The Incredible Rise and Final Hours of Fracking King Aubrey McClendon
Chesapeake Energy’s co-founder and CEO was a visionary who had trouble following the rules.
Aubrey McClendon, the co-founder of Chesapeake Energy, liked to sneak Champagne into movie theaters on date nights with his wife. They’d pour it over cups of ice they bought at the concession stand and sip away in the dark. At the height of a gas boom he and Chesapeake did as much as any to inflate, he rode a natural-gas-fueled motorcycle and wore ties decorated with miniature drilling rigs. He drove his cars fast and talked on his phone while careening through the back roads of Oklahoma, following old atlases. As McClendon’s son Will put it at his memorial in Oklahoma City on March 7: “He was definitely not a Google Maps kind of guy.”
McClendon was smart, shrewd, visionary, and dogged—and he had trouble following rules. On occasion, when a gamble on a new gas field worked out, that helped him. But just as often, it hurt. His contrarian push into shale drilling revolutionized the global energy business and made him a billionaire. His disdain for convention attracted regulatory scrutiny, angered shareholders, and cost him his job running the company he built.
When Chesapeake’s board ousted him as chief executive officer in 2013 after a series of conflict-of-interest allegations and a huge wrong-way bet on natural gas prices, he vowed to start a new company that would be as bold as his old one. One of his last moves upon departing his Chesapeake office was to take a set of company geological maps to natural gas deposits. On March 1, the day before McClendon died, federal antitrust authorities accused him of conspiring with a competitor to rig bids in drilling-lease auctions.
McClendon came to embody both the free-spirited wildcatter and the entitled CEO of the 21st century who enriched himself while treating the public company he ran as his personal kingdom. “No individual is without flaws, but his impact on American energy will be long-lasting,” says T. Boone Pickens, chairman of BP Capital. “He was a major player in leading the stunning energy renaissance in America. He was charismatic and a true American entrepreneur.”
McClendon rose and fell many times in his three-decade career. In the weeks preceding his March 2 death in a one-car crash in his hometown of Oklahoma City, he was losing control of several new companies he helped create. But he was still out wrangling deals to drill shale in Australia and Argentina.
Marc Rowland, Chesapeake’s chief financial officer from 1993 to 2010, says that when he spoke recently with his friend, “I didn’t detect anything different than what I’d call the usual, which was high energy, optimism. We talked about the industry and how difficult it was to get some of these programs put together, but it was always in the vein of ‘adversity has always created opportunity for us.’ ”
McClendon, who was 56, shrugged off characterizations of himself as a risk-loving wildcatter. “If I wanted to always do the most popular thing, then I’d be a follower,” he told Bloomberg Markets magazine in 2012. “The funny thing is that I don’t consider myself a gambler at all. A gambler is somebody who just closes their eyes and rolls the dice. We don’t do that.”
He didn’t behave as if he was struggling, even when his business was. He collected antique speedboats, including a 1954 Greavette and a 1938 Hacker-Craft. He had an extensive wine collection, including dozens of vintages of Chateau Lafite Rothschild. He left his mark across Oklahoma City, from the Chesapeake Boathouse to the high-end Classen Curve shopping center he helped develop near Chesapeake’s offices to keep young employees from fleeing to Houston.
McClendon took special pride in Chesapeake’s red-brick headquarters, which he designed to resemble a college campus, with yoga classes, a basketball court, and free massages. It reflected his desire to make Chesapeake look more like a Silicon Valley startup than an old-line Okie driller. On a slow night at Irma’s Burger Shack a few blocks away, he’d leave $100 tips for each employee. He and Katie, his wife of more than 30 years, gave tens of millions of dollars to their alma mater, Duke University. McClendon brought a similar philosophy to Chesapeake, where cash wasn’t to be conserved but plowed into buying more land and drilling new wells. “Asking me what to do with extra cash is like asking a fraternity boy what to do with the beer,” McClendon told Natural Gas Intelligence in 2005.
Unlike many energy CEOs, McClendon had no special talent for geology or engineering. Rather, he brought a flair for making deals. He was a “land man,” one of the guys who—not unlike door-to-door salesmen—negotiate drilling leases with farmers and ranchers. He became the preeminent land man of his era, at one point amassing rights to the largest U.S. shale holding—16 million acres, an area equivalent to half the state of New York.
Along with a few other pioneers, McClendon showed that previously impermeable shelves of rock miles underground could be shattered and made to yield their riches. Even after the ouster from Chesapeake and the financial struggles of his newer ventures, McClendon looked like he might survive the up-and-down yet again—if only energy prices would cooperate.
With his rimless glasses and silver hair curling over his collar, McClendon could have passed for a college professor. Growing up in Oklahoma, he had prospecting in his blood. His great uncle was Robert Kerr, the onetime Oklahoma governor and U.S. senator who co-founded energy giant Kerr-McGee. He graduated from Duke in 1981 with a bachelor’s degree in history and a fondness for Bruce Springsteen.
