The lead dog in the owners’ group, Clay Bennett, did what NBA brass expected of him. He made what seemed like sincere pronouncements about keeping the Supersonics at home in Seattle if the voters there would just approve tax-backed, public funding for a new arena. (The Sonics played in the NBA’s smallest venue.) But while Seattle caviled and the other owners took care to say what they were supposed to say, Aubrey McClendon, in his enthusiasm, spoke a little too much truth in Oklahoma. “We didn’t buy the team to keep it in Seattle; we hoped to come here,” he told a reporter from Oklahoma. “We know it’s a little more difficult financially here in Oklahoma City, but we think it’s great for the community and if we could break even we’d be thrilled.” Seattle cried foul. Bennett had to scramble. Thanks, Aubrey. He insisted to the NBA that he and his friends really were committed to making a good-faith effort to keep the team in Seattle, despite anything you might have read otherwise in Oklahoma City’s Journal Record. The NBA fined Aubrey $250,000 for his extreme candor. He apologized for speaking out of turn, without the blessing of his fellow owners, but he never walked it back. When forced to explain himself, under oath, in a later legal battle with the City of Seattle, Aubrey went into full-on aw-shucks Tom Sawyer mode: “It’s like me saying the sky is green. You know, sometimes you say things that you don’t know why you say it.”
But that was just for show, or maybe to shave some money off the final judgment. Aubrey knew exactly why he had said it. He was speaking to Oklahoma Citians and to them alone, plugging the local cause, and it worked exceedingly well. While Seattle voters blocked any effort to cough up public money to keep the Supersonics, Oklahoma City voters easily approved a one-cent local sales tax to raise more than $120 million to fund upgrades on the six-year-old downtown sports arena and to build a brand-new practice facility worthy of NBA talent like Kevin Durant. By the summer of 2008, once the lawsuit had wrapped and Seattle was paid off, the miracle had come to pass. Oklahoma City got its first major-league franchise.
Aubrey and the other owners were already auditioning team nicknames: the Barons, the Bison, the Energy, the Wind, the Marshalls (yes, “Marshalls” with two l’s. Who knows). Around Labor Day 2008, with the first preseason game just weeks away, the team finally unveiled its choice: the Thunder. Season tickets sold out in just five days, and the team hit its NBA-mandated target of annual merchandise sales in a single month. Downtown Oklahoma City was awash in Thunder red, Thunder blue, and Thunder orange. OKC was ready to Thunder Up!
Locals were nearing the state of civic nirvana. “The NBA adventure we’ve been on is the biggest thing to happen in modern Oklahoma City history,” its mayor said that summer. “The NBA validates all the efforts that have gone in to create this Golden Age we’ve entered into. We knew we’d arrived, but until the NBA came in, the rest of the country might not have known it.”
The state’s governor was just as excited. “We’ll be on SportsCenter,” he exclaimed, “every night!”
Journalists from across the country were already making their way through the Will Rogers World Airport that summer. Sportswriters, business writers, cultural writers, even travel writers. Oklahoma City had become a destination. “Booming with Oil and a New Exuberance,” read one headline in The New York Times, whose writer really couldn’t be blamed for missing the distinction between oil and natural gas. He was mighty busy with the fifty-five-foot-tall blown-glass Chihuly at the new art museum, the etymology of the word “denim” (it’s French!), and the custom-made goods at Shorty’s Caboy Hattery—“the only hat that will stay on your head in Oklahoma wind.” Reporters from back east were still likely as not to lead their stories with the Grapes of Wrath Okie trope, but at least OKC had the wherewithal to fight back, now that it had been imbued with that certain Aubrey-ness. That young local architect who had worried about the indelibility of Oklahoma’s dust bowl image walked a reporter from The Oklahoman through proposed designs for the city’s new Oz-like convention center. The plans included a sloping roofline for directing rainwater into a sunken courtyard spanned by glass bridges. “It would be lush, with an ivy screen that stretches from the bottom of the courtyard to the top of the roof,” she explained. “We would be encouraging images that are opposite of the stereotypical Dust Bowl Oklahoma.”
