Chesapeake CEO No Longer Chair

Company also halts CEO McClendon’s well deals.

Chesapeake Energy Corp. will name an independent chairman to replace Aubrey McClendon and halt an incentive program that allowed the chief executive officer to amass personal stakes in thousands of company-operated wells.

McClendon agreed to a board request to terminate the so-called Founder Well Participation Program in June 2014, 18 months early, without additional compensation, according to a release today. McClendon will not be relinquishing any of the well stakes he already holds, Michael Kehs, a Chesapeake spokesman, said today in an e-mailed statement.

McClendon, the only chairman the company has had since he co-founded it in 1989, was criticized by investors and analysts after news reports last month detailed his use of interests in company wells to obtain hundreds of millions of dollars in personal loans. Chesapeake shares soared as much as 12 percent, the most since December 2008.

“It’s positive that the board is creating some independence between the CEO and the chairmanship,” Scott Hanold, an analyst at RBC Capital Markets LLC in Minneapolis, said today in a telephone interview. “Aubrey McClendon has been the face of Chesapeake and is definitely the one who built the asset base they have, so having him continue to be part of the company is strategically the right decision.”

Southeastern Asset Management, Chesapeake’s biggest shareholder with a 17 percent stake as of Dec. 31, pushed for the separation of the chairman and CEO roles.


‘Last Hurrah’

“We are pleased that the board listened to our input and believe it has made the right decision by ending the FWPP early and seeking an independent chairman,” O. Mason Hawkins, Southeastern’s chairman and CEO, said in the statement.

Allowing the well-investment program to continue through the middle of 2014 will enable McClendon to buy stakes in the Utica Shale in Ohio, an oil-soaked geologic formation that Chesapeake recently began exploring, said Mark Hanson, an analyst at Morningstar Inc. in Chicago.

“If they terminated the program right now, he probably wouldn’t be able to cover his outstanding loans,” Hanson said today in a telephone interview. “This is one last hurrah so he can be made whole before they end the program.”

McClendon said last week that he had $846 million in outstanding personal loans obtained to fund his share of drilling costs. Under the program, he has been allowed to buy as much as 2.5 percent in almost every well the company drills.

Chesapeake said yesterday that the Internal Revenue Service is reviewing the well-investment program as part of ongoing audits of the company’s 2008 and 2009 tax returns. The Oklahoma City-based company is scheduled to announce first-quarter results today.

Chesapeake rose 6.4 percent to $19.62 at 9:58 a.m. in New York.



Bloomberg News


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