Chesapeake Business Practices

[Stinger]

Off topic but does this mean he and his wife wont be sitting next to Clay Bennet at the Thunder games?

Wasn't there for Game 1. Not sure about Monday night.

[BoulderSooner]

Aubrey looks to be going to jail. This is really shocking. And much worse than the shocking $1.1 billion in personal loans from board members.

http://www.reuters.com/article/2012/...8410GG20120502

did you even read what you linked?? ... he didn't break the law ..

[soonerguru]

and nothing illegal ..

...that we know of yet. And that is hardly material anyway. There are a lot of "technically legal" thongs companies can do that drive them into bankruptcy.

[Swake2]

Yes, I read it, did you?

experts on energy trading, corporate governance and commodity-market regulation said they were stunned by the latest revelation.
"An executive's first responsibility is to shareholders and the betterment of their investment," said Carl Holland, who ran the trading-compliance department at former U.S. oil major Texaco. "Personal trading in the commodity around which the CEO's business is based would be a clear no. We would never have tolerated that, ever."
Thomas Mulholland, a risk-management consultant to oil and gas producers for Golden Energy Services in St Louis, said such matters are "taken very seriously by energy companies, and there are strict codes against it. Even if there is just a whiff of impropriety," he said, "it can be enough to lead to a termination."

That's bad, but here is where it get's really bad:

A securities law professor said the very existence of the hedge fund could prompt a securities investigation.
"I would argue, and I think the SEC would argue, that the failure to disclose that you are engaging in this kind of conduct can constitute a securities fraud problem," said Elizabeth Nowicki, a professor at Tulane University. She said a failure by McClendon and Ward to disclose their fund to Chesapeake's shareholders may constitute a "material omission" that could draw SEC scrutiny.
"A reasonable investor would want to know that the CEO could be in a situation where he's betting against the interests of the company personally," Nowicki said. "That, it seems to me, is a slam dunk."
An SEC spokesman declined to comment.

That means that this

A search of Chesapeake's public filings turned up no disclosure of McClendon's hedge fund, Heritage.

And this

Cirino and Ward's recollections differ on at least one point. Ward said he didn't interact with the fund's outside investors. Cirino recalled that "every investor I was involved with either met with McClendon and Ward or at least spoke with them by phone before investing." The hedge fund's healthy gains were a lure, but "the cachet of those two individuals certainly also helped," Cirino said.
In addition to weekly Monday conference calls and regular emails, the two owners met frequently with traders in New York and occasionally in Oklahoma, Cirino said.

Likely equal jail time.

Having lived through two companies that melted down Enron style, Chesapeake is screaming “LOOK AT ME” to the SEC.

[blangtang]

Wow-Sandridge shares getting spanked down ~9% today in "sympathy" to the Chesapeake association, and the mentions in the reuters story. Wonder if they will start digging into Sandridge more...

McClendon won't get any jail time

[Maynard]

Top Chesapeake holder says will be more active 05/02 01:50 PM

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Southeastern Asset Management, the largest shareholder in Chesapeake Energy Corp, said on Wednesday it is converting its passive ownership in Chesapeake to an active stake and intends to have discussions with Chesapeake's management, board and third parties.

Southeastern made the disclosure in a U.S. Securities and Exchange Commission filing (13D) in which it reported that it has a 13.6 percent stake (89,854,868 shares) in Chesapeake.

[blangtang]

O. Mason Hawkins

Maybe this guy just threw his hat in the ring to be on the board?

[blangtang]

BTW, I am aware of at least one and possibly two articles delving into Chesapeake real estate practices.

We all know they've been wildly spending in this area and I believe the article(s) are going to delve into that further, and I expect more backlash as a result.

Hey Pete

are these local media or national? Have you been contacted about the real estate info? BTW, I'd understand if you want to stay mum...

[Pete]

Yes, I have been contacted but that's all I'm going to say at this point.

[Pete]

Sandridge should not be punished for Tom Ward's involvement in this hedge fund, as he didn't even buy controlling interest in what became SR until 2006 and even then it was a much, much smaller operation than CHK.

[Maynard]

Sandridge should not be punished for Tom Ward's involvement in this hedge fund, as he didn't even buy controlling interest in what became SR until 2006 and even then it was a much, much smaller operation than CHK.

