I’ve written about Chesapeake (CHK, Financial) several times for GuruFocus over the past year or so. I think at $26 it represents an incredibly undervalued set of assets. I have invested in a large basket of unconventional oil producers as a result of what I have learned through Chesapeake. Technology has changed this industry in the last five years, and Chesapeake has been a leading force in that.
Forbes magazine had a chance to pose 25 questions to Chesapeake’s charismatic and controversial CEO. Interesting reading for anyone who is a shareholder (like me):
As depicted in my cover story in the current issue of Forbes Magazine, Aubrey McClendon of Chesapeake Energy is truly the quintessential wildcatter of his generation. He’s addicted to risk, willing to make enormous bets on new oil and gas plays (bets that haven’t always worked out). He’s also shown a true genius when it comes to financial engineering — finding a constant stream of other people’s money to replenish Chesapeake’s coffers so he can keep acquiring acreage and drilling wells.
I submitted the following 25 questions to McClendon in the days before our meeting. Instead of waiting for the interview, he devoted hours of his own time to writing out responses. He told me that he started writing out answers before he realized how many questions there were, and finished the exercise because he thought they were worth answering.
Commenting on controversies like his enormous compensation packages, natural gas fracking, wine collecting and whether he’ll be supporting President Obama’s reelection, this is an unedited glimpse into the thoughts and intentions of the most dynamic leader of America’s oil and gas industry today.
1. How important is it to have a thick skin and not get worked up about what ignorant critics and uninformed journalists have to say?
I do think a key to success in any walk of life is having a short memory and a thick skin – I know it has served me well over the years. However, I also think it’s very important to listen to all of your critics, whether they are journalists or others, and use their criticism for closer examination of yourself and your organization to see if any of it is valid. If it is, it’s important to consider what kind of a change is warranted and if it’s not don’t worry about it.
2. With that in mind, let’s get history out of the way. 2008 was three years ago, and though a lot has changed since then, everyone still remembers what happened. How big a blow to your confidence were the events of late 2008? How has being forced to sell the bulk of your Chesapeake shares changed the way you assess risk, both in your own investments and the company’s? Any examples of things you’ve changed since then?
Obviously the events of the fall of 2008 were a big blow to me, just as they were to many other people in our country and to our country as a whole. Over the years, I had generally followed a policy of using one dollar of margin debt for every three dollars of stock value. I honestly thought this was plenty of cushion. As a reminder, on July 1, 2008 our stock price was $70 a share. By the week of October 10, just 100 days later, our stock price had fallen about 75%. Yet the company hadn’t missed one number and we were more hedged at favorable prices than anyone else in the industry. We were closing in on our huge Marcellus joint venture with Statoil and everything except macro events were really going our way. I believed in our country and its leadership, and never in my wildest dreams did I think that CHK’s stock price could go from $70 to $16 in 100 days. During that tumultuous summer, I thought that our employees and most importantly, our investors, needed to see me as a strong leader believing 100% in what our company stood for. I did that, and in fact, I even bought 750,000 shares at $57 a share in mid-July. However, what I never dreamed could happen, did happen. Unfortunately, during the tumultuous week of October 10, I was forced involuntarily to sell more than 90% of my shares of CHK stock. While I regret very much not owning the stock today, I am very proud of the fact that I can look all of my investors and employees in the eyes and say, “I hung tough, and never did anything dishonorable during a very difficult time in my personal life as well as in the life of our company and our country.” Others may see my actions as stupid or naïve, but to this day, I am very proud of the way I stood tall as captain of the ship. With regard to risk-taking, I honestly did not feel it was risky to have one dollar of margin debt for every three dollars of stock value. Today, I understand that approach will not serve you well during these ongoing tumultuous times in the stock market. As I rebuild my stock position going forward, I will naturally be much more cautious if I choose to use any margin debt. From the company’s perspective, we’ve always been risk-averse and in fact have an unsurpassed track record of asset diversification and commodity price hedging, giving us I think the best track record of risk mitigation in the industry.
The entire article is here.
Forbes magazine had a chance to pose 25 questions to Chesapeake’s charismatic and controversial CEO. Interesting reading for anyone who is a shareholder (like me):
As depicted in my cover story in the current issue of Forbes Magazine, Aubrey McClendon of Chesapeake Energy is truly the quintessential wildcatter of his generation. He’s addicted to risk, willing to make enormous bets on new oil and gas plays (bets that haven’t always worked out). He’s also shown a true genius when it comes to financial engineering — finding a constant stream of other people’s money to replenish Chesapeake’s coffers so he can keep acquiring acreage and drilling wells.
I submitted the following 25 questions to McClendon in the days before our meeting. Instead of waiting for the interview, he devoted hours of his own time to writing out responses. He told me that he started writing out answers before he realized how many questions there were, and finished the exercise because he thought they were worth answering.
Commenting on controversies like his enormous compensation packages, natural gas fracking, wine collecting and whether he’ll be supporting President Obama’s reelection, this is an unedited glimpse into the thoughts and intentions of the most dynamic leader of America’s oil and gas industry today.
1. How important is it to have a thick skin and not get worked up about what ignorant critics and uninformed journalists have to say?
I do think a key to success in any walk of life is having a short memory and a thick skin – I know it has served me well over the years. However, I also think it’s very important to listen to all of your critics, whether they are journalists or others, and use their criticism for closer examination of yourself and your organization to see if any of it is valid. If it is, it’s important to consider what kind of a change is warranted and if it’s not don’t worry about it.
2. With that in mind, let’s get history out of the way. 2008 was three years ago, and though a lot has changed since then, everyone still remembers what happened. How big a blow to your confidence were the events of late 2008? How has being forced to sell the bulk of your Chesapeake shares changed the way you assess risk, both in your own investments and the company’s? Any examples of things you’ve changed since then?
Obviously the events of the fall of 2008 were a big blow to me, just as they were to many other people in our country and to our country as a whole. Over the years, I had generally followed a policy of using one dollar of margin debt for every three dollars of stock value. I honestly thought this was plenty of cushion. As a reminder, on July 1, 2008 our stock price was $70 a share. By the week of October 10, just 100 days later, our stock price had fallen about 75%. Yet the company hadn’t missed one number and we were more hedged at favorable prices than anyone else in the industry. We were closing in on our huge Marcellus joint venture with Statoil and everything except macro events were really going our way. I believed in our country and its leadership, and never in my wildest dreams did I think that CHK’s stock price could go from $70 to $16 in 100 days. During that tumultuous summer, I thought that our employees and most importantly, our investors, needed to see me as a strong leader believing 100% in what our company stood for. I did that, and in fact, I even bought 750,000 shares at $57 a share in mid-July. However, what I never dreamed could happen, did happen. Unfortunately, during the tumultuous week of October 10, I was forced involuntarily to sell more than 90% of my shares of CHK stock. While I regret very much not owning the stock today, I am very proud of the fact that I can look all of my investors and employees in the eyes and say, “I hung tough, and never did anything dishonorable during a very difficult time in my personal life as well as in the life of our company and our country.” Others may see my actions as stupid or naïve, but to this day, I am very proud of the way I stood tall as captain of the ship. With regard to risk-taking, I honestly did not feel it was risky to have one dollar of margin debt for every three dollars of stock value. Today, I understand that approach will not serve you well during these ongoing tumultuous times in the stock market. As I rebuild my stock position going forward, I will naturally be much more cautious if I choose to use any margin debt. From the company’s perspective, we’ve always been risk-averse and in fact have an unsurpassed track record of asset diversification and commodity price hedging, giving us I think the best track record of risk mitigation in the industry.
The entire article is here.
