Chesapeake Energy Corp., which is facing scrutiny from the U.S. Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS), on Tuesday stripped company co-founder Aubrey K. McClendon of his role as chairman of the board of directors and terminated the Founder Well Participation Program (FWPP).

The FWPP gave McClendon the sole contractual right to receive a 2.5% stake in every well the company has drilled since 1993. The board of directors and McClendon recently agreed to terminate the FWPP at the end of 2015 but now will end the program on June 30, 2014 (see Daily GPI, April 27; April 24).

“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.”

The board plans to name an “independent, nonexecutive chairman in the near future,” the company said. The nominating and corporate governance committee “is considering potential candidates with no previous substantive relationship with Chesapeake and will be soliciting input from major shareholders.”

Once a nonexecutive chair is appointed, McClendon would continue as CEO, Chesapeake said. McClendon has “waived any rights he might have under his employment agreement as a result of no longer serving as chairman.”

The announcements were made before the 1Q2012 earnings report, as well as the quarterly conference call, which is scheduled for 9 a.m. ET on Wednesday. After the bell on Tuesday Chesapeake reported that it lost $71 million (minus 11 cents/share) in 1Q2012, versus a net loss of $205 million (minus 32 cents) in 1Q2011. Operating cash flow in the latest quarter totaled $910 million, well below the year-ago total of $1.38 billion.

The shake-up by the board on Tuesday proved a positive for shareholders, with Chesapeake ending the day higher at $19.58, up 6.21% from Monday. On an average day, around 19.4 million Chesapeake shares trade hands. On Tuesday, more than 68.75 million shares were traded.

“Mr. McClendon will 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.”

A recent investigation uncovered that McClendon has 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 Daily GPI, April 19).

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.

The chairman of Southeastern Asset Management, Chesapeake’s largest shareholder with 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.”

The company’s 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.”

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