Activist shareholder Carl Icahn, famous for shaking up management teams at what he considers undervalued companies, now holds about 5.8% of Chesapeake Energy Corp., according to a filing with the Securities and Exchange Commission (SEC).

The SEC filing (Form 13-D) on Dec. 17 indicated that Icahn, 74, and various entities have spent close to $946 million to purchase more than 38.6 million shares of the Oklahoma City-based explorer. The stock purchases would make Icahn the second largest shareholder in Chesapeake after Southeastern Asset Management Inc., which held a 12.4% interest at the end of September, Bloomberg data indicated.

Icahn began buying company stock early this year, said Chesapeake's Jeff Mobley, senior vice president for investor relations and research.

"I believe Mr. Icahn began acquiring shares in the first quarter of 2010 and he also purchased preferred stock from the company in May," Mobley told NGI. "His 13-D filing, which is available on our website, stated shared control of 38.6 million shares (including 12.5 million shares associated with his preferred stock investment), which represents 5.8% ownership.

"We have met with Carl on several occasions, including as recently as Friday afternoon, and are pleased to welcome him as one of our largest shareholders. We believe his investment is evidence of his appreciation for our asset quality and for the strategic direction of the company, in particular our recently updated 2011 strategic plan, which features strong growth in oil production, best-in-industry hedging, significant asset monetizations and reduced leasehold spending."

Chesapeake on Tuesday afternoon was trading for about $25.22/share. Its highest share price in the past year has been $29.22, which was recorded on Jan. 6; its lowest share price was $19.62, recorded on May 25.

Chesapeake, which is the second largest domestic gas producer after ExxonMobil Corp., has in recent years been a relentless spender in some of the biggest U.S. shale plays. The company was one of the first to begin developing the Haynesville Shale, and it is among the top leaseholders in the Eagle Ford, Fayetteville and Barnett shales, and in the Appalachian Basin.

To help pay for the producer's exploration and development costs, CEO Aubrey McClendon has successfully pursued lucrative joint venture (JV) agreements with world-class global energy producers that include BP plc, Statoil ASA and China's CNOOC Ltd., as well as U.S.-based Plains Exploration & Production Co.

However, the company's spending has drawn scrutiny (see Daily GPI, Dec. 6). In just the past two months Chesapeake has announced two transactions that together total more than $1 billion. It agreed to pay $850 million to buy 500,000 net acres in the Appalachian Basin from Anschutz Corp. (see Shale Daily, Nov. 5; Oct. 8). The company also agreed to pay $200 million cash for more acreage in the Eagle Ford Shale (see Shale Daily Nov. 30).

In a December Investor Presentation, Chesapeake (CHK) said it plans to deliver 2011 earnings before interest, taxes, depreciation and amortization of $5.2 billion, with $4.9 billion in cash flow and $1.8 billion in net income. Production is expected to jump 16-20% net of asset sales in the coming year, and proved reserves growth may increase by 2.5-3.2 Tcfe, or 15-20% net of asset sales.

In the coming year Chesapeake also plans to monetize "at least" $5 billion of assets to supplement cash flow of $4.9 billion, "providing the opportunity to significantly further reduce debt and accelerate [a] move toward investment grade metrics." In addition, another JV is expected to be completed in the Niobrara Shale and in an undisclosed area.

Chesapeake also would "substantially reduce net leasehold spend in 2011 from the $4.8 billion level in 2010," according to the presentation.

"Having captured the flag on virtually every new unconventional oil play in the U.S. in 2010, and because there are no more new big oil plays on CHK's horizon that require CHK to invest more than $1 billion per play (as the Eagle Ford, Niobrara and the unnamed play all did in 2010), CHK can now slow way down on leasehold spend in 2011," it said.

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