Chesapeake faces probe by Ohio AG
BY Staff and Wire Reports
Wednesday, June 20, 2012
6/20/12 at 2:16 AM
Ohio's attorney general announced Tuesday he is investigating the business practices of Chesapeake Energy Corp., the same day the company said it plans to lay off 70 people in Texas.
Mike DeWine's office in Columbus has launched a preliminary review of "unfolding disclosures" about activities by the Oklahoma City-based company and its CEO, Aubrey McClendon.
Chesapeake Energy is expected to name a new chairman this week, after McClendon agreed to step down as chairman of the company he co-founded in 1989. His decision followed questions raised about the company's corporate governance and a report that he secured up to $1.1 billion in personal loans, including loans from a private equity firm that does business with the company.
DeWine's letter said if Chesapeake is shown to have manipulated core corporate activities to benefit McClendon's personal interests, shareholders in the company, including Ohio's retirement systems, may have suffered losses. His office is reviewing retirement system trading data to identify any losses attributable to Chesapeake.
"Please be assured we will monitor the situation and take appropriate action if it appears Ohio resources have been lost due to fraudulent activity," DeWine wrote in a letter to Citizen Action Executive Director Sandy Buchanan.
Buchanan said Tuesday that she was pleased with DeWine's response, which followed her June 4 letter on behalf of 80,000 Citizen Action members in the state asking that DeWine step in to protect state residents against a scandal like the one at Houston-based energy company Enron Corp., which collapsed in December 2001 after a massive accounting fraud.
DeWine, in his reply, said Ohio could join an Oklahoma lawsuit against Chesapeake if the lawsuit is authorized as a class action.
As shale gas drilling has boomed in Ohio, Chesapeake has been a leading company in exploration and hydraulic fracturing, a drilling procedure that involves blasting chemical-laced water deep into the ground. The company declined to comment on the Ohio matter Tuesday.
Meanwhile, Chesapeake did say it is scaling back its North Texas workforce, but a company executive maintained the business still is in "growth mode." The jobs are being eliminated from its offices in Fort Worth and Cleburne.
"While the news was not a surprise given historic low natural gas prices and our company's ongoing strategy to redeploy assets to more economically promising fields, it was of course a disappointment," Julie Wilson, Chesapeake's vice president of urban development in Fort Worth, wrote in an email to employees.
Wilson said employees were informed Tuesday morning of the reduction plan, which will leave about 700 people in Chesapeake's North Texas offices.
The company already has curtailed its production in the area's natural gas-rich Barnett Shale because of low prices.
Wilson said the company is growing despite the staff reduction.
"We continue to add staff at our headquarters in Oklahoma City and in many of our field offices as the company continues to drill approximately 1,650 new wells this year to develop our enormous reserves of domestic oil, natural gas and liquids," she said.
Chesapeake's troubles have attracted several large investors, including Carl Icahn and Southeastern Asset Management. Together, Icahn and Southeastern will get four seats on the nine-member board. Icahn gets one seat, while Southeastern gets three.
Vincent J. Intrieri will be Icahn's representative on the board, CNBC reported Monday.
Shares of Chesapeake closed Tuesday at $18.71, up $1.04. The stock is down 16 percent this year and is trading at about half its 52-week high of $35.75 reached on Aug. 2.
Jay F. Marks of The Oklahoman and the Tulsa World Business staff contributed to this story by The Associated Press.