Chesapeake absolves CEO in internal probe of gas-well loans

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Chesapeake Energy Corp. exonerated co-founder and outgoing CEO Aubrey McClendon for privately borrowing hundreds of millions of dollars from some of the company's biggest financiers.

The company's review found no intentional misconduct on the part of Mr. McClendon, the Oklahoma City-based oil and natural gas explorer said in a statement Wednesday. The findings, announced three weeks after the CEO agreed to resign from the company he led for almost a quarter century, was the culmination of a 10-month probe by the board into Mr. McClendon's use of minority stakes in Chesapeake-owned wells as collateral for private loans.

Separate probes are in progress at the Internal Revenue Service and the U.S. Securities and Exchange Commission.

The conclusion of the board's inquiry clears a distraction for management and investors that weighed on Chesapeake's stock price for most of the past year, said Scott Hanold, an analyst at RBC Capital Markets LLC in Minneapolis. Chesapeake may signal newfound financial discipline by unveiling a scaled-back 2013 capital budget when fourth-quarter results are announced today, he said.

The investigation by the board's audit committee and the Locke Lord Bissell & Liddell LLP law firm involved more than 50 interviews with executives from Chesapeake and other companies, according to the statement. The transactions reviewed included Mr. McClendon's borrowings from EIG Global Energy Partners LLC, a private-equity firm that bought preferred shares in two Chesapeake subsidiaries in 2011 and 2012.

"The review of the financing arrangements did not reveal any improper benefit to Mr. McClendon or increased cost to the company as a result of the overlap in the financial relationships," the company said.

Under an executive perk designed to align Mr. McClendon's personal interests with those of the company, he acquired stakes as large as 2.5 percent in almost every well Chesapeake drilled during the past 24 years. Mr. McClendon took out loans backed by his well stakes to fund his portion of costs. As of Dec. 31, 2011, he owed $846 million on those loans, the company reported on April 26.

The internal investigation also found no evidence of antitrust violations during Chesapeake's 2010 acquisitions of drilling rights in a Michigan shale formation, the company said.

The U.S. Justice Department and Michigan's attorney general began inquiries last year into e-mailed communications between Chesapeake and Encana Corp. in the run-up to a 2010 auction of state-owned leases. The e-mails included discussions of divvying up Michigan counties for bidding by each company.

Mr. McClendon said in one e-mail that the company needed to "smoke a peace pipe" with Calgary-based Encana to prevent the rivals from "bidding each other up," Reuters said in a June report. Encana said in September that its separate internal inquiry concluded the company hadn't colluded with Chesapeake to fix lease prices.

Mr. McClendon, 53, agreed on Jan. 29 to resign effective April 1, citing "philosophical differences" with the board that he didn't detail.

The company is expected to report Thursday that fourth- quarter profit tumbled because of hedging contracts that linked about three-fourths of its gas output to below-market prices.

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