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You can't spell McClendon without 'lend'


Gazette staff April 20th, 2012

When analysis of a news story about the company you founded is sprinkled with comparisons to WorldCom and Enron, you know you’re having a bad day.

aubrey+mcclendon++mug+04+small+mhAubrey McClendon - Shannon Cornman

Chesapeake Energy CEO Aubrey McClendon has had a few of those in recent months.
On April 18, Reuters reported that over the course of three years, McClendon had taken out around $1.1 billion in personal loans from companies he controlled. Those loans were used to secure a CEO perk in which he must pay for 2.5 percent of the cost of each well that Chesapeake drills, in exchange for 2.5 percent of the well’s profit, the story stated.

That means McClendon has a personal stake in each well drilled by the company he founded.

That $1.1 billion in personal debt — greater than the gross domestic product of some small countries — is secured with McClendon’s stake in the wells as collateral, according to Reuters. Incidentally, $1.1 billion is what Forbes tabs as McClendon’s net worth.

The concern, argued by a number of attorneys and business analysts in the Reuters story and its spinoff coverage, is this: Because the loans taken out are McClendon’s and secured with collateral tied up with Chesapeake well production, he conceivably could act to further his own interests to deal with the loans, rather than making the best decisions for Chesapeake, a publicly traded company owned by the shareholders.

One shareholder subsequently filed suit against McClendon, claiming the loans exposed Chesapeake shareholders to liability. The complainant wants McClendon and other board members to disclose all material facts in relation to the loans and arrange independent oversight to identify any threats to the company, Reuters reported.

One analyst on Yahoo! Finance put the alleged conflict of interest like this: If McClendon needs money to pay on the loan, he could have the wells opened to increase natural gas production, but because natural gas prices are so low, it would not necessarily be good for Chesapeake stockholders.

This story comes as Chesapeake is selling off assets to eliminate a large portion of its debt, and follows previous clashes McClendon has had with shareholders. The company’s stock fell around 10 percent the day the story came out.

Chesapeake responded that McClendon’s financing is known by the company’s board of directors and is revealed to shareholders, and that no conflict of interest exists.

 “If there were any conflicts of interest, I think they would have surfaced by now,” Chesapeake General Counsel Henry Hood told Reuters.

A Yahoo! Finance analyst reacted by saying it appears they have indeed surfaced “much like a body in the East River.”

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