Chesapeake CEO Resigns After Scrutiny on Personal LoansJoe Carroll, Zachary R. Mider and Jim Polson
Chesapeake Energy Corp. Chief Executive Officer Aubrey McClendon was forced to leave the second-largest U.S. natural gas producer under pressure from his two biggest shareholders, said a person with knowledge of the matter.
McClendon will retire from the company he co-founded on April 1 and will serve as CEO until his successor is appointed, Oklahoma City-based Chesapeake said today in a statement. Chesapeake, which lost as much as 43 percent of its market value last year after a corporate cash crunch, rose 8.9 percent to $20.66 at 7:27 p.m., after the close of regular trading in New York.
The board said it has found no evidence to date of improper conduct by the CEO.
McClendon, 53, led Chesapeake from its 1989 inception in Oklahoma City, amassing U.S. gas and oil fields that cover an area half the size of New York state. As one of the first explorers to embrace horizontal drilling and hydraulic fracturing, McClendon helped usher in a revival of U.S. gas and oil production with discoveries such as the Haynesville Shale in Louisiana and Utica Shale in Ohio.
The success of the drilling methods led to a glut of North American gas that drove prices to a 10-year low in early 2012, causing Chesapeake to cut jobs, pledge to curtail capital spending and sell more than $10 billion in oilfields and pipelines to help close a gap between cash flow and drilling expenses. The company lost $1.07 billion during the first three quarters of last year and net debt ballooned by 56 percent during that period to $16.1 billion.
The shareholders who pushed for McClendon’s ouster -- Carl Icahn, the billionaire activist investor, and O. Mason Hawkins of Southeastern Asset Management Inc. -- concluded that McClendon’s continued leadership was weighing on the stock, said the person, who spoke on condition of anonymity because the board’s discussions are private.
Icahn and Hawkins didn’t immediately respond to messages left at their offices after normal business hours.
Icahn and Southeastern together control more than 22 percent of Chesapeake stock, according to data compiled by Bloomberg, compared with McClendon’s stake of less than 1 percent. The shareholders last year appointed four new directors to the nine-member panel.
McClendon was the subject of scrutiny from both the media and regulators after revelations last year about his borrowings to finance personal stakes in company wells. The U.S. Justice Department last year also started an investigation into whether Chesapeake colluded with a competitor to suppress prices in land deals in 2010.
The board will release its review of McClendon’s financial transactions on Feb. 21, when announcing earnings results.
“While I have certain philosophical differences with the new board, I look forward to working collaboratively with the company and the board to provide a smooth transition to new leadership for the company,” McClendon said in the statement.
McClendon lagged U.S. energy producers such as Devon Energy Corp. in shifting rigs from gas fields to higher-profit oil prospects, leaving Chesapeake more vulnerable to slumping gas prices.
“You can be the smartest guys in the room but you may be in the wrong room,” McClendon said during a March interview in a restaurant on the company’s Oklahoma City campus. “It’s not enough to be the smartest guys in the room. Sometimes you have to be hungry, sometimes you have to be lucky, and you have to be open to change.”
McClendon’s fall from grace began in April after media reports about personal loans he obtained using minority stakes in company-owned wells that he had been allowed to gather for his private portfolio.
Chesapeake stock lost 20 percent of its value that month as scrutiny of McClendon’s personal transactions compounded the impact of free-falling prices on a company whose output was more than 80 percent gas.
Under an executive perk designed to align McClendon’s personal interests with those of the company, the CEO acquired stakes as large as 2.5 percent in almost every well Chesapeake drilled during the past 23 years. McClendon took out loans backed by his well stakes to fund his portion of costs. At the end of 2011, he owed $846 million on those loans, the company reported on April 26.
Some of the loans came from companies that were involved in separate financial transactions with Chesapeake. The Internal Revenue Service and U.S. Securities and Exchange Commission began probes.
McClendon’s departure was announced after the close of regular trading on U.S. markets. Chesapeake rose 0.2 percent to $18.97 at the close in New York.
Chesapeake stripped McClendon of his position as chairman in June and named former ConocoPhillips Chairman Archie Dunham to lead a board reconstituted at the behest of the company’s largest investors, Icahn and Southeastern Asset Management. Chesapeake plans to halt the well-investment program with McClendon next year rather than the original termination date at the end of 2015.
McClendon leaves to his successor a goal of raising billions of dollars from asset sales this year to close the funding gap and reduce the debt load.
McClendon raised more than $30 billion since 2008 selling burgeoning shale assets to companies including Exxon Mobil Corp., Paris-based Total SA and Cnooc Ltd., China’s largest offshore energy producer.
“I’m deeply sorry for all of the distractions,” McClendon said on a May 2 conference call.
The company called reports of McClendon’s personal finances “an unprecedented, negative media campaign” in a May 22 presentation prepared for a UBS AG energy conference in Austin, Texas.
“While damaging in the short run to our reputation, these attacks have failed, and will continue to fail, to reduce the value of the company’s assets and our long-term attractiveness to investors,” the company said in the 32-page presentation published on its website. “At the end of the day, asset value and quality will win and today’s shareholders should be well rewarded.”