Chesapeake Energy Corp. (CHK:US)’s largest shareholder expressed support for Chief Executive Officer Aubrey McClendon as an internal probe of potential conflicts between the CEO’s personal investments and corporate duties entered its 13th week.
McClendon was stripped of the chairman’s post he held for 23 years last month and more than half of Chesapeake’s directors were replaced as Southeastern Asset Management Inc. and billionaire Carl Icahn pushed for governance changes after revelations that the CEO used private stakes in company wells to obtain loans.
Chesapeake hasn’t said when the board will finish an investigation that began on April 26 of McClendon’s personal borrowings from some of the company’s biggest financiers. Southeastern, whose 13.9 percent stake (CHK:US) makes it Chesapeake’s largest investor, said McClendon “has done an excellent job” and satisfied the firm’s “good people” criteria.
“All of the leadership controversy is now moot,” Southeastern CEO O. Mason Hawkins and Chief Investment Officer G. Staley Cates said in a letter to shareholders posted on Southeastern’s website today.
Chesapeake has dropped 14 percent this year as the impact of tumbling natural-gas prices was compounded by disclosures that McClendon borrowed more than $800 million last year to finance his stakes in thousands of company-owned oil and gas wells.
“The board will finish its investigation when the work is done,” Michael Kehs, a spokesman for Chesapeake, said in a telephone interview today. He declined to speculate on a time frame.
The combination of a plunging stock price and pressure from Southeastern and Carl Icahn “brought the most significant governance changes that we have ever witnessed at a company,” Hawkins and Cates wrote.
McClendon, 53, co-founded Oklahoma City-based Chesapeake in 1989 with 10 employees and $50,000 in cash, building the company into the largest U.S. gas producer by embracing new, intensive drilling techniques overlooked by major international energy explorers. Chesapeake remained the top U.S. gas supplier until June 2010, when Exxon Mobil Corp. acquired XTO Energy.
Southeastern performed “even more due diligence than normal” on McClendon before making its initial investment in Chesapeake, Hawkins and Cates wrote.
“Through our multiple industry, client, professional, and personal contacts, we gained insight about McClendon and arrived at a different conclusion than the image currently portrayed” by short sellers and the media, Hawkins and Staley wrote.
Southeastern’s opposition to the executive perk that allowed McClendon to amass stakes in almost every well Chesapeake drilled pre-dated the March and April media revelations of McClendon’s personal borrowings. The perk, which the company and McClendon have agreed to terminate in 2014, was known as the Founders Well Participation Program, or FWPP.
“We fought against the FWPP behind the scenes well before it dominated headlines,” Hawkins and Staley wrote.
McClendon apologized to shareholders twice in the past 3 months for the bad publicity surrounding his private investments. The company said in a May 22 presentation prepared for a UBS AG conference that it had withstood an “unprecedented negative media campaign” that failed to reduce the value of its assets.
Chesapeake fell 4 cents to $19.20 at the close in New York.
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