May 2 (Bloomberg) -- Chesapeake Energy Corp. Chief Executive Officer Aubrey McClendon told investors he’s “deeply sorry” for distractions surrounding his personal finances as shares fell the most in three years.
“I’m deeply sorry for all of the distractions of the past two weeks,” McClendon, co-founder of Oklahoma City-based Chesapeake, said on a conference call to discuss first-quarter results today. McClendon said he will focus on cutting debt and expanding oil production for the second-largest U.S. natural-gas driller.
Chesapeake dropped 12 percent to $17.27 at 10:03 a.m. in New York, after falling as much as 13 percent, the biggest decline since March 2009. The shares have dropped 8.4 percent since the first reports that McClendon was borrowing money using his stake in the company’s wells as collateral. Chesapeake said yesterday it would strip McClendon of his role as chairman and appoint an independent person to that position.
Chesapeake reported an unexpected first-quarter loss yesterday, cut cash flow estimates, reduced its drilling budget and said it may run out of money next year under the weight of the lowest gas prices in a decade. Chesapeake’s board said it’s searching for a new chairman and will call an early halt to an incentive program that allowed McClendon to amass personal stakes in thousands of company-operated wells.
McClendon raised concern among some of his biggest investors, including Southeastern Asset Management, after news reports last month showed that he used his stakes in company wells as collateral to borrow hundreds of millions of dollars. Potential conflicts between his personal and professional duties overshadowed the CEO’s efforts to shave a net debt load that swelled to twice the size of Exxon Mobil Corp.’s at the end of 2011.
“The market has been catching up to the debt-laden, smoke- and-mirrors investment model they employ,” said Steve Shafer, chief investment officer for Covenant Global Investors, an Oklahoma City-based hedge fund that manages $320 million. “The fact remains that Chesapeake has a lot of debt and it needs a lot of debt going forward, and that sets up a potentially scary situation.” The fund doesn’t own Chesapeake shares.
Chesapeake has hired New York public-relations firm Sard Verbinnen & Co., which specializes in managing corporate crises, to help handle the controversy over its CEO, Michael Kehs, a company spokesman, said yesterday in an e-mailed statement.
Chesapeake reported a first-quarter loss of $71 million, or 11 cents a share, compared with a loss of $205 million, or 32 cents a year earlier, the Oklahoma City-based company said in a statement yesterday. Excluding one-time gains and losses, per- share earnings were 18 cents, compared to the 28-cent average of 34 analysts’ estimates compiled by Bloomberg.
The gas producer slashed its full-year 2012 and 2013 operating cash flow estimates by as much as 48 percent, and increased the amount of assets it plans to sell. Chesapeake said it may run short of cash next year after completing more than $20 billion in asset sales to close a funding gap and pay down debt.