The rise and fall of Aubrey McClendon, the businessman who changed American energy forever

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Part 1 of Yahoo Finance’s Illegal Tender podcast about the life and death of Aubrey McClendon. Listen to the series here.

On the morning of March 2, 2016, a 2013 Chevy Tahoe slammed into the concrete wall on one side of a highway overpass in Oklahoma City at a very high speed. The driver wasn't wearing a seatbelt, and probably died instantly.

The driver's name was Aubrey McClendon, and he had been one of the country's most aggressive CEOs working in the oil and gas business. The day before the crash he had been charged by a federal grand jury with violating antitrust laws.

In 1989, McClendon had founded Chesapeake Energy Corporation (CHK) with Tom Ward, and the company took a new approach to the oil business that focused on acquiring as much territory as possible. After some promising innovation, McClendon thought that the industry could become automated.

Illegal Tender by Yahoo Finance is a podcast that goes inside mysteries in the business world. Listen to all of season one: Aubrey McClendon's life, death and fallen empire

Filling rooms and tanks

Using the techniques of horizontal drilling and hydraulic fracturing (or fracking), in addition to his experience as a land buyer for the oil industry — “no lease, no grease!” they used to say — McClendon had a vision for the future. But there was something special about McClendon that went far beyond the tech, something “magical,” Chesapeake’s former CFO Marc Rowland told Yahoo Finance.

Unlike other CEOs, McClendon played the game with his own money. It’s a tactic that propelled his company to incredible highs, and gave him an estimated net worth of more than $3 billion. In the words of a Forbes profile at the time, he was “America’s Most Reckless billionaire.”

A Duke grad with a reputation for having infinite charisma, McClendon talked his way into every investor’s heart — and got to their wallets. At industry conferences, according to Bethany McLean’s book, “Saudi America,” which chronicles the rise of fracking in the U.S., McClendon would fill rooms while Exxon execs would speak to empty seats.

The strategy worked and got Chesapeake a ton of money to burn — and it did. In a move that he termed the “Great American Land Grab,” McClendon went out and bought all the land he could, often overpaying significantly and earning him the reputation of a guy who played it fast and loose.

Making money from oil and gas, however, was an enormous problem. The company had even gone public in 1993 with a “going concern” risk from the accountants, meaning that it was not clear the company was going to survive. Generating cash flow from operations, free cash flow, would always be a problem for the fracking industry Chesapeake brought forth.

In the end McClendon rose, fell, rose again and fell again, ending with a violent death. Along the way, he ended up changing the entire American energy model by showing the world that natural gas was plentiful and that the U.S. had an enormous tons of oil and gas below its surface.

Illegal Tender by Yahoo Finance is a podcast that goes inside mysteries in the business world. Listen to all of season one: Aubrey McClendons life, death and fallen empire

Transcript below:

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Ethan Wolff-Mann: 00:04 On the morning of March 2nd, 2016, a 2013 Chevy Tahoe slammed into the concrete wall on one side of a highway overpass at a very high speed. The driver wasn't wearing a seatbelt, and probably died instantly. The driver's name was Aubrey McClendon, and he had been one of the country's most aggressive CEOs working in the oil and gas business. And the day before he had been indicted by the Department of Justice.

The crash was the end of McClendon's life. A life that was complicated, mythological and tragic. But it also may have marked the end of something else, or the beginning of the end. This is Illegal Tender, Season One. My name is Ethan Wolff-Mann.

Every generation has an unexpected financial event that erupts and affects everything in a way that always seems to take everybody by surprise. Think of the dot-com bubble, or the great recession caused by the housing crash and bad mortgages. You never really know until it happens because hindsight's 2020, but some people think that fracking could be one-time bomb that's ticking right now. The business model's success is still murky and how or if or when this will ever become profitable is still a gigantic question mark, despite billions and billions of dollars that continue to be invested into the industry. Here's what the business model looks like right now.

