Chesapeake Energy’s Spending Spree

Company has 'predilection to outspend, sometimes recklessly'


Chesapeake Energy Corporation (stock symbol: CHK) has stockpiled millions of acres of oil fields over the past two decades, often spending more money than it made in order to acquire the oil-rich lands, an unsustainable business model driven by the company’s CEO aggressive expansion of his personal holdings.

Chesapeake, the country’s second largest producer of natural gas, has “outspent its cash flow in 19 of the past 21 years while amassing millions of acres of drilling leases from the Rocky Mountains to Appalachia,” according to a report by Bloomberg.

The spending has placed the company—which is under investigation by the Department of Justice for possible violations of the Clean Water Act—in a precarious fiscal position.

Bloomberg reports:

As the company moved to close this year’s projected funding gap with $12 billion in planned asset sales, investor criticisms of [CEO Aubrey] McClendon over a potential conflict of interest are stoking concern about the stability of the company. Chesapeake shares are down 22 percent this month, heading for the worst monthly loss since 2008, the last time McClendon’s personal finances intruded on company business.

“Chesapeake is walking a tightrope right now,” Mark Hanson, an analyst at Morningstar Inc. (MORN) in Chicago, said in a telephone interview. McClendon “has shown a predilection to outspend, sometimes recklessly.”