The Lavish and Leveraged Life of Aubrey Mcclendon

1. In an annex at Chesapeake’s corporate INSIDE CHESAPEAKE headquarters, a cadre of employees handles McClendon’s personal business. 2. McClendon directed Chesapeake to spend $10 million to help turn Oklahoma City into a rowing venue and put 10 Olympic hopefuls on an Ga r dn er the energy company payroll. 3. Duke University honored McClendon with a gargoyle likeness after he contributed $15 million.

e te v e Si s n y/S 4. McClendon has taken more than $1 million 1 in personal trips on Chesapeake-leased jets. u n/S 5. McClendon has taken loans against profits in his stake in the NBA’s Oklahoma City Thunder. 2 4 5 6. Chesapeake inked deals with the Thunder that included arena naming rights.

3 e n Zvu l Mihaly/Ron ert te v e Si s n y/Rob /S on e t e S te v e Si s n y/Mik 6 REUTERS/S The CEO’s personal and corporate interests are fused more extensively than shareholders may know, Reuters found The lavish and leveraged life of Aubrey McClendon

By John Shiffman, Anna Driver and Brian Grow

SPECIALSPECIAL REPORT 1 INSIDE CHESAPEAKE The lavish and leveraged life of Aubrey McClendon

OKLAHOMA CITY, June 7 , 2012 detail, McClendon has intertwined his per- terviews and records: McClendon’s seem- sonal financial interests with those of the ingly insatiable desire to own more and n an annex at the headquarters of Ches- publicly traded corporation he runs to a far more – of everything. apeake Energy Corp, a unit informally greater degree than shareholders may real- Said a contemporary who knows Mc- Iknown as AKM Operations manages a ize, according to interviews, public records Clendon well, “If you’re competitive like top company priority: the personal busi- and hundreds of pages of internal Chesa- Aubrey, you just always want to own more.” ness of its namesake, Chief Executive Au- peake documents reviewed by Reuters. For Chesapeake, McClendon has over- brey K. McClendon. McClendon, 52, has put longtime friends seen a spree of more than 100 real estate According to internal documents re- on the Chesapeake board and showered purchases in Oklahoma City in recent viewed by Reuters, the unit’s accountants, them with compensation. Restaurants he years worth more than $240 million, prop- engineers and supervisors handled about has co-owned occupy buildings owned by erty records show. On land steps from the $3 million of personal work for McClen- the energy company. A Chesapeake execu- corporate campus, he directed his natural don in 2010 alone. Among other tasks, the tive has handled the CEO’s personal land gas company to develop a luxury shopping unit’s controller once helped coordinate and oil- and gas-well transactions. center. Now, he’s planning to open a Ches- the repair of a McClendon house that was Few outsiders are privy to the sophisti- apeake-owned grocery store. damaged by hailstones. cated universe of services that Chesapeake For himself, McClendon bought his Fourteen miles south, at Will Rogers provides McClendon. The existence and neighbor’s house near Oklahoma City and World Airport, Chesapeake leases a fleet scope of AKM Operations, for instance, then the one behind that. He acquired a of planes that shuttle executives to oil and hasn’t been previously reported. mansion on “billionaire’s row” in Bermuda gas fields – and the McClendon family to “I have to be wary when I see this type and later added a larger estate. He bought holiday destinations. On one trip, the clan of pattern of disregarding shareholders’ best properties in Minnesota and Maui and near took flights to Amsterdam and Paris that interests,” said David Dreman, chairman of Vail, Colorado. He filled cellars in three cost $108,000; McClendon counted the Dreman Value Management LLP, which states with trophy wines, and purchased 16 trip as a business expense. In another case, owns about 1 million Chesapeake shares. “I antique boats valued at $9 million. Chesapeake logs show, nine female friends think McClendon should go.” Then McClendon mortgaged much of of McClendon’s wife flew to Bermuda in Beyond the mixing of personal and pro- it – and bought more. 2010 without any McClendons aboard. The fessional, another theme emerges from in- ‘MEDIA FIRESTORM’ cost: $23,000. Closer to home, McClendon pursues I have to be wary when Normally, McClendon loves publicity. another of his passions: the Oklahoma City I see this type of pattern of When Forbes put his face on the cover Thunder, the NBA franchise in which he disregarding shareholders’ best last fall and declared him “America’s Most owns a 19 percent stake. As with other as- interests. I think McClendon Reckless Billionaire,” Chesapeake posted sets, McClendon has melded his Thunder should go. the story on its website. interest with Chesapeake business. The en- But these are not normal times for Mc- ergy company signed a $36 million spon- David Dreman Clendon. In the wake of Reuters reports sorship deal, and it pays up to $4 million Chesapeake shareholder that raised questions about his mingling annually to brand the stadium Chesapeake of personal and corporate interests, the Energy Arena. board stripped him of his chairmanship. What hasn’t been previously disclosed is The company faces IRS and Securities and that McClendon mortgaged his future pro- Exchange Commission inquiries, more ceeds from the team to secure two bank loans. than a dozen shareholder lawsuits, and de- The AKM unit, the jet flights and the mands for change from its largest investors. Thunder relationship are part of the lav- Meantime, the board is investigating ties ish but leveraged lifestyle that McClendon between McClendon’s personal financial has built through Chesapeake, America’s transactions and Chesapeake’s. O M second-largest natural gas producer. Bowing to the pressure, Chesapeake said From the 111-acre corporate campus this week that four current board members O R B ES.C that he shaped with a meticulous eye for F will be replaced with new directors chosen