Imagine there's a little kid named Taylor and she's 10 years old and is looking to make some money. She looks in the fridge and sees four fancy bottles of lemonade. She sets up shop outside and prices to sell at a quarter for a glass. She moves the four bottles quickly and make $6. The next day, Taylor asks her parents to buy more lemonade. "Sure," they say. "I think it's still $12 for a four-pack." Parents are happy to invest $12 on lemonade for the kids, even if it's not going to make them any money. But what if parents were actually real investors? Do you think they'd invest in that lemonade stand? Not a chance, unless you're really good at selling like Aubrey McClendon.

First of all, what is fracking? Question for you [random person]. What's fracking?

Random person 1: 02:27 Fracking?

EWM: 02:28 What's fracking?

Random person 2: 02:29 What?

EWM: 02:31 What's fracking? Do you know what fracking is?

Random person 3: 02:32 No. Is this a podcast on the spot?

EWM: 02:38 Yeah.

Random person 3: 02:38 Shoot. Am I supposed to know?

EWM: 02:39 No. You did such a good job. One more time, what's fracking?

EWM: I don't know.

EWM: 02:43 So nobody seems to know what fracking actually is past the fact that there's environmental concerns. Fortunately we have some help from someone who literally wrote the book on fracking and its business model.

Bethany McLean: 02:54 ... Hydraulic fracturing where you inject this mixture of water and chemicals and sand at high pressure into these cracks. You can get oil and gas from parts of the earth that never yielded it before. One-

EWM: 03:08 This is Bethany McLean. She's written a bunch of books on businesses behaving badly and going very wrong. She co-wrote The Smartest Guys in the Room about Enron, All The Devils Are Here about the financial crisis, and her latest book, Saudi America dives into the shaky bedrock of America's oil boom.

BM: 03:25 One fracking entrepreneur actually likened it to me as what would happen if you had a hotel filled with people, and you sealed all the exits and said, "Get out!" And you know, things would find their way out through various ways, and so that's the analogy.

Illegal Tender by Yahoo Finance is a podcast that goes inside mysteries in the business world. Listen to all of season one: Aubrey McClendons life, death and fallen empire

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EWM: 03:40 Bethany has a theory about why we don't even understand what fracking is.

BM: 03:43 We live in a world where we're disconnected from it, no pun intended, and we don't think when we plug in our iPhones and use our beautiful clean devices that that's a direct result of energy production. And so there was, even as fracking was growing up and changing the world and arguably having a much bigger impact on our world than the latest dry cleaning app to come out of Silicon Valley, there was a shocking lack of interest in it, I thought. Even environmentally, and most of the coverage was environmental.

But I think it's just because we are so ... and I don't mean all Americans, certainly Texans aren't, but so many of us are just so disconnected from the sources of the energy that we use every day that we feel like we can poo-poo it or disregard it or it's not critical to us and we just don't realize how incredibly critical it's still is. Everybody believes that fracking is this thing that has propelled America back into the forefront of global energy producers, but the thing is the industry doesn't make any money. It's actually quite-

EWM: 04:45 This shaky foundation was poured by a young oil upstart named Aubrey McClendon. In the oil world, most of the big shots are geologists and engineers, but McClendon was another type of oil guy. He was a landman.

BM: 04:59 It's kind of an old school concept. It's the person who would go around and convince people to lease their land to oil and gas companies so that the oil and gas company could drill on their land and extract the minerals from it. You know, that was not a glamorous profession back then. Going around to small towns in Oklahoma and trying to convince people to lease their land to you. I mean, this is not investment banking on Wall Street in the 1980s, right. This is an entirely grungier business.

EWM: 05:33 McClendon came from a family with serious connections to the oil business. His great-uncle was a senator in Oklahoma, a governor who co-founded a massive oil company called Kerr-McGee. Aubrey was extremely popular growing up and was the president and co-valedictorian in high school. And of course he went to Duke. Some of the people Bethany talked to for her book said that he was the kind of guy who would wrestle after a few drinks and get a little out of control. He threw elbows playing basketball. He was aggressive, but he was really charismatic.

BM: 06:00 He was incredibly popular.

Mark Rowland: 06:06 Well, he was magical. He had his faults, like we all do. He'd sometimes get kind of over skis a bit, as he would say, or have a few bugs on his windshield was another one of those sayings. But you know, many of the people that have been successful have been the same way.

