Meet Mr. Gas
Combative CEO Aubrey McClendon has built once-floundering Chesapeake Energy into the country's hottest natural-gas company.
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| CEO McClendon (in suit) at a drill site near Piedmont, Okla.; Chesapeake is the most active natural-gas explorer in the U.S. and has the reserves to show for it. |
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| McClendon and Tom Ward (pictured in 1991; Ward at left) founded Chesapeake in 1989 with $50,000. Today it's worth $25 billion. |
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| A Chesapeake gas rig in Fort Worth, which sits on top of the giant Barnett Shale deposit. |
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| In 2007, Chesapeake funded an anti-coal campaign in Texas. This year, it's taking a pro-gas blitz national. |
(Fortune Magazine) -- That guy just called the governor of Connecticut a liar.
That guy at the podium. Everybody listening in the Blue Room today knows who he is - they work here, he's the boss - but do you? He's Aubrey McClendon. He's worth more than $3 billion. He's co-founder and CEO of Chesapeake Energy. It's a natural-gas company, okay? Headquarters in Oklahoma City, $25 billion market cap, No. 324 on this year's Fortune 500. Already the most active driller for gas in the U.S., by a factor of two, and soon to become the country's biggest gas producer. Is any of this ringing a bell?
You can bet it is with Jodi Rell. Last fall the Connecticut governor sent an angry letter to the chairmen and ranking members of two congressional committees that included the phrase "unconscionable fleecing of U.S. citizens by natural-gas suppliers who 'elect' to reduce production in order to drive up prices paid by their captive customers." She asked for an immediate investigation into possible price manipulation. The only company mentioned by name was Chesapeake Energy (CHK, Fortune 500).
Turns out the governor was grandstanding. No investigation ever materialized. McClendon could have just let it drop. Probably should have. "Maybe that's the way Exxon wants to run their business," he says now, warming to the tale, feeding off the crowd as he relates the story in this corporate town hall meeting, "but you tell me - and when you tell me, you're also saying to all our employees - that we did something wrong when we didn't do anything wrong, I'm gonna come out swinging and fighting, and that's what I did."
McClendon fired off a five-page rebuttal, fairly dripping with sarcasm, that found its way into in-boxes all over the country. (David Crane, the outspoken CEO of NRG Energy (NRG, Fortune 500) in Princeton, N.J., remembers it well. "He doesn't back down from a fight," Crane says admiringly. "That went beyond anything even I would do.") He concluded with an invitation, which read like a challenge, to Governor Rell to meet with him during his upcoming visit to "the Nutmeg State." The governor declined. (She also declined to comment to Fortune.) "Her spokesman said they didn't want to get into a war of words," says McClendon, setting up his punch line. "That's fine. I just told them I didn't think liars ever wanted to get in a war of words."
McClendon doesn't seem like that guy when you get him one-on-one. At 48, he's built like a runner, eats muesli with berries for breakfast, favors striped shirts with his blue pinstripe suits, wears his wavy hair casually long. He didn't go to Oklahoma or Oklahoma State; he went to Duke. He studied history, not geology or business. He has a finely tuned aesthetic sense reflected in the stately red-brick Chesapeake corporate campus on the north side of Oklahoma City. (He personally oversaw the design.) A creek flows through it. "I'd rather look at flowers than red dirt," he says.
That said, McClendon's middle name is Kerr. He comes from a long line of Oklahoma oil and gas men, starting with his great-uncle Robert S. Kerr, who was born in a log house with no windows, made his fortune when he co-founded Kerr-McGee, and went on to serve Oklahoma as its first native-born governor and later in the Senate. Robert S. Kerr, of whom it was once said by the late House Speaker Sam Rayburn, he's the kind of man who "would charge hell with a bucket of water and believe he could put it out."
Now that sounds more like the guy at the podium, and not just when he's going after Governor Rell. His flair for confrontation finds many outlets. A year ago McClendon jumped on Governor Joe Manchin of West Virginia, threatening to halt plans to build a new regional headquarters in Charleston after a county jury awarded plaintiffs $404 million in a case involving a Chesapeake subsidiary. When former Oklahoma Representative Brad Carson - a conservative Democrat, but a Democrat nonetheless - ran for the Senate in 2004, McClendon donated more than $1 million to a pair of right-wing 527s (tax-exempt, loosely regulated political groups) that spent part of the money on attack ads in Oklahoma. When McClendon discovered a pristine parcel of dunes and wetlands while jet-skiing on Lake Michigan, he snatched it away from local groups that had been trying to preserve it for decades ("completely dysfunctional" is how he dismisses those groups) and announced plans to develop it. And when he and a posse of sports-loving buddies decided it would be cool to bring the NBA to Oklahoma City, they bought the Seattle SuperSonics from Starbucks (SBUX, Fortune 500) founder Howard Schultz and set about prying the team loose from the community where it's been rooted for 41 years. Schultz is suing to stop the move, but he may be too late. On April 18 the NBA owners voted 28-2 to approve it.
This is McClendon's moment, and he's not backing down. U.S. natural-gas prices are soaring, nearly doubling since last summer. Markets are expanding, thanks to surging economies in Asia and growing demand for relatively clean-burning gas from electricity producers at home. Evolving government policy with respect to global warming is turning the tables on his biggest competitor, coal.
Just nine years ago Chesapeake was worth all of $30 million, had $1 billion in debt, and couldn't find a buyer at 75 cents a share. Today it's a $50 stock - up more than 50% over the past year in a down market. And McClendon insists that its real value is closer to $100. Why? Simple. Not only does Chesapeake have 11 trillion cubic feet of proven reserves, but it's sitting on the country's largest stockpile of unproven reserves (100 trillion cubic feet) and the largest inventory of undrilled wells (some 35,000).
Then there's Chesapeake's latest find, just announced: the Haynesville Shale, a vast new play in northwestern Louisiana that all by itself could yield the company as much as 20 trillion cubic feet of natural gas. It might be one of the biggest domestic gas fields ever discovered. No wonder McClendon is buying Chesapeake stock every chance he gets. He's invested $100 million of his own money in the past 12 months, upping his stake to 31 million shares.
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