SandRidge Energy puts active on wide price movement into Q1 05/02 02:26 PM

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SandRidge Energy (SD:$7.24,00$-0.78,00-9.73%) May 7 and 8 puts are active on total put volume of 30K contracts (12K calls). May put option implied volatility is at 74, June and September put option implied volatility of 64 compared to its 26-week average of 70 according to Track Data. Large put volume suggests traders positioning for price movement into the expected release of Q1 results on May 4.

[OKCTalker]

Sandridge should not be punished for Tom Ward's involvement in this hedge fund, as he didn't even buy controlling interest in what became SR until 2006 and even then it was a much, much smaller operation than CHK.

CHK is Aubrey and SD is Tom. If this is a corporate governance problem brought about by the character defects of Aubrey & Tom, then Tom took that with him to SD. I've heard good things about Tom as a person, so there's a disconnect somewhere - he either got taken for a ride on this hedge fund by Aubrey, or he was a co-conspirator who might do similar sleazy things at SD. He'll have to prove his innocence in the court of public opinion, and perhaps defend himself in a court of law or a securities inquiry.

[SharkSandwich]

http://www.businessweek.com/news/201...imates-are-cut

Chesapeake Bonds Drop After Cash-Flow Estimates Are Cut
By Sridhar Natarajan and Shannon D. Harrington on May 02, 2012

The cost to protect against losses on the debt of Chesapeake Energy Corp. (CHK) (CHK) jumped to the highest since September 2009 as the driller, which reported an unexpected first-quarter loss, said it may run out of money next year.

Credit-default swaps (CHK) on the company jumped 3.3 percentage points to 7.4 percent upfront as of about 12:30 p.m. in New York, according to CMA, which is owned by CME Group Inc. The driller’s $1.3 billion of 6.775 percent bonds due in March 2019 dropped by 4.1 cents to 94.9 cents on the dollar at 12:20 p.m., the lowest level on record, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The second-largest U.S. natural-gas producer reported a first-quarter loss of $71 million as it cut its cash flow estimates by as much as 48 percent with falling natural gas prices hurting company profits, it said in a statement yesterday. The driller also announced plans to strip CEO Aubrey McClendon of the role of chairman as investors criticized him for using company interests to secure personal loans, raising concerns over corporate governance.

“The company was headed into 2012 without any hedges on natural gas production and the market is rightfully concerned as gas prices have gone lower,” Mark Hanson, an equity analyst at Morningstar Inc. said in a telephone interview.

Company Spokesman Jim Gipson couldn’t be reached for a comment.

Make or Break
“In 2011, they thought natural gas prices had hit a rock bottom and it didn’t and now they are paying a price for it,” Hanson said. “2013 is a make or break year for the company.”

McClendon said the company had planned for an increase in debt levels in the first quarter because of low gas prices and capital expenditure, in an earnings call with investors today. Chesapeake has about $1.7 billion of bonds maturing by 2015, according to data compiled by Bloomberg. The company has a $9.5 billion year-end net long term debt target.

Natural gas prices touched a more than 10-year intraday low of $1.902 per million British Thermal Units last month on the New York Mercantile Exchange.

The cost of the Chesapeake swaps contracts means buyers of protection would pay $740,000 initially and $500,000 annually to protect $10 million of debt from default for five years.

[Maynard]

CHK hits fresh 52-week low, breaching $16.78 (set last Tuesday), which was support.

Volume has been extrememly heavy -- over 135,000,000 shares exchanged

[Pete]

CHK is Aubrey and SD is Tom. If this is a corporate governance problem brought about by the character defects of Aubrey & Tom, then Tom took that with him to SD. I've heard good things about Tom as a person, so there's a disconnect somewhere - he either got taken for a ride on this hedge fund by Aubrey, or he was a co-conspirator who might do similar sleazy things at SD. He'll have to prove his innocence in the court of public opinion, and perhaps defend himself in a court of law or a securities inquiry.

I've heard from more than one person Ward left CHK because he has a very different way of doing things, and he and Aubrey didn't see eye-to-eye.

That hedge fund was already in operation when Ward bought into SandRidge and it ended not long after he took over control. Very, very different situation than with McClendon and CHK.

