Chesapeake Rescue Has Lawler Looking Overseas for Growth

Photographer: F. Carter Smith/Bloomberg

Chesapeake Energy Corp.’s Doug Lawler’s ambition is to amass foreign fields and transform Chesapeake from a U.S. shale driller into a global oil explorer in the mold of his former employer Anadarko Petroleum Corp., where he oversaw oil projects around the world. Close

Chesapeake Energy Corp.’s Doug Lawler’s ambition is to amass foreign fields and... Read More

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Photographer: F. Carter Smith/Bloomberg

Chesapeake Energy Corp.’s Doug Lawler’s ambition is to amass foreign fields and transform Chesapeake from a U.S. shale driller into a global oil explorer in the mold of his former employer Anadarko Petroleum Corp., where he oversaw oil projects around the world.

Chesapeake Energy Corp. (CHK)’s Doug Lawler may take the company he inherited from founder Aubrey McClendon to the one place his deals-obsessed predecessor never wanted to go: overseas.

Speaking to a hometown crowd at a Rotary Club lunch in Oklahoma City last month, Lawler stood next to a map of the world sprinkled with green dots marking drilling prospects from Australia to China to Africa to Latin America. Extending Chesapeake’s reach overseas would mark a stark contrast to the growth strategy pursued by McClendon, who in a 2012 interview ruled out foreign exploration.

“I wouldn’t be surprised if in Oklahoma City you had a company returning to the international area in a few years,” Lawler told the room in a speech recorded and posted on the club’s website.

Lawler’s ambition is to amass foreign fields and transform Chesapeake from a U.S. shale driller into a global oil explorer in the mold of his former employer Anadarko Petroleum Corp. (APC), where he oversaw oil projects around the world.

First things first. Almost a year after stepping in to replace Chesapeake’s former chief executive officer, Lawler is still untangling byzantine financing and production arrangements McClendon left in his wake. Chesapeake’s complexity has hamstrung efforts to revive a company that pumps more U.S. natural gas than any producer except Exxon Mobil Corp. (XOM)

Action Plan

Lawler’s immediate goals: Curb spending and sell enough gas fields and side businesses so Chesapeake’s expenses aren’t outstripping its cash flow for the first time in more than a decade. Once finances are under control, global expansion is more likely to begin.

So far, Wall Street isn’t convinced Lawler will succeed in turning Chesapeake around. Investors’ enthusiasm for McClendon’s departure drove a 36 percent rally in shares since the new CEO’s appointment was announced in May 2013. That followed a year in which Chesapeake lost one-fourth of its market value as conflict-of-interest investigations into McClendon’s intertwined company and personal business deals triggered a shareholder revolt.

Lawler’s tenure thus far has been marked by disappointing profits, stalling production growth and costly disputes over gas royalty payments with landowners and politicians left over from the McClendon era.

Rough Road

“The prior management team put the company in its existing condition,” Scott Hanold, an analyst at RBC Capital Markets LLC in Minneapolis, said in a telephone interview. “The challenge for Lawler now is getting the ship turned in the right direction.”

Chesapeake is expected to post per-share profit of 48 cents, excluding one-time gains and losses, when it discloses first-quarter results tomorrow, based on the average estimate of 29 analysts in a Bloomberg survey. Production from the company’s wells probably rose 1 percent to the equivalent of 669,888 barrels a day, according to the survey.

Chesapeake rose 0.2 percent to $28.37 at 2:23 p.m. in New York trading.

When Lawler, 47, took over in June, Chesapeake’s situation was dire. Thanks to collapsing prices for natural gas -- which comprised more than 80 percent of output last year -- the company’s cash was dwindling and net debt was nearly equal to Chesapeake’s market valuation.

Since then, Lawler and his team have slashed spending on everything from rig leases to luxury suites at professional sporting events. Capital expenses declined by more than half in 2013 to $6.8 billion, and Lawler has pledged to cut them another 20 percent this year. Cash holdings ballooned to $837 million at the end of December, the highest year-end balance in half a decade, according to data compiled by Bloomberg.

Net Debt

Despite the drastic cost-cutting, net debt has stubbornly hovered around $12 billion, triple the size of Chevron Corp.’s, a company more than 10 times larger by market value.

“To say he has untangled the structure over there would be overstating it,” said Scott Sprinzen, a credit analyst at Standard & Poor’s Financial Services LLC who rates Chesapeake debt BB-, or three levels below investment grade.

Lawler was a rising star overseeing one of the world’s premier offshore oil portfolios at Anadarko when activist shareholders led by Carl Icahn brought him in to extract profit from Chesapeake’s shale holdings that are vast enough to cover almost half of New York state.

During his Rotary speech last month, Lawler said Chesapeake’s engineers and geologists have been analyzing rock data from around the world.

Growth Potential

“As we continue to focus on our captured resources in the United States, we have the technical capability, the leadership and the operational expertise to extend that in overseas areas,” he said.

Lawler declined to comment further for this story.

During his Rotary Club appearance, he revealed some of the pressure he’s feeling to remake Chesapeake when he mentioned a “less favorable” event -- an evening dinner with Icahn, who controls about 10 percent of the company’s stock.

“I would gladly stand up and speak at the Rotary every day if I had that option, as opposed to having dinner in Mr. Icahn’s apartment this evening,” Lawler said to the crowd’s laughter.

The only investor with a bigger chunk of Chesapeake stock than Icahn is O. Mason Hawkins’s Southeastern Asset Management Inc., which controlled more than 68 million shares at the end of 2013.

In an April 17 communique to investors in his Longleaf Partners funds, Hawkins applauded the “substantial progress” the new CEO has made.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Carlos Caminada

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