WHEELING - Chesapeake Energy soon will have four new board members and a new chairman, company officials said Monday - a step they hope will help give the gas drilling firm lasting stability.
As Chesapeake focuses on developing its liquids-rich Utica Shale play, the driller also hopes to refocus investors on growth potential as an oil producer. Key to this may be the Hogshooter play in Oklahoma and Texas, where Chesapeake said one of its wells is pumping 5,400 barrels of oil each day.
Chesapeake's stock price closed at $16.52 Monday on the New York Stock Exchange, up from $14.65 about two weeks ago. The company plans to sell more than 500,000 acres of leases in Colorado and Wyoming while reducing director compensation to help eliminate debt - and pay back the $4 billion loan the company received from Goldman Sachs.
Photo by Casey Junkins
Natural gas drilling industry water trucks exit the Wheeling Industrial Park in the Peninsula portion of the city. Chesapeake Energy is the most prolific driller in the Wheeling area — and the only active driller in Ohio and Brooke counties.
Even by taking these steps, company leaders believe they still will have about $9.5 billion worth of debt on the books by the end of this year.
The problems stem largely from worries over Chairman and Chief Executive Office Aubrey McClendon's personal business dealings with local Chesapeake leaseholdings, which saw him take a 2.5 percent personal interest in operations in Brooke, Ohio, Marshall and Wetzel counties. This left some investors concerned because Chesapeake is a publicly traded company, while McClendon's firms - Larchmont Resources and Jamestown Resources - are his own businesses.
To help ease investor concerns, Chesapeake's two largest stockholders - Southeastern Asset Management with 13.6 of the company and Carl C. Icahn with 7.6 percent of the company - developed a plan to replace four board members.
McClendon also is now scheduled to surrender the chairmanship at Chesapeake soon, and he has agreed to stop taking new personal stakes in the company's drilling operations by June 30, 2014.
The new independent chairman will have no previous substantive relationship with Chesapeake and must be confirmed by the reconstituted board. The size of the board will remain at nine directors.
"These steps to reconstitute the board will enhance oversight and provide greater accountability," said O. Mason Hawkins, chairman and chief executive officer of Southeastern Asset Management. "We are pleased that Chesapeake is being responsive to issues raised by us and many of the company's other shareholders."
"We appreciate the board's willingness to listen to shareholders and to respond appropriately," added Icahn. "Under Aubrey's leadership, Chesapeake has assembled great assets and I am confident I can help the company create significant shareholder value from these assets."
McClendon said he has "great respect for the talent, commitment and dedication of our current board members, each of whom has played a key role in helping build our successful company."
Regarding the oil production from the Hogshooter area, McClendon seems to believe the company is moving in the right direction.
"We expect this new Hogshooter discovery to provide a significant boost to Chesapeake's focus on harvesting its existing assets for growth and value creation rather than on pursuing new leasehold," he said. "In addition, this new Hogshooter development area should further enhance our growing liquids production, which we expect will have transformational effects on our company's operational and financial performance in the years ahead."
Chesapeake also recently noted that gas wells wet with liquids - those producing ethane, butane, propane, pentane and other liquid properties, as well as the dry methane gas - can be worth about three times as much as the wells that yield only the dry methane gas.