Chesapeake shares surge after CEO’s resignation

Chesapeake Energy’s market value surged more than $1 billion Wednesday, a day after the company said embattled CEO Aubrey McClendon would step down.

Shares in Chesapeake, the nation’s second-largest producer of natural gas after Exxon Mobil, were up more than 8 percent on the New York Stock Exchange by  early afternoon, trading above $20.50 a share by 1 p.m. That is the highest mark Chesapeake stock has reached since October. The company’s high share price in 2012 was a closing price of $25.58 on May 20.

McClendon’s planned departure — he will serve as CEO until a replacement is found and will retire from the company on April 1 — came after months of intense criticism from investors and analysts.

McClendon will receive $11.7 million in severance pay over four years, based on his contract terms published in filings with the U.S. Securities and Exchange Commission. He will also retain about $33.5 million in previously granted stock awards along with other perks, as detailed in SEC filings.

His total compensation for 2011 was $17.9 million and included $13.6 million in stock awards, according to SEC filings. The company has not yet published McClendon’s full compensation for 2012, although it plans to eliminate his 2012 bonus.

Chesapeake’s revenue stream, which was heavily dependent on natural gas, virtually collapsed when gas prices dropped to their lowest levels in a decade in April 2012. News reports of McClendon’s questionable personal financial dealings exacerbated concerns about Chesapeake and its leadership.

The company’s stock price subsequently nosedived, falling 47 percent between March and May. Chesapeake’s market value shrank about $8 billion during that period and its earnings suffered. The company reported a $2.1 billion loss in the third quarter of 2012 because of falling natural gas prices.

McClendon had an aggressive strategy for running Chesapeake, most recently funding a rapid expansion of the company’s oil production through loans the company needed to keep running amid falling earnings. The effort pushed Chesapeake’s long-term debt to more than $16 billion during a year when McClendon said he wanted to cut debt to less than $9.5 billion.

Despite the increasing loans needed to pursue McClendon’s expansion plans, he resisted calls to scale back his goals of increasing production. But it was the allegations of questionable financial dealings, including a set of personal loans from banks to which Chesapeake owed debt, that raised concerns of conflicts of interest and fueled a surge of investor discontent.

Eventually, the pressure of the company’s falling stock price and shareholder confidence led to a series of corporate changes, including the ouster of McClendon as chairman and a reshuffling of the company’s board of directors.

That new board, structured with the support of activist investor Carl Icahn and Chesapeake’s largest shareholder, Southeastern Asset Management, eventually clashed with McClendon. The CEO cited “philosophical differences” with the board in a statement about his resignation.

Icahn, in a statement on McClendon’s retirement, praised the CEO’s accomplishments at Chesapeake. McClendon co-founded the small Oklahoma City-based land holding company in 1989 and transformed it into a natural gas giant.

Icahn hinted, however, that a scaled down version of Chesapeake, with fewer assets and a leaner operation, would be best for the company. Icahn took a 7.65 percent stake in Chesapeake when he invested $785 million in company stock in May 2012. Southeastern Asset Management is Chesapeake’s largest shareholder, with a 13.6 percent stake in the company.

“Aubrey has every right to be proud of the company he has built, the world class team of people at Chesapeake and the collection of assets he has assembled, which in my opinion, are the best portfolio of energy assets in the country,” Icahn said. “While it is known that some of these assets will be sold by the company in due course, I do not believe that this will in any way effect the ultimate realization of Chesapeake’s potential. I am confident that history will prove that Aubrey has been correct about the value of natural gas in general and the value of Chesapeake in particular.”

Chesapeake, in a statement on McClendon’s resignation and retirement, said allegations related to his personal financial dealings did not play in the mutual decision that led to McClendon stepping down. The company also said an internal review into McClendon’s financial arrangements had not produced any evidence of wrongdoing.

McClendon used a corporate perk to take personal stakes in company wells. He allegedly used those stakes as collateral for loans he took from some Chesapeake creditors.