Chesapeake Energy – Behind the Curtain – Part 2

Part 1: Chesapeake Energy – Job not finished until paperwork is done.

Goodwin said there are limited ways to punish a corporation. "It is not a life. It is not a being. It can't go to jail," he said. "The only thing that it can do is help make sure something like this doesn't happen again." - U.S. Attorney Booth Goodwin speaking about West Virginia Mine Settlement, December 6, 2011

“Corporations are people, my friend,” Former Governor Mitt Romney at Iowa State Fair.  August 2011

"I'll believe corporations are people when Texas executes one." – Unknown

In September of 2011, Aubrey McClendon, CEO of Chesapeake Energy, stood before an audience of industry regulars at a conference in Philadelphia. 

 "What a glorious vision of the future: It's cold, it's dark and we're all hungry," said McClendon, who co-founded Oklahoma City-based Chesapeake, the most active gas driller in the Marcellus Shale and nationwide. "I have no interest in turning the clock back to the dark ages like our opponents do."

Many families across the Marcellus Shale play feel like they are in the dark ages.  They may not be cold, they may not be hungry, but they are thirsty since their water wells turned bad, or very sick from drinking the bad water.  

According to the DEP, in Pennsylvania, nearly 9-million households depend on private water wells.  Pennsylvania has more fresh water wells in private use than any other state in the US. 

Water Authority President Norman Wright of Plainview, Tx, said “Without water we have no future.", upon signing a deal with T. Boone Pickens’ company Mesa Water, for the transfer of water rights on 211,000 acres of land.

The Curtain:  American Clean Skies Foundation

American Clean Skies Foundation (ACSF) is a 501(c)(3) nonprofit organization devoted to research and debate on clean energy. ACSF's mission is to promote understanding and discussion of issues related to energy--to expand America's energy options.  It was founded in 2007.

The “ACTIVITES” section of ACSF states:

The Foundation has an active energy policy and research program.

We also provide funding for energyNOW!, an editorially independent TV news magazine on America’s major energy and environmental challenges. The program is distributed nationally by Bloomberg TV and by the ABC affiliate in Washington DC

The Board of Directors for ACSF

Aubrey K. McClendon: Chairman of the Board; and Chairman of the Board and Chief Executive Officer, Chesapeake Energy Corporation

Andrew J. Littlefair: President and Chief Executive Officer, Clean Energy

Ralph Eads III: Chairman, Energy Investment Banking Group of Jeffries & Company Inc.

Robert A. Hefner III: Founder and owner of GHK Exploration; Author

Thomas S. Price, Jr.: Senior Vice President, Corporate Development, Chesapeake Energy Corporation

Gregory C. Staple: Chief Executive Officer, ACSF

Connecting the dots is not always a straight line from Point A to Point B.  More often than not there are many connections from Point A to other points.  We’ll follow two of those connections now.

Andrew J. Littlefair :  CEO and President of Clean Energy Fuels and
Vice President of the T. Boone Pickens Foundation.  

Clean Energy Fuels is a “GOLD MEMBER” of Kentucky Clean Fuels Coalition.

Littlefair is Chairman of the Natural Gas Vehicle America (ngvamerica.org) and has been a Board Member and Officer for 10 years.  Littlefair was an officer at Mesa Inc. (a T.Boone Pickens venture), and served in various capacities for 10 years.  Littlefair served in the Reagan White House from 1983–1987.

(Chesapeake Energy is also a member of NGVAmerica, as are several other natural gas drilling corporations.)

T. Boone Pickens, Founder and Director of Clean Energy Fuels.

Mesa Petroleum, Founder: On the verge of bankruptcy in 1996, Mesa Petroleum was acquired by private equity firm Rainwater, Inc., which renamed the company Pioneer Natural Resources.

Mesa Power Group, Founder: Mesa Power Group founded the American Wind Alliance in 2009.

Mesa Water, Founder:  Sold to The Canadian River Municipal Water Authority (CRMWA) for approximately $103 million.

BP Capital LP, Chairman and Chief Executive Officer: NOTE BP does not stand for BRITISH PETROLEUM, presumably the “BP” denotes BOONE PICKENS initals.