SPECIAL REPORT 2 INSIDE CHESAPEAKE The lavish and leveraged life of Aubrey McClendon

by two top investors, activist Carl C. Icahn weekends, and employees often wake to and Southeastern Asset Management. emails he has sent between midnight and Along with a new independent chairman dawn. He expects instant answers. expected to be named later this month, the “He will ask me a question and push reconfigured board will effectively be con- 27 Number of times CEO back when I hesitate,” said McClendon’s trolled by shareholders – a shift expected to McClendon used the word “bold” longtime architect, Rand Elliott. “He’ll say, serve as a check on McClendon. in the company’s annual letter to ‘Rand, what if we paint it blue?’ And I’ll say, Citing the lawsuits, McClendon declined ‘Let me think about it.’ He’ll insist, ‘No, I to be interviewed for this story. In mid-May, shareholders want you to give me an answer right now.’ I however, he spoke to several hundred Ches- asked him once, ‘Aubrey, why do you need apeake employees about the crisis. to know now? How is it you can make deci- ‘MY WAY’ “I encourage everybody to inhale,” Mc- sions so quickly?’ He said, ‘I make hundreds Clendon said at one point, according to a McClendon’s fate will have implications of decisions every day. I’ve gotten pretty partial recording of the meeting reviewed well beyond Chesapeake. He has been one good at it. And I think I hit 90 percent of by Reuters. “I’m fine. You’re fine. And we’re of the most influential CEOs of his gen- them right.’ ” in the middle of a pretty unprecedented me- eration, credited and sometimes cursed McClendon is often portrayed as a vi- dia firestorm today. I don’t exactly know the for championing the drilling technique sionary – a Mellon or Rockefeller of his origins of it and I don’t exactly know when known as hydraulic fracturing, or fracking. time: Chesapeake’s geologists helped iden- it ends, but I know that it will end, and we The controversial method has led to a vast tify North American basins that may hold will emerge stronger. We will emerge more boom in U.S. natural-gas production. a hundred-year supply of natural gas. Yet focused, and we will change in some ways That boom has reduced American reli- those hefty reserves have pushed natural gas that we probably need to change in.” ance on foreign energy and enriched his prices to among the lowest levels in a decade. In recent weeks, Reuters has reported company and his hometown. Using his own The CEO takes the long view, projecting that McClendon used his stakes in company cash and Chesapeake’s, McClendon has optimism and self-confidence. In his most wells to arrange $1.55 billion in financing helped rebrand Oklahoma City through recent annual statement to shareholders, from a major financier of Chesapeake and philanthropy and real estate development. McClendon used the word “bold” 27 times others; that a Chesapeake board member Once largely defined by a tragedy – the to describe his stewardship of Chesapeake: lent money to McClendon; that he sold his domestic terrorist bombing of the Alfred “We made the bold decision...” “This is share of at least two large energy plays at the P. Murrah Federal Building in 1995 – the clearly a bold plan...” “We accelerated the same time Chesapeake divested its interest; state capital is now emerging as a center of next bold move...” and that he operated a private $200 million sports and culture. He’s also a micro-manager – not neces- hedge fund from Chesapeake offices. In no small part, that revitalization was sarily meddlesome, employees and business “You can pick up the paper every day fueled by McClendon’s vision and his com- associates say, but obsessed. No aspect of and read something negative about me or mitment to the community and to Chesa- a project is too granular. He helped pick about the company,” McClendon told his peake. Subordinates say McClendon has the kind of peanuts served at a restaurant employees during the May meeting. “I four children – Will, Callie, Jack and Ches- he owns. He inserts commas into press re- would not have wished the past month on apeake. They are only partly joking. leases and measures the distance between my worst enemy.” McClendon routinely works through Redbud trees near his office.