EWM: 06:23 That's Mark Rowland. He was Aubrey McClendon's CFO at Chesapeake and worked alongside him for years, finding evermore creative ways to raise money in order to finance Chesapeake's expensive operations.

So we have this popular jock guy who was born into oil royalty, who also happens to be very smart. When Aubrey graduated from Duke in 1981, McClendon thought he saw an opportunity in bundling up the rights from landowners and selling them to bigger corporations. This gets to the key point about why fracking has spread in the US but not elsewhere.

BM: 06:57 Because in America we own the mineral rights under our land. So a lot of people in America have made a lot of money from leasing their land to oil and gas companies who have then drilled on them. Aubrey was the guy who went around and convinced people like you and me to lease their land in exchange for payments.

EWM: 07:14 Aubrey was very, very good at this, and would become even better over the years. In the beginning, Aubrey used to compete a lot for rights with this guy named Tom Ward.

BM: 07:24 They'd started out kept running into each other and realized they were competing with each other and decided that it made more sense to combine. But for a lot of years, no one had heard of Chesapeake.

EWM: 07:36 Chesapeake was the company they created named after the Bay in Virginia, which had sentimental value. Neither McClendon nor Ward were technological pioneers, but in the early 1990s they worked very hard to sell their vision, that land trumped all else.

MR: 07:50 Yeah, I think you accurately described starting with $25 and a typewriter is an early landman, but he would work 24 hours a day. He and Tom Ward both had day beds that they pulled out of the wall in their offices and you could count on getting emails from them at 2:00 or 3:00 or 4:00 in the morning.

EWM: 08:15 Eventually they caught a break, or rather, McClendon manufactured one by getting Bear Stearns to help them sell high yield debt. This would be the start of the Chesapeake land buying machine, which required a shockingly high amount of money to keep it going. As landmen, McClendon and Ward had an almost singular focus on capturing territory. Rowland, Chesapeake's CFO puts it best.

MR: 08:38 His early saying was, "If you don't have a lease, you don't get the grease."

EWM: 08:45 A few years later, as the company got off the ground, on the 12th of February 1993, Chesapeake and Aubrey went public, though the company wasn't yet making any money.

BM: 08:55 Chesapeake was so financially shaky when it went public that its auditors insisted that it put a going concern warning and its financial statements. And a going concern warning is essentially, "Hey guys, we might not make it. There's nothing here." So to be able to pull off that IPO was really extraordinary. I think Aubrey was already a spectacular salesman even then because it's an oil and gas company in an era where nobody cared about oil and gas companies, and it doesn't make any money. There's not much to it, but somehow Aubrey is still able to take this company public. And then he pulls off the second miracle, which is to convince investors to start buying his stock.

EWM: 09:39 The reason why the stock shot up was because of this area between Texas and Louisiana called the Austin Chalk.

BM: 09:46 Texas Monthly had once called it the most perverse, contrary, incorrigibly oil field known to mankind.

EWM: 09:53 Around that time, another company, it had some results that were promising with horizontal drilling. A pretty new technology at that time because most wells are vertical. Hypnotized by the hype, Aubrey went all in and leased over a million acres in the Austin Chalk.

BM: 10:09 And Aubrey basically lashes onto that and says, "We too are in the Austin Chalk and this is going to be the best thing ever."

MR: 10:18 Austin Chalk drilling didn't require fracturing because it had natural fractures, but it did require horizontal drilling to maximize the encounter of the fractures that were naturally existing.

EWM: 10:30 Chesapeake's stocks soared as the hype grew, as the company pumped out evermore glowing press releases that trumpeted how incredibly amazing these wells were. McClendon, the landman, who had tried to disrupt the oil and gas industry had a very different pitch than the typical Wall Street oil play. The new technologies meant that producing oil was no longer the old wildcatting game of striking it rich with black gold, but rather was now an on and off switch, like a manufacturing business.

Illegal Tender by Yahoo Finance is a podcast that goes inside mysteries in the business world. Listen to all of season one: Aubrey McClendons life, death and fallen empire

BM: 10:59 What's tricky about geology and is still a big question hovering over fracking today, is that geology can be really different even a mile away. So just because you've drilled a great well in the Austin Chalk, if you drill another well a mile away in the Austin talk, that could be a very different well. You can't stamp these things out. The earth doesn't work that way. Right?

