By Anna Driver and Brian Grow
June 21 (Reuters) - Chesapeake Energy Corp named former Conoco head Archie Dunham its new chairman, replacing Aubrey McClendon as it seeks to quell a shareholder revolt over a governance crisis.
McClendon, who co-founded the company 23 years ago and built it into the second-largest natural gas producer in the country behind Exxon Mobil Corp, will continue as chief executive, but will report to a more independent board and an influential chairman who will likely rein in his free-spending ways.
Chesapeake, struggling with weak cash flows amid the lowest natural gas prices in a decade and a massive $10 billion funding gap, is racing to sell assets as its focuses spending on its most profitable fields.
In May, Chesapeake said it would split the job of CEO and chairman. That decision came in the wake of a Reuters report saying McClendon, both chairman and CEO at the time, had arranged more than $1 billion in personal loans using his interest in company wells as collateral.
McClendon's largest personal lender, EIG Global Energy Partners, is also a big source of funding for Chesapeake, a situation that could put the executive's interests at odds with shareholders, academics and analysts have said.
The arrival of Dunham, a former U.S. Marine who earned two degrees from the University of Oklahoma, heightened speculation the company could seek a buyer. For a Breakingviews column:
"This guy's got a lot of contacts around the world. He seems to me like he would be a good choice to run Chesapeake or sell it out," said Mike Breard, an analyst with Hodges Capital Management.
On Wednesday, the Financial Times reported that China's Sinopec Corp was considering a multibillion dollar bid for Chesapeake assets.
In addition to Dunham, Chesapeake's board appointed four other new independent members proposed by the company's top two shareholders.
Southeastern Asset Management, the largest shareholder with a 13.9 percent stake, brought in Bob Alexander, Brad Martin and Frederic Poses, while activist investor Carl Icahn, who owns 7.6 percent, proposed Vincent Intrieri.
At a rare public appearance, Southeastern CEO O. Mason Hawkins said Chesapeake's shares were worth more than $50 apiece and would eventually top $100 if gas prices rebound.
"Chesapeake is at the full position to have the best assets, so shame on us if we don't produce a lot of earnings and a lot of cash flow," Hawkins said at the Morningstar Investment Conference in Chicago. "Chesapeake has a chance to deliver more units at higher prices."
Tim Rezvan, an analyst at Sterne Agee, said the board changes "should give investors confidence that a more palatable spending plan will be in place next year."
Dunham, 73, spent more than three decades at Conoco and served as its president and chief executive when it sealed the deal that created ConocoPhillips in 2002. He was chairman of ConocoPhillips from the merger until his retirement in 2004.
Dunham has been credited with turning around a struggling Conoco in the 1990s when, as head of its oil and gas production business, he sold $2 billion of assets and focused spending on its best-performing fields.
Some analysts wondered whether Dunham was selected to prepare Chesapeake for a possible sale, something that both Hawkins and Icahn have urged the Oklahoma City, Oklahoma company to consider.
"Given (Dunham's) age, I'm left wondering if his appointment doesn't signal something bigger is afoot," said Morningstar analyst Mark Hanson. "At 73, he obviously is a very accomplished guy. If this is his last hurrah, it's not going to be waiting for gas prices to recover, it's going to be a sale."
Another shareholder said Dunham's membership on the boards of Union Pacific Corp and Louisiana-Pacific Corp could weaken his focus on Chesapeake.
"I would have thought the chairman would have been a little more hands on," said David Dreman, chairman of Dreman Value Management LLP, which owns about 1 million shares. "We're not getting an active chairman."
A call to Dunham's Houston home was not immediately returned.
Despite being rejected by about three quarters of the company's shareholders in a vote earlier this month, Chesapeake said it would keep V. Burns Hargis on the board to help complete a review of McClendon's financing arrangements.
"The news (of the appointments), which is welcome and positive, is tempered by the decision to keep Hargis," said Michael Garland, head of governance for New York City Comptroller John Liu.
"It's a bad decision justified by flawed logic," he said. "They are keeping the director who chaired the audit committee that failed in its oversight and is now investigating what went wrong."
The five new directors will replace Richard Davidson, Kathleen Eisbrenner, Frank Keating and Don Nickles - who resigned - and Charles Maxwell, who retired.
McClendon retains some power despite the changes. The board amended company bylaws to give the CEO the authority to call board meetings and special shareholder meetings.
The company's shares ended 4.8 percent lower at $18.12 on the New York Stock Exchange. That compares with a 5 percent decline in the SIG Oil Exploration and Production Index