MCCLENDON CHESAPEAKE Chesapeake accountants and engineers Chesapeake provides McClendon handled about $3 million worth of with unlimited complimentary personal work for McClendon in 2010. secretarial services for his personal ventures.

SPECIAL REPORT 3

MCCLENDON CHESAPEAKE McClendon’s contract allows him, his Chesapeake leases a fleet of planes friends and his family to fly free on that shuttle executives to oil and jets the company leases. gas fields—and the McClendon family to holiday destinations.

MCCLENDON CHESAPEAKE McClendon owns a 19 percent stake Chesapeake signed a $36 million in the Oklahoma City Thunder, an sponsorship deal and pays up to NBA franchise. $4 million annually to brand the stadium Chesapeake Energy Arena.

MCCLENDON CHESAPEAKE A McClendon boyhood friend served Those ﬁrms billed Chesapeake as a Chesapeake board member for $6.3 million in legal work. and a partner shareholder in law ﬁrms that served the company. INSIDE CHESAPEAKE The lavish and leveraged life of Aubrey McClendon

“I’ll say, ‘I’d like all the tulips to be red,’ ” a great nephew of former Oklahoma Gov- architect Rand recalled. “He’ll say, ‘No, no, ernor Robert Kerr, co-founder of U.S. oil- they’ve got to be multicolored.’ ” and-gas pioneer Kerr-McGee Corp. His Chesapeake is now a Fortune 500 com- wife, Katie, is a Whirlpool heiress, and her pany with 13,400 employees. It has grown so relative, Kate Upton, is a Sports Illustrated big and McClendon has sold so much stock swimsuit cover model. – dumping $569 million during a personal “To say that he grew up with a silver financial crisis in 2008 – that he now owns spoon is wrong,” said Chesapeake senior less than 1 percent of the company. vice president Thomas S. Price Jr., a confi- Yet in many ways he still runs Chesa- dant. “The implication is that he pulled the peake the way he did when he co-founded OWNER, FAN: Team owner McClendon and his lever on the slot machine in life and ding- it with 10 employees in 1989. He meets wife, Katie, enjoy front-row seats at Thunder ding, got lucky – and nothing could be fur- every new Oklahoma City employee, in games. REUTERS/Steve Sisney ther from the truth.” groups of 30 or 40, during an hours-long McClendon worked hard for everything session. He takes out a large advertisement he has accomplished, friends say, and his in the local paper that includes the pictures former employee. “It was really surprising. competitive drive emerged at an early age. of the new hires. There weren’t a lot of questions.” He received his first business lesson as McClendon also closely monitors their Last fall, McClendon held forth on his a teenager, mowing neighborhood lawns work, internal records show. Every six business philosophy during a forum on in suburban Oklahoma City, the friends months he spends the bulk of a week in “creativity and conscious capitalism.” say. McClendon competed against a boy meetings to personally consider proposed “I’ve always been comfortable thinking named Shannon Self, and one day noticed bonus payments to hundreds of employees. things through and doing it, more or less, that Self ’s younger brother was cutting The documents show the CEO gets briefed my way,” McClendon said. “You can be as some of Self ’s lawns. McClendon discov- on matters as obscure as whether to disci- creative as you want, but if you’re … unwill- ered that his competitor had sub-contract- pline a mechanic in Texas who chronically ing to work on the details, to see those put ed the work to his brother. Self was mow- complains to colleagues about his pay. into action, then creativity is just dreams, or ing more lawns and making more money To McClendon, “every detail mat- worse, hallucinations.” than McClendon with less effort. ters,” said his minister, the Reverend Pat- The tycoon added a wry joke. “There are “He calls it his ‘painting the fence’ story, rick Bright. Leaving church one Sunday, some areas in our business where creativity the scene where Tom Sawyer gets his friends McClendon spotted a low-hanging tree is not particularly welcome – for instance, if to whitewash the fence,” said a friend. branch that posed a traffic hazard. “Before you’re an accountant.” The episode served as an early example I finished saying goodbye to everyone, I of McClendon’s penchant for collecting TOM SAWYER had an email from Aubrey,” the minister smart and loyal friends and keeping them recalled. “It was a picture of the branch sent With his warm face, rimless glasses and dis- close. Self became a founding Chesapeake from his phone.” tinctive white mane, the athletic McClen- board member and remains a McClendon Friends and colleagues say land is an- don is sometimes mistaken for former NFL legal adviser. other preoccupation. quarterback Archie Manning, the father of A review of proxy statements shows that Under McClendon’s direction, Chesa- football superstars Peyton and Eli Manning. from 1995 through 2005, while Self served peake engaged in what the company de- Like the Manning brothers, McClen- as both a Chesapeake board member and a scribed as a “land grab” to dominate shale don comes from a family of achievers. He is partner shareholder in successive law firms, plays around the country. According to in- those firms billed Chesapeake for $6.3 mil- ternal emails and former executives, Chesa- lion in legal work. Self retired from the peake began paying above-market prices to board in 2005 with 232,972 Chesapeake squeeze out competitors. At times, former $108,000 shares then worth $4.8 million and another employees said, McClendon was too quick Cost to fly family members to 288,750 stock options. to approve deals. Europe for two-week “business Self wasn’t the only board member to “He is very easy to pitch because his profit handsomely while supervising Mc- general inclination is to say ‘yes,’ ” said one trip” on a company-leased jet Clendon. Until just a few weeks ago, when

