Chesapeake Energy's departing chief executive officer will leave to his successor a shrunken, cash-starved version of what was once the pre-eminent natural gas producer in the world's biggest market for the fuel.
Aubrey McClendon's agreement to resign effective April 1 culminated a shareholder revolt by Carl Icahn and Southeastern Asset Management'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.
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. "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 Tuesday.
Chesapeake's 6.775 percent bonds due to mature in March 2019 rose 0.75 cents to 100.75 cents on the dollar to yield 6.622 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Archie Dunham, the former ConocoPhillips chief who replaced McClendon as chairman in June, thanked the outgoing CEO for his "enormous achievements," in an email 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 email 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 after normal business hours yesterday.
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.
The success of the drilling methods led to a glut of North American gas that drove prices to a 10-year low in early 2012, causing Chesapeake to cut jobs, curtail capital spending and sell about $11 billion in oilfields and pipelines to help close a gap between cash flow and drilling expenses. The company lost $1.07 billion during the first three quarters of last year, and net debt ballooned by 56 percent during that period to $16.1 billion.
The board will release final results of its review of McClendon's financial transactions on Feb. 21, when announcing fourth-quarter results.
"While I have certain philosophical differences with the new board, I look forward to working collaboratively with the company and the board to provide a smooth transition to new leadership," McClendon said in the statement.
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.