Strictly Financials 2014: Chasing Chesapeake by Brian Grow


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Brian Grow presents "Chasing Chesapeake" during the Reynolds Center for Business Journalism's annual Business Journalism Week, Jan. 2, 2014. Grow is a special enterprise correspondent and editor-in-charge based in Atlanta for Reuters.

The annual event features two concurrent seminars, Business Journalism Professors and Strictly Financials for journalists.

For more information about business journalism training, please visit

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Strictly Financials 2014: Chasing Chesapeake by Brian Grow

  1. 1. CHASING  CHESAPEAKE   How  Reuters  mined  SEC  filings  in  its   examina7on  of  Chesapeake  Energy   Corp.’s  tangled  business     By  Brian  Grow,  Anna  Driver,     Joshua  Schneyer,  John  Shiffman     and  Carrick  Mollenkamp    
  2. 2. Post-­‐EffecHve  Amendment  No.  1   To  Form  S-­‐3   REGISTRATION  STATEMENT   UNDER  THE  SECURITIES  ACT  OF  1933   Chesapeake  Energy  Corpora2on*   February  8,  2011   EXPLANATORY  NOTE   This  Registra2on  Statement  on  Form  S-­‐3  (Registra2on  No.  333-­‐168509)  of  Chesapeake  Energy   Corpora2on  (the  “Company”)  and  its  subsidiary  guarantor  registrants  (the  “Registra2on   Statement”)  is  being  amended  to  (i)  add  Chesapeake  E&P  Holding  CorporaHon,  Chesapeake   VRT,  L.L.C.,  EMLP,  L.L.C.,  Empress,  L.L.C.,  LA  Land  AcquisiHon  CorporaHon,  Northern  Michigan   ExploraHon  Company,  L.L.C.,  and  Winter  Moon  Energy  Company,  L.L.C.,  all  subsidiaries  of  the   Company,  as  co-­‐registrants  that  are,  or  may  poten2ally  be,  guarantors  of  some  or  all  of  the  debt   securi2es  with  respect  to  which  offers  and  sales  are  registered  under  this  Registra2on   Statement   Pursuant  to  the  requirements  of  the  Securi2es  Act  of  1933,  this  Registra2on  Statement  has  been   signed  by  the  following  persons,  in  the  capaci2es  and  on  the  date  indicated.   Signature  Capacity  Date  /S/  AUBREY  K.  MCCLENDON   Aubrey  K.  McClendon   Chief  ExecuHve  Officer  (Principal  ExecuHve  Officer)  of  each  of  Northern  Michigan  ExploraHon   Company,  L.L.C.  and  Winter  Moon  Energy  Company,  L.L.C.  and  Director  of  LA  Land  AcquisiHon   CorporaHon,  the  Sole  Member  of  each  of  Northern  Michigan  ExploraHon  Company,   L.L.C.  and  Winter  Moon  Energy  Company,  L.L.C.  February  8,  2011  
  3. 3. TEXT  OF  CHESAPEAKE  EMAIL   Sender:  Chesapeake  Execu2ve   Recipient:  Chesapeake  Execu2ve   Subject:  Michigan  En2ty   Date:  July  13,  2010   Fyi  –  Northern  Michigan  ExploraNon  Company,   LLC  was  the  buyer  on  the  O.I.L.  Energy  deal.  I   do  not  see  this  company  in  our  subsidiary  list.   Should  I  use  Co.  337  in  the  meanNme?   Winter  Moon  (Co.  142)  was  the  buyer  on  the   MarqueZe  ExploraNon  deal.  
  4. 4. UNITED  STATES  SECURITIES  AND  EXCHANGE   COMMISSION   Washington,  D.C.  20549   FORM  8-­‐K,  Feb.  21,  2011   Item  8.01.  Other  Events.     On  February  21,  2011,  Chesapeake  Explora2on,  L.L.C.  ("CELLC"),  a  wholly  owned   subsidiary  of  Chesapeake  Energy  Corpora2on  (the  "Company"),  entered  into  a   Purchase  and  Sale  Agreement  (the  "Purchase  Agreement")  with  BHP  Billiton   Petroleum  (North  America  1)  LLC  ("BHP"),  a  wholly  owned  subsidiary  of  BHP  Billiton   Limited,  pursuant  to  which  BHP  agreed  to  purchase  the  Company's  interests  in   approximately  487,000  net  acres  of  leasehold,  producing  natural  gas  proper2es  and   related  assets  in  the  Fayebeville  Shale  play  in  central  Arkansas  (the  "Divested   Proper2es")  for  approximately  $4.75  billion.  …….     Chesapeake  Investments,  an  Oklahoma  Limited  Partnership,  Larchmont  Resources,   L.L.C.  and  Jamestown  Resources,  L.L.C.,  which  are  affiliates  of  Aubrey  K.   McClendon,  the  Company's  Chief  ExecuHve  Officer  and  Chairman,  are  also  parHes   to  the  Purchase  Agreement.  Such  par2es  own  a  working  interest  in  a  por2on  of  the   developed  producing  proper2es  included  in  the  Divested  Proper2es  which  were   acquired  through  par2cipa2on  in  drilling  pursuant  to  the  Company's  Founder  Well   Par2cipa2on  Program.  The  interest  owned  by  such  en22es  will  be  conveyed  to  BHP   in  the  transac2on  at  the  same  price  and  on  the  same  terms  and  condi2ons  as  those   that  apply  to  CELLC.  
  5. 5. Reuters  Exclusive:  Chesapeake  CEO  McClendon   cashes  in  on  well  deals   By Anna Driver HOUSTON | Mon Aug 15, 2011 1:25pm EDT (Reuters) - Chesapeake Energy Corp Chief Executive Aubrey McClendon is legendary on Wall Street for his dealmaking prowess, but investors may not realize the deals put money directly into his pocket.
  6. 6. THE  HUNCH   •  Could  Chesapeake  be  using  its  vast   assortment  of  LLCs  to  keep  debt  off  the   balance  sheet?     •  Could  McClendon,  through  his  LLCs,  be   helping?     •  Could  Chesapeake  be  the  next  Enron?  
  7. 7. 2011  CHESAPEAKE  PROXY  