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But a funny thing happened on the way to the first big NBA tip-off in Oklahoma City. The price of natural gas on the commodities market started to fall again—and fast. Chesapeake stock fell with it, losing nearly half its value in just two months. And its debt load was starting to look less like a case of bold financial buccaneering and more like a threat to the company’s survival. The same week he and his NBA partners christened their team the Thunder, Aubrey was selling hard at the Lehman Brothers CEO Energy Conference. This little mini-slump, Aubrey assured the money crowd there, just meant investors could buy into Chesapeake at a discount now. Whatever the temporary vagaries of commodity pricing, shale gas was the future, and no company in the country was better positioned to win that future than Chesapeake. Aubrey pointed to the half a million acres Chesapeake had secured in the newly discovered Haynesville Shale formation in Louisiana and Texas. That field would one day be the largest gas-producing field in the country and the fourth largest in the entire world, Aubrey insisted, and Chesapeake had already captured that flag. Haynesville contained 800 trillion cubic feet of natural gas, Aubrey assured the investors at the Lehman Brothers conference, and they were going to be able to recover about a third of it, which meant Chesapeake’s proven reserves were going to swell by more than twenty times.
Call what happened next bad timing—of the epic proportion kind. And you couldn’t blame Aubrey, though you could kind of blame the firm that hosted that energy conference. A week after the conference, Lehman Brothers shares plunged 45 percent in a single day. Two days later, when investors began to understand for certain that the seemingly unshakable 158-year-old private bank was sitting on a very porous foundation built of too many worthless subprime mortgages, Lehman shares plunged by another 40 percent. Turns out Lehman had a debt and leverage habit that might have embarrassed even Aubrey. Four days after that, with nobody to make a rescue, the firm declared bankruptcy. The news dragged the Dow Jones Industrial Average down nearly 5 percent, which loosed the worst financial panic in nearly a century. Lehman was clearly not going to be a one-off.
Oklahoma City, having finally been declared a Major League American City, was getting a lesson in taking the good with the bad. Local media ran with an Associated Press wire story reporting gloating statements made by hard-line anti-American potentates and clerics in the Middle East. “[Americans] are oppressors, and systems based on oppression and unrighteous positions will not endure,” the Iranian president, Mahmoud Ahmadinejad, spouted.
“God has responded to the supplications of an oppressed people,” a popular Lebanese sheikh declared. “It is the curse that hits every arrogant power.”
Chesapeake stock fell with the rest, by 60 percent in less than three weeks, settling at a whopping 75 percent off its highs just a few months earlier. Aubrey got somewhat mauled in the churn, but most of the damage was self-inflicted. Many of the thirty-three million shares of Chesapeake he had pocketed over the years had been bought in the recent run-up, most of them with borrowed money. At the beginning of October, just days before the first-ever Thunder tip-off, he found himself unable to meet his gargantuan margin calls and was forced to sell about 95 percent of his Chesapeake stock to cover. He had lost two-thirds of his wealth in a matter of weeks, and that stark fact was reported in business sections of newspapers across the country.
But did Aubrey cower or hide his face? He did not. When the Thunder took the court in Oklahoma City for the first time ever, on October 14, 2008, Aubrey McClendon—19 percent owner of his hometown’s NBA franchise—was front and center, in Thunder colors, cheering with the rest of his city. He’d taken hits before, and
he would come back better than ever. So what if he had lost 95 percent of his stake in his own company? “My confidence in Chesapeake remains undiminished,” he said, “and I look forward to rebuilding my ownership position in the company in the months and years ahead.”
Thunder Up!
Less than a month after his embarrassing stock sell-off, he closed a much-needed, long-term deal with Norway’s StatoilHydro. The joint venture agreement delivered Chesapeake more than 21 billion Norwegian kroner, or $3 billion, of operating cash—and the wherewithal to drill another fifteen thousand or so horizontal wells over the next two decades. Aubrey picked up extra assistance from an old Duke fraternity brother who helped him market a sleek new financial vehicle called volumetric production payments. The VPP buyer got a piece of a well’s future production, while Chesapeake got the cash to pay for drilling it in the first place.
Didn’t matter to Aubrey that natural gas storage tanks were already filled to bursting in the summer of 2009. Or that the price of natural gas was through the floor, which meant it didn’t actually pay to drill wells just then. He had ramped down Chesapeake’s drilling activity a bit, but he was still thinking full steam ahead, playing the long game, even willing to shift his politics to protect the future of natural gas, the future of Oklahoma City, and, most dear to his heart, the future of Chesapeake Energy.
