The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters (27 page)

McClendon had so much going on that he set up a unit staffed with accountants, engineers, and supervisors, dedicated to managing his personal business. It was called AKM Operations and it was housed in an annex of Chesapeake’s headquarters, a sign of how McClendon liked to mix personal with professional.
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While he enjoyed spending money on himself and his family, friends noticed that McClendon also seemed happy giving his money away, relishing the honor and prestige that came with the gifts. In 2001, he and his wife gave $2 million to the University of Oklahoma’s athletic program. Three years later, he gave another half-million-dollar donation to the school, after earlier big gifts to Duke, McClendon’s alma mater. He also became a big donor to his high school, Heritage Hall. His charitable donations eventually would approach $100 million.

McClendon began delving into politics, making a series of contributions to Republican candidates and conservative interest groups. He either viewed himself as above criticism or simply had no clue his actions might be viewed as controversial. During the 2004 presidential election, the
New York Times
reported that McClendon gave a quarter million dollars to Swift Boat Veterans for Truth, a controversial advocacy group running commercials questioning Senator John Kerry’s military service in Vietnam, an effort that hurt his presidential bid against George Bush. The same year he and Ward gave over a million dollars to Americans United to Preserve Marriage, a group opposing same-sex marriages.

“I am for the concept that a marriage should be between a man and a woman; on the other hand, I am for civil unions for gay couples,” McClendon said at the time. “In my opinion, that does not make me anti-gay at all. Instead, it makes me pro the traditional concept of marriage, and I do not believe the biblical sacrament should be between anyone other than a man and a woman.”
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Aubrey McClendon’s transformation into a true American oil tycoon was in the timeworn tradition of previous energy moguls who rose through the ranks and freely spent their winnings. Tom Ward emerged as a different kind of energy magnate, however, a baron for the Bible Belt.

Ward liked to spend money nearly as much as McClendon. He owned huge homes outside Oklahoma City and Scottsdale. He also had places in Bermuda and the Bahamas, and extensive land in western Oklahoma. At one point, he and McClendon were among the biggest owners of cattle and feedlot in the country.

But Ward didn’t flaunt his extravagances. Few friends were aware of how extensive his holdings of real estate and other assets were. McClendon tweaked a reporter for not appreciating an expensive bottle of wine; Ward spoke of his love of steakhouses. “I eat steak about six nights a week,” he told a reporter. “My favorite smell in the world is to walk through the back door and smell a steak grilling.”

Ward spent and made money at prodigious rates, but he placed an equal emphasis on his faith, a seeming incongruity. On Sunday mornings, he and his family went to services at their evangelical church, the Crossings Community Church. Ward then headed to the office while his wife took the family home.

Ward donated millions to Anderson University, a Church of God–affiliated school in Anderson, Indiana. He also hosted a regular Bible study group in his Chesapeake office.

Despite his overloaded schedule, Ward and his wife helped found a home called White Fields to care for abused and neglected boys. They also began to take care of a young man, Frank Alberson, who had become friends with their son, Trent, in college.

“My parents refused me when I was born, and I was adopted,” Alberson says. “My adoptive parents placed me into the custody of the state of Indiana, and after I graduated military school, I was on my own. I still had quite a few problems. Trent invited me home for the holidays in 2000, and I met Tom. They offered me a job working at their house. I was informally adopted as part of the family.”
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If Aubrey McClendon was in the tradition of J. Paul Getty, who made a billion dollars, sought to influence politicians, and had an appreciation for fine art, Tom Ward was in the mold of more enigmatic energy tycoons like John Rockefeller, the sharp-elbowed monopolist who overcame humble beginnings and spent much of his life focused on philanthropy.

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I
n late August 2005, Hurricane Katrina struck the American Gulf Coast and New Orleans, resulting in the costliest natural disaster in American history. Massive shut-ins of natural gas production sent prices climbing from nine dollars per thousand cubic feet in August to a record $15.40 in December 2005.

