Replies to This Discussion

Permalink Reply by Pam on March 3, 2016 at 10:27

I agree this "accident" sounds fishy. Even if Mr. McClendon was convicted and given the max sentence of 10 yrs/$1 million, he would probably have no trouble coming up with the money and 18 months in a federal penn really wouldn't be too terrible, IMHO.

Permalink Reply by Two Dogs, Pirate on March 3, 2016 at 10:57

I would think there would be some that would want to shut him up at any cost. If I were going to kill myself I would at least want to do it in a cool ride, not a 2013 Tahoe. I feel this was an accident or murder.

Permalink Reply by Henry on March 3, 2016 at 1:30

I'm not so sure, Skip.  My attorney once told me that while he was negotiating leases for clients back in 2008, he found that all of a sudden, one day, Petrohawk dropped out of bidding for land one one side of a line, while Chesapeake simultaneously dropped out of bidding for land on the other side of the line.  Collusion or coincidence?  We'll likely never know.

Permalink Reply by Skip Peel - Mineral Consultant on March 3, 2016 at 3:09

Coincidence.  Or Lehman Brothers.  Remember that Petrohawk lost their credit facility when Lehman declared bankruptcy.  In the early days of leasing offers disappeared whenever a well or wells were drilled that didn't measure up and caused a company's focus to move elsewhere.  If one or the other of the companies had stopped and the other continued, excepting the Lehman example, that might have seemed like collusion.  There were never any incidents of colluding over lease offers of which I'm aware.

Permalink Reply by Keith Mauck (Site Publisher) on March 2, 2016 at 16:58

This is an interesting read by Allen Gilmer, CEO of Drillinginfo

I read the following on Bloomberg this morning about Aubrey McClendon's indictment for allegedly fixing a mineral lease auction on Oklahoma.

Chesapeake Founder McClendon Indicted Over Lease Bid Rigging

I nearly blew the coffee out my nose.

Aubrey McClendon... indicted for keeping lease costs down.  What delicious irony. All this time, I (and tens of thousands of other oil people) credited Mr. McClendon with increasing the normal price of leasing minerals by 10-100 times or more what they had ever been historically... the man responsible for the most massive transfer of wealth via wildly inflated lease bonuses to US mineral owners in the history of mankind.  In a purely rational world, St. Aubrey in Mineral Owner Heaven, if not in the world of those that competed against him.

How did this happen?  Prior to McClendon's spectacular entrance into the world of unconventional hydrocarbons, the price of oil and gas leases ranged from a buck an acre to a hundred, $250 if it was a lay down guaranteed oil or gas well. As the Barnett Shale Play unfolded, the concept that EVERY acre was productive began to blossom, and soon, $500 an acre, which only a short time before seemed outrageous, was now the new norm.  

Chesapeake was the very first company to recognize the Unconventional Revolution as a land grab, and that IF every location was drillable, a case could be made for making a step change value redetermination for what they could pay for leasing those minerals; a step change that would create massive barriers to entry by inflating the price of acreage until the ability to put together sizeable blocks was available only to the very best capitalized or those able to raise massive amounts of capital.  Enter Chesapeake and Aubrey McClendon.  Raising massive amounts of capital is at the very core of McClendon's sweetspot... happily coupled to his ability to flip his deals for outsize returns to hungry, typically non American, buyers... 

Soon, every farmer with 160 acres of minerals in Oklahoma went from being able to buy a new pickup truck every few years to being able to buy their very own Caribbean island, due, in large part, to Chesapeake and Aubrey McClendon.

I still remember when Chesapeake exited the Barnett Shale play for the Haynesville.  They had literally hundreds or thousands of bank drafts in the hands of mineral owners who had not yet executed their leases... holding out for just a bit more.  Chesapeake made the suprise announcment that they were done in the Barnett.  Any unsigned lease would not be honored; their bank drafts worthless. They would honor those that had been signed to that date, and had set up a meeting at a local church to get the paperwork finalized for those lucky few that had signed.  Several hundred holdouts and their lawyers showed up at that meeting screaming to be included, to no avail.  The price of acreage in the Barnett never recovered. More than a few attorneys were exposed for providing bad business advice without a license, disguised as "legal advice". Uncomfortable conversations followed between attorney and mineral owner about why, exactly, had they been advised to turn down the lease offer.   Fortunately, for these advisors, bad business advice ISN'T malpractice. No rules against that.  If anyone doubts that Chesapeake was the principle driver of value in unconventionals, watch what happened when Chesapeake departed the plays they were in.

