Pickens Shuns Chesapeake Stock For First Time Since 2008

T. Boone Pickens, the Texas billionaire who spent the past decade promoting U.S. natural gas as an alternative to Middle East oil, has walked away from the nation’s second-largest gas producer and the man he calls a friend as Chesapeake Energy Corp. (CHK)’s value dropped by a fourth.

Pickens’s sale of almost half a million Chesapeake shares in the past six weeks comes as the 83-year-old hedge-fund manager maintains his longstanding praise for Chesapeake’s “visionary” chief executive officer, Aubrey McClendon. The decision to unload his stake marks the first time Pickens hasn’t held shares in the company since 2008, according to data compiled by Bloomberg.

Both men, born in Oklahoma, have been vocal proponents of gas, joining forces to push for legislation to increase the fuel’s use and often entwining their business interests. Chesapeake last year agreed to invest $150 million in a Pickens company that builds natural-gas fueling stations.

“We got out of the natural-gas stocks and Chesapeake was one of them,” Pickens said on CNBC yesterday. Even after selling the shares, Pickens said people shouldn’t bet against McClendon despite potential conflicts of interest that have caused shares to plunge and triggered Internal Revenue Service and Securities & Exchange Commission probes.

Pickens began dumping Chesapeake shares during the first quarter, when his Dallas-based BP Capital Management LP fund sold 71,000 shares, or 12 percent of its stake, according to a May 15 filing. The remaining 499,055 shares were sold by May 10, when Pickens said he no longer owned any stock.

Buying Encana, Devon

Even as Pickens was trimming his Chesapeake holdings in the first three months of this year, he was accumulating stock in Encana Corp. (ECA) of Calgary and Oklahoma City-based Devon Energy Corp. (DVN), two of the largest North American gas producers.

Those stock selections may indicate Pickens’s abandonment of Chesapeake had more to do with McClendon’s entanglements than the outlook for gas prices, said Tim Rezvan, a New York-based analyst at Sterne Agee & Leach Inc. who has a neutral rating on Chesapeake.

“We know that EnCana and Devon are two of the biggest gas producers in the United States,” Rezvan said in a phone interview yesterday. “If you want exposure to gas but one of your biggest holdings has balance sheet and governance concerns, you’ll go look elsewhere for companies that don’t have those kinds of problems.”

‘Visionary’ CEO

Chesapeake, based in Oklahoma City, has tumbled 37 percent this year, the worst performance by an oil and gas producer in the Standard & Poor’s 500 Index. The shares, which fell 24 percent in the six weeks Pickens’s fund was selling the bulk of its stake, declined 4.2 percent to $14.04 in New York yesterday, the lowest closing price since March 2009.

Chesapeake’s board announced May 1 it will strip McClendon, who co-founded the company 23 years ago, of his chairmanship. The IRS, SEC and board are reviewing personal loans McClendon obtained using his stakes in company-operated wells, some of which involved borrowing from financiers that also did business with Chesapeake.

McClendon, 52, will remain CEO as the company seeks to sell $20.5 billion in assets this year and next to plug a cash-flow shortfall. Philip Weiss, a New York-based analyst for Argus Research, has estimated the funding gap may reach $16 billion by the end of 2013.

Bridge Loan

Chesapeake has borrowed $4 billion at 8.5 percent interest from Goldman Sachs Group Inc. (GS) and Jefferies Group Inc. (JEF) to tide it over until the company can raise cash by selling oilfields in Texas and a stake in some Oklahoma and Kansas prospects.

Chesapeake’s largest investor, Southeastern Asset Management, on May 7 said management should consider selling the company if the price is right. It urged Chesapeake to focus on operations rather than engaging in public relations and appearing at conferences with Wall Street analysts.

Jay Rosser, a spokesman for Pickens, didn’t respond to phone message yesterday seeking an interview with his boss. Jim Gipson, a Chesapeake spokesman, declined to make McClendon available for an interview.

“Aubrey’s a visionary,” Pickens said yesterday. “He gets out over his skis sometimes, but don’t bet against Aubrey.”

McClendon and Pickens have more often seen eye-to-eye on business. In July, Chesapeake agreed to invest $150 million in Clean Energy Fuels Corp. (CLNE), a California-based company that builds stations for natural-gas fueled vehicles. Pickens is its founder and largest individual shareholder.

‘Few Disagreements’

The two men also support the Natural Gas Act, legislation that would boost use of the fuel by vehicles. McClendon said in a video posted on YouTube that he was a supporter of the Pickens Plan, which would reduce U.S. use of oil from the Organization of Petroleum Exporting Countries and increase renewable power.

McClendon said on a conference call last year that “one of the few disagreements” in his life with Pickens came from the elder oilman’s support for wind power. McClendon said the renewable resource wouldn’t be able to compete with gas-fired power plants.

Mike Cantrell, a former president of the Oklahoma Independent Petroleum Association, said he got a firsthand glimpse of the personal bond between the men during a gathering a few years ago at Pickens’s Texas ranch when he brought up wind-development plans.

“You could tell they were real close,” said Cantrell, the vice president of government and regulatory affairs at Continental Resources Inc. (CLR) “But Aubrey was the first one to take on his premise a little bit.”

Pickens said yesterday Chesapeake will survive the current crisis. The company will be able to raise the cash to fill a funding shortfall this year, getting $6 billion from selling oil and gas assets in the Permian Basin, Pickens predicted.

Asked if he was putting his money where his mouth is and buying the shares, Pickens responded, “No.”

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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