The price move didn’t help Chesapeake shares very much. They flattened out at around thirty dollars as investors viewed the price surge as something that would ease when the nation and industry fully recovered from Katrina. Stress grew within Chesapeake’s headquarters as competition for shale acreage grew, led by Chesapeake’s aggressive rival, XTO, and up-and-comer EOG Resources. The companies were finding it easy to raise cash from investors, and they were plowing it into their own acreage.

When McClendon heard that a rival had acquired valuable land somewhere in the country he immediately picked up the phone to call Ward. “Why aren’t we in that?” he asked his partner. McClendon was polite and respectful, but also persistent.

Ward often explained why the new field seemed too expensive. McClendon didn’t push further, but it was clear he wanted Chesapeake to make the purchases, not rivals. “He has an issue of watching other people’s plays and wanting to be in them,” says a longtime colleague.

Pressure grew within the company. McClendon and Ward paid higher salaries than most competitors, but they expected employees to work as hard as they did, from early morning to late at night, with more work over weekends. When a visitor came to the office one day, he asked an executive about big bottles of aspirin he saw on various desks. “We call them ‘Chesapeake vitamins,’” the executive said, explaining they were there to help employees deal with the stress.

Ward felt special pressure. He didn’t want to let McClendon down and he felt a need to match McClendon’s intensity. But he became uncomfortable spending big sums on acquisitions. The headlong charge was taking a toll on him. He kept his emotions in check. There weren’t any blowups between the Chesapeake cofounders, who almost always treated each other with respect and warmth.

“There were virtually no arguments,” Ward recalls. “I’m not an arguer by nature.”

For those paying close attention, though, it wasn’t hard to see a rift growing between them. Those close to McClendon sensed he was becoming frustrated with Ward’s reluctance to pursue some new shale plays like the Bakken.

“Let me first see some established production” in the Bakken, Ward said in one meeting. “Then we can buy around it.”

McClendon dropped the subject, knowing he wasn’t going to get anywhere with Ward.

Ward often chose a passive-aggressive way to get his point across. In the middle of a discussion about new acquisitions, he sometimes closed his folder and bolted from the room, leaving few doubts in the minds of colleagues about his true feelings. Other times, he wouldn’t show up for an important meeting with McClendon and others, colleagues recall.

“You could tell what was happening with his body language,” says a former Chesapeake executive. “I never heard a cross word, but it wasn’t hard to see.”

For Ward, it wasn’t so much the debt that was piling up as the prices the company was paying. The new shale plays didn’t have much existing production, making Ward uncomfortable paying up for these new fields. “Don’t we have enough” acreage and wells in an area? he asked McClendon one time in a group meeting. Another time he told McClendon, “I don’t know how we’re going to” afford a new acquisition.

Ward began to look tired and stressed. He and his team examined thousands of reports detailing the oil and gas reserves of wells up for sale all over the country, and it was beginning to wear him down. Friends and colleagues reached out to help.

“Hey, man, you should delegate that,” Larry Coshow, the Chesapeake landman, told Ward one day, referring to a task that seemed to consume Ward. Another time, Coshow said to Ward, “Is there anything I can do?”

Ward turned red in the face, as if he was ashamed to ask for assistance.

For the first time, Ward began to show anger around the office. In late 2005, McClendon e-mailed Lindell Bridges, a senior geologist who had helped build Chesapeake’s huge position in Arkansas’s Fayetteville region, to ask a series of questions about wells in the area. Bridges made sure to include his bosses, including Ward, in his answers to McClendon. Bridges knew Ward wanted to be informed about all of his crew’s communications with McClendon.

McClendon didn’t seem to care as much about protocol and e-mail etiquette as Ward did. Or maybe he was hoping to stir things up with Ward. Either way, McClendon kept sending more questions to Bridges, almost always without including Ward or others in his e-mails. Bridges responded to them, adding his bosses to the replies. Finally, though, Bridges sent McClendon a note suggesting that they meet to discuss the company’s activity in the Fayetteville region, to avoid all the back-and-forth. McClendon agreed and they set a time to meet.

Bridges realized he had made a big blunder by neglecting to include Ward or his other bosses in the last batch of e-mails to McClendon. He quickly forwarded the latest e-mail to Ward and the other senior executives, informing them of his plan to meet with McClendon.