Aubrey had been a big donor to the grotesque and preposterous right-wing Swift Boat campaign that kneecapped Democrat John Kerry in the 2004 election and helped reelect those two former practitioners in oil and gas, George W. Bush and Dick Cheney. (Cheney had been heading up Halliburton, one of the world’s largest oil service companies, when he selected himself to be Bush’s running mate.) But in 2009, after Democrats had taken back power in Washington, Aubrey wanted it known that he had voted for Barack Obama. Because the country needed an inspirational leader! And Aubrey could help the new president realize his campaign promise of protecting the environment. Natural gas was the better alternative to “filthy” coal, remember, the perfect bridge to a bright, clean, wind-and-solar renewable energy world. “I really don’t want to be labeled a Democrat or a Republican,” Aubrey told a reporter. “I’m just an American with an idea.”
He showed up at every NBA game for the next year, and he showed up for work at his Chesapeake office. When the fallout from the financial disaster, which would soon be known as the Great Recession, dragged the price of natural gas below $3 in the summer of 2009, to a level that made it nearly impossible to drill for profit in the short term, Aubrey did not show fear. This was what he had signed up for when he got into oil and gas, right? This was the casino, and a man had to accept the fact that sometimes the wheel was going to turn against him. Aubrey had made his bet on shale gas. He was still up a billion or so on that bet, and he meant to emerge from the downturn an even bigger winner. He was still touting a two-hundred-year supply of clean, affordable energy. Natural gas would free the country from the ravages of “dirty coal” and from its costly addiction to foreign (read Middle Eastern) oil. It promised national prosperity and national security. “A better, brighter and more prosperous future awaits us,” Aubrey chirped to potential investors in 2009, “if we pursue the full potential of natural gas.”
Who didn’t want to believe?
The blast of Arctic cold moving into Oklahoma City from the north on December 14, 2009, could not dampen the spirits of Aubrey McClendon. The Thunder, in their second season in Oklahoma City, already looked like playoff contenders. They were certainly winning more often than they were losing. The financial markets appeared to have found some solid footing. The Dow Jones ticked up by 0.3 percent that day, capping a long, slow climb from its postcrash bottom, to reach a level not seen since the full-on financial dive fourteen months earlier. Best of all, Chesapeake Energy stock jumped nearly 6 percent that day, back to a respectable $24 and change. The spectacular single-day pop had little to do with Chesapeake or its charismatic CEO; it had everything to do with the standing of natural gas.
That day, Rex Tillerson, head of ExxonMobil, the biggest of the Big Dogs in the Energy Kennel, the CEO who had banked a $45 billion net profit for his shareholders the previous year, tops in reported corporate history—anytime, anywhere—gave his seal of approval to Aubrey and the rest of the shale players. After years of waving off shale gas as a domain for minor leaguers, Tillerson was tipping his cap and joining the game. “Natural gas is well-suited to meet that growing power generation demand, both from the standpoint of its lower environmental impact, but also its capital efficiency and its flexibility,” Tillerson said that day, when announcing that ExxonMobil, in its biggest deal of the new century, had just agreed to shell out more than $30 billion to buy a company called XTO Energy.
XTO was a mirror image of Chesapeake Energy, only with a level of debt that made for a more prepossessing balance sheet. Like Aubrey, the company’s co-founder Bob Simpson had been an early believer in natural gas and an early adopter of hydraulic fracturing and horizontal drilling. Simpson had grown his company profits from just under $200 million in 2002 to nearly $2 billion in 2008. Like Chesapeake, Simpson’s company had serious landholdings and had completed wells in almost all of the major shale plays across the country, from New York to Pennsylvania to Oklahoma and in Simpson’s home state of Texas. XTO was actually operating wells right next to the ExxonMobil headquarters in Irving, Texas. Simpson’s company, it appeared, had what Rex Tillerson lacked, and therefore coveted: the tool kit, the skills, and the know-how to extract natural gas from the stingiest of rock formations.