He started Chesapeake in 1989 with his friend Tom Ward. With a $50,000 stake, the two 29-year-olds began leasing scraps of Oklahoma land left behind by bigger players. They named it Chesapeake partly because, as McClendon told the Oklahoman in 2002, “There was some fear that we’d fail, maybe spectacularly, and we thought it would be easier to live with that if our names weren’t on the failed enterprise.”
Rowland says he sensed something special in McClendon the first time he met him in the early 1980s. “He was powerfully inquisitive,” Rowland says. “If you were having a cup of coffee, you could expect to get 40 questions about yourself and everything going on in your life.” Rowland joined Chesapeake in 1993, the year the company went public at $1.33 a share. At the time, Rowland says, oil-and-gas was supposedly “a dying business, where all of our resources had been exhausted. It was the era of Peak Oil and Aubrey didn’t see it that way.”
McClendon and Ward were among the first “frackers” of unconventional natural gas reservoirs, layers of rock rich with hydrocarbons that had largely been ignored because they were too dense for gas and oil to flow through. Chesapeake bored sideways into the formations, broke them up with explosives, then pumped in water and sand to prop open the cracks so gas had room to flow out. Fracking, short for hydraulic fracturing, is blamed by some for poisoning drinking water, polluting the air, and triggering earthquakes. It’s also credited with reducing U.S. dependence on foreign oil.
Chesapeake was also early to adopt the use of high-yield debt to underwrite its drilling adventures. To McClendon, debt was not a burden but one of his most valuable tools. “To be able to borrow money for 10 years and ride out boom-and-bust cycles was almost as important an insight as horizontal drilling,” McClendon told Rolling Stone magazine in 2012. “If something didn’t work for a little bit of time, we could regroup and find something that did work.”
The ride was bumpy. By late 1996, Chesapeake shares had climbed above $30 as the company’s earnings soared and its gas reserves swelled. Within a year, though, the stock had dropped below $10 after the Austin Chalk, a key Chesapeake field straddling the Texas-Louisiana border, fell short of expectations, forcing the company to take a sizable writedown.
“We’d had higher highs than others in the industry; then we had lower lows,” McClendon said in 2011. “In this business, it’s good to have a short memory and thick skin.” He and Ward tried to sell Chesapeake in 1998 but interest was scant. Believing that shale would eventually experience a huge growth surge, they put their land-men hats on and began borrowing money to buy fresh drilling acreage. Between 2000 and 2006, Chesapeake spent $6 billion on 11 million acres of drilling rights in about a dozen states. A debt load that was under $1 billion in 2000 ballooned to almost $13 billion by 2010, exceeding the combined net debt of international oil titans ExxonMobil and Chevron. McClendon hired thousands of other land men across the country and built an enormous database of property records designed to help find landowners and buy up their drilling rights before competitors did.
Many of Chesapeake’s leases were signed with no certainty that the parcels would actually produce gas. That was risky when a single well could cost $10 million. Chesapeake became known for paying first and worrying about the cost later, a strategy that worked well as long as energy prices were rising and lenders were willing to lend. At an industry conference in 2005, McClendon acknowledged as much when he said, “Last night, I got back to my room about 2 a.m. I went through some e-mails and there’s no telling what I did. So if I bought you, I probably overpaid. Congratulations.”
In 2007, McClendon declared the land grab over and vowed to shift Chesapeake’s focus to getting gas out of the ground. He preached to Wall Street, the industry, the media, and anyone else who’d listen that shale gas and oil would free the U.S. from its addiction to Middle East hydrocarbons and create hundreds of thousands of American jobs. He looked prescient in 2008 as gas prices shot to nearly $14 per million Btu from about $4 just 21 months earlier. That July, Chesapeake hit its peak value, $37.5 billion.
Then came the fall of Lehman Brothers and the global financial crisis. Chesapeake shares plunged so far that McClendon faced a margin call—he’d been borrowing money to buy his company’s stock. He had to sell nearly all of his 6 percent stake in distress, which helped drive shares down further. McClendon told his employees in a letter to “just ignore” the stock price because “it does not reflect how well we are doing as a company.”
Chesapeake’s board had always backed him, and they came through again, giving McClendon one of the biggest CEO pay packages in the U.S. that year, including a $75 million bonus. They also offered to pay $12 million to purchase McClendon’s personal collection of antique maps of the Southwest. After shareholders protested, he returned the map money.
