For nearly a month now, we’ve compiled report after report on Chesapeake CEO Aubrey McClendon’s controversial well investing plan.First came the initial stories, led by the Pittsburgh Post-Gazette and followed up by Reuters, that McClendon was mortgaging assets associated with personal well properties — business data, drilling platforms and hedging contracts, for example — to obtain loans to invest in even more wells.
The transactions were extremely opaque and not fully disclosed to shareholders nor the board.
As a result, McClendon was stripped of his chairmanship.
Then Reuters reported that for at least four years, McClendon had been running a hedge fund on the side that was investing in natural gas derivatives.
Finally, an influential analyst floated the prospect that Chesapeake itself had been turned into a massive hedge fund, taking out huge loans to stay alive.
The news Friday that Goldman Sachs and Jefferies had stepped up with a $3 billion unsecured loan did not exactly help to dispel this.
But while certainly compelling, some of you readers may still be wondering — what’s the big deal? Unless you live in Oklahoma, Chesapeake is not exactly a household name.
Well, here are three reasons why you should care about the fate of Chesapeake.
1. You almost certainly have used natural gas they’ve produced.
Chesapeake remains the second-largest natural gas producer in the country, after Exxon, and operates in most regions of the country. States average 1.3 million homes that use natural gas, and that number continues to climb. An even greater percentage of businesses — more than 90 per cent, in fact — consume natgas.
If a player like Chesapeake goes under and/or must sell off assets, natgas prices will almost certainly move in one direction or another. An increase that will eventually find its way to your wallet.
2. At the same time, America’s natural gas future could be imperiled.
Although most businesses consume natural gas, they consume far less of it than oil. Chesapeake was supposed to help change that. In recent years, they’ve spent tens of millions of dollars on lobbying to increase natural gas use. A recent Politico story referred to McClendon as the natural gas lobby’s “sugar daddy.” With McClendon’s newly diminished stature, it now becomes more difficult to get the ear of Congress. “It’s a big loss,” GOP energy lobbyist Michael McKenna told Politico. “I disagree with the guy plenty of times about methods and even specific approaches, but the reality is he was a visionary with respect to public energy policy.”
3. America’s biggest natural gas players could soon come from China.
The most likely buyers of any Chesapeake asset fire sales are in Asia. CNOOC has already gone in with Chesapeake to develop wells near San Antonio. If the devil we know disappears and/or cedes greater control to a company like CNOOC, ensuring accountability becomes far trickier.