Chesapeake Energy

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Chesapeake Energy
Type Public
Traded as NYSECHK (S&P 500 Component)
Industry Oil and gas industry
Founded 1989 (1989)
Headquarters Oklahoma City, United States
Key people
  • Archie W. Dunham Chairman of the board
  • Robert Douglas Lawler CEO
  • Douglas J. Jacobson Vice President, Acquisitions
  • Domenic J. Dell'Osso, Jr. CFO
Products Natural gas
Revenue Increase US$11.64 billion (FY 2011)[1]
Operating income Increase US$3.08 billion (FY 2011')[1]/>
Net income Increase US$1.74 billion(FY 2011)[1]
Total assets Increase US$41.8 billion (FY 2011)[2]
Total equity Increase US$16.6 billion (FY 2011)[2]
Employees 12,598[3]
Website www.chk.com

Chesapeake Energy is a public, American oil and natural gas company headquartered in Oklahoma City, United States. Chesapeake Energy is the second-largest natural gas producer in the United States.[4][5] Its operations are focused on discovering and developing unconventional natural gas and oil fields onshore in the U.S. Chesapeake owns leading positions in the Eagle Ford, Utica, Granite Wash, Cleveland, Tonkawa, Mississippi Lime and Niobrara unconventional liquids plays and in the Marcellus, Haynesville/Bossier and Barnett unconventional natural gas shale plays. The company also owns substantial marketing and oilfield services businesses through its subsidiaries Chesapeake Energy Marketing, Inc. and Chesapeake Oilfield Services, L.L.C.

History[edit]

Founded in 1989 by retired CEO Aubrey McClendon and former President and COO Tom L. Ward, the company began with 10 employees and a $50,000 initial investment. McClendon named the company due to his love of the Chesapeake Bay region.[6] Focusing on a strategy of drilling horizontal natural gas wells in unconventional reservoirs, the company built a sizable position in the Golden Trend and Sholem Alechem fields of South-central Oklahoma and in the Giddings field of Southeast Texas.

In 1993, the company completed its IPO at a split-adjusted price of $1.33 per share. In 1995, Chesapeake moved from the NASDAQ to the NYSE and changed its stock symbol to CHK.[7]

After struggling with attempts to extend the Austin Chalk play into western and central Louisiana, and the coinciding price collapse of oil and natural gas in the late 1990s, the company modified its strategy to focus almost exclusively on natural gas production. This focus utilized the newest technologies to target a more diversified, longer reserve life and lower base risk asset base, and began to incorporate acquisitions into the company’s business plan.[citation needed]

During the period from 2003 to 2007, the company experienced rapid growth thanks to upward shifts in U.S. natural gas prices. During this time, the company expanded its land positions into unconventional reservoirs such as fractured carbonates, tight sandstone and shales, such as the Barnett, Fayetteville, and Marcellus shales. In 2006, Chesapeake was added to the S&P 500, replacing Dana Corporation.[citation needed]

In 2008, Chesapeake announced its discovery of the Haynesville Shale in East Texas and northwestern Louisiana. The Haynesville Shale is projected to become the nation’s largest natural gas producer by 2015 and, along with the Marcellus Shale, one of the five largest natural gas fields in the world over time.[citation needed]

The company celebrated its 20th anniversary in 2009 by partnering with Orange County Choppers to create the world’s first compressed natural gas (CNG)-powered chopper.[citation needed]

On July 22, 2011, Chesapeake Energy agreed to a twelve-year naming rights partnership with the Oklahoma City Thunder to rename their arena Chesapeake Energy Arena.[8] The agreement between Chesapeake and the Thunder has an initial annual cost of $3.0 million with a 3.0% annual escalation.[8] Included in the agreement Chesapeake will have its branding throughout the building, prominent premium placement on the high-definition scoreboard and on new state-of-the-art interior and exterior digital signs.[9]

In June 2012, the company appointed Archie W. Dunham as chairman, replacing Aubrey McClendon, who retained his position as CEO. Dunham, who retired as chairman of ConocoPhillips in 2004, was appointed in response to shareholder concerns about corporate governance issues under McClendon's watch.[10]

On April 1, 2013, Aubrey McClendon retired from the company[11] and a three-month search for a replacement ended on May 20, 2013 with the announcement of Robert Douglas Lawler as McClendon's successor. At the time of the announcement, Lawler was the senior vice president of international and deepwater operations at Anadarko Petroleum Corp, a rival U.S. corporation, and Chesapeake shares rose by four percent following the appointment. Steven Dixon, Chesapeake's chief operating officer, acted as interim CEO during the replacement search period and, at the time of his appointment in late March, a three-person office of the chairman, consisting of Dixon, Chairmen Archie Dunham and Chief Financial Officer Domenic Dell'Osso, was formed.[12]

