Chesapeake Energy shareholders rebuke board

Posted: June 09, 2012

OKLAHOMA CITY — Chesapeake Energy Corp. shareholders rebuked the company's board by withholding support for two directors up for reelection at Friday's annual meeting. Both directors have tendered their resignation.

Shareholders also withheld their support for Chesapeake's executive compensation plan and peppered CEO Aubrey McClendon with questions about the corporate governance and accountability of the nation's second-largest producer of natural gas. Chesapeake is the largest natural gas producer in Pennsylvania and the largest leaseholder in the Marcellus Shale, which runs through the state.

Chesapeake also said Friday it had sold $4 billion in pipeline assets.

Shares of the Oklahoma City-based company are worth nearly 40 percent less than a year ago. And Chesapeake still has big spending plans even though it is taking in less cash because of a plunge in natural gas prices. It also needs to sell billions of dollars in assets to service a huge debt load.

"Something is out of balance here at Chesapeake," said shareholder Gerald Armstrong, of Denver, whose proposal to reincorporate the company in Delaware passed with the support of 53 percent of the votes cast. Armstrong said that the move would bring greater accountability to the company but that Chesapeake had resisted it. The proposal is nonbinding.

Armstrong said he filed his proposal in January before media reports raised questions about whether McClendon's personal business interests conflicted with those of his company. Reports called into question the propriety of McClendon's use of Chesapeake well stakes as collateral to obtain loans. The reports helped sink an already depressed stock price. They also painted a picture of a board that accepted better-than-average pay and perks in return for keeping a loose rein on the CEO. And they disclosed that McClendon was allowed to borrow money from a company that Chesapeake was doing business with.

The two directors who resigned Friday are V. Burns Hargis and Richard K. Davidson.

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