EWM: 11:22 As Chesapeake and McClendon's star grew, the naysayers got louder wondering how this could possibly work. And they were right. And in 1997 Chesapeake announced that much of the Austin Chalk had been a bust.

BM: 11:38 In the spring of '97, Chesapeake has to announce that most of this land its acquired is actually not productive. They have to wipe out a lot of the earnings they've previously announced. Actually ends up wiping out all the profit they had declared in the previous three years and the stock plummets.

EWM: 11:53 This collided with the Asian financial crisis, and over the next year, the stock plunged so far that it was worth less than a dollar.

MR: 12:02 We went back down to 75 cents in 1999.

EWM: 12:05 During this time, Aubrey didn't blink. Though he later called it the worst period of his career, he kept the chips on the table.

BM: 12:14 The short sellers turned out to be right and the stock plunged and Chesapeake almost went bankrupt, and that was the first one.

EWM: 12:22 It wouldn't be the last. |In the late 90s, Chesapeake Energy was in the pits and struggling. It had gone from about a dollar a share to almost $27 before collapsing back down to around 75 cents a share as its bets just didn't pan out. The company was not doing well. But Aubrey McClendon was not the type of person to flinch. He was the type of person to push all of his chips into the middle, and roll the dice.

The Austin Chalk fiasco made Chesapeake's stock chart look like Mount Everest, both sides. In a pinch, and feeling about as low as the stock price, McClendon took a breath and made his pitch to investors to stake himself for the game of chance. "Simply put," he wrote in the 1998 annual report, "Low prices cure low prices as consumers are motivated to consume more and producers are compelled to produce less."

BM: 13:25 You might think investors would say once burned twice shy, on McClendon. Once bitten, twice shy, is the saying. But they don't. They give him more money. He goes off and he buys more land. He essentially makes this giant bet that gas prices are going to rise and that he's going to be able to sell gas for more money than the land that he's buying, and it works. He gets away with it and he survives.

EWM: 13:47 Essentially, McClendon and Chesapeake were saved by rising gas prices.

BM: 13:53 So prices in any commodity business are the be-all and end-all. They're life and death.

EWM:13:58 If you put in $50 to get oil or gas out of the ground, you better make sure you get more than that $50 for it, if you want to be profitable. Since gas prices went up, Aubrey and Chesapeake were able to immediately make more money that cut them the slack that they needed to survive. Around this time, something else interesting was happening in the energy business. A Texan named George Mitchell and pioneered a new way of drilling that combined horizontal drilling with fracturing rock by injecting large quantities of sand and water at high pressures. Once the sand grains or other material called proppant was in the fractures, it essentially held together the crack open long enough for the gas to escape.

Mitchell had done this drilling in an area called the Barnett Shale, which is in Texas. McClendon and Chesapeake had this remarkable stroke of luck. During their crazy Hail Mary of purchasing as much land as possible in order to get out of their jam, McClendon and Chesapeake actually inadvertently acquired a solid chunk of land in the Barnett Shale.

Illegal Tender by Yahoo Finance is a podcast that goes inside mysteries in the business world. Listen to all of season one: Aubrey McClendons life, death and fallen empire

BM: 14:59 Yes. He gets lucky. So he ends up buying this company called Canaan Energy, and the deal's a little difficult to get done so they toss in these 7,000 acres in an area called the Barnett Shale, just sort of as a sweetener to help justify the price tag.

EWM: 15:14 The initial fracking was wildly successful, and Aubrey once again decides he is all in.

BM: 15:21 Aubrey is a fast follower and Chesapeake starts rushing just to snap up as many acres as it can. And so suddenly, this is the beginning of the really golden age of fracking for natural gas.

EWM: 15:33 This is the great American land grab.

BM: 15:35 This is the great American land grab, yeah.

EWM: 15:38 The great American land grab, as Aubrey called it, was absolutely enormous. He tried to get as much as he could, as fast as he could, and deployed an army to do so.

BM: 15:48 Once people figured out that fracking was a thing, well if you could frack anywhere, then the more land you could have and the more you could frack. So the entire thing became, for a period of time, this race to just lease as much land as you possibly can. That appeared to be the way to win. And Aubrey was the ultimate king at playing that game.