On October 16 2014, Chesapeake announced the sale of a large portion of its oil and gas assets in the Marcellus and Utica shales to Southwestern Energy. The deal has a price tag of around $5.38 billion and is considered to be Southwestern's largest deal. As part of the deal, Chesapeake Energy is selling ~413,000 net acres and 1,500 wells in northern West Virginia and southern Pennsylvania. 435 of the wells are located in the Marcellus and Utica shale formations. Total production from these wells was 336 million cubic feet per day in September 2014.[13]

Corporate governance[edit]

"Oversight of the Corporation and its business" is vested in an annually elected Board of Directors, led by a non-executive chairman who "serves as the Board’s liaison for consultation and director communication with stakeholder groups".[14]:1,8 As of 2014, Archie Dunham serves as the Chairman of the board of directors.[15]

"The CEO is responsible for establishing effective communications with the Corporation’s stakeholder groups," and the Board occasionally reviews "the Corporation’s executive management, including the CEO, and the steps being taken to assure the succession of qualified officers".[14]:7,8 As of 2013, Doug Lawler serves as the Chief Executive Officer for the corporation.[16]

Among other officers of the company as of 2014 are

  • Nick Dell'Osso has served as the company's chief financial officer (CFO) since 2010[17]
  • Douglas Jacobson, who has served as a Vice President for Acquisitions and Divestitures since 1999.[18]

Operations[edit]

Chesapeake owns leading positions in the Eagle Ford, Utica, Granite Wash, Cleveland, Tonkawa, Mississippi Lime, and Niobrara unconventional liquids plays, in addition to leading the Marcellus, Haynesville/Bossier, and Barnett unconventional natural gas shale plays.[citation needed]

Chesapeake’s business is divided into two operating segments—the Southern Division and the Northern Division. Its Southern division is divided into four major regions—the Eagle Ford, Haynesville, Barnett, and Mid-Continent regions. While the Eagle Ford and Mid-continent have a production mix that includes oil, natural gas, and natural gas liquids, the Haynesville and Barnett regions are largely gas-only producing regions.

The Northern division is divided into four regions—the Utica, Rockies, Marcellus North, and Marcellus South regions. Majority of the production comes from the Utica and Marcellus regions. Chesapeake has a significant acreage position in the Utica play at 1 million net acres. It produced mostly gas from this region (60%) followed by oil (10%) and NGLs (30%) in 2Q 2014. The Northern Marcellus is a gas-only-producing region, while the Southern Marcellus largely produced natural gas (57%) and natural gas liquids(34%) in 2Q 2014.[19]

Controversies[edit]

Bradford County blowout[edit]

On April 19, 2011, the company lost control of a natural gas well in the Marcellus shale that was being fracture stimulated, causing a large spill of salt water and hazardous chemicals[20][21][22] from the well, such as 2-butoxyethanol and methanol, into the surrounding countryside. The cause of the accident was a failed seal assembly in the wellhead.[23] By April 22, the leak had been stemmed.[24] On May 2, the state of Maryland announced its intention to sue the company for violation Resource Conservation and Recovery Act and the Clean Water Act.[25][26][27]

Chesapeake - Encana's alleged collusion[edit]

In mid-2012, the U.S. Department of Justice began an investigation into whether Encana, Canada's largest natural gas company, "illegally colluded with Chesapeake Energy Corp to lower the price of Michigan exploration lands." Encana's internal investigation determined in 2012 that it did not collude with Chesapeake.[28] The public land auction took place in May 2010 in one of "America's most promising oil and gas plays" [5] in Northern Michigan's Middle Ordovician Collingwood shale and underlying Utica shale formation.

CEO borrowing practices[edit]

On April 18, 2012, a Reuters report revealed that then Chief Executive Aubrey McClendon borrowed as much as US$1.1 billion against his stake in thousands of company wells. The loans, which had been undisclosed to shareholders, were used to fund McClendon's operating costs for the Founders Well Participation Program, which offers him a chance to invest in a 2.5% interest in every well the company drills. McClendon in turn used the 2.5% stakes as collateral on those same loans. Analysts, academics and attorneys who reviewed the loan documents stated the structure raised the potential for conflicts of interest and raised questions on the corporate governance and business ethics of Chesapeake Energy's senior management.[29] The company disagreed that this is a conflict of interest or a violation of business ethics and issued a detailed statement.[30] The same day that the Reuters article was published, Chesapeake Energy's common stock fell by over five percent at close and fell more than ten percent intraday to its lowest level since July 2009.[31][32][33]

On April 26, 2012, Chesapeake Energy stated that its directors had never reviewed or approved McClendon's mortgages on stakes in the wells and that it would be ending the Founders Well Participation Program. Additionally, the SEC announced that it would be opening an informal inquiry of McClendon's borrowing practices.[34] McClendon retired in April 2013.