  8. 8. 2011  CHESAPEAKE  PROXY   Engineering Support. Mr. McClendon receives support services from certain of the Company’s reservoir engineering staff who provide reserve data and analysis related to personal financing transactions entered into by Mr. McClendon with respect to certain of his interests in the Company’s wells acquired under the FWPP (such program is described under “Transactions with Related Persons— Founder Well Participation Program” on page 60). Mr. McClendon participates in the FWPP through entities in which all equity interests are owned solely by Mr. McClendon and his immediate family members as approved by the Compensation Committee in accordance with the FWPP. Mr. McClendon’s interests are his personal assets and the FWPP does not restrict sales, other dispositions or financing transactions involving FWPP interests previously acquired from the Company.
  9. 9. QUOTE  FROM  VETERAN  WALL   STREET  ANALYST   “If  they  are  showing  that  kind  of  nega2ve  cash   flow,  the  wells  don’t  have  value,”  said  Phil   Weiss,  oil  analyst  at  Argus  Research  who  has  a   sell  ra2ng  on  the  company’s  shares.  But  given   that  McClendon  has  borrowed  more  than  $1   billion  based  on  the  value  of  his  well  stakes,  “I   really  don’t  think  (the  company’s  disclosures)   tell  me  much,”  Weiss  said.  
  10. 10. THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AGREEMENT is made effective January 1, 2004, between CHESAPEAKE ENERGY CORPORATION, an Oklahoma corporation (the “Company”), and AUBREY K. McCLENDON, an individual (the “Executive”). 3. Other Activities. Except for the activities (the “Permitted Activities”) expressly permitted by paragraphs 3.1 and 3.2 of this Agreement or approved by the board of directors of the Company, the Executive will not: (a) engage in business independent of the Executive’s employment by the Company which requires any substantial portion of the Executive’s time; (b) serve as an officer or director of any public corporation, partnership, company, or firm; (c) except for passive investments that do not violate this Agreement and require only a minimal portion of the Executive’s time, serve as a general partner or member of any corporation, partnership, company or firm; or (d) directly or indirectly invest in, participate in or acquire an interest in any oil and gas business, including, without limitation, (i) producing oil and gas, (ii) drilling, owning or operating oil and gas leases or wells, (iii) providing services or materials to the oil and gas industry, (iv) marketing or refining oil or gas, or (v) owning any interest in any corporation, partnership, company or entity which conducts any of the foregoing activities.
  11. 11. THE  LAVISH  AND  LEVERAGED  LIFE  OF  AUBREY  MCCLENDON     (REUTERS)  -­‐-­‐  OKLAHOMA  CITY,  June  7  ,  2012     In  an  annex  at  the  headquarters  of  Chesapeake  Energy  Corp,  a   unit  informally  known  as  AKM  Opera2ons  manages  a  top   company  priority:  the  personal  business  of  its  namesake,  Chief   Execu2ve  Aubrey  K.  McClendon.     According  to  internal  documents  reviewed  by  Reuters,  the   unit’s  accountants,  engineers  and  supervisors  handled  about   $3  million  of  personal  work  for  McClendon  in  2010  alone.   Among  other  tasks,  the  unit’s  controller  once  helped   coordinate  the  repair  of  a  McClendon  house  that  was  damaged   by  hailstones.  
  12. 12. 2011  CHESAPEAKE  PROXY   For safety, security and efficiency, the Company provides Mr. McClendon with the use of fractionally-owned company aircraft. The Company also provides Mr. McClendon with certain home security services due to the high profile nature of his position. Additionally, the Company provides Mr. McClendon with accounting and engineering support services to enable him to focus on the variety of critical and complex issues that currently face the U.S. natural gas and oil industry while remaining actively involved in the oversight of the day-to-day management of the Company.
  13. 13. 2011  CHESAPEAKE  PROXY,  CONT.   (c) This column represents the value of other benefits provided to the NEOs, other than Mr. McClendon, including compressed natural gas retrofitting for personally purchased vehicles and monthly country club dues. Also reflected are amounts for supplemental life insurance premiums for all NEOs and, other than Mr. McClendon and Mr. Rowland, amounts for financial advisory services. The amounts reported in this column for Mr. McClendon in 2010 include (i) $250,000 for the costs related to personal accounting support provided to Mr. McClendon by our employees, net of reimbursement, and (ii) $119,135 for personal security provided to Mr. McClendon and his family.
  14. 14. Antitrust Investigation. On June 29, 2012, Chesapeake received a subpoena duces tecum from the Antitrust Division, Midwest Field Office of the U.S. Department of Justice. The subpoena requires the Company to produce certain documents before a grand jury in the Western District of Michigan, which is conducting an investigation into possible violations of antitrust laws in connection with the purchase and lease of oil and gas rights. The Company has also received demands for documents and information from state governmental agencies in connection with other investigations relating to the Company’s purchase and lease of oil and gas rights. Chesapeake intends to provide information in response to these investigations, and its Board of Directors is conducting an internal review of the matter.