Chesapeake Searches For New Chairman, Scraps Founder Well Participation Program

by Trefis Team
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Chesapeake Energy (NYSE:CHK) recently announced the dethroning of Founder and CEO Aubrey McClendon from the position of Chairman after the shareholders complained of his conflict of interest with that of the company. Chesapeake is presently searching for an independent Chairman while McClendon will continue to be CEO. McClendon was the only Chairman and CEO the company has ever had since its inception in 1989.

Chesapeake is the second largest producer of natural gas in the United States after Exxon Mobil (NYSE:XOM) and the most active driller of new wells with its expertise in unconventional drilling. It competes with oil and natural gas companies such as Linn Energy (NASDAQ:LINE) and Cimarex Energy (NYSE:XEC).

See our complete analysis for Chesapeake

Since its inception, Chesapeake has had a unique program called Founder Well Participation Program (FWPP), which allowed the chairman to buy a 2.5% stake in the company-operated wells as part of his compensation. As a result, McCleandon has had to invest heavily on capital expenditure and operating expense relating to all the wells drilled to date. But presently, because of the dwindling fate of the company, the profits dipped and McClendon had to take out more than $1 billion in loan to pay for his stake in the company’s wells. [1]

McClendon, being the CEO and Chairman, took important decisions regarding the asset sales lately, and this concerned shareholders as McClendon’s interests could have influenced Chesapeake’s decision to sell those assets. The FWPP program was scrapped recently, and McClendon had to give up chairmanship, a step that was welcomed by the shareholders, and the stock price surged nearly 6% with the news.

With the FWPP removed and the company not very far from selecting its new Chairman, Chesapeake looks set on the right track again.

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  1. Chesapeake’s McClendon to give up chairman post, Business Week, May 1, 2012 []
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