Chesapeake Energy says that it is ending a program that allowed CEO Aubrey McClendon to take personal stakes in the wells it drills as part of his compensation package.Its board will also review financing arrangements between McClendon and any outside groups that may have done business with Chesapeake in the past.
McClendon’s arrangement with the board allows him to purchase up to a 2.5 per cent interest in every well Chesapeake drills for his own investment portfolio.
In order to pay for stakes in new wells, McClendon borrowed money — using his stakes in existing wells as collateral — from a group that Chesapeake was trying to sell assets to.
Investors complained that the arrangement raised a conflict of interest. They worried that Chesapeake might have sold its assets to the firm because the firm agreed to lend McClendon money, and not because the terms of the deal were the best Chesapeake could have received.
The arrangement was not previously disclosed to shareholders.
The existence of the loans was first reported last month in the Pittsburgh Post-Gazette. Company shares plunges last week after Reuters reported McClendon borrowed as much as $1.1 billion from the firm.
Chesapeake denies a conflict of interest exists because, it says, McClendon negotiated the loans separately and did not participate in negotiations on the asset sale.
The deal that allows McClendon to buy stakes in Chesapeake wells is set to expire at the end of 2015, but the company announced Thursday that McClendon agreed to end the agreement.
The company, based in Oklahoma City, said McClendon will disclose any financial deals that he has struck through the program as of Dec. 31.
Chesapeake also clarified a statement made last week by the company’s general counsel, Henry Hood. The company said that while the board of directors did know that McClendon used his well stakes as collateral, the board did not know the specific terms of McClendon’s transactions.
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