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The new CEO of Chesapeake Energy Corp, Doug Lawler, continues to make redundancies and asset sales in order to reduce the high costs left behind by the free-spending Aubrey McClendon.
McClendon was well known for sparing no expense as he spoilt employees and invested in new oil and gas properties all around the US. Lawler on the other hand is trying to bring in a period of efficiency and cost effectiveness, whilst focussing on natural gas production only.
One source at the company told Reuters that after McClendon’s reign “you had too much land and you had too many people. Those things had to be fixed.”
So far Lawler has cut 1,200 jobs from the payroll, around ten percent of the total workforce, and sold nearly $4 billion in assets.
Related article: Chesapeake Hints at Big Natural Gas Layoffs
Whilst in charge McClendon oversaw the construction of a 120 acre red-brick, Georgian style campus for the company’s headquarters in Oklahoma City. The luxury campus included its own 72,000 square foot fitness centre, and Olympic sized swimming pool, five restaurants, and campus gardens.
Reuters also got access to internal records that detailed the company’s payroll at the campus. And alongside the hundreds of geologists and petroleum engineers that are needed to run any oil and gas major, Chesapeake also employed three chaplains, seven chefs, a fitness team of 15 people, a gardener, and a weatherman (who was paid $350,000 a year).
The source told Reuters that he had “never seen anything quite like they had over there at Chesapeake. I think McClendon carried it to an extreme, especially when you look at what it cost you to do all that stuff and how much people were being paid.”
McClendon always justified his lavish spending by suggesting that such extravagance was needed to try and lure workers out to Oklahoma City.
Jeff Mobley, the Investor Relations Executive, told Deutsche Bank that the workforce that was employed by Chesapeake was enough to oversee operations of 175 drilling rigs, almost three times the number that Chesapeake actually owns.
Related article: Chesapeake, GE Get in on Home-Refueling Game
Lawler, in order to make Chesapeake more competitive and profitable, especially after McClendon left the company in $16 billion of debt, is willing to target any part of the business that is not directly related to exploration and production.
His philosophy of efficiency and cost reduction has impressed investors, and earned confidence in the struggling company. Tim Rezvan, an analyst at Stern Agee, said that “even though we haven't received official 2014 spending guidance, he has been clear that it will be aligned with cash flow, which has reassured investors.”
This belief in Lawler and his vision for the future has driven stock prices to their highest levels in two years, rising 20% since Lawler took charge, to $26.05 at close on Tuesday.
By. James Burgess of Oilprice.com
James Burgess studied Business Management at the University of Nottingham. He has worked in property development, chartered surveying, marketing, law, and accounts. He has also…