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Energy Energy Entrepreneur: Loved and loathed shale entrepreneur left legacy

Energy Entrepreneur: Loved and loathed shale entrepreneur left legacy

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Robert Francis
Robert Francis
Robert is a Fort Worth native and longtime editor of the Fort Worth Business Press. He is a former president of the local Society of Professional Journalists and was a freelancer for a variety of newspapers, weeklies and magazines, including American Way, BrandWeek and InformatonWeek. A graduate of TCU, Robert has held a variety of writing and editing positions at publications such as the Grand Prairie Daily News and InfoWorld. He is also a musician and playwright.

Loved and loathed inside and outside of the oil and gas industry, Aubrey McClendon became the face of the shale revolution that created a sea change in the U.S. energy industry.

Larger-than-life even in an industry that celebrates its wildcatter spirit, McClendon died March 2 in a fiery car crash just one day after a federal grand jury indicted him in an alleged oil-lease bid-rigging scheme.

“He was at times ahead of the pack as to what the future might bring, what the impact might be,” said Ken Morgan, director of the Texas Christian University Energy Institute. “He was a guy who would take the biggest risks and gambles. Some didn’t like how he played his cards at times, but he took it to the next level.”

Driving his 2013 Chevrolet Tahoe “at a high rate of speed,” McClendon slammed into a bridge embankment in the northeast side of Oklahoma City, according to police.

Oklahoma City Police Sgt. Ashley Peters said a probe of the crash likely will take up to two weeks, while the state medical examiner’s office said its investigation could take as long as three months.

The energy magnate was charged March 1 in connection with orchestrating a conspiracy between two “large oil and gas companies” to not bid against each other for leases in northwest Oklahoma from December 2007 to March 2012. The conspirators allegedly decided ahead of time who would win the leases and the winning bidder would then allocate an interest in the leases to the other company, the government said.

Under the antitrust law McClendon was accused of violating, the Sherman Act, McClendon was facing a maximum prison sentence of 10 years and a possible $1 million fine, according to the Justice Department statement.

“I have been singled out as the only person in the oil and gas industry in over 110 years since the Sherman Act became law to have been accused of this crime in relation to joint bidding on leasehold,” McClendon said March 1 in a statement. “I will fight to prove my innocence and to clear my name.”

Before McClendon’s death, the Justice Department said that his indictment was “the first case resulting from an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the oil and natural gas industry.”

No one else was charged in the indictment but two unnamed companies and an unnamed co-conspirator were mentioned. The wording of the indictment made clear that Chesapeake was one of the companies. A Chesapeake Energy spokesman said the company does not expect to face criminal prosecution or fines.

McClendon’s rise in the North American energy arena was rapid. He grew to become a towering figure in the industry, building Chesapeake Energy Corp. from modest beginnings into a vast energy empire, thanks to his nimble championing of sometimes controversial hydraulic fracturing and horizontal drilling at a time when larger, more established players were skeptical of shale’s potential. Now, a little more than a decade after the shale revolution began, oil industry giants such as Exxon have embraced shale energy.

Confirming that shale has reversed once declining U.S. energy production; the International Energy Agency said in a recent report that total U.S. crude output, most of it from shale basins, will increase by 1.3 million barrels a day from 2015 to 2021 despite low prices. “Anybody who believes that we have seen the last of rising” U.S. shale oil production “should think again,” the IEA said in its medium-term report.

Charif Souki, former CEO and co- founder of natural gas exporter Cheniere Energy Inc. said McClendon contributed significantly to reversing the country’s energy fortunes.

“He is probably one of the most important persons in the shale revolution and responsible for what’s happened to the energy situation in the U.S.,” Souki said in a television interview with Bloomberg March 2. “This is tragic.”

Chesapeake had a particularly strong presence in Fort Worth, where it did large deals downtown and with Dallas Fort Worth International Airport as well as in several residential areas where the company often clashed with neighborhood groups. But the company spread the wealth around, sponsoring several community events such as the annual Parade of Lights and making donations to the Fort Worth Museum of Science and History and the Fort Worth Zoo, among others.

