Chesapeake Energy Corp. CEO Aubrey McClendon has been borrowing money to cover his share of the company's drilling costs since the well participation program began in 1993, he revealed Thursday.
McClendon and his companies — Arcadia Resources LP, Larchmont Resources LLC and Jamestown Resources LLC — own oil and natural gas reserves worth $6 million more than they owed on them at the end of 2011, according to his disclosure statement.
McClendon also sold a share of his holdings last year for $108.6 million, netting about $61 million before taxes.
Despite that profit, McClendon's cumulative expenditures under the program have “significantly” exceeded production revenues because of increasing capital costs, according to Chesapeake's proxy statement.
McClendon and his affiliates owed $846 million on loans secured by his interest in wells granted to him by the shareholder-approved Founder Well Participation Plan as of Dec. 31.
The program is expected to be shut down before its scheduled expiration in 2015, the company announced Thursday, citing an agreement between McClendon and its board.
McClendon has opted to buy a 2.5 percent stake in Chesapeake's wells in all but five quarters since the program began in 1993, according to regulatory filings.
He estimates his share of production from Chesapeake wells was worth $852 million as of Dec. 31 based on commodity prices and proved reserves, according to Thursday's disclosure.
The total proved reserves associated with the program are about 810 billion cubic feet of natural gas equivalent. About 87 percent of that is natural gas.
McClendon's holdings were producing an estimated 147 million cubic feet of gas equivalent daily at the end of 2011.
Chesapeake co-founder Tom Ward had been eligible to participate in the program until he left the company. Now he is CEO of SandRidge Energy Inc.
SandRidge had a similar program, which allowed Ward to take a 3 percent stake in its wells, until October 2008.
“The program was ended in order to retain a greater working interest in future wells, thus increasing proved undeveloped reserves,” Ward said Thursday.
SandRidge paid Ward about $67.3 million in cash for his stake in the company's wells when the program was eliminated.