June 2009 Vol. 236 No. 6

Editor's Notebook

Editor's Notebook: Aubrey McClendon Knows How to Sell

That Aubrey McClendon is some kind of salesman, isn’t he?

McClendon is the Chairman and Chief Executive Officer of Chesapeake Energy Corp., one of the largest producers of natural gas in the U.S.

In recent years, the growth of his Oklahoma City-based company and his effective speaking style have made him the de facto spokesman for the independent natural gas producers. All had been going well until the recent price crash, but we’ll talk about that later.

I recently had the opportunity to listen to McClendon speak at the INGAA Foundation sprimg meeting in Austin. It’s always interesting when a producer ventures into the lair of the pipeliners, and this was no different. Indeed, McClendon decried the lack of collaboration that exists among market segments, especially when they fail to coordinate on promotion efforts. That must change. After all, “the 21st Century will usher in the Age of Natural Gas.”

McClendon said there is a misperception of U.S. natural gas scarcity that is deeply ingrained. Rather, there is an abundant supply, thanks to the discovery and development of natural gas shales (Chesapeake is the largest producer) over the past five years. This increased supply along with the globalization of LNG trade ensures less price volatility, he added. Also, the growing support for carbon pricing which will mean that carbon emissions will likely carry a price that natural gas can help mitigate.

McClendon would prefer that natural gas be characterized as an “alternative fuel” rather than as a “fossil fuel” to erase some of the alleged misperception. This struck me as interesting because natural gas is…a fossil fuel. That will take some kind of sales pitch.

Admitting that his E&P community is “late and inexperienced,” McClendon said is has never worked very hard to generate more demand for its product. Hence, nearly all of the leading independents have joined to form the American Natural Gas Association and are putting substantial dollars behind it.

McClendon discussed some of the actions taken by the Obama administration involving oil and gas. He liked the stimulus provisions focusing on infrastructure support, doubling the home-fueling unit credit to $2,000, and inclusions for compressed natural gas in grant programs and funding. He called for renewed federal support for NGVs, which would be a nat gas producer’s dream come true. It would also take one heck of a sales pitch.

Of course McClendon took issue with Obama’s proposed budget which would substantially roll back many of the tax breaks producers have fought long and hard for. He claimed those measure “form the perfect equation to triple or quadruple natural gas prices. It made me wonder to myself whether in fact we are all obliged to help pay to get out of this recession. Nor am I sure I buy into industry arguments that losing tax breaks will cost jobs. Just like Obama can’t convince me that taking tax breaks away will stop American companies from shipping jobs overseas.

McClendon said it’s also time that the industry, particularly his E&P sector, realizes that there is indeed a two-party system at work in America. “Years of speaking to only one political party will require broader outreach and customized messaging – key sales question – what can we do to make them and their agenda successful?” Talk about another sales job.

More recently, McClendon has had some serious fires to put out closer to home. Right after his talk, it was revealed that Chesapeake’s directors handed their boss a $112.5 million compensation package last year, including a $75 million bonus; $32.7 million in stock and $12.1 million for his collection of maps and artwork. This was part of his new five-year contract signed in December. The company said they created incentives based on company performance, even though shareholder value for the year had fallen 59%. Later in the day, they announced a $5.7 billion first-quarter loss.

So it was important that Chesapeake keep him from going after “other entrepreneurial opportunities.” Yup. It’s sure hard to find a good salesman these days.