Chesapeake Energy Corp. is more focused on becoming a top 5 oil producer than on questions about its CEO's financial dealings, based on Wednesday morning's earnings call.
CEO Aubrey McClendon apologized at the beginning of Chesapeake's first-quarter earnings call for the “distractions” caused by lingering questions about personal loans he secured to buy a stake in the company's wells, but he did not mention a Reuters report Wednesday indicating he had run a $200 million hedge fund from inside the company.
Heritage Management Co. LLC, which was established by McClendon and Chesapeake co-founder Tom Ward, traded in the same commodities as Chesapeake for at least four years while operating inside the Oklahoma City-based natural gas producer, according to the report.
The report said there was no evidence McClendon or Ward used inside knowledge from Chesapeake in their hedge fund trading. Chesapeake and McClendon declined to comment, but Ward told Reuters he saw no conflict of interest in the arrangement.
Analysts did not ask any questions about potential conflicts during the 90-minute call with McClendon.
McClendon on Wednesday said it has been a “challenging” couple of weeks for Chesapeake and its shareholders since Reuters first reported on his personal dealings with private equity firms that have invested in the company.
“There's been enormous and unprecedented scrutiny of our company and of me personally. And a great deal of misinformation has been published and uncertainty created,” McClendon said. “Your mother told you not to believe everything you read or hear for good reason, and that's certainly been the case for the past two weeks.
“I am deeply sorry for all the distractions of the past two weeks.”
McClendon did not elaborate before turning his focus to the company's business.
“My primary job as CEO has been and always will be to build long-term value along with attractive short-term returns for the company and all of its stakeholders,” he said. “That is the task at hand and that is and has been my primary focus for the past 20 years.
“Those that know me know that I will work tirelessly to achieve that goal, and know I will not allow myself or your management team to be distracted from that mission.”
McClendon said there were plenty of positives for Chesapeake in the first quarter, even though the company posted a net loss of $71 million. He pointed to a 69 percent increase in liquids production on funding costs of only $7.14 per barrel of oil equivalent.
“Surely that's the lowest among the large cap E&Ps (exploration and production companies), if not the entire industry,” McClendon said.
He said Chesapeake is moving to capitalize on attractive prices for oil and natural gas liquids.
McClendon said he expects Chesapeake to be close to a top 5 oil producer in the United States by 2014 by developing its current assets.
The company has a leading position in a dozen leading resource plays.
“No one else in the industry has assembled anything close to the scale and quality of an asset portfolio,” McClendon said.
Steve Dixon, Chesapeake's chief operating officer, said the company already is seeing tremendous growth in its liquids production.
“Taken alone, that 46,400 barrels per day of growth would place Chesapeake's last 12 months of production growth as the 21st largest producer of liquids in the U.S.,” Dixon said.
Chesapeake is planning up to $14 billion in deals this year to cover its capital expenditure budget and slash its debt. The company expects to be able to cut its long-term debt by 25 percent while boosting production by the same percentage.
“We're all set with our asset base with the exception of the sale of the Permian and a few other minor odds and ends that we have left to sell later in 2012 and in 2013,” McClendon said.
He said Chesapeake is changing from aggressive developer of new resource plays to a “high quality manufacturing company that will focus on achieving exceptional returns on capital on the assets we already own.
“I've never been more excited about the company's position in the industry, the strength of our assets and the coming improvements to our balance sheets,” McClendon said.