Tough times for Chesapeake Energy CEO Aubrey McClendon, the self-styled "world's biggest fracker." In the days since the story broke about McClendon’s shady billion-dollar loan, his company’s stock price has dropped by 10 percent, hedge funds are shorting the stock, and Wall Street analysts are calling for his resignation – and the resignation of the company's entire board. After years of financial chicanery, McClendon is finally getting the kind of scrutiny he deserves.
In that spirit, I highly recommend this rant by Richard Finger, a private investor at Ariadne Capital, a venture capital firm in Houston. He slams McClendon – and Chesapeake’s lame-ass PR machine – for pretending that the CEO’s shady billion dollar loan is anything but a shameless rip-off of the company’s shareholders, and compares the corporate abuse at Chesapeake to Enron and WorldCom. "If any pocket of justice exists in our ambivalent world," Finger writes, "Aubrey McClendon will be forced to exit Chesapeake and walk the long plank of disgrace."
The mock-letter that opens Finger’s rant is a gem of acid sarcasm. Keep in mind this is not coming from some anti-fracking enviro, but from an investor in Houston, the homeland of Big Oil:
How’s it going up there in Oklahoma City? I sure hope you weren’t troubled by any of those nasty tornadoes. You probably have some sort of bomb shelter or something. Anyway, the reason for gettin’ in touch is to ask a small favor. I heard about this 'Founders Well Participation Program' you have and I been just tickled reading about your 2.5 percent working interest in thousands and thousands of natural gas wells...and how you borrowed all the money to pay your share of the drilling bills from some private equity firm. Pretty cool move, man! Especially seeing as if things don’t go just right you don’t even have to pay back that $1.1 billion. Ooooo-wheee! Someone explained to me that is what "non-recourse" means. It means a free ride. No gas…no pay. Heads I win and tails…well no loss to me.
It’s such a great thing you’ve got that I wondered if me and a few of my buddies could get just 1% of those wells and use the exact same lenders and the exact same paperwork. How ’bout it? I thought that whole idea of gettin’ to borrow all the money with no down payment sort of got ditched with all the mortgage meltdown stuff. Heck, my buddy’s bank foreclosed on his house but they still expect him to pay them back. Here I was thinking how unfair it was that us little guys have to repay our loans. Turns out, I just had the wrong lenders. I don’t blame you for keepin’ this a big secret from your shareholders; can’t let all them little guys in on action this good. I know it’s all causin’ quite a stir, but please get back to me ASAP. It’s not fair that you get to do this and I can’t.
Finger goes on to point out that McClendon’s billion-dollar so-called "loan" was zero risk for him, since the only collateral for the loan repayment is cash flow from yet-to-be-drilled gas wells. Because of the way the loans are structured, McClendon has no personal liability and thus no personal obligation to repay. "The crux of the issue is that Aubrey has no skin in the game," Finger writes. If the wells pay off, McClendon makes a billion. If they don’t, he loses nothing. It’s free money. Finger asks the central question: "What right has Aubrey to effectively 'skim' 2.5 percent off the revenue of this company? I won’t hold you in suspense…NONE." Finger blasts Chesapeake’s board for allowing McClendon to use the company as his own personal piggy bank: "This board has, as far as I can tell, only one real mantra, which is to enrich Aubrey at all cost."