and the new CEO.

[adaniel]

CHK has to report annually to the OKC Economic Development Trust as they receive incentive payments for job creation.

Just saw that in January of this year they had 4,722 (!!) employees in OKC.

I'm sure that number is smaller now, but that is massive amount of jobs.

I wonder if that was before or after the Access Midstream spinoff? Also, CHK employes a lot of contractors.

I don't want to scare anyone, but in light of LuccaBrasi's post, I can confirm I've heard the same thing, and that big layoffs could be coming as soon as next month.

The handful of people I know that work in land there are very concerned. One girl I went to OU with thinks they will be cutting about 40% of their land staff when its all said and done. Remember that CHK is one of the most land-heavy companies out there (about half of their total employees), so this is a pretty significant amount of people.

[HangryHippo]

I wonder if that was before or after the Access Midstream spinoff? Also, CHK employes a lot of contractors.

I don't want to scare anyone, but in light of LuccaBrasi's post, I can confirm I've heard the same thing, and that big layoffs could be coming as soon as next month.

The handful of people I know that work in land there are very concerned. One girl I went to OU with thinks they will be cutting about 40% of their land staff when its all said and done. Remember that CHK is one of the most land-heavy companies out there (about half of their total employees), so this is a pretty significant amount of people.

I've been saying this was coming for awhile now. Layoffs have been happening and more are coming, next week I think. Lucca brought up their charitable giving - it's already taken a huge hit and is going to be reduced substantially again before the end of the year.

[Pete]

I wonder if that was before or after the Access Midstream spinoff? Also, CHK employes a lot of contractors.

The Midstream spin-off was long before this update so I'm sure it did not include those jobs.

Also, the report only counts full-time employees, not part-time or contractors.


It could very well be that Chesapeake will lay off a ton of people and still have thousands employed in OKC.

[PWitty]

I heard that, as of about a month ago, there was around 5,000 full time employees located in and around the OKC campus. So that is pretty current.

As for the person above that said half of the full time employees are in land, that is a little exaggerated. CHK has more land employees than most everyone else, but not half the workforce. That would mean that CHK employs 6K+ land employees, because company wide there is around 12K+.

Also, as has been mentioned, most of the layoffs were with positions relating to all of CHK's extracurriculars outside of their O&G operations. This falls in line with what Doug said about letting go of all the business units that are unrelated to E&P operations. Doug also made clear that CHK is now transitioning from asset acquisition to asset development, which means CHK doesn't have the extreme demand for all the land men that they have required in the past. I'll add that most land work is usually contracted out, but since CHK was always in acquisition mode it saved them money to just employ them all. Now that's obviously not the case. This sucks for CHK's land employees, but that's just how it goes.

I'll note that I also think that these layoffs have nothing to do with the corporate restructuring, and are all still going back to Doug's initial comments about cutting CHK's extracurricular projects. He has mentioned that the reorganization studies will be done by October, so I think the real restructuring from the upper management down will begin then.

Edit: Not saying I know how many land employees there are and you're wrong, that just seems like an absurdly high amount.

[micesu]

The Midstream spin-off was long before this update so I'm sure it did not include those jobs.

Also, the report only counts full-time employees, not part-time or contractors.


It could very well be that Chesapeake will lay off a ton of people and still have thousands employed in OKC.

A few guys I know who do have the title attorney/landman title told me that they are going to start doing layoffs in their department just anytime. They hired a lot of these guys right out of OU Law School and the legal market is pretty tough right now. I was in Las Vegas last week and went by the Fontainebleau a number of times. For those of you who don't know it's the $3 billion dollar resort in Vegas that never was completed because of the economic downturn in 2008. Carl Ican bought it for pennies on the dollar and it has sat abandoned ever since. It did make me think about what was going to happen to Chesapeake.

[PhiAlpha]

A few guys I know who do have the title attorney/landman title told me that they are going to start doing layoffs in their department just anytime. They hired a lot of these guys right out of OU Law School and the legal market is pretty tough right now. I was in Las Vegas last week and went by the Fontainebleau a number of times. For those of you who don't know it's the $3 billion dollar resort in Vegas that never was completed because of the economic downturn in 2008. Carl Ican bought it for pennies on the dollar and it has sat abandoned ever since. It did make me think about what was going to happen to Chesapeake.

I understand what you're saying but there is a big difference between Carl Ichan buying and sitting on a failed development in one of the industries and cities hardest hit by the recession and buying stock in a $20 Billion corporation. I don't think that is a good indication of what is "going to happen" a CHK. Ichan added to his position in CHK because he believes its stock is undervalued and that the price will increase with the new leadership as it has already shown that it will.

[Teo9969]

I understand what you're saying but there is a big difference between Carl Ichan buying and sitting on a failed development in one of the industries and cities hardest hit by the recession and buying stock in a $20 Billion corporation. I don't think that is a good indication of what is "going to happen" a CHK. Ichan added to his position in CHK because he believes its stock is undervalued and that the price will increase with the new leadership as it has already shown that it will.