MR: 16:08 Yeah. He was proud of it.

EWM: 16:11 That's Mark Rowland, whose job it was to raise the money needed for Aubrey to seize as much land as possible. He was Chesapeake's CFO and he had to work hard to keep up with McClendon's spending spree.

MR: 16:22 You know, because he said, look, and we ran the math all the time and one of the early factors when we were buying stuff, that might have been 500 or a $1,000 an acre. And for the 50 years preceding that, standard lease $50 in an eighth, or a $100 in an eighth and none of the traditional land guys could get over the fact that we would bid $500.

BM: 16:49 This person who is so driven to build something, he once says when an analyst asks him on a conference call how much is enough? And he says, "I can't get enough."

Illegal Tender by Yahoo Finance is a podcast that goes inside mysteries in the business world. Listen to all of season one: Aubrey McClendons life, death and fallen empire

MR: 17:03 We were out of our minds. We were crazy, blah, blah, blah. But if you ran the math, the little bit of acreage dollars didn't matter at all compared to the wealth that you were accumulating by having the rights for the oil and gas. But you're right, he bragged about that regularly and so the lessors loved to see Aubrey coming. You know, he was the reverse of what the government was saying. They weren't detracting from the economic value. He was adding to it.

BM: 17:32 By the end of 2004, from 1994 to 2004, Chesapeake spends around $6 billion acquiring properties and companies and leases. Over the next four years until 2008 they spend another 21.5 billion. So almost $25 billion over these years acquiring land, acquiring companies, acquiring leases. That's just one company, $25 billion.

EWM: 17:56 Where did this money all come from, exactly?

BM: 17:58 So it came from money Chesapeake raised from Wall Street, from investors. And this is the ultimate testament to Aubrey's salesmanship. Between 2001 and 2012 Chesapeake sold 15 billion of debt and 16 billion of stock, and that's basically just through convincing investors that you want to believe in my store. You want to believe in my company. And then he did all these other deals to raise money in more subterranean ways. And I think he raises like another $30 billion that way. So he just raises these immense sums of capital that he can use then to go buy land. Go buy a toy.

If you had more access to capital than the next guy did, then you had a better chance at getting the deal. Then the next person did. But Chesapeake just deployed an army, what came to be an army of little McClendons of landmen who just were the first and the most aggressive and paid more than anybody else and just ran around and gobbled everything up. And it's why even today, McClendon's got a mixed reputation in the industry. Some people admire him, some are skeptical, and some think he's out-and-out a fraudster and resent him. And they resent him for making things more unaffordable because he got there first, he paid more than anybody else and that has the effect of driving up prices for everybody else.

EWM: 19:23 All of this overpaying had this massive destabilizing effect on the entire industry.

BM: 19:28 So one old time oil man gave me an example. He said that Chesapeake came out to Texas at a time when land was leasing for around 200 to $300 an acre, and all of a sudden Chesapeake was paying 2,000 to $3,000 an acre. And this guy said to me, "They got in some good places because they shut everyone else out." Their attitude was, "We are Chesapeake. Get out of our way." And then another guy I spoke to said his aggressive style ruffled some feathers in the industry. He went after new players guns blazing, and drove up the prices. That made some people millionaires, but it wreaks havoc on others.

EWM: 20:02 The crazy thing was, amidst all these, it didn't really matter how profitable the wells were.

BM: 20:07 The way primarily, and it's one reason that this industry has survived and thrived and been able to raise capitalists, that until very recently, all these companies and Chesapeake really set the tone for this, were valued not on profits, not on free cashflow, but rather on how much natural gas or oil they were producing. So the idea was just grow your production. And as long as you're producing a lot of oil and natural gas, we will be willing to believe that the profits are going to come. It's no different than Silicon Valley, where we say, "Look at Uber, look at how fast it's growing. Who cares that it's not making money? The fast growth is what we're going to pay for." And that was the Shale story too.

