SEAN GARDNER/REUTERS - Chief Executive Officer, Chairman, and co-founder of Chesapeake Energy Corporation Aubrey McClendon walks through the French Quarter in New Orleans, Louisiana in this file photo taken March 26, 2012. McClendon has come under scrutiny since Reuters reported on April 18 that he had borrowed $1.5 billion against stakes he received in wells drilled by Chesapeake.
Aubrey McClendon tried to eat healthy on the morning of Jan. 10, 2007. No home fries, he told the waitress at the International House of Pancakes in Oklahoma City. Order the special with grits, she suggested. He’d save 25 cents.
Across from him sat Ronnie Irani, a local petroleum engineer. Irani says he was trying to persuade McClendon, the chief executive of Chesapeake Energy, to join him in staking a claim to more than 5 billion barrels of oil trapped beneath Wyoming’s Powder River Basin.
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And here was McClendon, the billionaire co-founder of one of the largest natural gas companies in the United States, saving a quarter on breakfast.
“I had to go to somebody who could move fast and think big,” Irani says. “He was a perfect choice.”
Irani had just founded his own firm after 26 years working for other people. The Mumbai-born oilman says he needed a partner to keep competitors from muscling him aside. McClendon, whose voracious appetite for natural gas acreage had made him an industry legend, knew how to seize control of new energy prospects. He was Irani’s first pick.
In Irani’s maps, McClendon saw the chance to join the pantheon of 19th-century oil titans, such as John D. Rockefeller and Ludvig and Robert Nobel, the Swedish brothers who once dominated Russia’s oil industry.
‘Sweep of history’
Within weeks, Irani, 55, and McClendon, 52, had penned a preliminary agreement to buy 1 million acres of oil leases in eastern Wyoming. They planned to move in quietly, before their competitors noticed.
“When you look at the sweep of history in this industry, those who move first to lock in big new acreage positions when technology changes emerge as the winners,” McClendon says.
McClendon won the land grab, but his ambitious bid to dominate the American oil rush may cost him his job and his company. The secret deal McClendon struck with Irani helped kick off a five-year buying binge that spanned the United States and pushed Oklahoma City-based Chesapeake’s debt to a crippling $12.6 billion. The company has put as much as $20.5 billion in assets on the auction block to fill a gaping cash shortfall.
As Chesapeake careens toward financial ruin, corporate governance scandals have shattered investor confidence in McClendon’s leadership. In April, the board said it was reviewing McClendon’s personal ventures with Chesapeake financiers.
SEC inquiry
In May, the directors said they would name a new chairman to replace McClendon and disclosed that the Securities and Exchange Commission had opened an informal inquiry. Shareholders have sued. McClendon apologized to investors in May.
Corporate raider Carl Icahn demanded more. In June, after amassing a 7.6 percent stake, Icahn forced Chesapeake to replace four of its nine directors with people picked by him and Southeastern Asset Management, Chesapeake’s largest shareholder.
“Aubrey was swinging for the fences,” says Terry Whitaker, a longtime Wyoming oilman who once owned some of the acreage Chesapeake bought in the Powder. “That’s what a wildcatter does. And most wildcatters die broke.”
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