Chesapeake Energy Cheat Sheet: What’s Been Uncovered So Far

The last four months have been rather bumpy for Chesapeake Energy Corp., the nation’s second-largest natural gas company behind Exxon Mobil.

Starting in April, Reuters took aim at the company’s flamboyant chief executive, Aubrey McClendon, in a series of articles, prompting his ouster as company chairman (he remains CEO) last month at the behest of disgruntled shareholders. The revelations also triggered an SEC probe.

The company was rocked anew last week when the news agency disclosed a series of email exchanges in which McClendon and other Chesapeake executives appeared to collude with officials at EnCana Corp., Canada’s largest natural gas company, to suppress the price of land leases in Michigan.

Reuters reported on Monday that the Justice Department has launched a probe into whether these communications violated laws against price fixing.

As a prominent player in the national debate over hydraulic fracturing, Chesapeake was hardly a stranger to controversy even before the Reuters investigation. Last May, ProPublica reported that Chesapeake was fined more than $1 million by Pennsylvania state officials -- the largest fine the state had issued to an oil and gas company -- for contaminating water supplies in Bradford County.

The company’s business practices earlier came under criticism when it emerged in mid-2009 that Chesapeake’s board gave McClendon a $112.5 million pay package in 2008 even as the company’s stock dropped 58 percent amid slumping natural gas prices. The contract, which included a $75 million bonus and other generous perks, was brokered as McClendon staved off a personal financial crisis by selling off approximately $552 million worth of Chesapeake shares over a three-day stretch to cover margin calls.

Shareholders expressed their displeasure with the generous compensation package, the highest awarded to any Fortune 500 CEO in 2008, by suing Chesapeake. In 2011, as part of a settlement, McClendon agreed to buy back a collection of antique maps sold to the company for $12 million under the 2008 plan. Today, the 52-year-old, who owns a 19 percent stake in the NBA’s Oklahoma City Thunder, has an estimated net worth of $1.1 billion.

Here are some of the key findings from the recent Reuters series:

· McClendon failed to disclose up to $1.1 billion in personal loans borrowed against his share of company oil and gas wells under a unique company program that gave the former chairman a 2.5 percent stake in the profits of thousands of drilled wells. The program has since been dropped. (First indication of the loans came in a story by the Pittsburgh Post-Gazette, which reported in March that a Chesapeake affiliate run by McClendon was mortgaging its stake in oil and gas leases in West Virginia.)

· For a time, McClendon operated a $200 million hedge fund that traded in oil and gas contracts. Experts have called this problematic since insider knowledge that McClendon gained as head of Chesapeake could have helped boost his personal profits at the expense of the company. Tom Ward, Chesapeake’s co-founder and McClendon’s hedge fund partner, has denied there was a conflict of interest. “We did not use any proprietary knowledge of (Chesapeake) trades to make our own individual decisions,” he told Reuters. Forbes has more on the potential breach of duty created by the fund, the existence of which wasn’t disclosed to shareholders.

· According to Reuters, top officials at Chesapeake and EnCana exchanged emails between June and October 2010, discussing ways to avoid bidding against each other at a Michigan public land auction in order to keep land prices down. The emails discussed dividing up counties to acquire land without competing against each other. McClendon, according to the story, wrote in an email to a subordinate that it was time “to smoke a peace pipe” with EnCana executives “if we are bidding each other up.”

Reuters reported that it was unclear whether the rival energy giants “consummated any collusive agreements,” but an analysis of the auction results showed that “neither company bought any land in the same county as the other.”

A spokesman for Chesapeake had no comment regarding Reuters’ findings or the reports about the Justice Department investigation. A Justice Department spokesman declined to comment on the findings. In a June 25 press release, EnCana officials stated that an investigation into the collusion matter had been “immediately initiated.”

In the event of criminal prosecution, the potential consequences are substantial. Under the Sherman Antitrust Act, price fixing is a felony, punishable by fines of up to $100 million for companies and $1 million for company officials.

The scrutiny of Chesapeake’s corporate practices comes during a prolonged slide in natural gas prices, which reached their lowest levels in a decade in April. Chesapeake has a projected cash flow shortfall this year surpassing $10 billion.

The spotlight on the company isn’t going away: on Monday, Bloomberg reported that over its 23-year history, Chesapeake had paid just $53 million in income taxes on $5.5 billion in pretax profits, a rate of about 1 percent, thanks to a rule that allows U.S. oil and gas producers to postpone payments to account for the inherent costs of well drilling.

Views: 1630

Reply to This

Replies to This Discussion

and now they are thinking of selling out to China....

you can find these discussions at this link...Look for the Sinopec purchasing Chesapeake? discussion...yet the other discussions are also of interest inv. Chesapeake and other companies.

an exerpt..

these are the USA natural resources...if Sinopec  purchases the Natural Gas companies and the leases...they will not belong to the citizens of the USA any longer unless of course the Chinese sell them back to US citizens/corporations/even possibly non USA citizens (illegal) living in the USA  since they for some they are  an acceptable category also these days.  And we can thank those land agents that convinced the innocent, ignorant, and elderly that those contracts would easily be renewed in just about 5 years...and some are finding that is not always the case....and because of a 'perhaps' never ending lease we have the U.S. oil companies to thank for us landowners getting involved with Chinese and Indian and perhaps Saudi companies owning our leases and even the working rights.

