By Erin Ailworth
OKLAHOMA CITY, Okla.--Two years ago, Doug Lawler stepped into a
maelstrom.
When Mr. Lawler took over as chief executive at Chesapeake
Energy Corp., the company, an icon of the U.S. energy boom, was in
turmoil: financially, operationally and culturally.
Chesapeake was deeply in debt and spending billions of dollars
it didn't have. It faced hundreds of lawsuits and investigations
challenging its business practices. And activist investors,
including Carl Icahn, had forced out its charismatic co-founder,
Aubrey McClendon, who used to make nearly every decision at the
company, down to the kind of cheese served in the company
cafeterias.
Mr. Lawler, a buttoned-down petroleum engineer, had big boots to
fill--though he says he didn't see it that way.
"There's kind of an inference that in filling someone's shoes
that you are going to pursue the same path they did," Mr. Lawler,
49, said during his first in-depth interview about taking the reins
at Chesapeake. "I knew we were going to change everything."
His challenge comes as the entire U.S. energy industry is
struggling to survive low oil and gas prices. But the hurdles are
extreme in Chesapeake's case. Perhaps as a result, Mr. Lawler has
attracted almost no public criticism, even from former
executives.
Mr. Lawler started his career at Kerr-McGee Corp., an
Oklahoma-based oil-and-gas company, which was acquired in 2006 by
Anadarko Petroleum Corp. He swiftly climbed the ranks there; by the
time Chesapeake's recruiters came calling in 2013, Mr. Lawler was
on Anadarko's executive committee, and in the running to head the
company someday.
Given that Chesapeake's woes had been the talk of the energy
industry and chronicled in the national press, Mr. Lawler thought
he knew how troubled the company was. He declined to meet with the
company's board--twice--before deciding to take on "the biggest
challenge in the entire industry," he said.
Those who know Mr. Lawler well say not to bet against him. "Doug
came into Chesapeake with a lot of backbone," said Jim Hackett, who
led Anadarko for most of Mr. Lawler's time there.
Before Mr. Lawler arrived, Chesapeake's stock had been on a
roller coaster. In addition to the company's chronic overspending,
investors had been spooked by controversy over Mr. McClendon, who
had borrowed large sums--for his personal use--from private-equity
firms that had invested in the company.
Mr. McClendon, who led Chesapeake after founding it with a
partner in 1989, declined to comment. The company accused him
earlier this year of stealing proprietary maps and data and using
them to start a rival company, American Energy Partners LP. Mr.
McClendon has said the information was rightfully his. The case is
before an arbitrator.
The problems went even deeper than Mr. Lawler expected, he said.
For example, there was no real budgeting process. The focus was
almost exclusively on acquiring and drilling land.
One eye-opening discovery: 54% of Chesapeake's projects in 2012
hadn't turned a profit, according to a presentation Chesapeake made
to analysts last year.
To make matters worse, there was little appreciation among
employees for the many challenges facing the company, Mr. Lawler
said. A mainstay of Oklahoma City, Chesapeake had its name on the
local sports arena, it gave millions of dollars to charity, and it
offered great perks, including a community garden (with company
beekeeper) and, at times, access to tanning beds and Botox
injections.
The more Mr. Lawler dug in, he said, the more problems he found.
Mr. McClendon had signed contracts with outside investors that
committed it to drilling hundreds of wells, whether or not they
were economic. He also inked deals requiring the company to
transport specific amounts of natural gas on certain pipelines or
face big financial penalties.
In part because of such obligations, Chesapeake spent nearly $30
billion more on drilling and leasing than it brought in from its
operations from 2010 through 2012, financial filings show.
Under Mr. Lawler's direction, Chesapeake has slashed spending by
more than half compared with 2012, and pared its staff by 67%. Its
drilling footprint is nearly 5.5 million acres smaller. Antitrust
allegations against the company in Michigan have been resolved, as
have about two-thirds of the lawsuits filed against Chesapeake over
past business practices.
He also made symbolic changes. This year, Chesapeake is forgoing
its traditional holiday lights display--putting the thousands of
dollars it would have spent on those decorations toward providing
gifts to poor children and matching community donations made to a
regional food bank.
Employees have responded well to Mr. Lawler, who displays his
own commitment even on his black crocodile boots, embroidered with
Chesapeake's name. Asked to cut the average cost of drilling a well
by $1 million within a year, workers instead hit the goal in three
months--shaving more than $1 billion from Chesapeake's budget, Mr.
Lawler said. A well in the Eagle Ford Shale of South Texas that in
2013 cost Chesapeake $6.9 million, on average, now costs $5.3
million--or 23% less.
Despite all this, Chesapeake's future remains shaky.
Shares have fallen by more than 70% since the start of the year.
Chesapeake has written off $15.6 billion in holdings, and its cash
flow continues to shrink. In the past several months, the company
has suspended its dividend and laid off 740 employees.
At this point, Mr. Lawler said, the biggest challenge is
external. Chesapeake has been hampered by the low price of natural
gas, which accounts for more than 70% of the company's output. Oil
accounts for the rest, and the bust of the past 15 months hasn't
helped.
Mr. Icahn has praised Mr. Lawler for his aggressive leadership.
"Doug so far has done a great job," he said in February, when
Chesapeake's stock was trading over $20 a share, versus just over
$5 today. He didn't respond to recent requests for comment.
Mr. Lawler said he knows his future depends on Chesapeake's
turnaround and the support of investors like Mr. Icahn.
"If I am not adding value for the shareholders, I fully expect
Carl to fire me," Mr. Lawler said. "That's the reason I came
here."
Write to Erin Ailworth at Erin.Ailworth@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 26, 2015 12:30 ET (17:30 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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