Chesapeake Energy shares climbed Tuesday as some prominent shareholders called for a shake-up in the natural gas giant's board of directors.
Investors are unhappy with Chesapeake's growing debts and a perceived lack of oversight by the board over the company's founder and CEO, Aubrey McClendon.
That's led billionaire investor Carl Icahn and New York State Comptroller Thomas DiNapoli to call for some fresh blood _ and independence _ in the boardroom. Icahn on Friday said he's acquired a 7.6 percent stake in Chesapeake and wants to replace four board members, two with his own nominees. DiNapoli, the trustee of a retirement fund that owns Chesapeake shares, urged shareholders to withhold votes for two directors that are up for re-election at an annual meeting on June 8. .
If they withhold their votes, DiNapoli said, investors will send the board a message that it's failed in its stewardship of the company. Chesapeake shares have lost $1.49 billion in market value, since April 18.
"Like you, I am pained to watch our investment free-fall as shares plummet to lows not seen even during the recent financial crisis," DiNapoli said.
Shares have tumbled partly due to a drop in natural gas prices. A surge in domestic production combined with a relatively warm winter pushed the price of natural gas to a 10-year low.
Like other companies, Chesapeake has responded by shutting down some of its natural gas wells and focusing on other wells that produce more oil. It costs a lot of money to shift such a massive operation, however. Chesapeake said two weeks ago that it took a $4 billion unsecured loan to keep the company running, leaving it "perilously overleveraged," DiNapoli said.
Meanwhile, news reports suggested that McClendon's personal financial interests may have created a conflict of interest with shareholders. The reports said McClendon borrowed money from a company that was trying to buy Chesapeake assets. He also ran a little-known hedge fund that bet on the price of oil and gas _ commodities that Chesapeake produces.
Chesapeake's board responded by stripping McClendon of the post of chairman. It said it's searching for a new chairman with no ties to the company. Icahn believes shareholders must have a big say in the selection.
"Having the current board select a new chairman without shareholder approval and without allowing for shareholder representation is akin to asking the fox, who has plundered the hen house, to choose another fox to assist it in standing guard over the remaining hens," Icahn wrote in a letter to the company.
Chesapeake shares could be poised for a rally if it fixes its image, analysts said.
Biju Perincheril, a Jefferies analyst, noted that Chesapeake still controls an attractive set of oil and gas assets in North America that it can sell to raise money. That should go a long way to reassuring investors.
"We think the company needs to exhibit stricter financial discipline," Perincheril said. "Direct shareholder representation on the board, as Mr. Icahn has called for, should help as well."
Perincheril has a "Buy" rating for Chesapeake with a price target of $26.
Shares of Chesapeake added 52 cents, or 3.2 percent to $16.33 in afternoon trading. Shares had risen 7 percent earlier.