So, all my oilfield brethren... apparently we were wrong!  He was keeping lease costs down!  They better hope they don't get any old timer Oklahoma oilmen on that jury.  That argument is not going to find many takers amongst those that have to eke a living from the special Hell that is leasing to those mineral owners who once tasted the ambrosia of $15,000 an acre minerals.

https://www.linkedin.com/pulse/irony-aubrey-mcclendons-indictment-a... 

Permalink Reply by Skip Peel - Mineral Consultant on March 3, 2016 at 3:32

Mr. Gilmer's characterization is spot on IMO.  The Haynesville Shale financial impact in NW LA in the eight months following the 2008 CHK Haynesville discovery announcement was 1.3 billion dollars.  At that point there was very little drilling.  900 million dollars of that total was simply handing a mineral owner a bonus check in exchange for an executed O,G&M lease.  In Sept. 2008 Shreveport-Bossier Cadillac sales were up 80%.

I still see leases recorded in parishes far from any Haynesville Shale production that exclude the Haynesville depth or provide a quarter royalty as opposed to shallower formations getting a lesser royalty.  Aubrey didn't just increase the bonus for Haynesville leases, he caused every operating company in NW LA and E TX to pay more for lease bonuses, if they could.  Those that could not or would not simply didn't drill any new leases in those areas for some years.  There are often unexpected occurrences that shift a business model and force changes.  Smaller independents in the ArkLaTex complained loudly about the change in their cost and leasing dynamics.  My suggestion was always the same, do away with all depth leases and just lease the interval or intervals that are the target.  Many were loath to do that as it eliminated their opportunity to hold all the development rights with only limited production while hoping for a future opportunity to assign what they could not develop.  The real leasing winners in the Haynesville Shale story were the many small operators holding large acreage positions in proven areas with one eighth royalty leases.

Permalink Reply by Skip Peel - Mineral Consultant on March 3, 2016 at 4:36

McClendon Backer Said to Cut Ties Before Grand Jury Indictment

Alex Nussbaum   March 2, 2016 — 6:56 PM CST  bloomberg.com

• Energy & Minerals planned independence for investments
• Shale pioneer no longer had leadership role at some units

One of Aubrey McClendon’s biggest financial backers was cutting ties with him in the days before he was indicted by the U.S. Justice Department on conspiracy charges, according to a person familiar with the matter.

The Energy & Minerals Group, a private-equity firm led by John Raymond, was working on a plan to be completely independent of McClendon by the end of the month, and as of Feb. 26 the shale pioneer no longer had a leadership role at any of the companies created by the firm and McClendon’s American Energy Partners LP, according to the person, who spoke on condition of anonymity to discuss private investments. McClendon, 56, died in a car accident Wednesday, a day after the indictment was announced.

McClendon had raised more than $10 billion for American Energy Partners from Energy & Minerals and others after being fired from Chesapeake Energy Corp. in 2013. His new company, for which he served as chairman and CEO, created numerous limited liability corporations to crack oil and natural gas from shale rocks, a production method that had helped Chesapeake’s market value soar to more than $35 billion.

Renzi Stone, an outside spokesman for American Energy, didn’t return two phone messages left Wednesday. McClendon was indicted by a federal grand jury on March 1, accused of working with another company to depress the price of drilling rights in Oklahoma. Prior to his death, he said he would fight the charges.

Chesapeake Magic

McClendon sought to recreate his Chesapeake magic through American Energy Partners, a closely held entity based near the seat of his former empire in northeast Oklahoma City. Chesapeake had once held 15 million acres of drilling rights and was the second-largest U.S. gas producer. The company’s market value has plunged as the industry’s success in producing shale gas resulted in a glut of the fuel.

McClendon’s new venture amassed drilling rights on hundreds of thousands of acres, including taking positions as far flung as Australia and Argentina.