Illegal Tender by Yahoo Finance is a podcast that goes inside mysteries in the business world. Listen to all of season one: Aubrey McClendons life, death and fallen empire

EWM: 20:47 With all this money, McClendon didn't just spend it on the business. He spent it on, well, everything. And that was fine because Wall Street just didn't care.

BM: 20:56 Well, Wall Street is the middleman. Two answers, that Wall Street is a middleman so they are sitting between Chesapeake and the ultimate buyers of the debt and the equity. And so once Wall Street has extracted its fees, they don't really care. And Wall Street extracted a huge amount of fees from Chesapeake. I calculated that Chesapeake paid Wall Street over $1 billion in fees during those years. So Wall Street loves the companies that are big fee payers, not necessarily the companies that are the most profitable or the best run.

EWM: 21:28 At this time, Aubrey himself was doing very well.

BM: 21:32 It actually hits over $65 a share in the summer of 2008. This gives Chesapeake a market value of more than $35 billion and McClendon himself owned stock worth around $2 billion. He's on the Forbes 400 list as one of the wealthiest men in America.

EWM: 21:48 With the new found success that comes with having an incredibly high stock price, even if the profits aren't there, Aubrey was this big Oklahoma guy, who wanted to put Oklahoma City on the map in a big way. So he gets to work.

BM: 22:01 And it is crazy. I mean he wanted ... McClendon wanted Oklahoma City to be a great city as much as he wanted Chesapeake to be a great company, and so he goes crazy on investing in Oklahoma City too. He buys the Seattle Sonics and brings them to Oklahoma so they have the Oklahoma Thunder. The Chesapeake Campus rivals any Silicon Valley campus with its daycare and its restaurants and it's massage tables. It really is like a Silicon Valley company brought to Oklahoma City, and McClendon just, he doesn't do anything small, right? He's got this big grand picture for Chesapeake and this big grand picture for Oklahoma City.

EWM: 22:39 In short, Chesapeake's offices were wild.

BM: 22:43 I know there was a 63,000 square foot daycare center with room for 250 children.

EWM: 22:48 It went way deeper than just the Oklahoma City Thunder and Apple-esque HQ and chefs. According to Reuters reports, there was literally onsite Botox for some employees, and Aubrey himself went on his own spending spree.

BM: 23:02 He acquires the houses everywhere from Lake Michigan to, I think Bermuda or Barbados. He acquires this collection of antique boats, he acquires the antique maps. He becomes the largest wine collector in the country. He buys the Seattle Sonics.

EWM: 23:18 We'll get back to that map collection later, which eventually caused some major problems for McClendon. All of McClendon's spending, however, wasn't just coming from the cash that he was earning as CEO.

BM: 23:31 He's gotten this immense stake in Chesapeake, but instead of selling stock and using the proceeds to fund his lifestyle, he does a margin loan, like so many people do.

EWM: 23:42 In other words, McClendon wasn't just taking the money he had. He was doubling down on himself and borrowing more to invest more. He was leveraging everything in this big bet to live this lavish lifestyle. A Forbes profile called him "America's most reckless CEO." He loved the article, which painted him as this bon vivant genius, a man of access, but with a vision. He put it on the company's website.

Illegal Tender by Yahoo Finance is a podcast that goes inside mysteries in the business world. Listen to all of season one: Aubrey McClendons life, death and fallen empire

BM: 24:08 I think McClendon is just a collector, right? And he likes rare and unique things that other people don't have, so he becomes a collector of wine. And I'm told that for a while he was the biggest wine collector in the country based on the amount of money that he spends.

EWM: 24:24 During this time, Chesapeake employed thousands of people to snap up land around the country. Rowland and the finance team were constantly trying to figure out new innovative ways to get money to finance these Aubrey projects and his buying.

MR: 24:37 I think most people would say innovative. The second was the application of new financing techniques. We were the first one to do a non-investment grade high-yield deal. We did that in 1994. I raised over $100 billion of capital in numerous transactions. We did the first ever Euro denominated note for a company that didn't have any assets in Europe.

EWM: 25:08 There was also the amount of travel, which is just unbelievable to look at now. It seemed like a struggle to keep up for everybody.

