Chesapeake to replace four board members

CHESAPEAKE ENERGY has agreed to replace four current board members, bowing to shareholder pressure to improve corporate governance just days ahead of the natural gas producer’s annual meeting.

The company’s largest shareholder, Southeastern Asset Management, will nominate three of the new directors, while billionaire investor Carl Icahn and his affiliates will pick the fourth, it said yesterday.

Chesapeake, the nation’s second biggest natural gas producer, has been under intense scrutiny from investors after Reuters reported in April that chief executive Aubrey McClendon had taken out more than $1 billion in loans, using his personal stakes in thousands of company wells as collateral.

Four current Chesapeake directors will resign after the new directors are appointed, although it did specify which board members will step down.

It said Mr McClendon, who recently agreed to drop the role of chairman, will remain on the board. The move was praised by both big shareholders in a statement released by the company. Mr Icahn, who recently had a 7.6 per cent stake in the company, has been agitating for changes to Chesapeake’s board.

“We are pleased that Chesapeake is being responsive to issues raised by us and many of the company’s other shareholders. These steps to reconstitute the board will enhance oversight and provide greater accountability,” Mason Hawkins, chief executive of Southeastern, said in the Chesapeake statement.

Mr McClendon has not raised the possibility of selling Chesapeake, focusing instead on selling assets, such as its holdings in the West Texas Permian Basin, to close a funding gap estimated at more than $10 billion this year. The sale, as well as the auction of other properties, are crucial for the company, which has accumulated one of the nation’s largest portfolios of oil and gas leases. But a drop in the price of natural gas to its lowest levels in a decade has squeezed cash flow, and forced the Oklahoma City-based company to sharply reduce spending.

Last week, debt rating agency Moody’s Investors Service warned Chesapeake must sell at least $7 billion in assets to avoid breaching a loan covenant.