Chesapeake Energy Corp. (CHK:US) replaced former Chief Executive Office Aubrey McClendon with one of the co-founder’s longest-serving lieutenants as the second-largest U.S. natural gas explorer shifts its focus to pumping oil.
Chesapeake’s directors named Chief Operating Officer Steven C. Dixon acting CEO and established a three-person Office of the Chairman while they continue the search for a permanent chief, the Oklahoma City-based company said in a statement on March 29. The new office includes Dixon, Chairman Archie Dunham and Chief Financial Officer Domenic Dell’Osso, Chesapeake said.
McClendon, 53, agreed in January to resign no later than today after a shareholder revolt by Carl Icahn and Southeastern Asset Management Inc.’s O. Mason Hawkins cost the CEO his annual bonus and the chairmanship last year. A board inquiry into McClendon’s use of personal stakes in company-owned wells to obtain more than $800 million in private loans cleared him of any intentional wrongdoing in February.
Dixon, 54, is a University of Kansas-trained geologist who joined Chesapeake in 1991, two years after the company’s founding, as vice president of exploration. He has been COO since 2006, a role he will continue to perform, according to the statement.
“Steve has full authority to lead our company and will ensure that Chesapeake maintains its culture of excellence, hard work and agility,” Dunham said in an e-mail to employees on March 29. Dixon “has the reins and he knows the path forward.”
The company is on course to spend less on capital projects during the current quarter than previously planned, Dixon said during a conference call with analysts today. The company’s full-year capital budget remained unchanged at $5.75 billion to $6.25 billion, he said.
Chesapeake fell 0.3 percent to $20.35 at the close in New York. The stock has risen 22 percent this year, erasing almost all of 2012’s 25 percent decline.
Directors are working with Chicago-based executive-search firm Heidrick & Struggles International Inc. (HSII:US) to find a permanent CEO, according to the statement. Dixon’s appointment to acting CEO was effective on March 29, Michael Kehs, a company spokesman, said in an e-mailed statement.
Among Chesapeake’s top executives, only Senior Vice President of Corporate Development Thomas S. Price has had a longer association than Dixon with the company McClendon founded in 1989 with 10 employees and $50,000 in cash. Price began working as a consultant for the company its first year and joined full time in 1992.
McClendon has promoted gas as an alternative to coal and Middle Eastern oil imports. Using cutting-edge drilling techniques in domestic shale formations overlooked by major international energy giants, he built Chesapeake into what was at one time the largest U.S. gas producer.
McClendon oversaw a 500-fold increase in Chesapeake’s market value from its 1993 debut as a public company to a peak of $35.6 billion in June 2008, according to data compiled by Bloomberg. Since then, stung by cratering gas prices and growing investor mistrust, the company’s value fell by more than half to about $13.6 billion.
Chesapeake agreed to sell $12 billion in pipelines, oilfields and other assets in 2012, short of McClendon’s original sales target, as a cash flow shortfall threatened to derail drilling plans and erode the company’s compliance with lending covenants.
The new permanent CEO will inherit a $4 billion to $7 billion asset-sales target for this year and the unfinished task of converting a company that pumps enough gas to supply 20 percent of U.S. household demand into a producer of crude and gas by-products such as propane.
Icahn and Hawkins, who together control 22 percent of Chesapeake’s stock, pushed for McClendon’s resignation after concluding his presence and the controversy surrounding his personal business deals was hurting the company’s share price, a person with knowledge of the discussions said in January.
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, prompting Chesapeake to cut jobs, curtail capital spending and offer oilfields and other assets to the highest bidders.
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