Shareholders shake up Chesapeake Energy board
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OKLAHOMA CITY -- Chesapeake Energy chief executive officer Aubrey McClendon presided over his last annual meeting of shareholders as chairman of the board this morning, and judging from how some of the shareholder elections went, it could be his last meeting with the company at all.
Two directors up for re-election received only about 26 percent of shareholder votes, forcing their resignations and opening the possibility for seven vacancies on the nine-person board. Mr. McClendon remains on the board but was demoted as chairman in May after shareholders revolted over a loan arrangement that allowed the CEO to quietly mortgage personal stakes in company wells.
The annual meeting brought little resolution to the turmoil that spread from Oklahoma City to its dominating presence in Pennsylvania and Ohio's natural gas fields.
In the past three months, Mr. McClendon has barely kept control of the nation's second-largest natural gas producer as plummeting share prices sliced more than $2 billion in market capitalization, federal agencies started inquiries into his loans and shareholder activists bought stock in an effort to sway the company from the inside.
The revolt put the pressure on Mr. McClendon at this morning's meeting, the first time in the past three months the CEO has made extended remarks about the fallout. His response: focusing on an "asset harvest" company strategy that will most likely lead to more rigs appearing in Pennsylvania and Ohio.
About 230 shareholders pre-registered to attend this morning's meeting; only 85 attended at all last year, according to a Chesapeake spokesman. The unrest was clear from the beginning.
Vincent J. Intrieri, a representative from shareholder activist Carl Icahn's firm Icahn Capital, called Mr. McClendon a "great oil and gas man," but said, "even great executives need vigilant oversight."
Mr. McClendon, meanwhile, used the annual meeting to promote the company's "fourth phase" of asset harvest, saying the firm will focus exclusively on 10 domestic gas and oil formations that include Appalachia's Marcellus Shale and Ohio's Utica Shale.
The Utica Shale was given the star treatment in Mr. McClendon's PowerPoint presentation to investors. He called the liquids-rich rock underneath Eastern Ohio "one of the most important discoveries in the history of our business."
The company, however, recently put about one-fourth of its Utica holdings up for sale as it tries to lower the company's massive debt. Hours before the annual meeting, Chesapeake announced it was selling a midstream operation valued at $4 billion.
A shareholder proposal implementing majority voting in director elections received the support of an overwhelming 97 percent of votes cast. The board adopted the resolution for this morning's meeting, which means the two directors who were up for election, V. Burns Hargis and Richard K. Davidson, must resign.
A representative of Mr. Icahn's is expected to take a seat at the board, as are three candidates put forward by Southeastern Asset Management, a large shareholder that has lead the fight to shake up Chesapeake leadership. The company has not yet announced who will replace Mr. McClendon as chairman.
Mr. McClendon said the company's entrance into the Marcellus Shale and other formations in 2008 heralded the "third phase" of Chesapeake Energy, one that focused on costly land acquisition and exploratory drilling.
Now, with its newfound focus on liquids and oils, Chesapeake is "a completely different company to invest in," he said. "We have what we own, we're happy with what we own," he said.
Chesapeake has drilled thousands of wells in Pennsylvania and has leased more than 1.5 million acres in Ohio.
Chesapeake will use money from the recent sales to finance a transition to drilling in liquids-rich formations like the Utica and the southwestern parts of the Marcellus.
Mr. McClendon disputed claims that the recent asset sales are temporary fixes to a major balance sheet problem.
"We don't intend to kick the can down the road," he said. "We intend to crush the can."
A resolution to reincorporate the firm in Delaware, where director elections are held annually, received the support of 53 percent of votes cast. It was presented by Denver shareholder Gerald Armstrong.
"It's likely you might not be with us next year," Mr. Armstrong told Mr. McClendon.
A proposal calling for more disclosure of Chesapeake's political lobbying expenditures drew 36 percent of the vote.
Chesapeake shares hovered above $18 at mid-day trading, up around 20 cents.
First Published June 8, 2012 12:45 am