The collapse in commodity prices darkened the outlook for McClendon’s ability to pay returns to his investors. Bonds sold by some American Energy entities have plunged to 15 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Junk Bonds

One of the many units formed as part of the venture, American Energy – Permian Basin LLC, lured junk-bond investors in November with one of the highest yields in the U.S. market last year. The unit sold $530 million of notes at par to yield 13 percent, according to data compiled by Bloomberg. That’s $30 million less than the bond sale it attempted in October as investors demanded yields exceeding 10 percent from the struggling oil and gas producer.

McClendon’s role at American Energy Partners had begun to change in January 2015, when a lieutenant became CEO of one of the units, American Energy Appalachia Holdings LLC. Before his death, McClendon had agreed not to seek a board seat on any of the ventures he’d formed with Energy & Minerals, including Ascent Resources LLC, Traverse Midstream Partners LLC and four other companies, one of the people familiar said. The timing of those moves was not based on the indictment, the person said.

McClendon had no management roles in companies that First Reserve Corp., another private-equity backer, invested in, according to another person familiar with the matter.

 

Permalink Reply by Paul Butler on March 3, 2016 at 7:16

Mr. Gilmer better come to Aubrey's defense, his business was a principal beneficiary of the money Aubrey vectored into the oil & gas business.  Drillinginfo is the database the Shalies built.

I would like Mr. Gilmer to address the 10/acre; 10 yr term; 1/8 royalty leases.  The cold drafts.  Where the money came from.

Everything he said is true, but it's about 5% of the known story.  Aubrey sowed much heartache and bitterness.

Permalink Reply by Jesse Joyner on March 3, 2016 at 8:05

Angel or Devil or both.

Let's see. Aubrey inflated the bonuses, and the lucky landowners really liked that, although it screwed the competing operators. Check.

Yet because his Ponzi scheme with his Wall Street funders couldn't be sustained, he cut deals to limit the land grab in order to, again, drive bonuses down so CHK could afford to run the tables. Yeah, and his competition really liked that. Check. 

Then to help recoup his sunk costs, he screwed the same landowners who'd benefited from the inflated bonuses with hugely inflated deductions. The landowners hated that. They didn't like being cheated. But his competition liked it because it opened the door to them following suit. Check.

Was Aubrey a complicated manipulator? Yes, and those who were given a big payday, whether company workers or Okie charities, praised his largesse.  

Like when the mob helps little old ladies, some only see the benefits, not the bloody hands milking the dirty money. A crime is still a crime, even if some innocents reap the rewards.

Would Aubrey have been indicted if there hadn't been any evidence?

Doubtful. Look how long it took them to vet the evidence and finally take him to court.

And think about this. It appears that he did himself in. Was he drinking or was he on pills? Maybe we'll soon find out. Or was he texting? But the odds are he is the only one to blame for his demise. It was his own doing, it appears at this point. 

So does an honest man who has the deep pockets to hire the best lawyers simply roll over and take the easy way out?

No, not llkely. 

Whereas does a crook wake up one morning and see the bottom fall out of NG prices and also read the writing on the wall as to being sent to prison -- does such a man feel, in a moment of desperation, that ending his life his own way at his own choosing by his own assertion of controlling ego is better than serving a lengthy jail sentence, such an action speaks volumes as to his guilt. The odds are that an innocent man with such an ego would feel emboldened to fight to clear himself of the taint of being a notorious crook, albeit one who many thought was a angel.

 

Permalink Reply by Francis Mayo on March 3, 2016 at 9:11

Well stated Mr Joyner. We could add that a prolong pleadings process for civil litigation and additional criminal proceedings would be too enlightening for the 99% and very troublesome for the remainder. Considering the circumstances, we could say that Google has an app for just about everything, huh?

For all of those with feelings of loss and sorrow: BOO HO 

Permalink Reply by Skip Peel - Mineral Consultant on March 3, 2016 at 11:01

The indictment by the DOJ was just the tip of the iceberg for Aubrey.  His entire business empire was falling apart and he was being forced out of a number of companies he started by his equity partners.  We will probably never know the full extent to which he was under pressure in his business ventures.

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