Chesapeake CEO Aubrey McClendon will no longer get a stake of every well the natural gas giant drills.
The controversial perk — the company’s Founder Well Participation Program — allowed McClendon buy up to a 2.5 percent interest in all the wells the company drills in a given year.
McClendon and the company have been battered by recent news that the CEO used his stake in Chesapeake’s wells as collateral for more than $1 billion in personal loans from investment firms that invest in the company itself.
The board of directors won’t extend the perk, which McClendon is negotiating to end early, the company said this morning. And the Securities and Exchange Commission has launched an informal inquiry into the well perk, an anonymous source tells Reuters.
The Board of Directors and Mr. McClendon have committed to negotiate the early termination of the FWPP and the amendment to Mr. McClendon’s employment agreement necessary to effectuate the early termination, the company said in a statement.
In 2005, shareholders approved the perk for a 10-year term. In exchange for a 2.5 percent stake in the company’s wells, McClendon is obligated to pay an equal percentage of the costs.
Investors worried about a potential conflict of interest, reports the Associated Press:
In order to pay for stakes in new wells, McClendon borrowed money — using his stakes in existing wells as collateral — from a group that Chesapeake was trying to sell assets to.
They worried that Chesapeake might have sold its assets to the firm because the firm agreed to lend McClendon money, and not because the terms of the deal were the best Chesapeake could have received.
Shares of Chesapeake dropped sharply after the news of the loans broke last week.
The board made other important clarifications: In an April 18 statement, the company’s general counsel, Henry J. Hood, said the company was “fully aware” of McClendon’s financing transactions.
“Fully aware?” More like “generally aware,” the company clarified today:
The Board of Directors did not review, approve or have knowledge of the specific transactions engaged in by Mr. McClendon or the terms of those transactions.
McClendon will release additional information about the interests he acquired through the well participation perk, and the board is also reviewing financing deals between McClendon and third parties with relationships to Chesapeake.
The Securities and Exchange Commission has launched an informal inquiry into the well perk, an anonymous source tells Reuters.