Chesapeake Energy Corp. on Thursday named five new independent directors in a move the company said will provide improved oversight and responsiveness to shareholders. One of those directors is Chesapeake's new chairman, former Conoco and ConocoPhillips executive Archie W. Dunham.
“It's a big step in the right direction to have a board so completely independent and filled with outsiders to the company,” said Fadel Gheit, an analyst with Oppenheimer in New York.
While the new directors have few previous ties to Chesapeake, the board's new leader is no stranger to the Oklahoma oil patch.
Dunham, the former chairman of ConocoPhillips Inc. and former CEO of then-Ponca City-based Conoco Inc., is the second chairman in Chesapeake history. He replaces co-founder Aubrey McClendon, who will remain CEO and a member of the board.
Steve Agee, dean of Oklahoma City University's Meinders School of Business, said Dunham is a “dream” choice for Chesapeake.
The University of Oklahoma graduate rose through the ranks at Conoco after getting his start there as an engineer.
“I think he knows every facet of their businesses,” he said. “I think he'll be a great chairman for the company.”
McClendon praised Dunham's appointment in a statement Thursday.
“Archie is extraordinarily well regarded both inside and outside of the industry, and we are confident he is the right person to lead our board as we complete the transition from the asset identification and capture phase of Chesapeake's history to now harvesting those assets,” he said.
Dunham recognized Chesapeake's management for building a strong portfolio of oil and natural gas assets.
“As I evaluated this opportunity, I was attracted by the clear mandate to provide strong oversight while working closely with the company's exceptional management team, talented employees and reconstituted board in a situation where we have the opportunity to create substantial value for all shareholders in the years to come,” he said.
Shares show decline
Chesapeake shares slipped 92 cents, or 4.8 percent, to close at $18.12 a share Thursday, a day when the broader S&P 500 slipped 2.2 percent.
Thursday's announcement follows just more than two months after reports that McClendon used his personal stake in Chesapeake wells as collateral for up to $1.5 billion in personal loans from some of the same lenders that have business ties with Chesapeake.
In the wake of the revelations, shareholders groups increasingly have called for changes to the board.
O. Mason Hawkins, chairman and CEO of Southeastern Asset Management, Chesapeake's largest shareholder, welcomed the changes Thursday.
“Chesapeake has the assets and the opportunity to become the U.S.'s pre-eminent, low-cost energy producer and to significantly grow its value per share,” Hawkins said. “We believe this board will prudently guide, assist and complement management's efforts to capture its potential.”
Icahn backs move
Many of the changes have been orchestrated by activist investor Carl Icahn, who over the past two months has acquired a 7.5 percent stake in the company.
“We believe Chesapeake is now heading in the right direction,” Icahn said in a statement Thursday. “With the board providing strong oversight, the management team will be sharply focused on realizing the value of its assets and the company will be well positioned to create substantial value for shareholders going forward.”
Southeastern Asset Management proposed three of the new directors: Bob Alexander, founder and former CEO of Alexander Energy Corp.; Brad Martin, former chairman and CEO of Saks Inc.; and Fred Poses, CEO of Ascend Performance Materials. Icahn named associate Vincent Intrieri to the board.
Board members will earn $350,000 a year in cash and stock.
At least one of the Memphis-based money manager's choices has ties to Icahn as well.
Oil industry veteran Alexander also serves on the board of CVR Energy Inc., which recently was taken over by Icahn. The Texas-based company owns the oil refinery in Wynnewood.
Icahn's addition to Chesapeake's board, Intrieri, is CVR's chairman.
Out with the old
The new directors replace Richard K. Davidson, Kathleen M. Eisenbrenner, Frank Keating and Don Nickles, who resigned, and Charles T. Maxwell, who retired at the company's annual meeting on June 8.
Davidson and Oklahoma State University President Burns Hargis submitted their resignations June 8 after each received less than 30 percent of the vote on their re-election bid at Chesapeake's annual meeting. The board has not accepted Hargis' resignation.
Hargis, who heads the audit committee, will remain on the board at least until the panel completes its review of the financing arrangements between McClendon and companies or individuals who have done business with Chesapeake.
The board will revisit Hargis' resignation once the review is finished, the company said Thursday.
Gheit said Hargis' report is expected relatively quickly.
“It had better be finished soon,” the analyst said. “There is no room for more surprises and uncertainty. Nobody has an appetite for that.”
New York City Comptroller John C. Liu praised much of Thursday's announcement, but expressed disappointment that Hargis has not been replaced.
“We welcome the new board chair and directors, but the misguided decision to keep a director who was opposed by an overwhelming majority of investors tarnishes today's announcement,” Lu said.
The only three Chesapeake directors to survive the change are McClendon; Louis A. Simpson, who was proposed by Southeastern Asset Management in 2011 and will become chairman of Chesapeake's nominating and governance committee; and Merrill A. “Pete” Miller, who had been Chesapeake's lead independent director. That position has been eliminated, so Miller will be chairman of the board's compensation committee.