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Monday, April 23, 2012

Reuters After Aubrey Again


(Reuters) - Chesapeake Energy Corp's chief executive came under fire last week after Reuters reported that he used his stakes in company wells to take out as much as $1.1 billion in personal loans.
Now, Reuters has found, CEO Aubrey K. McClendon has employed another way to cash in on a perk unique to the company he runs: He sold his share of two large energy plays at the same time the company divested its interest.
Analysts say the deals, which generated $6.5 billion in proceeds, pose a potential conflict because of the possibility that they could have been timed and structured to suit McClendon's personal interests, rather than those of the company he runs.
"I can imagine a scenario where Aubrey is suffering some financial distress and might want to get a deal done - and it's not the best price for the company," said Joseph D. Allman, oil and gas industry analyst at JPMorgan in New York. Because of the potential conflict, Allman said, Chesapeake should scrap the CEO perk that makes them possible.
McClendon's deals stem from his involvement in an incentive, unique to Chesapeake among large energy companies, called the Founder Well Participation Program. The well plan gives McClendon the right to purchase an interest of up to 2.5 percent in all the wells the company drills in a given year. In exchange, he pays an equal percentage of the costs.
Reuters reported last week that McClendon had used his stakes in thousands of Chesapeake wells as collateral for up to $1.1 billion in personal loans - the majority of which were extended to him by an investment management company, EIG Global Energy Partners, that is also a major investor in Chesapeake itself. The money was used to finance his participation in the well plan, Chesapeake said.
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