Chesapeake Energy Corp. CEO Aubrey McClendon's controversial financing transactions "did not reveal any improper benefit" to him nor did they increases costs to the company "as a result of the overlap in financial relationships," the board of directors said Wednesday.
"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 board stated.
McClendon is retiring effective April 1, but he will continue as CEO until a successor is named. He told employees in an email last month that the departure centered on some differences with the board (see Shale Daily, Jan. 31). The decision to search for a new leader "was not related" to the review, the board said.
Following a series of articles by Reuters last year concerning McClendon's business and personal finances, Chesapeake's board in April began an extensive review of the arrangements between him and various entities that had been identified as having a financial relationship with the company.
"The review, which was led by the audit committee of the board, with the assistance of independent counsel retained by the independent members..., has been substantially completed," the board stated. "In connection with the review, millions of pages of documents were collected and reviewed and more than 50 interviews of Chesapeake and third-party personnel were conducted."
The transactions in which the board found no issues included the 2008-2012 financing arrangements between McClendon and EIG Global Energy Partners regarding loans made to McClendon from his sole participation in the Founder Well Participation Program (FWPP), which allows him to receive a cut on every well the company drills. The board also found no improper conduct regarding preferred stock investments by EIG in Chesapeake subsidiaries CHK Utica LLC and CHK Cleveland-Tonkawa LLC.
Also reviewed by the board were relationships in which both McClendon and the company conducted business with the same financial institutions; trading activities through 2007 of the Heritage Hedge Fund, which McClendon co-founded; issues regarding the FWPP's administration; and a 1998 loan to McClendon by former board member Frederick B. Whittemore.
The board also concluded "that the company did not violate antitrust laws in connection with the acquisition of Michigan oil and gas rights in 2010," which involved Encana Corp. (see Shale Daily, June 26, 2012). Encana's board in September said it had concluded there was no price collusion with Chesapeake (see Shale Daily, Sept. 7, 2012).
"The board based the conclusion...on a thorough review conducted independently by outside counsel, and on Chesapeake's cooperation with the Department of Justice." The federal investigation was launched last year by the U.S. Department of Justice Antitrust Division, Midwest Field Office (see Shale Daily, Aug. 13, 2012).