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Jan. 10, 2013, 5:01 p.m. EST
Chesapeake Energy fails to win over skeptics
SAN FRANCISCO (MarketWatch) — Chesapeake Energy CEO Aubrey McClendon forfeited a few more perks, but changes the natural gas producer announced at the start of the week apparently have failed to convince skeptics its turnaround effort is moving fast enough.
The stock fell another 2.2% Thursday, extending losses for the week to nearly 5%. It was one of the session’s few decliners among energy stocks in the S&P 500 on a day its peers rose 0.8%.
Chesapeake shares have lost 28% over the past 12 months as investors impatiently wait for updates on the company’s asset-sales program, which is at the heart of its struggle to remain solvent. The program, expected to end in 2012, was extended into 2013.
Chesapeake Energy Corp. Chief Executive Officer Aubrey McClendon
The company found itself forced to sell billion of dollars in assets, mostly valuable gas acreage acquired over the previous decade, when natural gas prices slumped to a 10-year low in early 2012. Warmer-than-expected winter weather so far this year has kept natural gas under pressure.
Chesapeake CHK -2.05% , the No. 2 natural-gas producer after Exxon Mobil Corp. XOM +1.09% , rolled out several changes Monday to its corporate governance rules, most notably allowing certain shareholders to nominate up to a quarter of the company’s directors.
It also vowed to reduce overhead expenses; slash its charitable, political, and trade-association budgets; and keep a closer eye on such spending, all of which had drawn sharp criticism from shareholders in the past.
The company also trimmed bonuses for executive officers. Meanwhile McClendon, forced in a boardroom coup last year to relinquish his role as chairman, offered to forego a 2012 bonus. His use of company aircraft was also curtailed.
All in all, Chesapeake is only playing catch-up with others in terms of corporate-governance best practices, analysts at Simmons & Co. said in a recent note to clients.
The latest moves indicate McClendon, Chesapeake’s founder and free-spending top executive, will remain at the helm for the time being despite misgivings by many on Wall Street.
The changes were merely “incremental,” said Philip Weiss, a senior analyst with Argus Research in New York. “The house is not in order yet...We are far from a resolution. [McClendon] is likely to stay, but not as powerful as he would want or as he used to be.”
Weiss estimated Chesapeake would need to raise $12 billion to $15 billion from asset sales in 2012 and 2013 to fund its capital program. The company has some valuable acreage
“If you don’t have a position [on Chesapeake], don’t take one,” added Weiss, who has a “hold” rating on the stock. Investors keen on playing natural gas would do better choosing companies that do business with natural gas producers, such as rig contract Helmerich & Payne Inc. HP +1.92% , he added.
The company has tried to diversify away from natural gas, but it is still exposed to the commodity’s prices. Natural gas has declined about 15% since early November, when prices rallied on expectations of a cold winter that have not panned out. Natural-gas futures hovered around $3.24 per million British thermal units late Tuesday.
Investors have also been waiting on the results of an investigation into some of McClendon’s dealings in 2012. McClendon famously borrowed millions from firms that did business with Chesapeake, using the loans to take stakes in the wells Chesapeake drilled.