Aubrey McClendon, who died last week, was a larger-than-life shale pioneer

Aubrey McClendon, the US shale gas pioneer who died in a car crash last Wednesday, had a passion for antique maps. That hobby symbolises his legacy in three ways. Firstly, McClendon’s success was built on the realisation of the vast resources of gas locked away in US shale rocks, categorised on geological maps but not […]

Aubrey McClendon, the US shale gas pioneer who died in a car crash last Wednesday, had a passion for antique maps. That hobby symbolises his legacy in three ways.

Firstly, McClendon’s success was built on the realisation of the vast resources of gas locked away in US shale rocks, categorised on geological maps but not considered commercial to produce. He founded the company that made his name, Chesapeake, in 1989 with an investment of $50,000, convinced that a growing shortage of US gas presented a great opportunity.

McClendon, 56, was not aware of shale’s potential when he founded Chesapeake. He did not invent the combination of horizontal drilling with large-scale hydraulic fracturing, nor was he the first to deploy it on a large scale. That was largely pio­neered in the Barnett Shale of Texas by George Mitchell, who died in 2013. But McClendon was probably the best-known and most colourful character of the “shale revolution”, chronicled by books such as Gregory Zuckerman’s The Frackers and Russell Gold’s The Boom.

Secondly, maps of a slightly more recent vintage were part of McClendon’s unique advantage in business. He was not a geologist or engineer – he began his career as a land man, a profession unique to the US.

With American mineral ownership largely in private hands, securing the rights to drill can depend on leafing through mountains of dusty documents in Oklahoma courthouses and knocking on the door of suspicious, gun-happy Texan ranchers. McClendon assembled a team of land men and sent them out to lock up vast tracts of pros­pective shale acreage. He used creative financing methods and sold stakes to joint-venture partners to fund drilling.

From 2006, US natural gas production, which had fallen to the level of the late 1960s, rebounded dramatically as Chesapeake and other companies capitalised on high gas prices and the sudden availability of new resources.

His company drilled more wells than any other in the world – more than giants such as Shell, Gazprom or Saudi Aramco. And despite years of low prices, it still produces more US gas than any company except ExxonMobil.

Now Chesapeake and its peers have been victims of their own success not once, but twice, unleashing a flood of gas and then oil on to the market. This has driven many of them close to bankruptcy.

Thirdly, the episode of his antique maps is part of a wider saga of corporate misgovernance that ultimately terminated his time with Chesapeake. He was accused of conflicts of interest involving private investments in the company’s gas wells, as well as a hedge fund he ran at the same time. During the 2008 financial crisis, Chesapeake’s board granted him a sizeable bonus as well as paying $12 million for his antique maps, to help him meet margin calls on borrowings against his company stock. He later agreed to repurchase the maps after a shareholder lawsuit.

At the time of McClendon’s death, Chesapeake was suing his new company, American Energy Partners, on claims of stealing trade secrets and he had been indicted by the US department of justice on charges of collusion in oil and gas acreage bids.

The stories of Aubrey McClendon and his larger-than-life peers are fascinating for human interest. Without them, the inexorable realities of prices and new technology would no doubt have delivered a shale boom – but it would have been later, slower and less public if left to the unflamboyant engineers and accountants of ExxonMobil.

Major oil and gas companies, and the big producing countries in the Middle East and Russia, might consider how, without repeating McClendon’s excesses, they could unlock similar entrepreneurial energies. At a time of low energy prices, they should not overlook any clues on the map to prosperity.

Robin Mills is chief executive of Qamar Energy and author of The Myth of the Oil Crisis

Source: Business

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