Chesapeake Energy (CHK) lowered as much as 10% today after lots of weeks of downward motion. 1.1 billion (with a B) against his minority desire for CHK’s wells. CHK has always got an unhealthy governance record and a “colorful” CEO in Mr. McClendon, but for the right reason investors tolerated these shortcomings. Mr. McClendon do in the end start the business from nothing and build it to 1 of the biggest natural gas suppliers in the world.
However, it is more and more clear that CHK continues to be being run like a little wildcat driller rather than a big public company. It really is time for CHK to completely clean up its work, put Mr. McClendon out to pasture, and stop treating public shareholders like chumps. In the process, there is certainly money to be made.
CHK has had a number of public ethical and governance failings and this is not the first time Mr. McClendon’s personal affairs have impacted the business. In 2008 he was pressured to liquidate his holdings in CHK equity because the stock price plunged in the financial meltdown and Mr. McClendon had been using margin debts to accumulate shares. In ’09 2009, he sold his classic map collection to CHK for several million dollars (and realized an increase).
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For a long time he has been allowed to buy a 2.5% stake atlanta divorce attorneys well CHK drills, unique among open public oil and gas companies. The list continues on and on. Despite repeated shareholder demands better governance and a more activist plank of directors, very has been done to clean the place up little. After shareholder lawsuits settled in 2011, the board agreed to appoint a lead independent director, hire a compensation consultant, and make some other minor changes. Clearly it has not resolved the problem. Consequently, the marketplace appears to be assigning a significant governance or “McClendon” discount weighed against peers.
What is particularly annoying to a value buyer like me about the heavy discount this company bears is that CHK is actually a assortment of jewel assets that might be worth much more under another management team. CHK is currently the quantity two maker of gas in america and is quickly climbing the ranks of the nation’s top oil companies.
Even better, CHK has so many unexploited drilling opportunities just waiting around to be tapped that the business is literally struggling to fund every one of the extremely attractive wells it could have running. Oil majors (Exxon, Total, Statoil, etc.) simply do not have the ability to naturally increase reserves and production just how CHK can. The latest scandal and the resulting plunge in CHK’s stock price is yet another ndicator that the business needs to be cleaned up.
If it cannot or will not achieve this, this assortment of jewel property should be handled by another person, most likely via a sale of the company. We saw a brief glimpse of a possible clean-up or sale in late 2010 when Carl Icahn started acquiring a material stake in the company. Mr. Icahn is well known as an activist trader and the stocks began rising as investors expected some action. For reasons that are not clear, Mr. Icahn sold his curiosity about the ongoing company in the first fifty percent of 2011, which required a lot of pressure for change off CHK’s management and table. It high time that CHK be cleaned up.