Exco Resources Inc, Director

The Pickens Plan is an energy policy proposal announced July 8, 2008 by American businessman T. Boone Pickens. Pickens wants to reduce American dependence on imported oil by investing approximately $US1 trillion in new wind turbine farms for power generation, which he believes would allow the natural gas currently used for power generation to be shifted to fuel CNG trucks and other heavy vehicles. Pickens thinks that his plan could reduce by $300 billion (43%) the amount the country spends annually on foreign oil.

McClendon donated $250,000 to Picken’s Swift Boat Veterans for Truth in 2004. 

“Dallas billionaire financier and hedge fund manager T. Boone Pickens was a benefactor for the Swift Boat Veterans for Truth’s political activities and media blitzkrieg. A prominent Bush supporter, Pickens had a history of large donations to Republican and conservative causes and candidates. Pickens contributed $2 million to swift boating Sen. Kerry.”

In May 2012, T. Boone Pickens sold his shares in Chesapeake Energy. 

Ralph Eads IIIAubrey McClendon, CEO of Chesapeake Energy and Ralph Eads III, the Chairman of Jefferies Energy Investment Banking Group go way back in their association.

McClendon and Eads were Sigma Alpha Epsilon fraternity brothers at Duke University.
Prior to joining Jefferies, Eads was Co-President of Jefferies Randall & Dewey.   In February 2005, Jefferies acquired Randall & Dewey, which became Jefferies' Energy Investment Banking Group.  Eads was President of Randall & Dewey.

His career includes being the Executive Vice President of El Paso Corporation, where he was responsible for El Paso’s unregulated businesses. Previously, he was Managing Director and head of the Energy Group at Donaldson, Lufkin & Jenrette. He has held investment banking positions at S.G. Warburg, Lehman Brothers, and Merrill Lynch.

Eads is the Board of Trustees for Duke University.  

Also on the Duke Trustee board is Xiqing Gao, the Vice Chairman, President and Chief Investment Officer of the China Investment Corporation (CIC), China's sovereign investment fund.  CIC has minority interest in Chesapeake Energy's CHK-Utica in Ohio.

McClendon and Eads are partners in Clos Dubreuil, a winery in Bordeaux, France.

 

Jefferies Energy Investment Banking Group, acting as financial advisor, has assisted Chesapeake Energy with many of its ventures which include CNOOC Ltd of China, Hopu Investment Management Co. Ltd. of China, Statoil of Norway, and Total SA of France.  (See America For S(h)ale)

By May 2012, Chesapeake Energy shares had taken a beating.   A series of articles by Reuters revealed many problems both with how Chesapeake Energy conducted business and how McClendon’s personal interests may have some conflicts.

McClendon was removed as Chairman of the Board, and in June 2012 Chesapeake appointed new board members.

The "Aubrey problem" has contributed to the lack of enthusiasm from various market analysts and the May 2012 S&P downgrade of Chesapeake to BB- rating hasn't helped.

Around the same time as the S&P downgrade other market analysts were downgrading Chesapeake from "Buy" to "Hold", or "Hold" to "Sell". 

However,  the analysts at Jefferies defend  the "BUY" rating for Chesapeake. 

Jefferies said that the sale of some of the company’s assets in the Marcellus Shale should help bridge the 2012 funding gap. Commenting, the analyst noted that “Progress along this front should result in the stock reflecting more of the upside embedded in CHK’s asset base. An update on the Utica JV should be imminent.”

Regarding the recent $4-billion dollar loan to Chesapeake, a May 18, 2012 Bloomberg article described it as:

McClendon is depending now on his Jefferies confidant at an even more crucial moment. Falling gas prices, combined with the buying binge, is forcing Chesapeake to unload assets to keep the company afloat. Along with Goldman Sachs Group Inc. (GS), Jefferies bankers are seeking buyers for oil-rich prospects and lending Chesapeake $4 billion in the meantime.

“Without Wall Street, Chesapeake wouldn’t be able to do what it has done,” said Phil Weiss, an analyst at Argus Research in New York who rates the shares “sell.”

Eads and New York-based Jefferies declined to comment.

“Ralph Eads and Jefferies have unmatched expertise in the E&P business and have added enormous value to Chesapeake’s business and its shareholders over many years,” Chesapeake said in a statement, referring to the exploration and production industry. “We deeply value our long-term relationship.” 

Surprised?  You shouldn't be - that's what friends are for......