Source: Chesapeake's outgoing CEO McClendon will walk away with $46 million
BY FROM STAFF AND WIRE REPORTS
Wednesday, January 30, 2013
The departure of Chesapeake Energy Corp.'s CEO will leave to his successor a shrunken, cash-starved version of what was once the preeminent natural gas producer in the world’s biggest market for the fuel.
Meanwhile, Aubrey McClendon will walk away with compensation including $34 million in accelerated vesting of restricted stock that he was awarded previously, and about $12 million in cash severance and benefits to be paid out over four years, a person familiar with the matter told Bloomberg News.
The CEO's agreement to resign effective April 1 culminated a shareholder revolt by Carl Icahn and Southeastern Asset Management Inc.’s O. Mason Hawkins that earlier had cost the CEO the chairmanship he’d held for more than two decades.
McClendon also relinquished his annual bonus and saw executive perks curtailed amid federal investigations of a portfolio of personal loans that topped $840 million.
Oklahoma City-based Chesapeake lost as much as 43 percent of its market value in 2012 as scrutiny of McClendon’s financial transactions destroyed investor confidence in management and cratering gas prices drained the company of cash. Unfinished tasks facing the next CEO include raising $8 billion from asset sales this year to plug a funding shortfall, and converting a company that pumps enough gas to supply 20 percent of American household demand into an oil producer.
“Companies have life cycles and during various stages it can make sense for some people to leave,” Philip Weiss, an analyst at Argus Research Corp. in New York, said in a telephone interview with Bloomberg News. “Aubrey McClendon was very good at accumulating land but now that Chesapeake is moving into an asset-harvesting mode, they must have decided they needed someone with another set of skills.”
An internal board investigation of McClendon’s use of his stakes in thousands of company-owned wells to secure personal loans so far has found nothing improper, Chesapeake said in a statement released after the close of regular trading Tuesday. The head of the audit committee for the probe was Oklahoma State University President Burns Hargis.
“The imminent departure of CEO McClendon proves that major strategy changes are likely, and we envision a reduced spending environment that is less reliant on asset sales,” Tim Rezvan, an analyst at Sterne Agee & Leach Inc. in New York, who has a neutral rating on Chesapeake shares, wrote in a note to clients Wednesday.
Archie Dunham, the former ConocoPhillips chief who replaced McClendon as chairman in June, thanked the outgoing CEO for his “enormous achievements,” in an e-mail to employees. The company isn’t for sale and employee perks such as on-site childcare and a fitness center at the company’s Oklahoma City headquarters won’t be discontinued, Dunham wrote.
In a separate e-mail to Chesapeake employees, McClendon attributed his imminent departure to “certain philosophical differences” between him and the board without elaborating. Dunham and McClendon declined to be interviewed for this story, according to Michael Kehs, a Chesapeake spokesman.
Icahn and Hawkins, who together control 22 percent of Chesapeake’s stock, pushed for McClendon’s resignation after concluding his presence and the controversy surrounding his personal business deals was hurting the company’s share price, a person with knowledge of the discussions said. Icahn and Hawkins didn’t immediately respond to messages left at their offices.
McClendon, 53, led Chesapeake from its 1989 inception in Oklahoma City, amassing U.S. gas and oil fields that cover an area equivalent to half the size of New York state. As one of the first explorers to embrace horizontal drilling and hydraulic fracturing, McClendon helped usher in a revival of U.S. gas and oil production with discoveries such as the Haynesville Shale in Louisiana and Utica Shale in Ohio.
McClendon’s departure under a mutual agreement with the board will be treated as a “termination without cause” rather than a retirement, said a person with knowledge of his departure terms, who spoke on the condition that he not be identified.
A retirement before Dec. 31 of this year, according to a May filing detailing severance terms, would have required McClendon to repay part of a special $75 million cash payment the company awarded him in 2008. The “clawback” would be worth about $11 million based on an April departure, according to a formula disclosed in the filing.
Based on the terms of a termination without cause, Chesapeake won’t collect any clawbacks from McClendon in connection with his resignation, the person with knowledge of the matter said.
Aubrey McClendon, chairman and chief executive officer of Chesapeake Energy Corp., speaks during the Cambridge Energy Research Associates CERAWeek 2009 conference in Houston in 2009. F. CARTER SMITH/Bloomberg News