Remember all the talk about an oil line for transport from Canada to Texas?  look what Sinopec has bought...this is all part of their desire to go around the globe with ownership..  this is from a Pakistan article, pls read:

and what about their involvement with BRICs?

also Chesapeake just sold their MIDSTREAM to a company you probably never heard of...

GLOBAL INFRASTRUCTURE PARTNERS....   read about them.. .and also find out just what that means in them now owning the MiDstream Company of Chesapeakes.

for futher reading here...

worth reading the info at this link also..

gives a good outline of what kind of monopoly property that Chesapeake would be offering up to Sinopec...also since that article China has made a deal with Iran to go around sanctions and buy oil...

If all this seems eerily familiar, think ENRON - whose financial engineers and tax accountants did not simply disappear - they flew Southwest from Houston Hobby to Oklahoma and went to work for ChinapeakeAll this chicanery plus a mountain of debt is why they are looking to sell out to China.

Oh Chippy... you're in a world of hurt now!  You and USA, sitting in a tree, k-i-s-s-i-n-g, making fun of Ches-a-peake, Chinese monks you will seek.  Buy some Leases... nukes come free.  Guilt by association... you lost cred-a-bility. 

Does your company know about your professional ability in communications JS (formerly JimShoos) say you are a lawyer for a gas company (that is on a post in your former life as Jim Shoos).   

Maybe you should have represented some landowners here at gomarcellusshale in being their lawyer against the lessee....they might not have been so long as they made sure that they could communicate in decent language with you .

I guess it is all where your mouth wants to be in a conversation and where your priorities lie....cause you are CLEARLY breaking the conduct rules of this forum in your insults against other members here.

Yeah, they know about my abilities... that's why I get the big bucks.

Was it the kissing part.... I knew that would get me in trouble.  Just to clarify... it was close tongue. 

William, did you happen to look at the date of this's only eighteen days old...I know its hard, but try to keep up.

Didn't you sell out to ARCO only to be owned by BRITISH PETROLEUM? I guess that makes you an investor of Oil and Gas to some degree.

thank you James...

didn't know that....I see that you also have a burden to get past the internet trolls and get the message to concerned American citizens that our natural resources are getting sold out to the Chinese and other countries ruled by their govts.

I guess it is Chesapeakes' way to say 'deal done' changing their name also.   I read online that they are trying to deceive the government by handling the sale by a certain percentage of assets rather than the whole thing as there are federal rules against a Non citizen (foreign) corporation in monopoliging our energy and other natural resources/infrastructure.

james, I do not see that company listed  on Cayman's Inc. website but I did see that 'exempted companies' are exempt from public view...   Where did you get your information and can you provide some other link that shows more of their activity in doing this?

Exempted CompaniesWhere the proposed activities of a company are to be carried out mainly outside the Cayman Islands — offshore — the promoters can apply for registration as an exempted company.

Features of such companies include the following:

  • An exempted company need not keep a register of members open for public inspection (This is a requirement for resident and non-resident companies.).

As you can see this is a clear way to avoid USA government influence in how they are doing this>...

but what can the average usa landowner who is concerned do??

tell your state and local representatives ...   and whoever is doing a new lease or resigning ...refuse to allow an easily assignable lease....have your lawyer get smart about the 'assigns' clause.

Landowners/Lessors...this isn't a funny subject though some trolls would make you think is very serious and could cost you much more money for purchasing natural gas and oil in the future and in your children's future...cause you will be buying your own nat. gas/oil from the Chinese and they will be charging you back if you receive royalties that are net charges back...

this is about the USA being dependent on foreign countries for our own shale plays and resources....and perhaps forever.

I wondered why the Cayman Islands to do a deal with Sinopec?   or re-incorporate a new name of Chinapeake for Chesapeake... (per james's above post on the subject)

an exerpt from the above link:

Citizens of the United States use Cayman as a tax haven for two
purposes: tax evasion and tax avoidance.14 Tax evasion is the illegal hiding of
income or assets for the purp ose of deceiving the U.S. Internal Revenue
Service [hereinafter IRS].15 Tax avoidance is any legal measure used to
lower actual tax liability.16 U.S. taxpayers routinely use Cayman for both
reasons.17 The legal method of using the Cayman tax
haven is to form a corporation under Cayman law and assign a stream
of income to that corporation.18 The corporation, however, must have a
legitimate business purpose other than the avoidance of taxes.19 Th e business purpose need not require Cayman
as the location, but Cayman must be appropriate for the business

James....   I cannot validate your link about any change in the Cayman Islands of re-

incorporating Chesapeake to Chinapeake....and the stock symbol from that link you provided.  

  Is it BS?   cause this isn't funny....or did you also just copy and paste it from a website in the right hand column?   and thought it was true also?


© 2021   Created by Keith Mauck (Site Publisher).   Powered by

Badges  |  Report an Issue  |  Terms of Service