Chesapeake shares dive; CEO 'sorry'
Shares of Chesapeake Energy Corp. posted their largest decline in more than three years on Wednesday as Chairman and Chief Executive Aubrey McClendon said he was "deeply sorry" for the turmoil caused by his personal financial dealings.
McClendon is under fire over investigations by Reuters into his personal financial dealings. He characterized many of the reports as "misinformation," without elaborating.
Reuters report of McClendon's operation of a hedge fund that traded in the same commodities the company produces prompted Florida Democratic Sen. Bill Nelson to ask the Justice Department to investigate potential fraud, price manipulation and conflicts of interest.
McClendon said during an earnings conference call: "There's been enormous and unprecedented scrutiny of our company, and of me personally. And a great deal of misinformation has been published, and uncertainty created."
Chesapeake shares fell nearly 15 percent to close at $16.74 on the New York Stock Exchange, their largest decline in more than three years. More than 140 million shares traded, the busiest day in the stock's history.
McClendon did not offer specifics, and analysts did not press him on the Reuters reports that showed he had taken out as much as $1.1 billion in personal loans on ownership stakes in wells the company had given to him. Analysts and academics have said those stakes posed potentially serious conflicts of interest.
A new Reuters investigation yesterday found that McClendon also ran a $200 million hedge fund that was registered at Chesapeake's Oklahoma City office from 2004 to 2008 and traded in the same commodities Chesapeake produces.
"Obviously, there is a lot of noise going on personally with management," said Neal Dingmann, an analyst with SunTrust Robinson Humphrey, referring to the stock decline.
The new investigation is prompting lawmakers such as Nelson and Sen. Bernie Sanders to renew their calls for regulators to crack down on energy speculation. Nelson and Sanders have blamed speculators for driving up oil prices.
Sanders said the Reuters probe into the Heritage Management Co hedge fund raises serious questions about conflicts of interest and a lack of transparency in the derivatives market.
"CEOs are required to let the public know when they buy and sell large shares of their own company's stock, but trading in energy futures and derivatives is kept hidden from the American public. This is simply unacceptable," said Sanders, a Vermont independent.
A company spokesman was not immediately available to comment on Nelson's call for a Justice Department investigation.
Dingmann said investors were likely disappointed that the company produced more low-cost natural gas than expected in the first quarter, among other factors.
Chesapeake said on Tuesday it would replace McClendon as chairman and bring to an early end its controversial Founders Well Participation Program that gave him stakes in each of the company's wells. The program will run through June 2014, ending 18 months earlier than originally planned.
Chesapeake's largest shareholder, Memphis-based Southeastern Asset Management, will be involved in the search for a nonexecutive chairman and take a more active role in the affairs of the company.
"The bottom line is, there are positives and negatives of partnering with McClendon, as with anybody, and in our opinion the positives strongly outweigh the negatives, and the negatives have been very actively addressed," Southeastern President G. Stanley Cates said.
Southeastern has a 13.6 percent stake in Chesapeake.