Chesapeake Energy to End Founders Well Program
OKLAHOMA CITY – Chesapeake Energy Corp., under heavy fire from angry shareholders and now a probe by the Securities and Exchange Commission, announced Thursday that it would end a program that gave the company's CEO a share in wells Chesapeake drills.
The program, called the Founders Well Participation Program, came under assault from shareholders when it was discovered that CEO Aubrey McClendon used his shares in thousands of wells as collateral and leveraged more than $1 billion in personal loans.
Meantime, the SEC has begun an informal inquiry into the founders program, according to a Reuters story yesterday. Such inquiries are a first step before the agency initiates a full-scale investigation into the matter.
The program, first reported by the Pittsburgh Post-Gazette in March, became the subject of a Reuters story two weeks ago that found that McClendon used his 2.5% stake in these wells to secure more than $1 billion over the last three years.
Under the program, McClendon was allowed a 2.5% share in Chesapeake's drilled wells, and was obligated to pay the same percentage in costs toward development of the wells.
The company said in a statement Thursday that it does not intend to continue the well participation program when its term expires Dec. 31, 2015. "The board of directors and Mr. McClendon have committed to negotiate the early termination of the FWPP and the amendment to Mr. McClendon's employment agreement with the company necessary to effectuate the early termination."
McClendon will also separately disclose supplemental information regarding the interests he has acquired through the well participation program, the company said.
Chesapeake also clarified a statement first issued by corporate counsel Henry Hood that stated that the board of directors was "fully aware of the existence of Mr. McClendon's financial transactions." Instead, the company says that the statement was made to convey that the board was "generally" aware of the transactions.
"The board of directors did not review, approve or have knowledge of the specific transactions engaged in by Mr. McClendon or the terms of those transactions," the company said in a statement.
McClendon's transactions have spurred a flurry of angry response from shareholders and the Washington D.C. law firm of Finkelstein Thompson LLP is contemplating a class action lawsuit.
Others have called for changes at the top. Analyst Philip Weiss of Argus Research said in a note to investors that the actions of McClendon, the company's heavy debt load, its sagging stock price, and complex accounting practices, justifies his recommendation that the "best thing for investors would be to replace the board and/or the CEO."
Copyright 2012 The Business Journal, Youngstown, Ohio.
Copyright 2013 Youngstown Publishing Co. DBA The Business Journal
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