Chesapeake Energy Corp. shareholders rejected two directorsinvolved in a probe of Chief Executive Officer Aubrey McClendon'spersonal finances after slumping energy prices and overspendingwiped out $2.6 billion in market value this year.

V. Burns Hargis and Richard K. Davidson, members of thecompany's audit committee, offered to resign after receivingsupport of 26 percent and 27 percent of votes cast, respectively,at the annual meeting at Chesapeake's Oklahoma City headquarterstoday. The board doesn't have to accept the resignations and willreview them “in due course,” according to a statement.

McClendon has been under increasing scrutiny from investors andanalysts for obtaining personal loans from some of the company'sbiggest financiers and for a wrong-way bet on natural-gas pricesthat worsened a cashflow shortfall. Chesapeake's two largestshareholders plan to take control of the board this month asMcClendon approaches the end of a 23-year reign as chairman of thecompany he co-founded.

“Something is out of whack here at Chesapeake,” GeraldArmstrong, a Denver-based shareholder, said during an address tothe annual meeting. “The absence of good governance practices hasbecome more apparent. Accountability is what it's all about.”

McClendon “might not be here next year,” Armstrong said during athree-minute address in an auditorium on Chesapeake's corporatecampus.

Michael Garland, governance expert for the New York CityComptroller's Office that controls pension funds invested inChesapeake, said the Hargis and Davidson votes were a “referendum”on the entire board, which he accused of “costly oversightfailures.”

The result “represents a total and complete collapse of investorconfidence,” Garland said during an interview outside themeeting.

Craig Rhines, investment officer for the California PublicEmployees' Retirement System in Sacramento, said he was surprisedby the depth of dissatisfaction with Hargis, president of OklahomaState University, and Davidson, former chairman of Union PacificCorp.

“The vote is extraordinary,” Rhines said in an interview outsidetoday's meeting.

Half of the board's eight non-executive directors are scheduledto be replaced by June 22 under an agreement announced this weekwith Southeastern Asset Management and Carl Icahn, which togethercontrol more than 20 percent of Chesapeake's common stock. Icahnwill appoint one of the new directors and Memphis-basedSoutheastern the other three. The chairman also will be announcedin that time.

Keeping Hargis

In a filing today, Southeastern said it would support Chesapeakerefusing Hargis's resignation to allow him to stay on until thereview of McClendon's finances are completed. Southeastern said itvoted against both Hargis and Davidson, and said it hopes thereview can be completed within “weeks, not months.”

Chesapeake's audit committee hired outside counsel Locke LordLLP earlier this year to assist in its review of loans McClendonobtained by using personal stakes in company wells as collateral.The executive perk that allows McClendon to buy stakes of up to 2.5percent in almost every well the company drills will bediscontinued in 2014.

Shareholders including Garland criticized the board for failingto rein in what they've seen as McClendon's risk-taking andoverspending at the company. Vincent Intrieri, a director at IcahnCapital, urged the board to remain open to “all strategicalternatives,” including a sale of the entire company.

“Aubrey, you are a great oil and gas man,” Intrieri said duringthe meeting today. He added that even great people needoversight.

Under McClendon's leadership, Chesapeake outspent cashflow in 19of the past 21 years as it amassed drilling leases from Appalachiato the Rocky Mountains and made some of the biggest onshorediscoveries of the past 20 years, including the Haynesville Shaleformation in Louisiana and the Utica Shale in Ohio.

Facing a cashflow crunch that Alembic Global Advisors estimatesmay exceed $22 billion by the end of next year, Chesapeake sought a$4 billion bailout from Goldman Sachs Group Inc. and JefferiesGroup Inc. last month in the form of a short-term loan.

Asset Sales

Today, the company announced plans to sell its pipeline assetsfor about $4 billion to Global Infrastructure Partners in threecash transactions. Chesapeake will sell its interests in ChesapeakeMidstream Partners LP to Global Infrastructure for $2 billion, thecompany said in a statement. Chesapeake also will raise more than$2 billion by divesting its pipeline development unit and somecentral U.S. conduits to Chesapeake Midstream.

The pipeline transactions bring Chesapeake's asset sales totalso far this year to $6.6 billion, almost halfway to the upper rangeof McClendon's 2012 fundraising goal of $14 billion. He reiteratedplans today to reduce long-term debt to $9.5 billion by the end ofDecember.

The largest asset Chesapeake plans to sell this year, a seriesof oilfields in the Permian Basin in west Texas and New Mexico, hasbeen examined in a so-called data room at Chesapeake's OklahomaCity headquarters by about 20 energy companies, McClendon saidtoday. Ten more are expected to view the data in coming weeks, hesaid.

McClendon, 52, said in a March interview that he expects thePermian Basin assets to fetch at least $5 billion and that they maybe sold in a few pieces rather than as a whole.

Chesapeake was the best-performing energy stock in the Standard& Poor's 500 Index today, rising 2.5 percent to $18.30 at 2:24p.m. in New York. The shares have fallen 18 percent this year asthe impact of tumbling gas prices was compounded by investordistrust stemming from McClendon's personal financialtransactions.

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