SPECIAL REPORT 4 INSIDE CHESAPEAKE The lavish and leveraged life of Aubrey McClendon

I’ll say, ‘I’d like all the tulips pay and perks were curtailed in response to sengers: McClendon and his two sons, Jack, public scrutiny, the Chesapeake board was to be red.’ He’ll say, ‘No, no, now 26, and Will, 19. one of the most generously paid in the U.S. they’ve got to be multicolored.’ McClendon gave a speech to a natural- oil and gas industry, according to a review gas conference shortly after arriving, then of proxy statements. Rand Elliott took the next two weeks off for a family va- From 2009 through 2011, Chesapeake McClendon’s architect cation. According to logs reviewed by Re- paid $13.3 million in total compensation to uters, the trio was joined by McClendon’s 10 non-executive board members. By com- reviewed internal company logs, which list wife, Katie, and together the four flew parison, Exxon Mobil, the world’s third- specific flights and include dates, airports back from Paris. The charter flights cost most-profitable company in 2011, paid 13 and passenger lists. $108,000 and were billed as “business,” the non-executive board members $9.9 million Board member Merrill “Pete” Miller, for logs show. during the same period. example, the chief executive of National The flights were among 155 business Though Self left the board in 2005, Oilwell Varco and Chesapeake’s lead in- charters McClendon logged in 2010 at McClendon’s friend continued to exercise dependent director, took $160,000 in free a cost of $2.25 million. He brought fam- a perk bestowed on board members – fly- personal flights – twice as much as he spent ily members along for at least 17 of those ing on Chesapeake-leased aircraft. In 2009, on business travel. flights, billed as business expenses and val- logs show, Self flew with his family from Former Oklahoma governor and cur- ued at more than $370,000. Oklahoma City to the Grand Caymans. rent board member Frank Keating spent Chesapeake executives, board mem- In total, Self and family members logged $57,000 in business flights, mostly to shut- bers and their families also take what the $150,000 worth of personal flights on tle between Oklahoma and Washington, company characterizes as “personal” flights. Chesapeake planes in 2010, records show. and $175,000 worth of personal flights. A In 2010 the McClendons took at least 75 Self did not respond to requests for round-trip flight with 10 friends to Alaska personal flights on Chesapeake-leased air- comment. cost Chesapeake shareholders $71,000. craft. The cost: an estimated $830,000 to Other Chesapeake board members Miller did not respond to requests for $875,000. Although his contract affords were such frequent fliers in 2010 that some comment. Keating referred questions to him unlimited use of the jets for himself, logged far more personal flights than busi- Chesapeake, which did not respond. his friends and his family, McClendon re- ness flights on company-leased jets, inter- imbursed the company $375,000 for per- WEEKENDS IN BERMUDA nal documents show. sonal flights that year, according to a proxy. MCCLENDONCorporate plane use for business and Even the board’s most frequent fliers can- TheCHESAPEAK McClendonsE took personal trips personalChesapeak flightse accountants is considered and aengineers prime perk not rival McClendon’s use of jets that the to Mexico,Chesapeak the Caymane provides Islands McClendon and New forhandled American about executives $3 million and wor boardth of mem- company leased. His contract permits him York. withBermuda, unlimited where complimenta the McClendonsry bers.personal It is legalwork if for properly McClendon disclosed, in 2010 though. to take unlimited business or personal own vacationsecretarial properties, services was for hisalso personal a favored personal trips can be subject to income tax. flights for free (though he must pay taxes destination.ventures. One Friday in fall 2010, Mc- Chesapeake discloses such travel but for certain personal flights). Friends and Clendon, his wife and a son flew to the is- only for board members and a few top family, the contract says, also fly for free. land and flew back to Oklahoma City by executives. It does not detail how many On June 15, 2010, a Gulfstream 550 jet Monday. Total cost: $34,000. The follow- flights each individual took, or where and leased by Chesapeake departed Oklahoma ing weekend, his wife and daughter jetted with whom the individual traveled. Reuters City bound for Amsterdam with three pas- there. Total cost: $27,000.