[jn1780]

I don't see how Aubrey can survive this and still be CEO. He is starting to become a liability to CHK.

[adaniel]

I don't see how Aubrey can survive this and still be CEO. He is starting to become a liability to CHK.

At the very least, investors will be on him like a hawk.

That means no more ridiculous real estate deals (wonder how this will effect the so called "mystery tower"), 1,000+ hirings a year, and maybe a significant cutback of corporate sponsorships.

I'll be a glass half full person and say it is probably good for CHK that this is all coming out now, rather than this time next year when they have no money and are teetering on bankruptcy. From this point on shareholders will be much more hands on then they have been in the past, which will probably keep the company from plunging into the abyss (although OKC may not fully escape any negative repercussions).

[Maynard]

Sen Nelson seeks US probe into Chesapeake Energy

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WASHINGTON, May 2 (Reuters) - U.S. Senator Bill Nelson plans to ask the Justice Department to investigate Chesapeake Energy Corp (CHK:$16.74,00$-2.86,00-14.59%) for potential fraud and price manipulation, an aide to the lawmaker said.

Nelson's request comes after Reuters reported on Wednesday that Chesapeake CEO Aubrey McClendon ran a $200 million hedge fund that traded in the same commodities Chesapeake produces. A search of Chesapeake's filings turned up no disclosure of his activities.

"In response to the reporting by Reuters, Senator Bill Nelson has asked his staff to formally request that the Justice Department'sFinancial Fraud Enforcement Task Force investigate the Chesapeake Energy Corp. (CHK:$16.74,00$-2.86,00-14.59%) matter to determine whether there is evidence of fraud, price manipulation, conflicts-of-interest, or other illegal activities," said Ryan McCormick, a staff director for the Senate Finance subcommittee on fiscal responsibility.

[SoonerBoy18]

Wasn't there for Game 1. Not sure about Monday night.

They was there for game 2, I was sitting about 5 rows behind him. I love seeing him and his wife cheering on my tv screen

[Pete]

At the very least, investors will be on him like a hawk.

That means no more ridiculous real estate deals (wonder how this will effect the so called "mystery tower"), 1,000+ hirings a year, and maybe a significant cutback of corporate sponsorships.

I'll be a glass half full person and say it is probably good for CHK that this is all coming out now, rather than this time next year when they have no money and are teetering on bankruptcy. From this point on shareholders will be much more hands on then they have been in the past, which will probably keep the company from plunging into the abyss (although OKC may not fully escape any negative repercussions).

I agree with all of this and believe Aubrey will hang tough and continue to shift the company towards oil and away from natural gas.

They still own tons of mineral rights so they can easily sell some off to raise capital then focus on drilling for liquids.

I suspect they'll be fine in the longer term and agree it's probably a good thing all this came out sooner rather than later. AKM needs oversight and it sounds like he is going to get much more than at any time since CHK was founded.

But the sharks are circling and I bet there will be a few more revelations that put McClendon and CHK in a bad light before this gets significantly better. But I do believe it will.

[mugofbeer]

I have a feeling that if CHK survives this little episode intact, you may see some serious reigning in of a lot of the extracurricular activities they were involved in. McClendon got some serious 'splainin to do. Did you note their largest shareowner has filed to change from a passive to an active shareowner? THis means they may push for a takeover. Hold on for the ride!

[Questor]

I have a feeling that if CHK survives this little episode intact, you may see some serious reigning in of a lot of the extracurricular activities they were involved in. McClendon got some serious 'splainin to do. Did you note their largest shareowner has filed to change from a passive to an active shareowner? THis means they may push for a takeover. Hold on for the ride!

I noticed that and wondered if that might be where this is headed. You know I got a real kick out of The Oklahoman's take on a possible takeover a few articles back... they talked about loyal investors and then how Oklahoma law requires that only portions of the board can be elected at any one time to guard against it and so the possibility was very low... I actually LOL'd reading it. They need to stop the sugar-coating and just report.

[ljbab728]

Chesapeake is at least trying to sound like it's going to do the right thing.

http://newsok.com/chesapeake-to-move...rticle/3671815

[Spartan]

And their stock price continues to plummet, erasing $1.8 billion.

[BoulderSooner]

And their stock price continues to plummet, erasing $1.8 billion.

except that it is up 2.2% today