Chesapeake: The First Day of the Rest of Its Life

Energy

Published: April 1, 2013 7:55 am

Last Updated: April 27, 2020 6:46 pm

Source: courtesy Chesapeake Energy Corp.

Aubrey McClendon, co-founder, chairman and CEO of Chesapeake Energy Corp. (NYSE: CHK), is officially the former CEO of the company today. Last Friday the company’s board of directors named long-time Chesapeake executive Steven Dixon to be acting CEO and created a three-person office of the chairman.

The office of the chairman includes non-executive board chairman Archie Dunham, acting CEO Dixon and Chesapeake’s CFO, Domenic Dell’Osso Jr. Chesapeake, the country’s second-largest producer of natural gas, has been shedding assets for the past two years or so and has focused on development of liquids-rich plays while natural gas prices remain depressed.

Chesapeake also settled a dispute with Gastar Exploration Ltd. (NYSEMKT: GST) today. Chesapeake filed a suit against Gastar in October last year, seeking a rollback of some 2005 transactions between the firms and additional reimbursement of some well costs. Gastar paid $85 million to repurchase 6.78 million shares of its stock from Chesapeake and to acquire acreage totaling about 157,000 acres and about 2.8 million barrels of proved oil equivalent.

The timing of the Gastar announcement probably was not coincidental. Chesapeake’s share price is down about 12% in the past 12 months, even though it has recovered from a low of around $13 to around $20 since last May. That is still a far cry from a near $70-a-share peak in June of 2008.

Chesapeake’s CEO search almost certainly will turn up someone from outside the company to take over from McClendon and Dixon. The company was built by leasing massive amounts of land, confirming that the oil and gas assets were actually there and then flipping the leases for a profit. Now, liquids production is the important thing, and that is a costly and technical business requiring an experienced production executive and large amounts of capital. The company owns some high-quality leases and only needs some time and some guidance to transform itself into a production company and no a leasing firm.

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