SPECIAL REPORT 5

Personal use of corporate jets has abated Flight pattern since the SEC imposed stricter reporting Charges for rules in 2006. Travel by relatives in particu- Aubrey McClendon’s BUSINESS FLIGHTS lar has declined, said Paul Hodgson, senior ﬂights in 2010, according research associate at GMI Ratings, a cor- to internal company $2.25 million porate-governance ratings firm, “because documents the fierce light of disclosure is on them.” Chesapeake’s use of the perk appears rela- tively heavy, some experts said. The jet travel is an indicator of wider FLIGHTS THAT PERSONAL FLIGHTS troubles at the company, said John Liu, the INCLUDED comptroller for New York City, which holds Between FAMILY 1.9 million shares of Chesapeake stock. $833,000 and MEMBERS “It’s becoming clear that the excessive $875,000 $502,000 perks and problematic related-party deals that the company discloses, which have FLIGHTS THAT INCLUDED HIS ADULT CHILDREN: $298,000 long caused concerns among investors, are DATE TRIP COST only the tip of the iceberg,” Liu said. “But, Feb. 18-20 Oklahoma City to Albany, Ga. $16,000 at this point, it’s no longer shocking given May 10 Bermuda to Washington DC $11,000 the company’s pattern of behavior.” June 15 Oklahoma City to Amsterdam $51,000

AKM OPERATIONS June 28 Paris to Oklahoma City $57,000 July 14 Oklahoma City to Latrobe, Pa. $10,000 McClendon’s personal business affairs are Aug. 5 Oklahoma City to Delhi $108,000 tracked in the low-slung building on the Aug. 9 Delhi to Mumbai $10,000 fringe of Chesapeake’s corporate campus, Dec. 12 Oklahoma City to San Diego (round trip) $35,000 where at least six company employees work. This is AKM Operations. Chesapeake regularly discloses that McClendon receives personal accounting Chesapeake employees who are “primarily personal work to the CEO, McClendon and engineering support from company designated to” work on his personal busi- would have owed Chesapeake about $2.7 employees; his contract allows him to use nesses. He does not reimburse the company million for services that year. One Chesa- company facilities for his “personal busi- for “secretarial or general administrative peake document reviewed by Reuters nesses, investments and activities.” But the support,” according to his contract. showed McClendon reimbursed the com- scope and sophistication of the support, The agreement also calls for Chesapeake pany for the difference. including AKM Operations, is not broken to pay a portion of the accounting and People familiar with the process said the ar- out in public disclosures. engineering work as part of McClendon’s rangement could amount to a 12-month loan In 2010, Chesapeake employees spent annual compensation. In 2008 he received because McClendon does not need to reim- more than 15,000 hours working on Mc- $708,339 in both accounting and engineer- burse the company until the end of the year. Clendon’s personal projects, according to ing support. In 2009 it totaled $685,669, Most of the accounting work is per- internal records reviewed by Reuters. The according to the proxies. formed by the special AKM unit. Consider cost: about $3 million. In 2010 the company covered $250,000. the job held by Bryan Ott, an accountant In 2011 the documents projected that Given that the accountants and engineers who earned $200,000 at Chesapeake last Chesapeake employees would do about provided an estimated $3 million worth of year. His job title is “Controller, AKM $3.2 million in work for McClendon. Business Operations,” but Ott does much The company keeps detailed records be- more than manage McClendon’s money. Follow Reuters Special Reports cause McClendon’s contract calls for him on Facebook: When McClendon put a vast Oklahoma to provide “a partial reimbursement” of the facebook.com/ReutersReveals ranch up for auction, he had Ott handle the salaries, benefits and indirect costs of the matter. When hail damaged a local home

SPECIAL REPORT 6 INSIDE CHESAPEAKE The lavish and leveraged life of Aubrey McClendon

