Chesapeake Energy CEO Aubrey McClendon sold out of two company-controlled well interests just as the company was divesting in those properties, Reuters’ Anna Driver and Brian Grow report this afternoon.The revelation raises questions about whether the transactions, which netted the company $6.5 billion in proceeds, were timed and structured to benefit McClendon’s or Chesapeake’s interests, they write.
“I can imagine a scenario where Aubrey is suffering some financial distress and might want to get a deal done – and it’s not the best price for the company,” Joseph D. Allman, oil and gas industry analyst for JPMorgan, told Reuters.
Last week, Driver and Grow reported on the alleged conflict inherent in how McClendon was taking advantage of Chesapeake’s Founder Well Participation Program.
That program gives McClendon the right to purchase a stake of up to 2.5 per cent in all the wells the company drills in a given year.
In their initial report, Driver and Grow wrote that McClendon was borrowing against his own stake in the program, using well assets like platforms, hedging contracts and business data as collateral for loans used to buy more shares in wells.
And the loans were being issued by a company that has also lent to Chesapeake, which could have potentially impacted the company’s borrowing rates, the pair reported.
“Chesapeake would not be able to shut in the well due to poor economics (i.e., $1.90 natural gas) without compromising the CEO’s VPP transaction,” Tim Rezvan, an oil and gas industry analyst with Sterne Agee, who had downgraded Chesapeake shares last week on news of McClendon’s loans, told Reuters. “It could present a conflict of interest between CEO Aubrey McClendon and VPP participant Aubrey McClendon.”
The precise amounts McClendon earned on the deals from today’s stories are not known.
That’s because the company has not disclosed gains McClendon realised from individual transactions under the program.
Chesapeake’s proceeds from the two transactions were worth $6.5 billion, according to Reuters. In a company filing on one of the deals — a March 2011 sale of land oil and gas wells in Arkansas to BHP Billiton worth $4.75 billion — McClendon and his affiliates were said to have received the same deal terms as Chesapeake, Reuters reports.
The company said nothing about McClendon’s personal stake in the other deal — the sale in 2008 of land and wells in Oklahoma to BP for $1.75 billion, according to Reuters.
Driver and Grow allege that Chesapeake only selectively discloses McClendon’s transactions under the Well Participation Program.
“After Reuters asked Chesapeake last week about McClendon’s benefit from selling his share of wells alongside the company, Chesapeake amended its preliminary 2012 proxy to mention the fact that McClendon has sold well interests,” they write. “It left the amounts earned blank, and the proxy indicated that it would divulge data only from 2011, not prior years.”
The company has flatly denied any conflict of interest and argues it has disclosed everything required of it under SEC statutes. It recently set up an entire website to respond to the allegations made in Driver and Grow’s stories.