Chesapeake Energy shares plunge on CEO loan report

AP News
Posted: Apr 18, 2012 2:26 PM
Chesapeake Energy shares plunge on CEO loan report

Shares of Chesapeake Energy fell sharply Wednesday after a published report said that CEO and co-founder Aubrey McClendon borrowed up to $1.1 billion, using his interest in Chesapeake oil and natural gas wells as collateral.

THE SPARK: Reuters reported that McClendon took out the loans over the past three years through three companies he controls which have the same corporate address as Chesapeake. McClendon is using the money to participate in a company plan that allows him to take a 2.5 percent stake in the company's wells. Reuters said a number of academics, analysts and attorneys raised concerns about whether these personal debts would lead to a potential conflict of interest for the CEO.

In an emailed response, Chesapeake's general counsel Henry Hood said the terms of the company plan that allows McClendon to take a stake in the wells ensures that the CEO's interests are aligned with those of the company

In October 2008, McClendon was forced to sell millions of shares that he owned in Chesapeake to cover margin loan calls after the energy industry plummeted during the recession. The Oklahoma City company's shares fell from about $69 a share on July 2, 2008, to $16.52 per share on Oct. 10, 2008, the date when McClendon completed his sales.

THE SHARES: Shares of Chesapeake, the second-biggest natural gas producer in the nation, fell $1.47, or 7.7 percent, to $17.65 in afternoon trading. The shares haven't closed below $18 since July 2009.