Chesapeake Energy May Be in for a Culture Shock


Barely six weeks after founder and former chairman and CEO Aubrey McClendon was shown the door, Chesapeake Energy Corp. (NYSE: CHK) has named his successor. Robert Douglas Lawler, currently senior vice president for international and deepwater operations at Anadarko Petroleum Corp. (NYSE: APC), has reportedly been offered the top job at Chesapeake.

The Wall Street Journal reported the hiring this morning, citing "people familiar with the matter." Lawler joined Anadarko in 2006 with the company's acquisition of Kerr-McGee, where he had been employed since 1988. He is a petroleum engineer with long experience in operations.

Lawler's selection is an interesting choice. Chesapeake's problems stem from aggressive leasing followed by proving the presence of the resource and then flipping the property for a profit. As natural gas prices collapsed, the company took on a number of partners that were given a share of production in exchange for cash and promises to provide more cash for operations in the future.

The company's CEO selection could have gone in several directions. One obvious choice would have been a financial wizard who could have sifted through the company's assets, jettisoning the losers and strengthening Chesapeake's free cash flow. The course the company's board took, however, appears to be one in which it will seek to maximize the value of the properties it retained in order to keep its investors happy. Lawler's operations background makes him a good fit for that role.

Like other producers of natural gas, prices below $4 per thousand cubic feet of gas have pressured revenues and profits for Chesapeake. Most observers and natural gas experts expect prices to rise this year and into next, with the most optimistic looking for prices to double. That will have a larger impact on Chesapeake's cash flow than any CEO.

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