Chesapeake Seeks Anadarko-Style Discipline With Lawler Choice
Chesapeake Energy Corp. (CHK) is hiring an Anadarko Petroleum Corp. (APC) engineer who oversaw oil projects around the world to slash costs and transform a corporate culture forged by Chesapeake’s wildcatting co-founder.
Former Anadarko Senior Vice President Robert “Doug” Lawler will join Chesapeake on June 17 to fill the chief executive officer role held by Aubrey McClendon for almost a quarter century until he stepped down April 1. Lawler’s tasks include finding buyers for as much as $7 billion in oil and natural gas fields, and reducing a debt load larger than Exxon Mobil Corp. (XOM)’s, a company 29 times Chesapeake’s market value.
Lawler’s experience in planning, negotiating and organizing the development of far-flung discoveries from the Indian Ocean to the Rocky Mountains indicates he has the skills to lead Chesapeake through its transition from prospector to energy producer, said Michael Kelly, an analyst at Global Hunter Securities LLC in Houston.
Ten months ago, Lawler, 46, was elevated to Anadarko’s top management team and given responsibility for all of the company’s international and deep-water operations. His tenure in that job included oversight of $268 billion in gas discoveries off Africa’s east coast.
“He’s still young and still hungry, and it’s telling that he’s had so much success and risen so quickly through the ranks of a highly-regarded company,” Mark Hanson, an analyst at Morningstar Inc., said in an interview. “Best of all, he’s not a landman, so they’re not going to be going out buying up more acreage” for exploration.
Lawler, a Colorado School of Mines-trained petroleum engineer, also will serve as a director on Chesapeake’s board, the Oklahoma City-based company said in a statement yesterday. The appointment was the culmination of a 3 ½-month CEO search after a falling out between directors and McClendon over what he described as “philosophical differences.”
Chesapeake lost one-fourth of its market value last year as a glut of North American gas collapsed prices and dried up the company’s main source of cash to fund drilling and debt payments. McClendon was replaced as chairman in June at the behest of activist shareholders such as Carl Icahn amid an investor revolt over weak financial performance and the CEO’s use of personal stakes in company-owned wells to obtain more than $800 million in private loans.
Chesapeake’s reserves declined by 16 percent at the end of 2012 to the equivalent of 2.6 billion barrels of oil, the biggest annual decline in nine years, according to data compiled by Bloomberg. During the first three months of this year, net debt expanded by 11 percent to $13.5 billion, Chesapeake said in a U.S. Securities and Exchange Commission filing from May 10. Exxon had $7.2 billion in net debt at the end of the first quarter. For Chevron Corp. (CVX), Exxon’s largest domestic rival, cash and other collateral exceeded debt by $3.5 billion.
Lawler played key roles in navigating the financial, political and technical challenges inherent in Anadarko’s ongoing liquefied natural gas project in Mozambique, Hanson said. The company plans to install refrigeration units and export terminals along the coast of the East African nation that will harvest offshore discoveries that may hold as much as 65 trillion cubic feet of gas. At current U.S. prices, that resource would be worth $268 billion.
“He’s familiar with complexity, which ought to serve him well at Chesapeake,” Hanson said.
Chesapeake, which outspent cash flow in 20 of the past 22 years, also is in need of Anadarko-style financial restraint, said James Sullivan, an analyst at Alembic Global Advisors in New York. The company lost $769 million in 2012, or the equivalent of $2 million a day, for the largest annual loss since 2009, according to data compiled by Bloomberg.
“The fact that they want to replicate the Anadarko model in terms of capital discipline is only positive for Chesapeake,” Sullivan said in a telephone interview.
Prior to last year’s promotion, Lawler’s responsibilities also included managing Anadarko’s operations in U.S. shale formations such as the Marcellus in Pennsylvania and the Eagle Ford in Texas, where Chesapeake is the biggest and second-biggest owner of drilling rights, respectively, according to data compiled by Bloomberg Industries.
“Chesapeake needs a guy that has strong operational experience, a technical guy for the phase they are in now,” Kelly said. “He’s got to cut costs and gain efficiencies, and doing that requires someone who’s done it at a world-class company.”
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