MR: 25:15 Every year was like seven years of normal work. Some think on, we were the biggest customer of NetJets, and of course, I was on the road 90% of the time raising money for Aubrey's projects, so back and forth to New York, London, far East. I think when I left Aubrey he had 1,600 segments on NetJets at the time and I had 900 segments. We'd leave New York at 5:00 in the afternoon and fly to LA to start breakfast the next morning at 5:30 or 6:00.

EWM: 25:51 During this time, McClendon lived and breathed Chesapeake. Even though he had all this real estate, he was constantly on the road trying to buy up more for Chesapeake and to get more money.

MR: 26:02 He spent more time with me and I spent more time with him than we did with our families. His youngest son was born when we were on the IPO roadshow. I just remember saying, "Aren't you going to stop by and see Katie and the newborn?" He said, "You know, that stuff's way [crosstalk 00:26:17]."

EWM: 26:23 Through all of this, McClendon maintained a singular vision, to promote natural gas.

BM: 26:28 McClendon was a huge proselytizer for natural gas. And of course it was economically in his interest to believe in natural gas. But I think he really did. He's sort of secretly financed this whole movement against coal and then teamed up with environmentalists in order do this, to finance this idea that natural gas was so much cleaner than coal. And he actively worked against the building of more coal-fired power plants in favor of natural gas because once a plant gets built, it's locked in for decades. Right? So you lose that battle. You've lost a battle. So he would battle that relentlessly. He thought we should convert our entire transportation fleet to natural gas. I think he'd get angry if he'd see a Chesapeake's employee driving a car that wasn't running on natural gas. I mean, he was just a proselytizer that this was the way to a safer and cleaner energy future.

Illegal Tender by Yahoo Finance is a podcast that goes inside mysteries in the business world. Listen to all of season one: Aubrey McClendons life, death and fallen empire

I think he believed that really cheap natural gas could create a revolution in the usage of natural gas. So he was right. In some ways, carbon emissions have gone down in the United States pretty dramatically because coal-fired power plants have gone away in favor of gas-fired power plants only because natural gas is cheaper. Not because of any environmental move. And there's a lot of debate about whether natural gas is better for the environment than coal, but it is on the carbon emission friend. And so that, McClendon was right about that. He pushed really hard to transform our nation's transportation fleet into being natural gas-based. I actually think in many ways he was right about that. But his belief was if natural gas became cheap enough, then its use would spread like kudzu, and then that would make the price go up, because then there'd be more demand.

EWM: 28:15 But something happened, or rather, a few things happened. Aubrey's relentless promotion of natural gas had helped change an old truth, that it was scarce.

BM: 28:27 Up until the advent of fracking, we thought that there was a shortage of natural gas in the United States. There were congressional hearings just in the mid 1990s about how America was facing the shortage of natural gas. Fracking completely changed all of that. There's now a pretty widespread belief that we have enough natural gas to last us for hundreds of years.

EWM: 28:47 The high prices had also started to change the industry. With prices so high, and gas now this lucrative business, everybody wanted in.

BM: 28:57 So McClendon always used to say that low prices will cure low prices because if prices are low people are going to start using more natural gas. They're going to figure out more ways in which it can be used. And then that that increase in demand is going to make prices go up. But he forgot the other side of that maxim, which is that high prices also cure high prices. And so when in commodity markets, high prices encourage more producers to produce and then you get a surplus. And so this old oil man, this crusty old oil man, I'll never forget sitting with him in Midland, Texas. And he looked at me and he said about Aubrey, he was right. That Shale changed the world. He should've listened to himself.

EWM: 29:35 McClendon, having changed Chesapeake's success to energy prices, could do nothing as the market supply crushed the gas prices. He had expected them to last forever and to carry Chesapeake to success. This would be the beginning of the end.

Illegal Tender is made by Yahoo Finance at our studios in New York City. This episode was written and hosted by me, Ethan Wolff-Mann. This episode was mixed and edited by Dan Brantigan, who also contributed music. Illegal Tender is produced by Alex Sugg. Thank you to Bethany McClean for being a key contributor to this story. To learn more about Aubrey's story, get her book, Saudi America, wherever good books are sold. And if you enjoyed this podcast, head over to Apple podcasts and leave us a five star rating and review it for the show. Until next time, thank you for listening to Illegal Tender.

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