Capitol Hill Blue Forums Political Issues Finance, the economy & Economics How will the financial crisis develop?

“Chesapeake has valuable assets, but they have a financial dynamic that only works in the fourth dimension: they need $12 billion when their cash flow is just $2 billion.”

Chesapeake has outspent its cash flow every year for the past decade — forging ahead with acquisitions of land and drilling more wells than any operator — convinced that it will be able to find others to finance its growth. The strategy worked pretty well, as McClendon and long-time friends like Ralph Eads, chairman of Jefferies & Co. (and former head of energy trading at El Paso) lined up willing buyers among foreign governments and orchestrated a string of off-balance-sheet vehicles like the Volumetric Production Payments. McClendon has been able to make Chesapeake’s ends meet, because, as Olson says, he can rely on Greater Fool Theory. “All it takes is one buyer.”