Chesapeake Energy, based a thousand miles from the bay it’s named after, helped remake Oklahoma City when times were good thanks to its founder’s enthusiasms, which included an NBA team, an Olympic rowing center and white-water course, arts programs, and support for local schools.
The company capitalized on new technologies in horizontal drilling and hydraulic fracturing, and in the years leading up to 2012, took on billions of dollars in debt to keep growing. The philanthropic founder, Aubrey McClendon, said that America could become a gas exporter and that gas would be the bridge fuel to a cleaner future. All that largely came true, except that the success of fracking drove the price of gas down so far the company could no longer bear the burden of its debt.
Covid-19 was the final insult. More than a dozen energy companies have sought refuge in Chapter 11 bankruptcy this spring as demand cratered worldwide — including Whiting Petroleum and Extraction Oil & Gas — and Reuters reports that Chesapeake may soon join their ranks.
Chesapeake didn’t invent fracking and it didn’t discover new fields, but it grew to become the second-largest gas producer in the United States, and McClendon was the energetic prophet of natural gas prosperity. But the heyday ended in 2013, when he was ousted from the company.
Three years later, he was indicted on charges of price fixing in a case involving a new company he had started, and the day after the charge was made public, he died when his car hit a bridge abutment.
Though he was a native of Oklahoma City, McClendon had a fondness for the Chesapeake region that he invoked when he named the company. He was the kind of corporate leader who could spend lavishly on a company campus, promote the arts with his own money and think nothing of getting Chesapeake to chip in. His favorite phrase was “What’s next?” He agreed to a long-term deal under which the company paid for the naming rights to the arena where the Oklahoma City Thunder, of which he was co-owner, plays NBA basketball.
Mike Knopp told him of his dream of building a rowing center downtown. “The river was a ditch,” said Knopp, now head of the Riversport Foundation. “We had plans to put water in the river. It’s not like we had a rowing culture. People thought it was a little crazy. But he saw the big picture.”
The Chesapeake Boathouse opened in 2006. Among the corporate rowing clubs that used it were several made up of Chesapeake employees.
“Through the company he helped influence the renaissance of Oklahoma City,” said Knopp. “He had a vision for the city he loved.”
He was a prime backer of the memorial in Oklahoma City to the 168 people killed in the 1995 bombing of the Alfred P. Murrah Federal Building.
“He was one of a kind. I loved the guy. He was just terrific,” said Roy Williams, head of the Greater Oklahoma City Chamber. “Aubrey brought a lot of attention to Aubrey.”
But he was also capable of pledging $975,000 to the Ronald Reagan Presidential Foundation in a generous moment and then ponying up just $15,000, according to a court filing by the foundation. (The head of the foundation at the time was Fred Ryan, now publisher of The Washington Post.)
He liked to tell investors in his last years that if they’d been in on the company from its beginnings in 1989, they’d be multibillionaires — except, he added, they would have had three heart attacks by then because of the repeated flights and crashes of the stock price.
Over the past year, the company’s shares have swung from $430 to $7.77. The price closed Thursday at $12.95.
McClendon believed in paying top dollar for leases for his wells, all of it borrowed. When interest rates were low and prices high, it could be a winning strategy.
“Aubrey as CEO was building a portfolio of leaseholds that at times was very valuable, depending on commodity prices,” said Steven Agee, dean of the Meinders School of Business at Oklahoma City University. He had leases from Pennsylvania to Louisiana and states in between. But the price of gas has dropped 70 percent since those days.
When McClendon left Chesapeake, the company was $16 billion in debt. His successor, Douglas Lawler, has trimmed that to $9 billion, “but still, $9 billion is a lot of money,” said Agee. “I mean, they’re upside-down.”
A price war launched by the Saudis in 2014 drove both oil and gas downward; another one this spring that pitted the Saudis against the Russians in the face of the coronavirus pandemic caused prices to collapse.
Because of the gas glut, Lawler tried to move Chesapeake more into oil when it was selling for $100 a barrel, but the company had too much gas-related debt, said Andrew Byrne, a North American research manager at IHS Markit, the energy analytic firm. By the beginning of this year, in any case, the price of oil had dropped to $50 to $60 a barrel, which made it problematic, and then this spring it crashed even further.
Under Lawler, the publicly traded Chesapeake has reined in its philanthropic efforts. It did report in May that it had prepaid about $25 million in executive bonuses, which critics believe was an effort to get the money out the door before bankruptcy.
Five years ago, when the earlier price war put Chesapeake on the ropes, Byrne said, “we felt they were too big to fail, that the banks would support them.”
The banks may not be so forgiving this time, he said. In a filing with the Securities and Exchange Commission, Chesapeake warned that it might not be able even to qualify under Chapter 11, and thus “there is substantial doubt about the company’s ability to continue as a going concern.”
But Byrne and other analysts expect gas prices to rise significantly by next year, so creditors may decide it’s worth keeping the company solvent, or at least operational, until then.
Chesapeake’s diminishment, in any case, is an anticlimax after a half-decade of struggles, and in a city in which energy companies are now only the third-largest sector by employment.
“The importance of Chesapeake Energy 10 years ago is very different from its importance today,” Williams said. “It was a beacon then. Everybody has seen Chesapeake decline, decline, decline, decline. So it’s not as traumatic for the community.”