McClendon was buying, Ott coordinated Although McClendon’s net worth is the repair so the sale could be completed. $390,000 pegged by Forbes at $1.1 billion, he has Ott also is the registered website administra- mortgaged much of what he owns: the tor for several McClendon personal projects, The amount McClendon’s Deep restaurants, the wine, the boats, the homes, including one for a massive Lake Michigan Fork catering company charged proceeds from three accounts at Goldman resort that has drawn the ire of many towns- to handle Chesapeake events in Sachs, his stake in private companies and his folk, and another for a McClendon holding 2007 and 2008 stake in thousands of Chesapeake wells. The company, Arcadia Resources. well financing from one backer alone, EIG Arcadia Resources also acts as a Chesa- Global Energy Partners, totals $1.3 billion, peake contractor. An Arcadia consultant, “Even if it’s true that the executives are according to a person familiar with the deals. Scott Mueller, supervises Ott and at least reimbursing for using company employees, McClendon has even mortgaged part of five other Chesapeake employees working having this kind of relationship with the his stake in his beloved Thunder. full-time for AKM Operations. Mueller company is treating it as a personal fief- He holds 19 percent of a team valued at reportsMCCLENDON directly to McClendon. dom,” said Hodgson of GMI Ratings. $350 CHESAPEAKmillion. But Etwice, McClendon has Until last year, Chesapeake employee pledged his share of future proceeds from the Chesapeake accountants and engineers WINE AND BURGERS Chesapeake provides McClendon Johnhandled Garrison about was$3 million the highest-paid worth of per- Thunderwith as unlimited collateral complimentafor loans, fromry Bank of sonpersonal working work with for McClendonAKM Operations. in 2010 .He Separating McClendon’s business interests in Americasecretarial in 2009 serandvices Wells for Fargo his personal in 2010, earned $800,000 in salary and bonuses, plus Oklahoma City from Chesapeake’s isn’t easy. accordingventures. to records reviewed by Reuters. another $1 million in equity compensation. For example, McClendon holds an in- Neither loan has been previously disclosed. Garrison played a variety of roles. He terest in a local restaurant, Metro Wine Bar Further particulars of the Thunder served as treasurer of the McClendon Fam- & Bistro, which occupies space owned by a loans – the amount McClendon borrowed, ily Foundation, a 501c3 charity. He also Chesapeake subsidiary. whether they have been repaid or whether helped McClendon run the $200 million Across the street from the corporate the NBA or his Thunder partners were no- hedge fund from Chesapeake offices, a fund campus, McClendon co-owns Irma’s Burger tified – could not be determined. whose existence was disclosed by Reuters Shack, often filled with Chesapeake em- Neither of the banks, nor McClendon on May 2. Garrison retired late last year and ployees during the lunch hour. According to and his spokesman, would elaborate on the is now a contractor for the AKM unit. His a proxy, another restaurant McClendon co- Thunder loans. current compensation could not be learned. owns, Deep Fork, catered Chesapeake events THE MCCLENDON GARGOYLES MCCLENDONThe AKM unit is supplemented by scores in 2007 and 2008 at a cost of $390,000. CHESAPEAKE ofMcClendon’ Chesapeakes contract engineers allows who, amonghim, his other As a co-owner of the Thunder basketball McClendonChesapeak is generouse leases with a fleet his money. of planes He duties,friends help and hiscalculate family McClendon’s to fly free on reserve team, McClendon sits in the front row at has donatedthat shuttle roughly executives $15 million to oil to and Duke holdingsjets the company in a special leases. incentive program that games. As Chesapeake CEO he presides University,gas fields—and his and his wife’sthe McClendon alma mater, and gives him a chance to invest in every well over a company that signed a $36 million, $12.5 familymillion to to holiday the University destinations. of Oklaho- the company drills. In 2010 at least 60 en- 12-year sponsorship deal with the team. ma, his parents’ alma mater. At Oklahoma, gineers spent on average six days each on This year the company pledged to buy $3 the McClendon Center for Intercollegiate McClendon-related projects, the records million worth of tickets, and many were Athletics is adjacent to the football stadium, show. Some engineers spent mere hours; distributed to employees and Chesapeake and the McClendon Honors College is one logged more than 100 eight-hour days. business associates. named after McClendon’s parents.

