Chesapeake CEO resumes road shows as reprimand’s sting fades

September 5, 2012 06:44 AM

Chesapeake Energy Corp. Chief Executive Officer Aubrey McClendon will tout the company’s stock to Wall Street analysts and investors tomorrow as a board investigation of his personal finances enters its fifth month.

McClendon is scheduled to end months of self-imposed exile from industry conferences when he addresses a Barclays Plc- sponsored energy meeting in New York. In June, Chesapeake stripped the CEO of his chairman role and replaced more than half the board after revelations he took personal loans from some of the company’s biggest financiers.

McClendon has been absent from the speaker’s podium at big industry meetings since Chesapeake’s largest shareholder, Southeastern Asset Management Inc., told him to focus on operations rather than public relations in a May 7 letter. Prior to that scolding, the 53-year-old McClendon was a fixture on the energy-conference circuit, where he promoted natural gas as an alternative to coal and imported oil.

“His biggest shareholder strongly expressed a desire for McClendon to pay more attention to running the company instead of gallivanting around the world as some kind of an ambassador for natural gas,” Fadel Gheit, an analyst at Oppenheimer & Co., said in a telephone interview. “But like it or not, he is the image of the company.”

McClendon’s last such presentation was on April 25 at the Goldman Sachs Asset Management Conference in New York, said Jim Gipson, a spokesman for Oklahoma City-based Chesapeake. McClendon’s participation in a panel called “Energy: Can the World Fuel the Rise of the Growth Market” occurred one day before Chesapeake’s board announced an internal probe into the CEO’s use of his private stakes in thousands of company-operated wells to get hundreds of millions of dollars in personal loans.

Largest Investor

Lee Harper, a spokeswoman for Memphis, Tennessee-based Southeastern Asset Management, didn’t respond to a telephone message left at her office seeking comment for this story. Southeastern was the single largest investor in Chesapeake as of June 30 by virtue of its 13.5 percent stake, according to data compiled by Bloomberg.

Chesapeake’s market value plunged to a 3-year low in May as a glut-driven slump in gas prices slashed the company’s cash flow and forced McClendon to accelerate the pace of asset sales to help pay for its drilling program and reduce debt. Investors also battered the stock amid two federal probes of potential conflicts between his personal financial transactions and corporate duties.

Permian Sales

Chesapeake rose 0.3 percent to $19.25 at 10:34 a.m. in New York. The stock has declined 14 percent this year.

Institutional investors and analysts will be listening closely to McClendon’s remarks tomorrow for any announcements about pending sales of oil and gas fields in the Permian Basin that straddles the Texas-New Mexico border, said Tim Rezvan, an analyst at Sterne Agee & Leach Inc. in New York.

The Permian Basin sales are key to McClendon’s plan to pay off a $4 billion bridge loan from Goldman Sachs Group Inc. and Jefferies Group Inc. before the interest rate jumps to an effective rate of more than 10 percent in January. Investors also will be listening for any progress on McClendon’s effort to remake the second-largest U.S. gas producer into an oil company.

Rezvan, who has a neutral rating on Chesapeake’s stock, said it would be out of character for McClendon to announce details on asset sales tomorrow because the company normally couples such disclosures with quarterly earnings releases.

2012 Goal

McClendon said last month that the Permian Basin transactions and other unspecified deals to be completed by the end of September will amount to $7 billion in proceeds. That would bring total asset sales for the year to $11.7 billion, with three months left to meet his goal of selling $13 billion to $14 billion in properties in 2012.

U.S. gas futures traded in New York have risen almost 50 percent since touching a 10-year low in April. Gas for October delivery fell 1.5 percent to $2.812 per million British thermal units at 9:30 a.m , still shy of the $3.25 minimum Chesapeake said it needs in 2013 to generate positive cash flow. The company’s outlook also assumes crude will average $90 a barrel next year. Oil for October delivery settled at $95.30 a barrel on the New York Mercantile Exchange yesterday.

Chesapeake’s board has been investigating McClendon’s personal borrowings from some of the company’s largest financiers since April 26. Chesapeake hasn’t said when the inquiry will be concluded. Probes also are under way at the U.S. Securities and Exchange Commission and Internal Revenue Service.

Big Three

McClendon may have felt compelled to end his hiatus from conferences this week because Barclays’ annual CEO Energy-Power Conference is one of the three most prestigious events for energy CEOs, Rezvan said. Credit Suisse Group AG and Howard Weil Inc., a unit of Bank of Nova Scotia, sponsor the other two, he said.

“It’s a big one and you can’t really send a junior guy in your place,” Rezvan said.

The biggest catalyst for Chesapeake’s stock would be a higher price for gas, which accounts for about 80 percent of the company’s production, Gheit said.

U.S. gas producers “would need God himself to speak on their behalf to raise natural-gas prices,” Gheit said. “They need a lot more than Aubrey McClendon.”

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