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Chesapeake Letter To Shareholders Counters Criticism

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The Chesapeake Energy Board of Directors sent a letter to shareholders today, countering one shareholder's recent criticism of the company. The Chesapeake Energy Board of Directors sent a letter to shareholders today, countering one shareholder's recent criticism of the company.
OKLAHOMA CITY -

The Chesapeake Energy Board of Directors sent a letter to shareholders today, countering one shareholder's recent criticism of the company.

The City of New York Office of the Comptroller, which represents pension funds that own 1.9 million shares of Chesapeake stock (less than 0.25 percent of outstanding shares), is actively opposing the re-election of Directors Burns Hargis and Richard Davidson, and last week called on other shareholders to join them in voting against them.

Today's letter from Chesapeake stated that the Hargis, who is currently the President of Oklahoma State University, and Davidson are "highly qualified independent Directors" whose work on the Board warrants shareholder support.

The Board and Chesapeake CEO Aubrey McClendon have been the subject of intensely negative media coverage for the past five weeks, following the revelation that McClendon borrowed more than $1 billion from companies that do business with Chesapeake.  McClendon reportedly used the loans to fund his participation in a unique company perk that allows him to claim a small stake in every well that Chesapeake drills, known as the Founder Well Participation Program (FWPP).

Last Thursday, in reference to the controversy, New York City Comptroller John Liu wrote, "We are particularly disturbed by the audit committee's failure to review, approve or disclose Mr. McClendon's personal loans secured by company wells."

Both Hargis and Davidson sit on the audit committee.  They are the only two Directors up for election this year.

In its letter, Chesapeake's Board said that it appreciates constructive input from shareholders, but felt that it was important to address some of the specific issues raised by Mr. Liu.  In addition to citing the credentials of Directors Hargis and Davidson, the letter lists several actions taken by the Board in the last month in response to various shareholder concerns.

Last week, the Board announced that it was making significant changes to the way that the company compensates its outside directors, bringing their compensation packages more in line with those of their peer companies.

The letter also detailed the Board's decision, in April, to terminate the FWPP on June 30, 2014, eighteen months ahead of schedule, and reminded shareholders that the Board is "conducting a thorough review, through its Audit Committee and independent counsel," to determine whether McClendon's loans constituted any conflict of interest.

"We believe that Chesapeake has built the nation's best collection of E&P assets," the letter goes on to say.  Outlining a key part of the company's strategy, the Board says the company plans to sell non-core assets for $9.5 to $11 billion by the end of 2012.

These planned asset sales are seen by analysts as critical to the company's ability to meet scheduled debt payments and finance an aggressive drilling program.

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