To many in Oklahoma City, McClendon came across as a regular guy. Typically, his hair was tousled, his tie was askew, and his sleeves were rolled up. He might have a stain on his shirt from one of the pens stuffed in his pocket. He and Kurt Fleischfresser were partners in several restaurants, including the upscale Coach House across the street from the Chesapeake campus. For years, McClendon used the restaurant’s back room as a second office, entertaining visiting bankers and customers with plates of duck-fat fries.
No matter who his guests were, if McClendon saw new restaurant employees, he always stopped to ask about their life stories and ambitions, Fleischfresser says. “In the hospitality world, we judge people on how they treat waiters and staff. In that respect alone, Aubrey was a king.”
During a Christmas blizzard in 2009, a priest at McClendon’s Episcopal church e-mailed him to see if any Chesapeake ground crews could help clear church sidewalks, says Steve Slawson, vice president of operations for Slawson Exploration and a longtime friend of McClendon’s. Half an hour later, the priest looked outside to see McClendon and his two sons shoveling. “Aubrey was recklessly generous,” Slawson says. “It will take a lot of us chipping in to fill that hole.”
McClendon threw his time and money into an effort to turn a grassy stretch near the Oklahoma River in downtown Oklahoma City into a world-class Olympic rowing venue. A new waterway was built that became home to the Chesapeake Boathouse in 2006. “While he wasn’t a rower, he liked the water and understood the power of what an active waterfront could be for the city,” says Michael Knopp, executive director of the Oklahoma City Boathouse District. “He and I would e-mail back and forth in the middle of the night.”
McClendon also bought homes in Bermuda, Hawaii, Colorado, and Minnesota, according to a Reuters report in 2012, along with 16 antique boats worth $9 million. He became politically active, helping bankroll the Swift Boat ad campaign against Democrat John Kerry in the 2004 presidential campaign. He bought a share of the National Basketball Association’s Seattle SuperSonics and earned the enmity of its fans by helping move the team to Oklahoma City, where it went to the 2012 NBA Finals playing as the Thunder.
As Chesapeake and other shale drillers pursued fracking more aggressively in the Northeast and Upper Midwest, protests grew louder and more pointed. Citizens and environmentalists warned that chemicals used in fracking could leach into groundwater. There were reports of foul smells emanating from kitchen faucets in towns near fracking sites. One of McClendon’s stock responses to the criticism was to describe the detractors’ “vision of the future” as, “We’re cold, it’s dark, we’re hungry.”
He carried this same certainty—some might say arrogance—to the management of Chesapeake, a public company with 13,000 employees. The company often outspent its forecasts as it accumulated acreage in new prospects handpicked by McClendon. Executives who wanted to invest in a new project pitched their ideas individually, and often privately, to McClendon, who exercised sole power of approval. He also personally screened annual employee bonuses, using a red pen to change or cancel each dollar amount. His board of directors, whose job it was to watch over what he was doing, largely let him do what he wanted.
Early in 2012, McClendon went on a whirlwind, two-week tour of Asian financial centers. He was in crisis mode. After recovering from the 2008 financial meltdown, Chesapeake’s stock was dropping again, along with natural gas prices. Investors fretted that the company couldn’t handle its debt load.
Part of the problem was Chesapeake’s success at producing natural gas. As the U.S. passed Russia to become the world’s largest gas supplier, the resulting glut crushed prices across North America. McClendon’s solution was to sell his company’s story overseas. In 52 meetings from New Delhi to Seoul, he told prospective investors that Chesapeake was their gateway to the U.S. shale bonanza. Never mind that no gas-export terminals yet existed in the continental U.S. “We are presently owned by a group of investors who don’t think gas prices will ever go above $4,” he told a Bloomberg News reporter over a steak dinner in March 2012. “I want to be owned by investors who live in a part of the world that believes gas prices will never go below $10.”
His own world was about to crumble. In a series of devastating articles starting in April, Reuters painted a portrait of McClendon as a CEO treating his public company as his personal bank account. Reuters reported that he had negotiated an unusual arrangement that let him buy stakes of up to 2.5 percent in wells the company invested in, and he had borrowed more than $1 billion from outside lenders to do it. He was also running his own hedge fund out of Chesapeake’s offices.
In “The Lavish and Leveraged Life of Aubrey McClendon,” Reuters focused on a Chesapeake unit informally known as AKM Operations—after McClendon’s initials—that used company money to perform personal chores for the CEO. In 2010 alone, AKM handled $3 million in such work, including repairs to one of his homes. McClendon, his family, and his friends had used Chesapeake’s corporate jets for personal travel at company expense, Reuters reported. In another article, Reuters reported that McClendon had colluded with Encana, a Canadian energy company, to keep land prices low on some promising acreage in Michigan.
The uproar among Chesapeake’s largest shareholders was swift. Activist investor Carl Icahn, who held a 7.6 percent stake, pushed for changes to Chesapeake’s board. McClendon relinquished his title as chairman that summer. At the time, Chesapeake was also running out of money. McClendon made what turned out to be his last bad bet with the company. Believing the U.S. would have a cold winter, he closed out hedges that would have locked in high gas prices. The winter turned out to be mild and gas prices collapsed. On April 1, 2013, McClendon left the company.