Exxon itself had done some early research and development in horizontal drilling and hydraulic fracturing back in the 1990s but found the process time-consuming, expensive, and risky. And anyway, the company was really thinking more, well, globally. Exxon was very busy using its gargantuan financial resources to exploit exciting new areas that had opened up when the Cold War thawed, like the Arctic waters off the coast of Russia, or the rich continental shelf in the Gulf of Guinea. Tillerson’s predecessor, Lee Raymond, had long ago shut down the company’s efforts to unlock unconventional gas beneath American soil. To Raymond, natural gas was somehow, and not just literally but figuratively, beneath an oil giant like ExxonMobil. Hell, ExxonMobil couldn’t even do anything with a good portion of the natural gas it captured as a matter of course at its oil wells around the world. This was gas, which couldn’t be loaded up and shipped off in a tanker. What was Exxon going to do? Build a pipeline from Equatorial Guinea to Peoria? The stranded gas was often just flared off, literally burned away.
Raymond never second-guessed himself on his decision to bail on natural gas, even after advances in horizontal drilling and hydraulic fracturing began to spur big rises in production and consumption. In 2003, around the same time he was unwittingly terrorizing Vladimir Putin about buying Yukos, Raymond asserted that natural gas production had likely peaked, and if America became too dependent on gas, it would suffer terrible consequences to come. Two years later, the U.S. Department of Energy begged to differ. The continental United States alone, according to the experts, had sufficient natural gas reserves to get the country pretty well into the twenty-second century. By 2009, the department was forecasting that U.S. shale gas would one day provide half the country’s energy production.
So now that the shale gas boom had well and truly hit, ExxonMobil had some catching up to do, and it was a good thing Tillerson had a spare $30 billion sitting around to get it done. Rex knew he would have to pay a premium for XTO, 25 percent above the company’s stock price, but what choice did he have? ExxonMobil had been late to the party and had to accept the consequences. Tillerson paid top dollar for expertise ExxonMobil simply lacked. The company paid Bob Simpson, personally, $84 million to walk out the door and not come back, but Tillerson insisted that all the other XTO management and technical talent stick around. XTO would continue to do what it did best, operating as its own separate unit insid
e Tillerson’s domain, drilling for shale gas. And ExxonMobil would continue to do what it did best; it would take all that XTO expertise global. “The world’s economy has a voracious appetite for energy,” Tillerson told Fortune, “so thank God we can do this.”
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Rex Tillerson had been at Exxon since his graduation from the civil engineering program at the University of Texas in 1975 and was, by the end of the century, a fully realized creature of the corporation’s business, intellectual, and ethical culture. He was a key player in Exxon’s 1999 merger with Mobil, which reunited two of the entities carved out of Standard Oil in 1911. The petro-marriage of the century produced the largest oil company in the world not owned by a national government—and the most profitable. Tillerson believed deeply in Exxon’s overriding mission, which was to maximize shareholder profits, and he believed deeply in Exxon’s secondary mission, which was to bring the world’s most vital commodity to market. He maintained a vigilant watch for any forces that could threaten either endeavor.
Tillerson had already managed projects all over the world, from the United States to Africa to the Middle East to Russia, and had taken the measure of various forms of governments and governors. Monarchies and dictatorships clearly presented certain political problems for the subjects of those countries, but from Exxon’s perspective—or for any foreign company wanting to do large-scale work on someone else’s sovereign soil—it was hard to argue with the fact that they could also offer much appreciated certainty and control, at least as long as the monarch or strongman stayed in power. If ExxonMobil needed something in, say, Equatorial Guinea, it knew exactly where to go to get it—which was to say from the good offices of the country’s president for life, the autocrat Teodoro Obiang Nguema Mbasogo. The president for life might have his own quirks and his odd desires, but for a company like Exxon his office was at least one-stop shopping: there was no one else you needed to talk to. Real democracies, where competing ideas and ideologies and other would-be could-be leaders were in a constant tug-of-war that could never be finally won—a mercurial electorate actually swaying outcomes and policies and national preferences back and forth—that was a neat trick for people-powered governance. But it wasn’t necessarily ideal for those concerned with maintaining the steady flow of oil and progress and profit. Big oil development projects can take decades and billions of dollars in up-front investment. If the control of government and the relevant laws and regulations and tax structures start shifting around inside that time frame, that isn’t a first-choice environment for this kind of business. Rex just didn’t find doing business in democratically governed countries all that appealing, and that included his own. “What I find interesting about the U.S. relative to other countries is in most every other country where we operate, people really like us,” Tillerson said to the reporter Brian O’Keefe at Fortune. “They’re really glad we’re there. And governments really like us. And it’s not just Exxon Mobil. They admire our industry because of what we can do. They almost are in awe of what we’re able to do.”
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