Massive layoff of employees[edit]

The current CEO of Chesapeake Energy, Doug Lawler is responsible for laying off over 800 employees - roughly 16% of the workforce - within a few months of taking the position. He released several director and C-Level Executives within two months of taking power. Shortly after the executive positions were cut, Lawler released waves of employees over the course of a few months. All of the layoffs culminated on Oct. 8, 2013 when Lawler released a staggering 800 employees nationwide, 640 of which were from the corporate office in Oklahoma City.[35]

Fraud and racketeering charges[edit]

On June 5, 2014, the state of Michigan filed felony fraud and racketeering charges against Chesapeake Energy, alleging that the company canceled hundreds of land leases on false pretenses after it sought to obtain oil and gas rights.[36] Michigan attorney general Bill Schuette claimed that the company "obtained uncompensated land options from these landowners by false pretenses, and prevented competitors from leasing the land." Chesapeake Energy disputed all charges.[37]

Recognitions[edit]

Forbes magazine recognized Chesapeake as the “Best Managed Oil-and-Gas Company” in 2007[38] and it was included in Fortune Magazine’s 100 Best Companies to Work For List from 2008 through to 2014—in 2014 it ranked #51.[39] The company was named the 2009 Energy Producer at the Year by Platts Global Energy Awards and received the Industry Leadership Award for its role in championing natural gas as the fuel of the future. The company was also a finalist in the Deal of the Year, CEO of the Year, and Community Development Program of the Year categories and is one of only two companies to receive multiple awards. It was the second time in three years that Chesapeake had been named Platts’ Energy Producer of the Year.[40]

Notes[edit]

References[edit]

