Chesapeake to name nonexecutive chairman; McClendon continues as CEO

Chesapeake Energy Corp. said its board will name an independent, nonexecutive chairman, as well as renegotiate the terms of the company’s Founder Well Participation Program (FWPP) with Chairman and Chief Executive Officer Aubrey K. McClendon.

The FWPP now is set to expire June 30, 2014, which is 18 months before the end of its original term on Dec. 31, 2015. McClendon will receive no compensation of any kind for the FWPP early termination, the board said.

McClendon will continue as chief executive officer. He indicated his support of the board’s decision to name a nonexecutive chairman.

“We believe separation of the chairman and chief executive officer roles will improve Chesapeake’s corporate governance and the early termination of the FWPP will eliminate a source of controversy, both of which should send a positive signal to the market,” McClendon said.

Previously, McClendon agreed to disclose more information about interests he acquired using FWPP. Under the FWPP, McClendon has a contractual right to participate and invest as a working interest owner (with up to a 2.5% working interest) in new wells drilled on the company’s leaseholds.

The board also said it’s reviewing financing arrangements between McClendon and entities with which he participated in the FWPP.

The board has said it generally was aware McClendon used interests acquired through FWPP as security for his personal financing transactions, but that the board did not review, approve, or have knowledge of McClendon’s specific transactions.

Separately on Apr. 26, Fitch Ratings announced that it revised its rating outlook for Chesapeake to stable from positive. Fitch said the ratings revision stemmed from a weak outlook for US natural gas prices coupled with what Fitch calls Chesapeake's “still aggressive spending plans” for 2012.

“The recent news regarding the personal borrowings by the company's CEO from the same group that has invested in preferred interests in two of Chesapeake's nonguarantor subsidiaries has raised issues regarding the potential for a conflict of interest and lack of transparency among some stakeholders,” Fitch said.

“The borrowings and the lack of prior disclosure has focused a spotlight on the company's board…. Given this recent news, Fitch believes stakeholders will have a higher level of expectations for disclosure and transparency going forward.”

Contact Paula Dittrick at [email protected].