A few minutes later, he got an e-mail message from Ward:

“We need to have a meeting about this in my conference room.”

Shit, I’m in trouble,
Bridges thought.

The next day, he walked into the main conference room of Ward’s office building. There were a half dozen senior executives from Ward’s team waiting for him. At the head of a long table was Ward, looking furious. He ripped into Bridges with unusual venom, admonishing him for his disregard of protocol. “Don’t let that happen again.”

Bridges was devastated. For weeks, he worried about getting fired. He beat himself up for forgetting to include Ward in the e-mails, knowing how sensitive he was about the issue. “I thought my career was over,” recalls Bridges. “I was really low and depressed . . . you could tell he was unhappy.”

Bridges kept his job, but the change in Ward’s behavior was viewed by some as evidence he was under growing stress. By then, he was arriving at the office at 4 a.m. and not getting home before 10 p.m. at night. Then he’d go through a batch of e-mails that had piled up.

In 2005 alone, Chesapeake spent nearly $5 billion to buy energy properties, acquiring 1.4 million acres in the year, including 500,000 acres in the fourth quarter alone. The company had spent over $10 billion since 1998. The push for acreage, a land grab the likes of which the nation had rarely witnessed, seemed to be paying off. In 2005, Chesapeake produced over 422,000 million cubic feet of natural gas, up from 116,000 in 2000.

It was making Ward miserable, though. He ran the company’s operations, including nearly a thousand landmen around the country. And he felt a need to stay involved in the details of all the drilling.

Prices for acreage and wells were climbing, McClendon was pushing Chesapeake to outspend rivals, and Ward couldn’t take it. Every day, he had to make dozens of decisions about new plays, new acquisitions, and new spending proposals by McClendon.

“I couldn’t keep up, we were spread out around the country, I just couldn’t vet the opportunities,” Ward recalls. “All day, then e-mails, nights and weekends, it didn’t stop, it was getting harder to run the company.”

By then, the economy and housing market were rolling, and even energy giants were beginning to throw money at acquisitions in the United States, making it hard to find bargains. In December 2005, ConocoPhillips agreed to pay nearly $36 billion to buy smaller oil and natural gas producer Burlington Resources, which owned shale acreage in the Barnett. It was the biggest acquisition in the energy industry in years.

McClendon was sure the industry had changed and Chesapeake had to adjust with it. A backlog of acreage, no matter the cost, would reward Chesapeake down the road when it produced needed gas, McClendon argued. The key was to grab assets as soon as possible, he said.

Ward couldn’t figure out how Chesapeake could compete without paying through the nose and jeopardizing its health, though. The shale formations Chesapeake now was examining had little existing production, making Ward even more uncomfortable. The land they were accumulating was an asset to McClendon, but it seemed a liability to Ward, because they’d have to pay to drill it and there was no guarantee it would work.

“Capital was free and he was overwhelming me with deals,” Ward says, referring to how easy it was for Chesapeake to raise money from investors. “It was insane.”

Ward was torn—he wanted his company to stop paying so much for deals, but he had no appetite for a showdown with his partner and friend.

No one at Chesapeake knew it at the time, but Ward was dealing with more than McClendon’s spending spree. One day, he caught his youngest son, James, drunk, bringing back painful memories of the addictions of his father and grandfather.

One Thursday in February 2006, it all became too much for Ward. Grabbing a moment of quiet at home, he came to a decision, without consulting anyone else. The next morning, he walked straight into McClendon’s office and gave him stunning news: He was quitting.

McClendon, his partner of twenty-four years, looked shocked. He said little to try to stop Ward, who soon was on his way out the door. That day, Ward sent a note to Chesapeake’s employees, saying he had resigned and thanking employees for their work. Some were agape while reading the e-mail, the first Ward had ever sent to the entire company. Ward’s staff was filled with sadness.

McClendon remained in a daze most of the day, colleagues recall. He knew he and Ward had drifted apart and weren’t seeing eye to eye on many decisions, but he always figured they’d work out their issues, he told a senior executive. The disagreements didn’t seem like a big deal and McClendon never anticipated Ward quitting so abruptly.