Chesapeake Energy Stock Down Following Reuters Report

Chesapeake Energy stock finished down more than five percent today in connection with a published report stating that Chesapeake CEO Aubrey McClendon has borrowed as much as $1.1 billion over the last three years against his interest in company wells. 

Under a program approved by Chesapeake shareholders, most recently in 2005, McClendon, as one of the company's founders, is eligible to personally invest in a 2.5 percent stake in every well Chesapeake drills.  According to the Reuters report, McClendon is using the loans to fund his portion of the operating costs for the wells, while, at the same time, using his share in well proceeds as the collateral to secure the loans.

The reports suggest that the loans are a potential cause for concern: that McClendon's personal financial deals -- specifically, his participation in the Founders Well Participation Program -- could compromise his fiduciary duty to Chesapeake and its shareholders.

Chesapeake officials insist that there is no conflict of interest and that McClendon's loans have been disclosed to shareholders in proxy statements.  What's more, they say McClendon's personal interests are fully aligned with the company's and that a healthy and profitable drilling program benefits shareholders, not just him.

Read Chesapeake's response to the Reuters story.

This is not the first time that McClendon has faced criticism for financial dealings involving the Oklahoma City-based company over which he presides.  In 2008, McClendon had to sell more than $500 million in company stock to cover margin calls; later that same year, the company gave him a $75 million incentive award.  Also in 2008, McClendon sold an antique map collection to Chesapeake for $12 million; he bought it back last year as part of the settlement of a shareholders group lawsuit.

Still, company officials say McClendon's loans and the well program pose no risk to the company.  If, for any reason, McClendon were to default on the loans, he would be personally liable, and the well assets would return to the company.

The Founders Well Participation Program is next scheduled for shareholder approval in 2015.