SPECIAL REPORT 7

MCCLENDON CHESAPEAKE Chesapeake accountants and engineers Chesapeake provides McClendon handled about $3 million worth of with unlimited complimentary personalAt Duke, work attended for McClendon by all three in 2010McClen. - Clendon, it turns out, had been testing him, at leastsecretarial 108 local propertiesservices for for his at personalleast $240 don children, a prominent dorm and visitors’ Benham said. million,ventures. according to a Reuters analysis of center carry the family name. The chapel or- A few months later, a Chesapeake execu- Oklahoma land records. More than half gan is named in honor of Katie McClendon. tive approached Benham and said, “Aubrey were purchased at prices well above the So prolific were McClendon donations wants you to anchor Classen Curve,” a shop- assessed market value. The 108 tracts and to Duke that the university once honored ping center that McClendon envisioned, lo- buildings were valued by the Oklahoma the couple by commissioning gargoyles cated steps from the Chesapeake campus. County Assessor’s Office at a total market in their likenesses, hanging them above A chic and sleek shopping venue, Clas- value of $146 million at the time of the pur- an arch on the dorm, McClendon Tower. sen Curve is owned by Chesapeake. It now chases. In Oklahoma City, “market value” is According to the artist, Katie McClendon includes stores with names such as On a based on recent sales data, said Larry Stein, found them too ostentatious; they were Whim, Green Goodies and Uptown Kids. the county’s chief deputy assessor. later removed. The gastro sports pub Republic serves Chesapeake paid $38 million for an of- MCCLENDONBeginning about six or seven years ago, smoked-salmon sliders. Matthew Ken- fice buildingCHESAPEAK valuedE at $27 million and $10 McClendon,McClendon’s throughcontract Chesapeake,allows him, hishelped ney OKC offers gourmet raw vegan meals. millionChesapeak for a churche leases valued a fleetat $1.4 of million.planes leadfriends a concertedand his family effort to flyto frremakeee on Okla- Even the dumpsters are classy, camouflaged In 2006that it shuttle paid $16 executives million to for oil Nicholsand homajets the City. company The leases.company started buying by high-end brick and steel. Hills gasPlaza, fields—and a 50-year-old the McClendonshopping center land around its campus, including half of “Aubrey saw it as a quality of life issue,” that wasfamily valued to holiday at $6.3 destinations. million. The com- the neighborhood across the street. Chesa- Benham said. “These things seem peripher- pany plans a major renovation, said Nichols peake kept mum about its plans. Many out- al to Chesapeake but really aren’t. You have Hills Mayor Sody Clements. siders expected more office buildings; they to have the amenities to attract people.” “We don’t have the money to do it and were wrong. McClendon calls the amenities “the he does,” the mayor said, interchanging, as In late 2008, McClendon strolled into jewels” – and on campus they include a many locals do, McClendon for Chesa- Balliets, the closest thing in Oklahoma 72,000-square-foot fitness center, Olympic- peake. “He raises the bar on everything.” City to Neiman Marcus. He approached sized swimming pool and health center that From fashion shops to food, McClen- the co-owner, Bob Benham. offers teeth whitening and Botox injections. don’s vision is reshaping the area near “Aubrey came in with a picture of a dress The Classen Curve project is not dis- Chesapeake and Nichols Hills. When he thatMCCLENDON he had torn out of The New York Times closed in any shareholder filings. Business becameCHESAPEAK frustrated Ethat Oklahoma City magazine,”McClendon Benham owns a recalled,19 percent “and sta heke want - does not appear brisk; parking lots were lackedChesapeak a Whole Foodse signed Market, a $36 he million persuad - edin theto see Oklahoma if he could City get Thunder it for his, wife.”an largely empty on recent weekdays and ed thesponsorship popular organic deal andchain pays to bring up to one NBABenham franchise. promised to try. “Then Aubrey many of the shops were vacant. to his $4hometown million annually – and then to brandleased itthe space spent the next 40 minutes asking me about Benham said Chesapeake is choosy. on landstadium owned Chesapeak by Chesapeake,e Energy across Arena. the my background and strategies for the store,” “They could fill the place up tomorrow,” he street from his office. the owner remembered. “It struck me as odd, said, “but they want a certain type of tenant.” At Nichols Hills Plaza, the energy because here’s a guy running a huge energy company is planning to go into the gro- LAND, LAND, LAND company. Why would he be interested?” cery business itself, internal records show. Benham found the dress in Japan – a Chesapeake’s expansion in Oklahoma City Chesapeake plans to reopen the shuttered Salvatore Ferragamo – and had it shipped stretches far beyond Classen Curve. Nichols Hills Market and recently put to Katie McClendon within 48 hours. Mc- Since 2004 the company has purchased two grocery store managers on its payroll.

