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Aubrey McClendon and Chesapeake Energy are featured in the next issue of Forbes…

Chesapeake Energy is one of the most prominent, visible and well-respected companies in Oklahoma City. They employ thousands of Oklahomans and treat them well. They spend millions on local charities, foundations and the community. They, along with other energy companies like Devon and SandRidge, have been instrumental in improving the quality of life in Oklahoma City. They also put up a mean Christmas light display.

Of course, you already know that stuff. You know it because A) it’s kind of true, and B) Chesapeake and McClendon receive ridiculously favorable and one-sided coverage by our local media. It seems like you can’t pick up a copy of The Oklahoman without reading some story touting the wonders of natural gas, the safety and efficiency of fracking, or how the future will be a great place when all of our cars run on compressed natural gas. I’ve even heard the Journal Record is working on a special issue called “A Tribute to our Esteemed and Glorious Energy Leaders.”

In the national media, though, things are different. They ask tough questions, reply to those answers with even tougher questions, and then do things like compare Chesapeake Energy to Enron. From the Christopher Helman’s cover story in the upcoming issue of Forbes:

Some Chesapeake skeptics compare the company to Enron, something that sends the usually affable McClendon into a “highly insulted” rage. “We are the definition of the anti-Enron,” he says. “They sold all their oil and gas assets; that’s all we have.” In the largest sense McClendon is correct: Enron is a two-syllable synonym for fraud, and as much as Chesapeake’s tactics can be criticized, they are transparent, and I’ve never found anything or heard anyone that suggests illegal behavior.

Instead much of the similarity is cultural: Just as Enron in Houston a decade ago, Chesapeake is the surging company in an energy-reliant town, popping its name on the local pro sports arena, filling up the skyline (McClendon’s campus feels more like a university, with 20 low-slung buildings, mostly in Georgian style) and gobbling up the local smartest guys in the room. Some of those comparisons also stem from complicated accounting. Sharp-penciled analysts like Phil Weiss at Argus Research and Bob Brackett of Bernstein Research both consider those VPPs to be off-balance-sheet debt—loans to be repaid in gas instead of cash. Through them, Brackett says, Chesapeake is “effectively helping to achieve [its promised] debt reduction by sweeping debt from on-to off-balance-sheet vehicles.” (The company disputes this.)

S&P and Moody’s also consider VPPs to be off-balance-sheet debt. Last year, when Chesapeake used VPP proceeds to retire debt, Moody’s balanced that out by counting the VPP as new debt. It also tagged Chesapeake on retiring $2.6 billion in debt with proceeds from issuing convertible preferred stock, counting it as 50% equity and 50% debt. Audit Integrity, a watchdog group, ranks Chesapeake’s accounting “aggressive.” Carl Icahn saw the danger. In 2010 the activist investor bought a 6% stake for $1 billion and agitated for slashing the debt. By the spring, he’d convinced McClendon to sell $5 billion in assets and sold his own shares—for a $500 million gain.

Even though Helman deflects the Enron analogy, can you imagine anything like that ever appearing in The Oklahoman? I doubt it. This is the same media outlet that pulled a 2009 Don MeCoy blog post that simply mentioned McClendon was auctioning a large portion of his vast and valuable wine collection. Here’s what we wrote back then:

It kind of makes you wonder if The Oklahoman was pressured by Aubrey McClendon (or his friend Clay Bennett) to remove the post. If that’s the case, is that the behavior and policy you would expect from a publication that claims to be “state’s most trusted news?” Something tells me a “trusted” new organization would stand by a story that reflects the (deteriorating?) wealth of one of our state’s wealthiest citizens, regardless of who he happens to be friends or business partners with.

In my opinion, this is just more proof that you can’t really trust The Oklahoman. Aubrey McClendon could force a group of imprisoned midget rowers to tend to his indulgent wine collection and The Oklahoman would probably just write a story about everything he has done for midgets and the rowing community. It could be raining the day of the OPUBOC employee picnic and The Oklahoman would probably change the weather report to “Sunny and Beautiful” just to get more people to show up.   And they would do all that because they not only like to report the news, but control it, too.

That state’s most trusted news?  Whatever.

Anyway, I’ve included links to the main Forbes article and accompanying pieces. The articles are a bit technical in spots and you may need an MBA to understand all the lingo, but they are definitely worth reading. As an Oklahoman who’s forced to drink the “Chesapeake is Good” Kool-Aid on a daily basis, it’s refreshing to see a different point of view on our corporate steward and ambassador. We should probably take note that Chesapeake may not be as stable, sound and permanent as our local media and civic leaders would make us think; that not everything taking place near 63rd and Western is rosy and flavorful like a fine Bordeaux wine.

Billionaire Wildcatter, Risk Addict Aubrey McClendon Has Bet It All On Shale

Aubrey McClendon Versus The ‘Fracktivists’

• In His Own Words: Chesapeake’s Aubrey McClendon Answers Our 25 Questions

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Comments

  1. Tsk… Tsk…. And I had the nerve to ask Aubrey about “the lost ogle” in a public meeting! Now I feel a little ashamed.

  2. You TLO guys (and gal) have balls to question McClendon. Why do I have the feeling you all are now going to have a series of freak car accidents and unexplained gas line explosions at your homes?

  3. Chesapeake sent the Forbes articles out to all employees last night, for what it’s worth.

  4. I’ve got news for ya: Fracking has been done and gone on underneath Oklahoma for ages, almost since the time oil & gas were discovered. And our water has never suffered quality-wise from it.

    And for those against the pipeline to bring Canadian oil sands oil to Cushing, pipelines criss-cross this state about every 50 feet in some places, and they have a tremendous safety record. Yes there are failures, there will always be those, but so far the safety record is exemplary.

    • I am not an expert, but I would guess that fracking a vertical well 3-5 thousand feet in depth would be different than fracking a horizontal well that travels horizontally for, perhaps, miles.

  5. I like this article a lot, it made me open my eyes to the fact that maybe they aren’t the perfect company to work for. It makes you wonder why they let a lot of their employees have a company vehicle and be able to use them for personal use and how can they afford that.

  6. Just another reason that we shouldn’t put all our eggs in one fracking basket. Chesaworld on alert!

  7. I don’t think any sensible Oklahoman wants CHK to fail. – why would they? The company does great things for OKC and this, indirectly, puts pressure on cheapskate companies to do more. But it is hard to look at some of the things CHK does and not wonder if the emperor is wearing clothes. OKC is tied pretty tightly to CHK and we don’t want them to be another example of oilfield overreach and over confidence. We’re very prone to that in this state.

  8. Devon is so happy today. I think they put Helman up to writing this. FWIW, every Devon person I know has wondered how CHK gets so much publicity with so much debt.

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