How do you make $100,000? First, you get $1 million ... It may be an old joke, but that's exactly what happened to Aubrey McClendon, according to a speech the chairman of Chesapeake Energy Corp. delivered earlier this month in Las Vegas. The surprising part was where he made his failed investment. It was with Boone Pickens' hedge fund, which in recent years has been wildly successful with its energy plays. "He allowed me to invest a million dollars with him one time in the late 1990s, and within six months, he had lost 90 percent of it,” McClendon said during his speech to the Alternative Fuels & Vehicles National Conference. "I thought, ‘Well, I could do that,'” McClendon said. "So I asked for the money back, and he gave it back. I think he's up like 250-fold on top of that $100,000.” It's a reminder that how smart you seem in the financial world often is dependent on what you've done lately. McClendon's billionaire status is a fairly recent phenomenon, and the late 1990s was not always a stellar period for his Oklahoma City company. In fact, in February 1999, a Chesapeake share could be bought for just 75 cents. In 1997, in the midst of posting a nine-figure annual loss, disappointing drilling results and shareholder lawsuits, McClendon pledged to sell the company he co-founded if he couldn't turn it around. "We do not anticipate nor will we tolerate continued erosion in the value of this company. We will sell the company before we will allow that to occur,” he said in August 1997. Nevertheless, things didn't get better for a while. Oil and gas prices dropped dramatically in 1998, forcing Chesapeake to take write-downs in the value of its properties, contributing to a net loss for the year of $934 million. At mid-1998, Chesapeake's board authorized management to explore alternatives for the company, including the potential for a sale or merger. Chesapeake now is the third-largest producer of natural gas in the U.S., and McClendon said he expects his company will become No. 1 by year's end.Comments
‘My single mission in life'Meanwhile, Pickens' BP Capital fund has posted impressive returns in recent years, although Pickens admits he and his team lost money when they "tried to get clever” in the first quarter of this year and bet on oil prices to decline. The fund currently owns no Chesapeake shares. McClendon said a public perception has developed that we're running out of natural gas, and that has excluded natural gas from the energy debate. That's a problem for Chesapeake, which generates the lion's share of its revenue through natural gas production. "My single mission in life these days is to say that that's wrong — to prove that that's wrong,” McClendon said. Toward that end, McClendon has spent a lot of money, time and effort to promote natural gas, which he claims will help "liberate ourselves from having to export these hundreds of billions of dollars per year.” Although the results of some McClendon investments (i.e., Seattle SuperSonics) remain unclear, he's certainly been on a winning streak.