Chesapeake discloses loans after Reuters report

Fri Apr 20, 2012 8:18pm EDT
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By Anna Driver and Brian Grow

HOUSTON (Reuters) - Chesapeake Energy Corp (CHK.N: Quote), in response to a Reuters report earlier this week, will disclose to shareholders the existence of loans its CEO Aubrey McClendon took out against his interest in thousands of wells granted to him as a corporate perk, according to a regulatory filing on Friday.

Reuters reported on Wednesday that McClendon has borrowed as much as $1.1 billion against his 2.5 percent interest in wells received as part of his compensation.

The loans, taken out over the past three years, were previously undisclosed to shareholders, analysts and academics said, raising concerns that McClendon's personal financial deals could compromise his fiduciary duty to Chesapeake.

The company did not detail the amounts and terms of the loans, nor specific lenders, according to a preliminary proxy filing with the U.S. Securities and Exchange Commission.

Wall Street analysts who follow the company characterized the disclosure as a step in the right direction, but said more was needed.

"The increased disclosure in the proxy is a start, but it's still disappointing that Chesapeake remains tone deaf to analyst and investors and only seems to take action once they're called on the carpet ... through a journalistic expose such as the one that came to light this week," Mark Hanson, analyst at Morningstar said in an email sent to Reuters.

Joseph Allman, analyst at JP Morgan, said the company's shareholders would benefit most if the company eliminated the Founders Well Participation Program (FWPP) that grants McClendon personal interest in all wells the company drills.

McClendon spent $457 million to participate in the FWPP in 2011, according to the filing. Shortly after in January 2012, he borrowed up to $500 million from a unit of EIG Global Energy Partners, part of the overall $1.1 billion.   Continued...

Chief Executive Officer, Chairman, and Co-founder of Chesapeake Energy Corporation Aubrey McClendon walks through the French Quarter in New Orleans, Louisiana March 26, 2012. REUTERS/Sean Gardner