Chesapeake Energy Corp. (CHK), the second-largest U.S. natural-gas producer, fell after a news report that Chairman and Chief Executive Officer Aubrey McClendon used his stakes in company wells as collateral to finance his share of the well costs.
Chesapeake fell 5.5 percent to $18.06 at the close in New York. Earlier, shares declined as much as 10 percent to $17.17, the lowest intraday since March 31, 2009. Before today, shares of Oklahoma City-based Chesapeake had fallen 14 percent this year.
McClendon has borrowed as much as $1.1 billion during the past three years to pay for his share of well costs, using his well stakes as collateral, Reuters reported today, citing loan documents. The arrangements may compromise his duty to shareholders, Reuters said, citing interviews with academics, analysts, and attorneys.
“We do not believe any conflicts of interest exist but if any arise there are numerous mechanisms to counteract any such conflict,” Chesapeake General Counsel Henry J. Hood said in a statement e-mailed today by the company. The arrangement “effectively aligns Mr. McClendon’s interests with the interests of Chesapeake’s shareholders,” Hood wrote.
McClendon didn’t address, nor was he asked by analysts and investors, about the loans today during a public appearance at an Independent Petroleum Association of America conference in New York. He attributed the decline in Chesapeake’s share price to the “gravitational pull” of U.S. natural-gas prices. The heating and power plant fuel is trading near a 10-year low amid a supply glut after Chesapeake and others increased output.
2009 Compensation Agreement
McClendon’s option to take a 2.5 percent stake in all wells Chesapeake drills each year was included in a 2009 compensation agreement executed with the company after he was forced to sell substantially all his shares to cover losses in the 2008 stock market crash. It disclosed the agreement in January 2009.
McClendon has been mortgaging his stake in West Virginia oil & gas leases with lenders including EIG Global Energy Partners, the Pittsburgh Post-Gazette reported March 25.
“Chesapeake is not required to monitor, obtain or disclose personal financial information with respect to its officers and directors,” Hood wrote.
McClendon and Chesapeake settled a pension-fund lawsuit over his compensation in November. McClendon pledged “more transparent” pay arrangements June 10, after more than a third of shareholders refused to endorse the company’s executive compensation plan.
Exxon Mobil Corp. is the largest producer of U.S. natural gas, according to data compiled by Bloomberg.
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