(Bloomberg News) Chesapeake Energy Corp. Chief Executive Officer Aubrey McClendon told investors he's "deeply sorry" that his personal finances have come under scrutiny as shares fell the most in more than three years.
"I'm deeply sorry for all of the distractions of the past two weeks," McClendon, co-founder of Oklahoma City-based Chesapeake, said on a conference call today. McClendon said the company may have to sell more assets than planned to cover a gap between cash flow and revenue if natural-gas prices remain depressed. These sales won't interfere with debt-reduction targets or plans to boost oil production, he said.
Chesapeake dropped 15 percent to $16.74 at the close in New York, the biggest decline since December 2008. The company reported an unexpected first-quarter loss yesterday, cut cash flow estimates, reduced its drilling budget and said it may run out of money next year under the weight of the lowest gas prices in a decade. Chesapeake needs gas prices of $5 a thousand cubic feet in 2014 to achieve its $7 billion cash flow goal for that year, McClendon said.
The shares have dropped 50 percent in the past year. The impact of falling gas prices has been compounded by media reports that McClendon was using personal stakes in the company's wells to obtain loans. Chesapeake said yesterday it would strip McClendon of his role as chairman and appoint an independent person to the position he has held since co-founding the company in 1989.
Chesapeake's board said it will call an early halt to an incentive program that allowed McClendon to amass personal stakes in thousands of company-operated wells.
Biggest Investors
McClendon raised concern among some of his biggest investors, including Southeastern Asset Management, after Reuters reported last month that he used his stakes in the wells as collateral to borrow hundreds of millions of dollars. Southeastern Asset Management, which holds a 13.6 percent stake in the company, today filed to change its status to an activist investor so it can pursue talks with management or third parties to boost the company's value.
Potential conflicts between his personal and professional duties overshadowed the CEO's efforts to shave a net debt load that swelled to twice the size of Exxon Mobil Corp.'s at the end of 2011.
"The market has been catching up to the debt-laden, smoke-and-mirrors investment model they employ," said Steve Shafer, chief investment officer for Covenant Global Investors, an Oklahoma City-based hedge fund that manages $320 million. "Chesapeake has a lot of debt and it needs a lot of debt going forward and that sets up a potentially scary situation." Covenant Global doesn't own Chesapeake shares.
End The 'Controversy'
"We are eager to put the controversy of the past two weeks behind us and focus all of our energies on delivering on our key endeavors," McClendon said on the conference call today.