In 2008, Chesapeake purchased the 20-story Pier 1 Imports tower on the west side of downtown for $104 million, increasing the energy firm’s market presence. At one time, Chesapeake had about 1,400 employees in the area and certainly made its presence known. Hiring Texas-born actor Tommy Lee Jones, the company touted the many benefits of the Barnett Shale in an ad campaign saying, “Let’s Get Behind the Barnett.” Fort Worth T busses were wrapped with the company’s message. Along with several slick publications, Chesapeake even planned an online video program to cover developments in the Barnett Shale, hiring veteran Dallas TV anchor Tracy Rowlett and other media professionals for the venture. But in October 2014, citing a tough economic environment, the company pulled the plug on the online video venture. Still, the company maintained a vigorous community presence on community boards and at public events.

One reason for the public presence, noted Julie Wilson, vice president of urban development at the time, was that McClendon understood that “government affairs are fine, but you really needed grassroots support to assure a future for domestic energy.”

TCU’s Morgan said McClendon was out front on using natural gas as a transportation fuel and put up money to support it.

“It’s a future fuel and he was a little ahead of his time with that,” he said. “He also put in some natural gas stations. He wasn’t the only one, but he was a main driver. He understood its importance.”

He got that message out in 2012 when Chesapeake sponsored Orange County Choppers to build a natural gas-powered motorcycle that was featured on TLC’s “American Chopper” series.

Publicity moves like that got people inside and, more importantly, outside the industry talking about natural gas and energy, Morgan said. “We don’t talk about it enough and he got people talking,” he said.

Despite the community largess, some of the deals Chesapeake made created – and continue to create – conflict. In 2012, the Dallas-Fort Worth International Airport Board agreed to a $5 million settlement offer from Chesapeake in a dispute over royalties from natural gas drilling under the airport’s 18,000 acres of land. The city of Fort Worth is among those currently in litigation with the company, saying it’s owed more than $30 million in unpaid royalties on its property. And there are plenty of other suites from individuals and groups in the same vein. Most of the legal filings claim the company deducted large percentages of royalties to cover production costs. The company has denied the allegations.

McClendon didn’t hide from the spotlight in other areas of his life. He was part owner of the Oklahoma City Thunder professional basketball team, along with a winery in Bordeaux, France. He had an antique map collection said to be worth $12 million.

McClendon’s fall from grace was as swift as his rise. In 2008, a natural gas glut – created in large part by the very shale revolution he championed – sent prices south, reducing the company’s value by half. A shareholder revolt by Carl Icahn and Southeastern Asset Management’s O. Mason Hawkins cost the CEO his annual bonus and the chairmanship in 2012, and McClendon was terminated in March 2013.

With natural gas prices remaining low, Chesapeake has cut back to a bare minimum of employees in North Texas, selling its 20-story office building to Houston-based Hines in August 2014. It has since been re-renamed the Pier 1 Imports Building.

After his ouster from Chesapeake, McClendon formed American Energy Partners LP and raised more than $10 billion for acquisitions. With financial backing from private-equity heavyweights including First Reserve Corp. and Energy & Minerals Group, controlled by John Raymond, McClendon’s new vehicle amassed drilling rights and exploratory stakes from the Appalachian Mountains to Australia and Argentina before commodity prices cut the company’s growth and restricted its access to credit.

“I’ve known Aubrey McClendon for nearly 25 years,” said T. Boone Pickens, chairman of BP Capital LLC in an emailed statement. “He was a major player in leading the stunning energy renaissance in America. He was charismatic and a true American entrepreneur. No individual is without flaws, but his impact on American energy will be long-lasting.” – This story includes material from Bloomberg and the Associated Press.

Aubrey McClendon

1959-2016

Aubrey Kerr McClendon was born July 14, 1959, in Oklahoma City to Joe and Carole McClendon. His great uncle was Robert Kerr, a former governor of Oklahoma and U.S. senator who had earlier founded the company known today as Kerr-McGee Corp., the oil giant where McClendon’s father was an executive.

As a teenager, Aubrey McClendon started both a lawn-care business and a fireworks business, according to a profile accompanying his naming as Ernst & Young National Entrepreneur of the Year in 2011. He graduated from Duke University with a history degree in 1981, and a year later he founded Chesapeake Investments to acquire drilling rights to properties that may hold oil or gas. In 1989 he and Tom Ward co-founded Chesapeake Energy.

By 2005, Aubrey and Katie McClendon had given more than $16 million to Duke University. The Tower in Duke’s Keohane Quad and the Commons in the Office of Undergraduate Admissions are named for the couple.

He and his wife, the former Kathleen Byrns, had two sons, Jack and Will, and a daughter, Callie McClendon,

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