  1. ^ a b Chesapeake Energy (CHK) annual SEC income statement filing via Wikinvest
  2. ^ a b Chesapeake Energy (CHK) annual SEC balance sheet filing via Wikinvest
  3. ^ "2010 Annual Report" (PDF). Chesapeake Energy. Chesapeake Energy. 2010. Retrieved 21 May 2013. 
  4. ^ Gold, Russell (June 4, 2012). "Hedges Gone Awry Set Back Chesapeake". The Wall Street Journal. p. B1. 
  5. ^ a b Brian Grow; Joshua Schneyer; Janet Roberts (June 25, 2012). "Special Report: Chesapeake and rival plotted to suppress land prices". Gaylord, Michigan: Reuters. 
  6. ^ Goodell, Jeff (1 March 2012). "The Big Fracking Bubble: The Scam Behind the Gas Boom". Rolling Stone. Retrieved 5 March 2012. 
  7. ^ "Chesapeake Energy Corporation". New York Stock Exchange. NYSE Euronext. 2012. Retrieved 21 May 2013. 
  8. ^ a b "Thunder's home now known as Chesapeake Energy Arena". NBA.com. NBA Media Ventures, LLC. 22 July 2011. Retrieved 21 May 2013. 
  9. ^ "OKC Arena to be Renamed Chesapeake Energy Arena". http://www.nba.com/thunder. Retrieved 22 July 2011. 
  10. ^ Joe Carroll (21 June 2012). "Chesapeake Appoints Dunham Chairman, Stripping McClendon". Bloomberg Business Week. Bloomberg L.P. Retrieved 21 May 2013. 
  11. ^ "Chesapeake Energy Corporation Announces CEO Succession Plan". Reuters. Retrieved 29 January 2013. 
  12. ^ Anna Driver (20 May 2013). "Chesapeake Energy hires Anadarko executive as CEO". Reuters. Retrieved 21 May 2013. 
  13. ^ Bandz, Keisha. "Chesapeake’s asset divestiture". Market Realist. Market Realist, Inc. Retrieved 24 October 2014. 
  14. ^ a b "Corporate Governance Principles" (PDF). Chesapeake Energy Corporation. June 13, 2014. 
  15. ^ Carroll, Joe; Olson, Bradley (November 6, 2014). "Saudi Flexing Met With Crickets by U.S. Shale Frackers". Bloomberg News. 
  16. ^ Driver, Anna (October 9, 2013). "New CEO cuts Chesapeake Energy's lifestyle largesse". Reuters. 
  17. ^ "Dominic Dell'Osso". Forbes.com. Retrieved November 7, 2014. 
  18. ^ "Douglas Jacobson". Forbes.com. Retrieved November 7, 2014. 
  19. ^ Bandz, Keisha. "Chesapeake’s business segments". Market Realist. Market Realist, Inc. Retrieved 29 August 2014. 
  20. ^ Soraghan, Mike (May 4, 2011). "Pa. Well Blowout Tests Natural Gas Industry on Voluntary Fracking Disclosure". The New York Times. 
  21. ^ Nicholas Kusnetz (26 April 2011). "Response to Pa. Gas Well Accident Took 13 Hours Despite State Plan for Quick Action". Pro Republica. Pro Publica Inc. Retrieved 21 May 2013. 
  22. ^ "OSHA List of Hazardous Chemicals". Argonne National Laboratory. UChicago Argonne LLC. 2013. Retrieved 21 May 2013. 
  23. ^ SAIC. "ATGAS Initial Site Characterization Report". Incident Report. Retrieved 12 December 2011. 
  24. ^ McAllister, Edward (April 22, 2011). "Chesapeake stems flow from blown Pennsylvania gas well". Reuters. Retrieved October 26, 2011. 
  25. ^ "Attorney General Gansler Notifies Chesapeake Energy of the State's Intent to Sue for Endangering the Health of Citizens and the Environment". May 2, 2011. Retrieved October 26, 2011. 
  26. ^ Warner, Dave (May 4, 2011). "Maryland prepares lawsuit over PA gas drilling effect on water". Reuters. Retrieved October 26, 2011. 
  27. ^ Hrin, Eric (May 6, 2011). "Chesapeake informed of Maryland's intent to sue". The Daily Review. Retrieved October 26, 2011. 
  28. ^ Scott Haggett (January 14, 2013). "Encana shares edge lower after CEO suddenly resigns". Thomson Reuters (Calgary, AB). Retrieved February 1, 2013. 
  29. ^ Lustgarten, Abrahm (March 13, 2014). "Chesapeake Energy’s $5 Billion Shuffle". ProPublica. Archived from the original on June 13, 2014. Retrieved June 14, 2014. 
  30. ^ "CHESAPEAKE ENERGY CORPORATION'S BOARD AND CEO AUBREY K. MCCLENDON AGREE TO NEGOTIATE EARLY TERMINATION OF FOUNDER WELL PARTICIPATION PROGRAM" (Press release). Chesapeake Energy Corporation. Chesapeake Energy Corporation. 26 April 2012. Retrieved 21 May 2013. 
  31. ^ Ernest Scheyder; Matt Daily (18 April 2012). "Chesapeake shares tumble on CEO loan worries". Reuters. Retrieved 21 May 2013. 
  32. ^ "Chesapeake Energy shares plunge on CEO loan report". CBS News. April 18, 2012. Retrieved April 19, 2012. [dead link][dead link]
  33. ^ Daniel Putnam (19 April 2012). "Chesapeake Energy clipped by corporate conflict". MSN Money. Retrieved 21 May 2013. 
  34. ^ "Board Turns on Chesapeake's CEO". The Wall Street Journal. 26 April 2012. Retrieved 21 May 2013. 
  35. ^ "Chesapeake lays off 640 employees in OKC". The Oklahoman. 8 October 2013. Retrieved 22 January 2014. 
  36. ^ Harris, Andrew (June 5, 2014). "Chesapeake Energy Faces New Charges Over Michigan Leases". Bloomberg News. Archived from the original on June 7, 2014. Retrieved June 7, 2014. 
  37. ^ Grow, Brian; Schneyer, Joshua (June 5, 2014). "Michigan AG charges Chesapeake with racketeering and fraud". Reuters. Archived from the original on June 7, 2014. Retrieved June 7, 2014. 
  38. ^ Christopher Helman (21 December 2006). "Chesapeake Energy: Nice Parking Lot". Forbes. Forbes.com LLC™. Retrieved 21 May 2013. 
  39. ^ http://www.greatplacetowork.com/best-companies/100-best-companies-to-work-for
  40. ^ "Congratulations 2009 Winners". Platts Global Energy Awards. Platts, McGraw Hill Financial. 2010. Retrieved 21 May 2013. 

External links[edit]