Chesapeake Energy Corp. on Tuesday stripped co-founder and CEO Aubrey K. McClendon of his title as chairman of the board and said it would name an "independent, nonexecutive chairman in the near future."
The news preceded by one day Chesapeake's first quarter earnings report; a conference call is scheduled at 9 a.m. ET Wednesday and is to be webcast at www.chk.com.
In a positive day for the stock market, reaction to the shake-up at Chesapeake was noticeably strong -- and volatile. On an average day, around 19.4 million Chesapeake shares trade hands. On Tuesday, more than 68.75 million shares were traded. Chesapeake ended the day higher at $19.58, up 6.21% from Monday.
"I am completely supportive of the board's plans to separate the positions of chairman and CEO and to bring an independent chairman onto the board," said McClendon. "This action reflects our determination to uphold strong corporate governance standards and will also enable me to focus my full time and attention on execution of the company's strategy, the implementation of our transformation into a major oil producer and the completion of our asset monetization and joint venture objectives."
McClendon would retain his role as CEO, according to the company.
According to Chesapeake, "McClendon has indicated his support of the board's decision to name a nonexecutive chairman and waived any rights he might have under his employment agreement as a result of no longer serving as chairman."
A recent investigation uncovered that McClendon had been taking out loans against his stakes in the wells with companies and individuals that also have done or are doing business with Chesapeake (see Shale Daily, April 19).
The company also terminated ahead of schedule McClendon's participation in the controversial Founder Well Participation Program (FWPP), which has allowed him the contractual right to be the sole participant to receive a 2.5% stake in every well the company has drilled since 1993. The board and McClendon recently agreed to terminate the FWPP at the end of 2015 but now will end the program on June 30, 2014 (see Shale Daily, April 27).
The board's nominating and corporate governance committee plans to consider "potential candidates with no previous substantive relationship with Chesapeake and will be soliciting input from major shareholders."
The chairman of Chesapeake's largest shareholder, Southeastern Asset Management, which owns an estimated 13% of the company, said the board had listened to shareholders' input.
"We...believe [the Chesapeake board] has made the right decision by ending the FWPP early and seeking an independent chairman," said O. Mason Hawkins. "Aubrey was right to recognize that these actions are in the best interests of the company and its shareholders. We support management's continuing efforts to unlock and deliver the value embedded in Chesapeake's assets."
Morningstar analyst Mark Hanson said Hawkins' comments were notable because it pointed "to a very significant shareholder pounding the table."
McClendon is to receive "no compensation of any kind in connection with the early termination of the FWPP," the company said. "As previously announced, the board is reviewing the financing arrangements between Mr. McClendon (and the entities through which he participates in the FWPP) and any third party that has had or may have a relationship with the company in any capacity."
Late Monday Chesapeake disclosed in a regulatory filing with the SEC that the IRS was "reviewing certain issues" related to the FWPP, but that the review likely would not have a material impact. The SEC has launched an informal inquiry into the FWPP.
Chesapeake also confirmed in the filing that McClendon had mortgaged his well stakes with lenders, some of which have business relationships with the corporation. McClendon reportedly has received loans from private equity firm EIG Global Energy Partners, as well as Wells Fargo & Co., Bank of America Corp. and Goldman Sachs Group Inc. None of the firms have commented publicly on their relationship with McClendon and Chesapeake. Chesapeake also has declined to comment.
Chesapeake lead independent director Pete Miller, who also is CEO of National Oilwell Varco, said the board believed that separating the roles of chairman and CEO would improve corporate governance, while terminating the FWPP would "eliminate a source of controversy, both of which should send a positive signal to the market and improve shareholder value. The board appreciates Aubrey's cooperation in these measures and has confidence in Chesapeake's future, based on its superb assets, strong management team and talented employees."