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It’s a gusher!


Gazette staff May 16th, 2012

Is what started as an explosive news story about Chesapeake Energy CEO Aubrey McClendon turning into a slow-motion train wreck?

Brad Gregg

Revelations continue to percolate from Reuters, the news agency that spurred the headaches for McClendon last month when it reported on his $1.1 billion in personal loans to pay for a CEO perk.

More recently, Reuters showed that McClendon had Chesapeake’s permission to trade in commodities, even though a 2009 contract indicated he could not take an active role in a hedge fund. That contract came just a few months after the shutting down of McClendon’s hedge fund, which traded in the same oil and gas commodities produced by the energy giant.

Yet another Reuters story laid out how a large portion of Chesapeake’s funds was generated through complex financial deals mirroring the sub-prime mortgage market prior to 2008, raising questions about whether the company could continue to meet its cash needs.

“Today, the ... company is taking in more money from bankers, other investors and its own financial bets than it is from its oil and gas,” reported Reuters. “Most big energy companies ... typically earn more selling oil and gas than they spend on investments, financing and other costs, making them cash rich. Chesapeake is expanding so fast that it takes in much less revenue from its oil and gas than it spends, leaving it stretched.”

The company received a lifeline May 11 with a $3 billion loan from Goldman Sachs and Jeffries Group, allowing Chesapeake more time to sell assets without significantly hurting cash flow.

In the latest twist — at least as of this writing — The Wall Street Journal reported that billionaire activist shareholder Carl Icahn is buying a significant stake in Chesapeake. Icahn is known for purchasing large stakes in undervalued companies then pressuring company executives to make changes.

The Oklahoman, in addition to publishing several of the Reuters stories online, also ran a piece about a shareholder lawsuit against Chesapeake, claiming that it wasted millions of dollars by allowing senior executives and board members to take corporate jets on personal trips.

It looks like Reuters, which has been leading the way on reporting the Chesapeake story, may have found its own news play in the form of Chesapeake Energy — a play that, as the June 8 shareholders meeting approaches, probably hasn’t been tapped out just yet.

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05.16.2012 at 09:32 Reply

The price is riding kinda low (around $14 a share), now might be a good time to invest if there is going to be a shake up.

It peaked in 2008 at $66!

 

 
 
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