New CEO cuts Chesapeake Energy's lifestyle largesse

HOUSTON (Reuters) - The chaplains and company gardener are gone now, along with a weatherman who made more than a quarter million dollars a year, as Chesapeake Energy Corp CEO Doug Lawler chops away at the high costs left behind by his free-spending predecessor, Aubrey McClendon.

Chesapeake Energy Corporation's 50 acre campus is seen in Oklahoma City, Oklahoma, on April 17, 2012. REUTERS/Steve Sisney

If McClendon was known for lavish spending on perks for employees and his voracious appetite for acquiring oil and gas properties in U.S. shale basins, Lawler is building a reputation for focusing the country’s No. 2 producer of natural gas on its core business.

“You had too much land and you had too many people,” said a source close to the company’s board of directors. “Those things had to be fixed.”

The company has cut 1,200 jobs so far this year, or 10 percent of its workforce, and its stock price has risen by 20 percent since Lawler took over. On Tuesday, it said it cut 800 of those jobs, with more than 600 at its Oklahoma City campus.

Lawler’s broad review that aims to shrink the oil and gas company was scheduled to end by November 1.

Chesapeake has sold about $4 billion in assets this year in addition to trimming jobs.

Internal records seen by Reuters show that the company’s payroll in 2012 included a meteorologist who made $350,000 in salary, three chaplains, seven chefs, two company archivists, a fitness center staff of 15 people and a gardener, along with the hundreds of geologists and petroleum engineers normally needed to run an oil and gas business.

A company chaplain reached at home said he no longer works for Chesapeake. No one answers the phone at the Chicago office for Chesapeake Weather and its website has been taken down.

McClendon, who started Chesapeake in 1989 with a friend, left in April after clashes over spending with the company’s board and a series of Reuters investigations led to civil and criminal probes of the company.

An internal investigation has cleared McClendon of any intentional wrongdoing.

The reductions are aimed at putting the company back on solid financial footing after McClendon’s lavish spending.

Anything not directly related to the exploration and production business is a target for cutting, the source close to the company’s board said.

Earlier this year, more than 200 workers took voluntary buyouts, and about 90 employees from departments including land, human resources and operating services were laid off last month, according to a company email.

Investor relations executive Jeff Mobley told Deutsche Bank investors last week there was a “tremendous opportunity to reduce our income statement costs,” noting that the size of the oil and gas unit’s workforce was meant to support 175 drilling rigs, nearly three times the number now running.

Chesapeake will also tie compensation more closely to performance than in the past, Mobley said.

Lawler has believers on Wall Street. The stock is trading around its highest level in nearly two years. It closed on Tuesday off 0.8 percent at $26.05.

The rally has been driven in part by a bull market for exploration and production companies, but also by investors believing Lawler’s mantra on efficiencies and cost reduction, said Tim Rezvan, analyst at Sterne Agee.

“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,” Rezvan said.


McClendon spared little expense to build a sprawling 120-acre red-brick Georgian-style campus that includes a 72,000-square-foot fitness center with an Olympic sized swimming pool, five restaurants and a community garden.

Payroll for fitness center employees, a gardener and the chaplains and the company historians alone totaled more than $1 million in 2012, according to internal records.

The luxurious campus was needed to lure workers to landlocked Oklahoma City and retain them in a tight labor market, the company has said. Others disagree.

“I’ve never seen anything quite like they had over there at Chesapeake,” said the source close to the company’s board. “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.”

Even Joe McClendon, Aubrey McClendon’s father and a former energy executive, had a job at Chesapeake when his son was CEO. Internal records from 2012 show he worked a few hours a week on “special projects” and reported directly to his son.

A spokesman for Chesapeake declined to say whether the elder McClendon still works for the company and he could not be reached for comment. He earned a nominal salary of $2,500 a year.

Additional reporting by Terry Wade; Editing by Frank McGurty and Grant McCool