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Chesapeake Files Proxy in Response to CEO Loan Flap
YOUNGSTOWN, Ohio – Chesapeake Energy Corp. filed a preliminary proxy statement late Friday with the U.S. Securities and Loan Commission, disclosing its CEO’s involvement in a program that allows him to “participate and invest as a working interest owner in new wells drilled by the company.”
The disclosure of the company's Founders Well Participation Program followed a highly critical investigative report by the Reuters news service, which revealed CEO Aubrey McClendon has borrowed $1.1 billion “against his 2.5% interest in wells received as part of his compensation.”
The loans were not previously disclosed to shareholders, and in the preliminary proxy, Chesapeake did not disclose specific information about the loans, how much was borrowed from whom and at what terms. But, as Chesapeake noted in the proxy, shareholders approved the program in 2006.
The preliminary proxy was released two weeks ahead of time, according to the date of documents it contained. Cheseapeake will hold its annual shareholders meeting June 8 at its headquarters in Oklahoma City.
McClendon incurred $88.1 million in first-quarter net losses in the wells program after accounting for capital expenses, according to the filing. “Full-year losses amounted to $315.3 million, $141.9 million and $116.1 million, respectively, for 2011, 2010 and 2009,” Business Week reported.
The proxy notes McClendon’s compensation in 2011 included his base salary of $975,000, unchanged since 2006, and stock awards amounting to $13,627,556."His employment agreement also provides that his annual bonus compensation for each of the years 2009 through 2013 may not exceed $1,951,000,” the company said.
The proxy also noted that McClendon's total compensation was reduced by 15% in 2011.
Analysts critical of McClendon and Chesapeake’s high debt load remained unimpressed with the partial disclosure of the Founders Well Participation Program, which grants McClendon a personal interest in any wells Chesapeake drills.
Phil Weiss of Argus Research, New York, perhaps Chesapeake’s most vocal critic, said, “We believe the best thing for investors would be to replace the board and/or the CEO.”
Weiss cited “the full financial picture at Chesapeake, including its high debt levels, its use of financial engineering, the relatively low quality of its financial data, the questionable nature of some of the CEO's transactions with the company.”
At least one lawsuit has been filed against the company by shareholders.
At the close of trading Friday, Chesapeake’s shares had fallen to $17.44 with 28.2 million shares traded, down from its 52-week high of $35.75.
Chesapeake is the largest leaseholder in the Utica shale play in Eastern Ohio, and says it owns “11 of what we believe are the top 15 unconventional liquids-rich plays in the United States.
BACKGROUND:
Chesapeake CEO Borrows $1.1B, Pledges Gas Wells
Chesapeake Refutes Report CEO's Loans Not Disclosed
Published by The Business Journal, Youngstown, Ohio.