SPECIAL REPORT 8 INSIDE CHESAPEAKE The lavish and leveraged life of Aubrey McClendon

Their combined salaries exceed $200,000. makeover and sold it for a small profit. Last resources into another love: rowing. “I think in another life he would have year his wife bought an $11 million house In a remarkable feat, Oklahoma City been a city planner or architect,” said the there, perched over a spectacular cliff. transformed its dry and weed-choked riv- former employee, who worked closely with In his Oklahoma neighborhood, Mc- erbed – “nothing more than a big ditch,” McClendon for years. “It’s like playing Clendon and his wife live in a $4 million, says Mayor Mick Cornett – into an Olym- with Legos for him, envisioning something 9,000-square-foot stone mansion in Nich- pic-class rowing venue. in his mind, seeing it laid out. He wants to ols Hills, the tony enclave surrounded by Chesapeake built two of the venue’s reshape things.” Oklahoma City just a four-minute com- signature attractions, the sleek $3 million mute from the Chesapeake campus. Chesapeake Boathouse and glass-sheathed MANY HOMES He also owns the house next door, pur- $7 million Chesapeake Finish Line Tower. Even at rest, McClendon remains competitive. chased for $2.3 million, and the one behind McClendon also put 10 Olympic hope- His wine collection, stored in cellars that, which cost $700,000, records show. fuls on the Chesapeake payroll. across three states and the Caribbean, ex- For a time, McClendon also owned yet an- They earn modest salaries – $30,000 to ceeded 2,000 bottles, according to a 2009 other neighboring house. $40,000, plus benefits – and are assigned to inventory. It included a six-liter bottle of departments such as finance and commu- ‘COMMIT TO THE LORD’ 1945 Mouton Rothschild, valued at about nity relations. Even so, according to Chesa- $100,000. McClendon, an Episcopalian, sometimes peake documents, each of the 10 is officially “This is not a particularly connoisseur- invokes religious themes at work. Each day classified the same way: “Rower.” y cellar,” said Benjamin Wallace, the best- he helps select a quotation that is emailed Some of the rowers McClendon hired selling author of “The Billionaire’s Vinegar,” to employees. Some are from the Bible. have also flown with him aboard a Chesa- who reviewed McClendon’s wine roster. A May 2 email quotes Proverbs 16:3: peake-leased jet. “It’s pretty much exclusively big-name tro- “Commit to the Lord whatever you do, and On Dec. 12, 2010 – a Sunday – the phy vintages. Just eye-balling it, it’s got to your plans will succeed.” CEO took five rowers on a one-day trip to be worth millions.” Chesapeake also has three “corporate San Diego, the flight logs show. McClen- McClendon also owns a $12 million chaplains” on staff. According to a 2011 job don brought a son along, too. collection of antique maps that fill the walls posting, the chaplains provide confidential ca- Total round-trip cost to shareholders: of Chesapeake buildings. reer, marriage, parenting and substance-abuse $34,000. “His collection of Oklahoma maps and counseling as well as “spiritual consultation.” nearby states would be the envy of the Li- The chaplain positions are among Ches- Additional reporting by Robin Respaut, brary of Congress,” said Graham Arader, apeake jobs that reflect McClendon’s pas- Jennifer Ablan and Joshua Schneyer in New the broker who helped him acquire it. Mc- sions. A keen student of history, he has a York and Alexander Cohen in Washington; Clendon once angered some shareholders company historian on staff. editing by Blake Morrison, Michael Williams by selling the maps to Chesapeake to meet A proponent of good health for his em- and Prudence Crowther a margin call; he subsequently agreed to ployees, he also hired the 2006 winner of buy them back. the World’s Strongest Man contest, Phil In 2005, McClendon set his sights on Pfister, in part to promote exercise. On his FOR MORE INFORMATION Bermuda’s so-called billionaire’s row, a neigh- website, Pfister says he’s a man to whom John Shiffman borhood that included the vacation homes of “flipping cars, pulling two 18-wheelers or [email protected] Michael Bloomberg, Ross Perot and former ‘toting tonnage’ comes naturally.” Anna Driver Italian Prime Minister Silvio Berlusconi. The historian and the World’s Strongest [email protected] First, he bought an $8.6 million home Man, who each earn more than $100,000, Brian Grow and spent $12 million to renovate it. Next have other duties at Chesapeake. The [email protected] he bought the grandest property there for strongman, for example, promotes Chesa- Blake Morrison, Investigative Projects Editor $20.8 million: an 8-acre tract once owned peake’s development efforts in important [email protected] by industrialist Henry Clay Frick’s descen- drilling regions. Michael Williams, Global Enterprise Editor dants. McClendon gave the Frick site a McClendon has poured Chesapeake [email protected]

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SPECIAL REPORT 9