Analysts encouraged by Chesapeake’s new chairman

Chesapeake Energy Corp. has turned to a former ConocoPhillips CEO with a Marine background to serve as chairman of the cash-strapped company, as it looks it soothe shareholder concerns over the company’s finances.

Archie Dunham was named Thursday as non-executive chairman of the board of directors for the second-largest U.S. natural gas producer after Exxon Mobil Corp. Aubrey McClendon, who was chairman, remains as CEO and president and on the board of directors.

Dunham’s selection encouraged analysts, although several said they are waiting to see if the company does enough to revamp its current strategy, which has resulted in too much debt.

“In the past, this company has said one thing and done another,” said Phil Weiss, an analyst for Argus Research Corp. “Actions speak louder than words. I don’t have any actions yet that tell me anything.”

Dunham’s background as a ConocoPhillips executive and membership on various corporate boards may be what Chesapeake needs, said Mark Hanson, an analyst for Morningstar.

“Maybe it’s a trivial observation, but I mean, with a Marine Corps background, and I think you point to his history as an executive … he seems to be up to the task,” he said.

The company also appointed four other new directors to its nine-member board. Shareholders, including several big pension funds, are expecting changes. Those could include more asset sales or an outright sale of the company, analysts said.

Changing its focus

Chesapeake has said it plans to shift its emphasis from buying lots of drilling prospects to focusing on oil and natural gas production, but whether it will follow through remains to be seen, said Neal Dingmann, an analyst with SunTrust Robinson-Humphrey.

“Aubrey is known as still being a land man, not really as an operational CEO,” Dingmann said.

Chesapeake plans to sell off up to $14 billion in assets by year’s end in order to fund an aggressive expansion and debt reduction plan. The company’s largest shareholder, Southeastern Asset Management, has been pushing Chesapeake to do away with its “arbitrary” production and debt-reduction targets. Since three of the new board members were proposed by Southeastern Asset Management, it now has a louder voice at the table.

“I think change is needed for this company to survive, let alone thrive,” Weiss said. “So either these people are brought in to be change agents or they’re brought in for a quick sale.”

Quick sale a challenge

A quick sale may be unlikely given the weight of Chesapeake’s debt and widespread asset base, but it could be in the works if the company is able to sell off enough of its parts, Hanson said.

Given Dunham’s age – he is 73 – it does not appear that Chesapeake brought on a chairman who plans to stay for the long term, Hanson said.

Dunham, of Houston, was chairman, president and CEO of Conoco from 1999 to 2002. He became chairman of ConocoPhillips, created by the merger of Conoco and Phillips Petroleum Co., in 2002.

‘Clear mandate’

Dunham said in a statement he was excited to join the board of the Oklahoma City-based company. Chesapeake declined an interview request with Dunham.

“As I evaluated this opportunity, I was attracted by the clear mandate to provide strong oversight while working closely with the company’s exceptional management team, talented employees, and reconstituted board in a situation where we have the opportunity to create substantial value for all shareholders in the years ahead,” he said.

Other directors

The other new directors are Bob G. Alexander, 78, formerly chairman and CEO of Alexander Energy Corp.; Vincent Intrieri, 55, who works for activist investor Carl Icahn, Chesapeake’s second-largest shareholder; R. Brad Martin, 60, former chairman and CEO of Saks; and Frederic Poses, 69, CEO of Ascend Performance Materials.

Alexander, Martin and Poses were added at the suggestion of Southeastern Asset Management. Intrieri was added at the suggestion of Icahn.

The new directors replace Richard Davidson, Kathleen Eisbrenner, Frank Keating and Don Nickles, who have resigned, as well as Charles Maxwell, who retired.

The board did not accept the resignation of Burns Hargis, whose re-election to the board, along with Davidson’s, was opposed by shareholders on June 8.

In a statement, Chesapeake said the board declined Hargis’ resignation because he is heading a review of whether McClendon had any conflicts of interest.