Chesapeake Energy Corp. said on Tuesday that Aubrey McClendon will step down as chief executive after a tumultuous year in which a series of Reuters investigations triggered civil and criminal probes of the second-largest US natural gas producer.
Federal regulators and Chesapeake’s board are both looking into whether McClendon, 53, blurred the line between his personal dealings and that of the company, and into possible antitrust violations. Big shareholders took control of the board in June after he was stripped of his title as chairman of the company he co-founded in 1989.
The internal deliberations that led to McClendon’s departure remain unclear. The findings of the board’s probe will be released next month, but Chesapeake said in a statement that the review has “to date found no improper conduct.”
“I think that the controversy, governance and other issues that have been pulled up have caused lots of questions about him,” said David Larcker, professor of accounting at Stanford University’s Graduate School of Business. “This was just sucking up so much time, it had to be a reasonable decision to change management.”
Chairman Archie Dunham was not available to comment late on Tuesday. The former head of ConocoPhillips was brought in to quell the shareholder revolt.
In an email to employees, McClendon put his departure down to “philosophical differences” with the board, but assured them: “The separation will be amicable and smooth.”
Despite a history of McClendon’s perks and corporate benefits creating controversy among shareholders, he will leave Chesapeake with a lavish package. The company said he “will receive his full compensation and other benefits to which he is entitled.”
A person familiar with the terms of McClendon’s departure said it was being treated as “termination without cause,” entitling the CEO to some of the most generous benefits laid out in an employment contract that details a wide range of severance scenarios.
A chart presented to shareholders before Chesapeake’s annual meeting last year showed that termination without cause could entitle McClendon to as much as $53 million in total benefits over five years, including up to $2.5 million related to his use of company aircraft. It was not clear whether McClendon’s package would conform to that chart, which was based on past compensation levels. Chesapeake’s board recently cut McClendon’s pay package and gave him no bonus for 2012.
The same chart presented to shareholders showed that, if McClendon had retired without the backing of the board, he could have been on the hook for millions in “claw-back” payments related to a $75 million award from the company in 2008.
A Chesapeake spokesman declined comment.
As head of a company that bet big on natural gas, McClendon played a key role in promoting the hydraulic fracturing technology that unlocked the huge US supplies in shale formations that are now depressing prices.
News of his departure comes just over two weeks after Encana Corp. CEO Randy Eresman said he would step down immediately.
Last June, Reuters reported that Chesapeake plotted with Encana, its top competitor, to suppress land prices in the Collingwood shale in Northern Michigan, a matter that is the subject of investigation by both the state of Michigan and the US Department of Justice.
That followed a Reuters investigation in April which found McClendon had arranged to personally borrow more than $1 billion from EIG Global Energy Partners, a firm that also is a big investor in Chesapeake.
The loans, arranged through McClendon’s personal shell companies, were secured by his interest in company wells. McClendon is allowed to take up to 2.5% stake in every well Chesapeake drills under a controversial program called the Founders Well Participation Program (FWPP).
“The empire that he built was based on far higher gas prices, both for Chesapeake and for him through the Founder Well Participation Program. So given that outlook, it’s not a surprise he is stepping down,” said Mark Hanson, an oil and gas analyst at Morningstar Inc. in Chicago.
“At the end of the day, it’s no longer the company that it once was. The board is really not with him these days. If you have done things a certain way for 23 years and then all of a sudden things change as radically as they have in the last six months, it’s hard to get used to.”
In early May, after another Reuters investigation revealed that McClendon had partially owned and helped run a secretive $200 million hedge fund to trade in the same commodities Chesapeake produces, Florida Senator Bill Nelson urged the US Department of Justice to investigate potential market manipulation or fraud by the CEO.
An aide to Senator Nelson said he was not immediately available for comment on McClendon’s pending departure.
Major investors Carl Icahn, who now has a Chesapeake stake of nearly 9%, and Mason Hawkins, with 13.5%, took control of the nine-member board last June.
In a statement issued about a half-hour after the news of the departure, Icahn said he believed history would prove McClendon was right about the ultimate value of natural gas and praised the assets assembled by the former CEO.
“While it is known that some of these assets will be sold by the company in due course, I do not believe that this will in any way effect the ultimate realization of Chesapeake’s potential,” Icahn said.
Chesapeake has been forced to sell billions of dollars worth of acreage, but Dunham said in a memo to employees on Tuesday that “the company is not for sale.”