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The Passing of Aubrey McClendon

Aubrey McClendon, the founder of Chesapeake Energy, died in a car crash last Wednesday, a day after he was indicted on federal charges of conspiring to rig the price of oil and gas leases. Numerous articles have reviewed his life and legacy. Russell Gold, senior energy writer for the Wall Street Journal and an energy journalism fellow at UT Austin, wrote in the Wall Street Journal that “Aubrey McClendon will be remembered¬† … for helping to usher in an era of abundant natural gas, a weakened OPEC and a grievously wounded American coal industry. We are all living in the energy world that he envisioned a decade ago. ” McClendon was 56 years old.

In some respects, McClendon follows the tradition of wildcatters like Roy Cullen, H.L. Hunt, and Clint Murchison – taking big risks, re-inventing the industry. In other respects, he was the 21st century energy entrepreneur. He was single-handedly responsible for reviving the natural gas industry in the U.S. and, as reported by Gold, “grievously wounding” the U.S. coal industry. He did not invent hydraulic fracturing, but he used it to reinvigorate the oil and gas industry in the U.S.

McClendon was forced out of Chesapeake in 2012, after growing the company into the second largest natural gas producer in the U.S. He started his new company, American Energy Partners, and was recently working on a deal to exploit a shale play in Argentina.

McClendon was, as CEO of Chesapeake, the oil man that landowners loved and hated. On the one hand, in the beginning of the development of the Barnett and Haynesville shale plays, Chesapeake was paying bonuses of as much as $25,000 per acre, unheard of before McClendon entered the picture. Chesapeake made countless landowners wealthy.¬† Chesapeake had (and has) a reputation as a “good” operator – using best practices in its drilling and production operations to protect the land and the environment and address legitimate landowner concerns.¬† On the other hand, under McClendon’s leadership and after gas prices plummeted, Chesapeake became infamous for deducting huge post-production costs from its royalty owners’ checks and using questionable business and accounting practices to justify those deductions.

I never met McClendon. In interviews I have seen he was personable, knowledgeable, affable, and charming. He was at heart a landman, a deal maker, acquirer of oil and gas leases and driller of wells. He was in my opinion a good spokesman for the industry. But he was not without his faults. His aggressive business practices came back to haunt him with hundreds of lawsuits and, most recently, his indictment for price fixing. It is fair to say that, over the last ten years, he changed the nature of oil and gas exploration in the U.S., and the resulting impact on world oil and gas markets. Only in the U.S. E&P industry can risk-takers like McClendon make such an impact over such a short time.

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