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Chesapeake's New Boss An Anadarko Veteran

Robert Douglas Lawler, 46, one of Anadarko Petroleum Corp.'s top exploration and production (E&P) executives, last week was tapped to be CEO and president of Chesapeake Energy Corp.

Lawler, who is joining company on June 17, would be only the second CEO ever to lead Chesapeake, following the departure in April of co-founder and charismatic leader Aubrey McClendon.

The incoming chief now helms Anadarko's International and Deepwater operations, but he previously directed operations from March 2009 to July 2012 in the Marcellus, Haynesville and Eagle Ford shales, the Permian Basin's Bone Spring/Avalon plays, as well as in the Rocky Mountains, including the Niobrara formation of the Denver Julesburg Basin and Colorado's Greater Wattenberg Field. From August 2008 to March 2009 Lawler was vice president of Anadarko's corporate planning. Lawler began his career with Kerr-McGee in 1988.

Lawler brings with him a solid background in onshore operations because nearly all of Anadarko's drilling today is in the Lower 48 states, where 42 operated rigs were running from January through March, the same level as at the end of 2012 (see NGI, May 13).

A petroleum engineer by trade, Lawler is a Colorado School of Mines graduate who began his career with Kerr-McGee Corp. in 1988, which Anadarko acquired in 2006. He also holds a masters degree in business administration from Rice University. Lawler last year was elected to Anadarko's executive committee and the board. With his move to Chesapeake, he is relocating with his family from Anadarko headquarters in The Woodlands, near Houston, to Oklahoma City. Lawler said he saw "significant value in Chesapeake's asset base, and the growth potential of the company is tremendous."

Lawler is to receive a compensation package that in total is worth about $22 million -- more on its face than McClendon earned in 2012. The initial contract is to run three years, with automatic one-year renewals unless either party is notified about not renewing it. Lawler is to receive a base salary of $1.25 million (McClendon received a a base salary of $975,000 in 2012). Lawler also would be eligible for an annual cash bonus that for this year would be prorated, "but will be at least $800,000." He also would be eligible for annual equity compensation (stock/equity) awards worth $10.5 million, consisting of 50% stock options and 50% performance share units, each vesting in equal installments over three years, which are consistent with other executive managers.

Because Lawler is forfeiting unvested stock/equity awards at Anadarko, he also is receiving a cash signing bonus of $2 million, which would be repayable if the employment is terminated for cause or if he resigns without good reason before March 31. In addition, he would be granted $2.5 million in restricted stocks vesting in equal installments on his second, third and fourth anniversaries.

Lawler has an "ideal skill set" to lead Chesapeake, said nonexecutive Chairman Archie Dunham. "Throughout his 25 years in the upstream E&P industry, Doug has earned a reputation as a highly engaged and knowledgeable leader who delivers superior operational performance and capital efficiency. The board is confident that Doug's deep technical upstream and engineering expertise, as well as his strategic and financial skills, will serve Chesapeake well."

Since McClendon's departure, Chesapeake has been run by an Office of the Chairman, which includes Dunham, COO Steve Dixon, who has been interim CEO, as well as CFO Nick Del'Osso. The office is to be disbanded once Lawler is aboard, and executives will return to their former roles.

"The company did not miss a beat during this interim period, and their effective collaboration reflects their strong leadership skills and teamwork ethic," said Dunham. "Steve, Nick, and the rest of the executive group, under Doug's leadership, will form a highly talented and experienced management team that will lead Chesapeake into its next phase of success and prosperity."

Anadarko and Chesapeake are competitors in the U.S. onshore, in particular in the Marcellus, Haynesville, Eagle Ford and in the Rockies, and their management teams have worked together frequently to help develop projects. Among other things they were founding participants in the industry-led Marcellus Shale Coalition. Until Chesapeake sold its midstream arm, it jointly owned with Anadarko, among others, Appalachian Midstream Services LLP to serve Marcellus operators (see NGI, Shale Daily, Jan. 3, 2012). Anadarko affiliate Western Gas Partners LP also has done deals with Chesapeake in the Marcellus (see Shale Daily, March 1).

Energy analysts are hopeful that Lawler will bring stability to the cash-strapped, but asset-rich, company. It's the second largest U.S. gas producer, trailing only ExxonMobil Corp., but Chesapeake carries about $13.5 billion in debt, little changed over the past two years even after pledges by management to reduce it by 25%.

Lawler is not a well-known industry player, according to energy analysts contacted by NGI. However, Anadarko's "good reputation with the Street," and Lawler's obvious success in the U.S. onshore during his tenure is a "positive" for Chesapeake, said RBC Capital's Scott Hanold.

Lawler "is coming into a company that has serious challenges...It's a minefield that he has to navigate through, but he's very experienced, and I feel he will live up to the challenge," said Oppenheimer's Fadel Gheit.

"We're hopeful that Doug will improve capital discipline and allocation decisions," a "core strength" for Anadarko, noted Tudor, Pickering, Holt & Co. "That said, we believe there is a substantial wall to climb given the balance sheet leverage and need to materially sell assets into a weak asset and divestiture market."

The first read-through on the news "might raise some question marks given Mr. Lawler's current focus on International and Deepwater (Chesapeake has neither), but Mr. Lawler has a diverse management background, which includes a tour managing Anadarko's domestic Southern and Appalachia operations (including the Eagle Ford when it first started to ramp as well as the Marcellus)," said Wells Fargo analysts.

"We think the hire should be well received by the market as Mr. Lawler is a well-respected, rising executive from a highly respected U.S. E&P, but also because the hire should begin to turn the page on the Aubrey McClendon saga that has consumed the story for the past year."

Lawler "is tasked with driving growth for Chesapeake and demonstrating the value of the company's major asset base," said the Wells Fargo analysts. "Bottom line is we believe this is a good hire...For Anadarko, the loss of Mr. Lawler is sure to sting, but we believe the company has a very deep bench of executives who are highly capable of stepping in to fill the void."

Meanwhile, McClendon will continue to be part of Chesapeake's business, if only as an investor. Under a contract, he is entitled to participate in all wells the company develops through mid-2014 and he may earn up to 2.5% in the well proceeds. In addition, McClendon has the right to buy property adjacent to Chesapeake holdings, as long as the company is given an option to meet the same terms in any purchase agreement (see NGI, April 29).

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