Chesapeake CEO McClendon Steps Down after Year of Tumult
January 30, 2013 2:51 PM IST
Chesapeake Energy Corp said on Tuesday that Aubrey McClendon will step down as chief executive after a tumultuous year in which a series of Reuters investigations triggered civil and criminal probes of the second-largest U.S. natural gas producer.
News of the executive's plan to depart on April 1 boosted the company's shares by 9 percent. The stock has made a partial recovery since losing almost half its value last spring after a Reuters report opened the company and its co-founder up to intense scrutiny.
Federal regulators and Chesapeake's board are both looking into whether McClendon, 53, blurred the line between his personal dealings and those of the company, and into possible antitrust violations. Big shareholders took control of the board in June after he was stripped of his title as chairman of the company he cofounded in 1989.
The internal deliberations that led to McClendon's departure remain unclear. The findings of the board's probe will be released next month, but Chesapeake said in a statement that the review has "to date found no improper conduct."
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"I think that the controversy, governance and other issues that have been pulled up have caused lots of questions about him," said David Larcker, professor of accounting at Stanford University's Graduate School of Business. "This was just sucking up so much time, it had to be a reasonable decision to change management."
Chairman Archie Dunham was not available to comment late on Tuesday. The former head of ConocoPhillips was brought in to quell the shareholder revolt.
In an email to employees, McClendon put his departure down to "philosophical differences" with the board, but assured them: "The separation will be amicable and smooth."
Despite a history of McClendon's perks and corporate benefits creating controversy among shareholders, he will leave Chesapeake with a lavish package. The company said he "will receive his full compensation and other benefits to which he is entitled."
A person familiar with the terms of McClendon's departure said it was being treated as "termination without cause," entitling the CEO to some of the most generous benefits laid out in an employment contract that details a wide range of severance scenarios.
McClendon is entitled to total compensation of about $47 million (29.8 million pounds). That figure includes $11.7 million in total cash compensation based on McClendon's salary and bonus, which will be paid out over a period of four years. It also includes restricted stock awards already given to McClendon that have a value of $33.5 million, the person familiar with the compensation package said.
He is also entitled to deferred compensation of about $800,000 and personal use of corporate jets that could be worth up to $1 million over four years, the person said.
Chesapeake's board recently cut McClendon's pay package and gave him no bonus for 2012.
A Chesapeake spokesman declined comment.
As head of a company that bet big on natural gas, McClendon played a key role in promoting the hydraulic fracturing technology that unlocked the huge U.S. supplies in shale formations that are now depressing prices.
News of his departure comes just over two weeks after Encana Corp CEO Randy Eresman said he would step down immediately.
Last June, Reuters reported that Chesapeake plotted with Encana, its top competitor, to suppress land prices in the Collingwood shale formation in Northern Michigan, a matter that is the subject of investigations by both the state of Michigan and the Department of Justice.
That followed a Reuters investigation in April which found McClendon had arranged to personally borrow more than $1 billion from EIG Global Energy Partners, a firm that also is a big investor in Chesapeake.
The loans, arranged through McClendon's personal shell companies, were secured by his interest in company wells. McClendon is allowed to take up to a 2.5 percent stake in every well Chesapeake drills under a controversial program called the Founders Well Participation Program (FWPP).
"The empire that he built was based on far higher gas prices, both for Chesapeake and for him through the Founder Well Participation Program. So given that outlook, it's not a surprise he is stepping down," said Mark Hanson, an oil and gas analyst at Morningstar Inc in Chicago.
"At the end of the day, it's no longer the company that it once was. The board is really not with him these days. If you have done things a certain way for 23 years and then all of a sudden things change as radically as they have in the last six months, it's hard to get used to."
Hefty spending on oil and gas acreage in the nation's shale formations and a prolonged period of low natural gas prices have left Chesapeake saddled with debt and a funding shortfall.
Chesapeake sold or agreed to sell about $12 billion in oil and gas properties last year. In 2013, it plans to sell up to $7 billion to fill a spending gap that JPMorgan estimates at $5.5 billion.
In early May, after another Reuters investigation revealed that McClendon had partially owned and helped run a secretive $200 million hedge fund to trade in the same commodities Chesapeake produces, Florida Senator Bill Nelson urged the U.S. Department of Justice to investigate potential market manipulation or fraud by the CEO.
An aide to Senator Nelson said he was not immediately available for comment on McClendon's pending departure.
Major investors Carl Icahn, who now has a Chesapeake stake of nearly 9 percent, and Mason Hawkins, with 13.5 percent, took control of the nine-member board last June.
In a statement issued about a half-hour after the news of the departure, Icahn said he believed history would prove McClendon was right about the ultimate value of natural gas and praised the assets assembled by the former CEO.
"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," Icahn said.
Chesapeake has been forced to sell billions of dollars worth of acreage, but Dunham said in a memo to employees on Tuesday that "the company is not for sale."
Chesapeake shares rose to $20.69 in post-market trading, up from a New York Stock Exchange close of $18.97. The stock is down from highs just above $26 last March, which came before natural gas prices tumbled to decade lows and McClendon became an object of so much negative publicity.
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