He said "what *was* going to happen to CHK"

[Rover]

A few guys I know who do have the title attorney/landman title told me that they are going to start doing layoffs in their department just anytime. They hired a lot of these guys right out of OU Law School and the legal market is pretty tough right now. I was in Las Vegas last week and went by the Fontainebleau a number of times. For those of you who don't know it's the $3 billion dollar resort in Vegas that never was completed because of the economic downturn in 2008. Carl Ican bought it for pennies on the dollar and it has sat abandoned ever since. It did make me think about what was going to happen to Chesapeake.

I was involved up close and personal with the Fontainebleau Vegas and it's situation wasn't anything like Chesapeake's.

[pw405]

Reminds me of that song lyric: "everybody's waiting for judgement day so I can say told you so".

If you work in OKC and compare chk to other employers, it is easy to despise them. Many talented employees leave companies to work for them since hey seem willing to hire people with no industry experience, and they pay higher than average salaries compared to many OKC companies. Many people left my job to work for them and I fell victim to this mentality of secretly hoping they fail.

However, when one compares them to their peer companies, they have problems of retaining employees: Turnover rates by company: How Amazon, Google, and others stack up.

In my opinion, this is because the culture the company seemed to culminate. They toot their own horn, they brag about themselves in their commercials, they sell a flashy lifestyle and appear to those on the outside to be a cult. My hope is that under the new CEO, the current culture will evolve in to a more down to earth, focused company who doesn't market themselves as gods gift to America's energy over consumption.

People will get laid off this year, the company will change a bit, but they aren't going out of business. The long term prospects for their industry are great. While they layoffs will stink, I honestly think the shake ups of late are going to be good for OKC in the long term . With Aubrey's new business starting up, there are more employment opportunities springing up, and if he can manage to grow the company (something he seems good at), I can see AEP employing a few hundred people in a year or so.

[bradh]

The good news is, the new CEO is a science guy and not a finance guy. They're going to expand outside of what they've done, they'll go offshore, and they'll do what they can to find resources and rebuild.

My CHK friends I know say if they make it through the fall they're excited for the future.

[PWitty]

The good news is, the new CEO is a science guy and not a finance guy. They're going to expand outside of what they've done, they'll go offshore, and they'll do what they can to find resources and rebuild.

My CHK friends I know say if they make it through the fall they're excited for the future.

I will add to that and say that I have heard Doug LOVES offshore projects, and that he isn't ready to move CHK into that area yet but he sees it as an area of growth in the future. This is a HUGE difference from Aubrey, who wanted to do everything possible to stay away from international and offshore projects.

I'll also comment on the turnover rate that was mentioned above and point out that CHK hires a lot of consultants who supervise the ops they have going on at all their wellsites, which is much more than anyone else in the onshore US (at least in number of drilling rigs and wells completed). Also, with the shortage of engineering talent it is also hard for any company to retain their engineers. Most experienced guys get calls monthly if not weekly from headhunters trying to draw them away. At least that is what I hear. It may not be like that everywhere.

[pw405]

The consultants are essentially contractors, so they don't count as turnover right?

[PWitty]

I'm honestly not sure, so you may be right. I just know that sometimes they are hired on long term, but their role is still as a Drilling Consultant, Completions Consultant, etc. But even though they are there long term they get paid as a consultant (A LOT more than a normal employee) but aren't eligible for benefits and such.

[blangtang]

To cut natural gas costs, Chesapeake pumps up royalty deductions

Insight: To cut natural gas costs, Chesapeake pumps up royalty deductions | Reuters

this reuters team just keeps pumping out stories on CHK

[Libbymin]

We've been using this recruiting firm in OKC to hire someone and someone from their office heard from a couple of different people that layoffs were imminent, like, within days.

[bradh]

they slashed like 50 or so communications folks last week I heard (some may have been marketing, not sure)

[PhiAlpha]

We've been using this recruiting firm in OKC to hire someone and someone from their office heard from a couple of different people that layoffs were imminent, like, within days.

I've heard that Friday is the day, not sure what departments or how many but it sounds as though there will definitely be layoffs.

[Libbymin]

I've heard that Friday is the day, not sure what departments or how many but it sounds as though there will definitely be layoffs.

Surely some of their Land and Land Admin Dept. will be trimmed down a bit. I texted a friend of mine who works in the Land Dept. at CHK that I had heard some ugly rumors about CHK today and he said "Yep. Me too."

[PhiAlpha]

Surely some of their Land and Land Admin Dept. will be trimmed down a bit. I texted a friend of mine who works in the Land Dept. at CHK that I had heard some ugly rumors about CHK today and he said "Yep. Me too."

That was my assumption as well, just didn't want to say it without knowing for sure. Nervous for some of my friends over there and for any large layoff of Landmen will do to our already saturated job market.

[UnclePete]

Can we expect a name change to "Anadarko" if not a move to Houston?