* McClendon stepping down April 1
* McClendon to receive $47 million in compensation
* Shares rise 9 percent on news of departure
By Anna Driver and Brian Grow
Jan 29 Chesapeake Energy Corp said on
Tuesday that Aubrey McClendon will step down as chief executive
after a tumultuous year in which a series of Reuters
investigations triggered civil and criminal probes of the
second-largest U.S. natural gas producer.
News of the executive's plan to depart on April 1 boosted
the company's shares by 9 percent. The stock has made a partial
recovery since losing almost half its value last spring after a
Reuters report opened the company and its co-founder up to
Federal regulators and Chesapeake's board are both looking
into whether McClendon, 53, blurred the line between his
personal dealings and those of the company, and into possible
antitrust violations. Big shareholders took control of the board
in June after he was stripped of his title as chairman of the
company he cofounded in 1989.
The internal deliberations that led to McClendon's departure
remain unclear. The findings of the board's probe will be
released next month, but Chesapeake said in a statement that the
review has "to date found no improper conduct."
"I think that the controversy, governance and other issues
that have been pulled up have caused lots of questions about
him," said David Larcker, professor of accounting at Stanford
University's Graduate School of Business. "This was just sucking
up so much time, it had to be a reasonable decision to change
Chairman Archie Dunham was not available to comment late on
Tuesday. The former head of ConocoPhillips was brought
in to quell the shareholder revolt.
In an email to employees, McClendon put his departure down
to "philosophical differences" with the board, but assured them:
"The separation will be amicable and smooth."
Despite a history of McClendon's perks and corporate
benefits creating controversy among shareholders, he will leave
Chesapeake with a lavish package. The company said he "will
receive his full compensation and other benefits to which he is
A person familiar with the terms of McClendon's departure
said it was being treated as "termination without cause,"
entitling the CEO to some of the most generous benefits laid out
in an employment contract that details a wide range of severance
McClendon is entitled to total compensation of about $47
million. That figure includes $11.7 million in total cash
compensation based on McClendon's salary and bonus, which will
be paid out over a period of four years. It also includes
restricted stock awards already given to McClendon that have a
value of $33.5 million, the person familiar with the
compensation package said.
He is also entitled to deferred compensation of about
$800,000 and personal use of corporate jets that could be worth
up to $1 million over four years, the person said.
Chesapeake's board recently cut McClendon's pay package and
gave him no bonus for 2012.
A Chesapeake spokesman declined comment.
As head of a company that bet big on natural gas, McClendon
played a key role in promoting the hydraulic fracturing
technology that unlocked the huge U.S. supplies in shale
formations that are now depressing prices.
News of his departure comes just over two weeks after Encana
Corp CEO Randy Eresman said he would step down
Last June, Reuters reported that Chesapeake plotted with
Encana, its top competitor, to suppress land prices in the
Collingwood shale formation in Northern Michigan, a matter that
is the subject of investigations by both the state of Michigan
and the Department of Justice.
That followed a Reuters investigation in April which found
McClendon had arranged to personally borrow more than $1 billion
from EIG Global Energy Partners, a firm that also is a big
investor in Chesapeake.
The loans, arranged through McClendon's personal shell
companies, were secured by his interest in company wells.
McClendon is allowed to take up to a 2.5 percent stake in every
well Chesapeake drills under a controversial program called the
Founders Well Participation Program (FWPP).
"The empire that he built was based on far higher gas
prices, both for Chesapeake and for him through the Founder Well
Participation Program. So given that outlook, it's not a
surprise he is stepping down," said Mark Hanson, an oil and gas
analyst at Morningstar Inc in Chicago.
"At the end of the day, it's no longer the company that it
once was. The board is really not with him these days. If you
have done things a certain way for 23 years and then all of a
sudden things change as radically as they have in the last six
months, it's hard to get used to."
Hefty spending on oil and gas acreage in the nation's shale
formations and a prolonged period of low natural gas prices have
left Chesapeake saddled with debt and a funding shortfall.
Chesapeake sold or agreed to sell about $12 billion in oil
and gas properties last year. In 2013, it plans to sell up to $7
billion to fill a spending gap that JPMorgan estimates at $5.5
In early May, after another Reuters investigation revealed
that McClendon had partially owned and helped run a secretive
$200 million hedge fund to trade in the same commodities
Chesapeake produces, Florida Senator Bill Nelson urged the U.S.
Department of Justice to investigate potential market
manipulation or fraud by the CEO.
An aide to Senator Nelson said he was not immediately
available for comment on McClendon's pending departure.
Major investors Carl Icahn, who now has a Chesapeake stake
of nearly 9 percent, and Mason Hawkins, with 13.5 percent, took
control of the nine-member board last June.
In a statement issued about a half-hour after the news of
the departure, Icahn said he believed history would prove
McClendon was right about the ultimate value of natural gas and
praised the assets assembled by the former CEO.
"While it is known that some of these assets will be sold by
the company in due course, I do not believe that this will in
any way effect the ultimate realization of Chesapeake's
potential," Icahn said.
Chesapeake has been forced to sell billions of dollars worth
of acreage, but Dunham said in a memo to employees on Tuesday
that "the company is not for sale."
Chesapeake shares rose to $20.69 in post-market trading, up
from a New York Stock Exchange close of $18.97. The stock is
down from highs just above $26 last March, which came before
natural gas prices tumbled to decade lows and McClendon became
an object of so much negative publicity.