After Chesapeake’s board voted to replace him, McClendon enjoyed an outpouring of sympathy in the company’s hometown. Almost all of the dozens of reader comments submitted to the Oklahoman were positive. McClendon “was a man with a vision for his company, his community, his city and his state,” one reader wrote. “So he made a lot of money for himself. Why should he not?”
The day after he left Chesapeake in disgrace, McClendon started a new company, American Energy Partners. He hired 600 employees, raised more than $10 billion in equity and debt, and relaunched his mission to drill. Investors hadn’t lost faith in McClendon. Among those who piled billions into American Energy were First Reserve and Energy & Minerals Group, the Dallas firm controlled by John Raymond, son of former Exxon CEO Lee Raymond.
McClendon had been in the job about a year when Michigan’s attorney general sued Chesapeake and Encana over alleged collusion. Part of the evidence cited in the charges was an e-mail McClendon sent to an Encana executive: “should we throw in 50/50 together here rather than trying to bash each other’s brains out on lease buying?” Encana paid $5 million to settle the case, and Chesapeake agreed to pay $25 million in penalties.
The oil crash started in the summer of 2014. Lenders eventually shut off the spigot of easy money to all drillers. Late that year, McClendon was quietly shoved aside as CEO of an Ohio shale venture he’d formed with support from John Raymond and other investors, American Energy-Utica. The shake-up wasn’t publicly announced until five months later and was never explained.
Pressure mounted in February 2015, when Chesapeake alleged in a lawsuit that McClendon had taken maps to Ohio gas deposits with him when he left the company. McClendon insisted he had a right to the maps. The lawsuit demanded hundreds of millions of dollars in damages and also sought to penalize anyone who funded McClendon’s new projects. McClendon vowed to fight the accusations.
He continued striking deals where he could find them, notably to drill shale in Australia and Argentina. But his company, American Energy, was struggling under heavy debt, still-low gas prices, and growing investor concern about his legal battle with Chesapeake. By the time of his indictment, McClendon had been removed from all leadership positions at American Energy, according to a person familiar with the matter, as well as at entities created by Raymond’s firm.
Federal antitrust enforcers had looked at the Michigan case and dropped it without public explanation. But their investigation of McClendon had continued. Chesapeake, it turned out, was cooperating with federal investigators. On March 1, the U.S. Department of Justice’s Antitrust Division filed criminal charges alleging that McClendon and an unnamed company had agreed not to bid against each other on drilling leases in Oklahoma from December 2007 to March 2012. Bloomberg has since reported that the unnamed company was SandRidge Energy, which during that time was led by Chesapeake co-founder Ward, who had left the company in 2006. Greg Dewey, a spokesman for Ward, didn’t return phone messages seeking comment.
McClendon denied doing anything wrong. “Anyone who knows me, my business record, and the industry in which I have worked for 35 years, knows that I could not be guilty of violating any antitrust laws,” he said. “I am proud of my track record in this industry, and I will fight to prove my innocence and to clear my name.”
In his final days, good news was scarce for McClendon wherever he went, even an outing to watch an Oklahoma City Thunder game. On Feb. 27, McClendon, who owned 19 percent of the team, took his usual front-row seat on the baseline near the Thunder bench. The brief respite from his business woes turned into a heartbreaker. McClendon stood disconsolate, hands at his sides, as Golden State Warriors star Stephen Curry sank a last-second three-pointer to hand the Thunder an overtime loss. McClendon left as always through the private back corridor of Chesapeake Energy Arena.
The indictment was handed down three days later, at about 5:30 p.m. Around 8 o’clock the next morning, a business associate received an e-mail from McClendon. The two had run into each other the night before at a local restaurant where McClendon was dining with his daughter, Callie Katt. McClendon seemed normal, the person later told Rowland, Chesapeake’s former CFO. The e-mail was little more than a “good to see you last night” message, Rowland says.
Not long after, McClendon slipped his security detail and climbed into his 2013 Chevy Tahoe. He drove north along a lonesome two-lane stretch of Midwest Boulevard, toward the prairie-scrub city edge. Threading a path through thick, bushy trees bordering both sides of the road, with virtually no shoulder, McClendon had little room to maneuver. He picked up speed, traveling well above the posted limit of 50 miles per hour, police said. At about 9:12 a.m., he slammed into a concrete wall supporting a highway overpass. Police have yet to determine whether the crash was an accident or suicide.
—With David Wethe, Dan Murtaugh, and Alex Nussbaum
(A previous version incorrectly stated in the 36th paragraph that KKR invested in AEP.)