Chesapeake Board: We Didn't Know About CEO Loans
Chesapeake Energy Corp, which is poised to end a controversial program that gave Chief Executive Aubrey McClendon an ownership stake in its wells, said on Thursday its directors never reviewed or approved the executive's mortgages on those wells.
The statement contradicts Chesapeake's assertion last week that its board of directors was "fully aware" of McClendon's financing transactions around the well ownership stakes.
"The Board of Directors did not review, approve or have knowledge of the specific transactions engaged in by Mr. McClendon or the terms of those transactions," the company said in a statement on Thursday.
Reuters reported on April 18 that McClendon, who founded the company, had borrowed as much as $1.1 billion against his 2.5 percent interest in wells that he received under the company's "Founder Well Participation Program."
In a release, Chesapeake said "the statement last week the that 'the Board of Directors is fully aware of the existence of Mr. McClendon's financing transactions' was intended to convey the fact that the Board of Directors is generally aware" that McClendon had used the well ownership stakes as security for the loans.
One analyst said Chesapeake's new statement didn't provide any reassurance that it was addressing the issues.
"How can this make me more comfortable?" said Phil Weiss, analyst with Argus Research. "Either you're fully aware, or you're not. ‘Fully' and ‘generally' are two entirely different words."
But an investor said the move was a step in the right direction, and that it showed the company was listening to shareholders' complaints, despite an apparent lack of oversight.
"It's basic due diligence that sadly wasn't being done before," said Jake Dollarhide, chief executive of Longbow Asset Management in Tulsa, OK, which owns Chesapeake shares. "It shows the free reign that McClendon had."
The company, the nation's second-largest natural gas producer behind Exxon Mobil Corp, said it would not extend that program for McClendon beyond 2015, when authorization under a 2005 shareholder vote will expire.
Chesapeake said McClendon will disclose additional information about his ownership stakes in the wells, and the board would now review the CEO's financing arrangements.
The loans, taken out over the past three years, were previously undisclosed to shareholders, analysts and academics said, raising concerns that McClendon's personal financial deals could compromise his fiduciary duty to Chesapeake.
Shares in the company were up more than 2 percent at $18.41 a share in morning trading Thursday on the New York Stock Exchange.