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Coverage of energy that moves beyond polarized arguments and emotional debate to explore the points of tension, the tradeoffs and opportunities, and the very human consequences of energy policy, production, use and innovation.Inside Energy is a collaboration of seven public media outlets in the nation's energy epicenter: Colorado, Wyoming and North Dakota.

Chesapeake Energy's Downfall Just Might Be Another Oil Company's Gain

Scott Detrow
/
StateImpact Pennsylvania
Former CEO of Chesapeake Energy, Aubrey McClendon was killed in an automobile accident March 2, a day after being indicted on corruption charges.

The U.S. oil and gas industry was shocked by the sudden death of Aubrey McClendon. The former CEO of Chesapeake Energy, a major producer now floundering under low oil and gas prices, was an influential executive. His death came just a day after being indicted on bid rigging and price fixing charges.

Chesapeake Energy was a key leader in the U.S. oil and gas boom of the last decade. It was aggressive with new technologies and took big risks leasing a lot of land with oil and gas locked up in tight shale rock formations. These days though, there's a lot of bad news coming from the oilfield. Companies large and small are laying off workers and selling off assets. Even among companies in trouble, there's just something different about Oklahoma-based Chesapeake.

Under the leadership of co-founder McClendon, Chesapeake grew fast, becoming the country's second largest producer of natural gas in the mid 2000's — and making McClendon a billionaire.

"Everybody kind of caught shale fever," said Steve Trammel, an oil and gas expert with analytics firm IHS.

Chesapeake took out loan after loan, trying to grab up as much land as they could possibly drill on. The company helped inspire so much drilling; it led to a huge oversupply in the market. Natural gas prices crashed in 2008 and Chesapeake was in trouble. The company's debt became increasingly difficult to manage, and in 2013 the board of directors forced McClendon out.

New leadership is trying to get Chesapeake's finances under control. It's not an easy task, especially as oil prices have tanked in the current slump. The company is beating back bankruptcy rumors; it lost almost $15 billion in 2015 and its stock was trading at $5.08 as of the stock market's close on Mar. 4, 2016.

Trammel points out a flip side to all of the downcast market activity. If Chesapeake is selling assets that means somebody is buying them.

"The people who have good balance sheets are able to pick up some bargains right now and pick up some assets they might never have had access to when prices were stronger than they are," he said.

As an example, Denver-based FourPoint Energy recently purchased 3,500 of Chesapeake's oil and gas wells in western Oklahoma and in the Texas panhandle. It's a good deal for FourPoint. They're a small company -- with the purchase they produce about a tenth of what Chesapeake does -- but these are good wells. Oil and gas prices have been so low for a while now, these kinds of purchases could be a good sign.

Trammel said if he owned an oil and gas company that had managed to stay out of debt, he would be bargain hunting. Whether that means prices have bottomed out is a prediction that seems wise one day, shaky the next.

The world is still awash in oil and gas. Some of the biggest oil countries, led by Russia and Saudi Arabia, are working on a deal to freeze production levels. Even if that happens there's no guarantee the oil and gas glut will ease anytime soon. Meanwhile companies like Chesapeake are just working to stay alive and trying to make it through to drill another day.

Inside Energy is a public media collaboration, based in Colorado, Wyoming and North Dakota, focusing on the energy industry and its impacts.

Dan Boyce moved to the Inside Energy team at Rocky Mountain PBS in 2014, after five years of television and radio reporting in his home state of Montana. In his most recent role as Montana Public Radio’s Capitol Bureau Chief, Dan produced daily stories on state politics and government.
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