Chesapeake Admits Board Of Directors Was In The Dark About CEO's Transactions

Aubrey McClendon

Photo: ChesapeakeEnergy

Chesapeake Energy announced this morning it will not extend it’s controversial Founder Well Participation Program once it expires in 2015.The company also revealed its board of directors did not know the details of the deals CEO Aubrey McClendon put together under the plan.

McClendon will now separately disclose information about his interests in the program, which gave him a personal 2.5% stake, including revenues and costs, in wells drilled by the company.

The unusual way McClendon was taking advantage of the program was first disclosed in March by Erich Schwartzl and Elisabeth Ponsot of the Pittsburgh Post-Gazette.

They revealed that McClendon was taking out loans to finance his well stakes, and using assets connected to those same wells like business data and physical well properties as collateral.

That raised the issue of whether there may have been a conflict of interest between McClendon’s transactions and Chesapeake’s

Then last week, Reuters’ Anna Driver and Brian Grow revealed the magnitude of the loans McClendon had taken out to finance his stakes  — $1.1 billion.

The pair also questioned whether McClendon was improperly disclosing his interests to shareholders.

In its statement today, Chesapeake admitted its board of directors was not fully aware of the specific transactions McClendon executed under the plan:

“Chesapeake also wishes to clarify a statement appearing in its April 18, 2012 press release captioned “Chesapeake Energy Corporation General Counsel Henry J. Hood Issues Statement.” The statement that “the Board of Directors is fully aware of the existence of Mr. McClendon’s financing transactions” was intended to convey the fact that the Board of Directors is generally aware that Mr. McClendon used interests acquired through his participation in the FWPP as security in personal financing transactions. The Board of Directors did not review, approve or have knowledge of the specific transactions engaged in by Mr. McClendon or the terms of those transactions.”

Meanwhile, Schwartzl reported Tuesday shareholder lawsuits are already rolling in.

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