Chesapeake Energy confirmed Wednesday that its top executive had taken personal loans from financial institutions to which the company also owed money, but said a review of that and other dealings proved that there were no conflicts of interest or other wrongdoing.
The company also said it had cooperated with the Department of Justice on a review of collusion allegations, but said that relationship and an internal review led the company to conclude it did not violate antitrust laws.
The nation’s second largest natural gas producer after Exxon Mobil Corp. has suffered from falling investor confidence and growing criticism over the conduct of CEO Aubrey McClendon and his strategy for leading the company. McClendon announced last month that he will step down in April.
Prior reports, citing emails from McClendon to the U.S. president of Encana, Canada’s leading natural gas producer, alleged the companies had colluded to depress lease prices for land they were pursuing in Michigan.
The results of the company’s investigations, which involved more than 50 interviews and “millions of pages of documents,” proved otherwise, Chesapeake said in a news release.
A company review of McClendon’s personal financial dealings showed that he had taken loans from EIG Global Energy Partners. McClendon used the loans to help him enjoy a Chesapeake perk that allowed him to take a personal ownership stake in the company’s wells.
EIG also had financial arrangements with Chesapeake, in the form of preferred stock investments in the company’s subsidiaries operating in the Utica and Cleveland-Tonkawa shale plays.
The company also examined other relationships in which Chesapeake and McClendon conducted business with the same lenders or investors, and reviewed a hedge fund that McClendon reportedly set up to trade in the same commodities Chesapeake produces.
Chesapeake’s review also covered a loan granted to McClendon by a former member of the board of directors, Frederick Whittemore.
The review was conducted by a committee of Chesapeake’s board of directors under the direction of a recently hired independent auditor, and showed that McClendon and the company had not acted inappropriately, the company said.
“Based on the documents reviewed and interviews conducted, no intentional misconduct by Mr. McClendon or any of the company’s management was found by the board concerning these relationships and/or these transactions and issues,” the company said in a news release.
Nevertheless, McClendon is set to retire in April and the company is searching for a new leader after the CEO said he had “philosophical differences” with the board.
The board now includes several new members forced into director roles by the company’s largest shareholders, who were concerned over a lack of oversight of McClendon.
Major shareholders including Southeastern Asset Management and activist investor Carl Icahn, who took a 7.65 percent stake in Chesapeake when its stock price plummeted last year, have led the criticism of McClendon and the company’s strategy.
Chesapeake’s revenue stream virtually collapsed in 2012 as low natural gas prices pushed it into a severe cash shortfall. The company had to take on increasing debt over the last year – most recently totaling more than $16 billion – to keep its aggressive drilling operation running during a severe cash shortfall.
Investors have called for the company to scale back its expansion plans and sell some assets. The move would help Chesapeake trim debt and rely less on debt to fund a leaner operation, investors say.
Chesapeake is set to release its fourth-quarter earnings results Thursday. It has so far failed to trim its operating costs and debt, or to sell off assets at the levels it had previously planned.
Still, analysts believe the company has value, mainly because of its vast collection of drilling leases across the nation. McClendon previously estimated the land assets were worth as much as $60 billion. Chesapeake’s market capitalization – the total value of its shares outstanding – is about $13.6 billion.
Read ongoing FuelFix coverage of Chesapeake’s troubles:
Steffy: Chesapeake CEO leaves mixed legacy (Feb. 1)
Chesapeake shares surge after CEO’s resignation (Jan. 30)
Chesapeake chief quits, cites ‘philosophical differences’ (Jan. 29)
Contractor accuses embattled Chesapeake of skirting bills (Jan. 28)
Chesapeake board to change salaries, structure (Jan. 7)
Chesapeake declares dividend, despite cost-saving (Dec. 17)
Chesapeake offers its workers ‘voluntary separation’ (Dec. 14)
Analysts encouraged by Chesapeake’s new chairman (June 22)