NOTE: I published this post before the news of Aubrey McClendon's tragic demise. I first met him when he had first started Chesapeake, and officed in one of the original buildings in the office park that would eventually become the Chesapeake campus. His ledger in improving the lives of tens, maybe hundreds of thousands of others in very meaningful ways is indisputable. He was the most important oilman (or, as he would have preferred, gasman) of this generation.

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I read the following on Bloomberg this morning about Aubrey McClendon's indictment for allegedly fixing a mineral lease auction on Oklahoma.

Chesapeake Founder McClendon Indicted Over Lease Bid Rigging

I nearly blew the coffee out my nose.

Aubrey McClendon... indicted for keeping lease costs down. What delicious irony. All this time, I (and tens of thousands of other oil people) credited Mr. McClendon with increasing the normal price of leasing minerals by 10-100 times or more what they had ever been historically... the man responsible for the most massive transfer of wealth via wildly inflated lease bonuses to US mineral owners in the history of mankind. In a purely rational world, St. Aubrey in Mineral Owner Heaven, if not in the world of those that competed against him.

How did this happen? Prior to McClendon's spectacular entrance into the world of unconventional hydrocarbons, the price of oil and gas leases ranged from a buck an acre to a hundred, $250 if it was a lay down guaranteed oil or gas well. As the Barnett Shale Play unfolded, the concept that EVERY acre was productive began to blossom, and soon, $500 an acre, which only a short time before seemed outrageous, was now the new norm.

Chesapeake was the very first company to recognize the Unconventional Revolution as a land grab, and that IF every location was drillable, a case could be made for making a step change value redetermination for what they could pay for leasing those minerals; a step change that would create massive barriers to entry by inflating the price of acreage until the ability to put together sizeable blocks was available only to the very best capitalized or those able to raise massive amounts of capital. Enter Chesapeake and Aubrey McClendon. Raising massive amounts of capital is at the very core of McClendon's sweetspot... happily coupled to his ability to flip his deals for outsize returns to hungry, typically non American, buyers...

Soon, every farmer with 160 acres of minerals in Oklahoma went from being able to buy a new pickup truck every few years to being able to buy their very own Caribbean island, due, in large part, to Chesapeake and Aubrey McClendon.

I still remember when Chesapeake exited the Barnett Shale play for the Haynesville. They had literally hundreds or thousands of bank drafts in the hands of mineral owners who had not yet executed their leases... holding out for just a bit more. Chesapeake made the suprise announcment that they were done in the Barnett. Any unsigned lease would not be honored; their bank drafts worthless. They would honor those that had been signed to that date, and had set up a meeting at a local church to get the paperwork finalized for those lucky few that had signed. Several hundred holdouts and their lawyers showed up at that meeting screaming to be included, to no avail. The price of acreage in the Barnett never recovered. More than a few attorneys were exposed for providing bad business advice without a license, disguised as "legal advice". Uncomfortable conversations followed between attorney and mineral owner about why, exactly, had they been advised to turn down the lease offer. Fortunately, for these advisors, bad business advice ISN'T malpractice. No rules against that. If anyone doubts that Chesapeake was the principle driver of value in unconventionals, watch what happened when Chesapeake departed the plays they were in.

So, all my oilfield brethren... apparently we were wrong! He was keeping lease costs down! They better hope they don't get any old timer Oklahoma oilmen on that jury. That argument is not going to find many takers amongst those that have to eke a living from the special Hell that is leasing to those mineral owners who once tasted the ambrosia of $15,000 an acre minerals.

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