WHEELING - Chesapeake Energy plans to sell more than 500,000 acres of leases and reduce director compensation to help eliminate debt - and pay back the $4 billion loan the company received from Goldman Sachs.
Even by taking these steps, leaders of the company - which leads the Upper Ohio Valley's Marcellus and Utica shale boom - believe they will still have about $9.5 billion worth of debt on the books by the end of this year.
With the immediately effective 20 percent cut in pay for directors, they will receive total compensation of $350,000 per year, a move Lead Director Merrill Miller Jr. believes will help alleviate investor worries.
"We believe these latest changes to the directors' compensation will address concerns raised by shareholders and better align Chesapeake with its peers," he said.
According to published reports, the Oklahoma City-based driller plans to sell more than 500,000 acres in Colorado and Wyoming. This seems to fit with Chesapeake's plan, of "reducing capital expenditures and paying down long-term debt."
"Our strategic shifts to increasing the percentage of our production that comes from oil and natural gas liquids and to harvesting existing assets - rather than identifying and capturing new assets - will reduce our capital expenditure requirements by allowing us to reduce leasehold expenses and drilling activity," Chesapeake stated in its "Letter to Shareholders" last week.
However, Weirton lawyer Jeffrey Rokisky said last week that Chesapeake agreed to acquire 12,000 new leasehold acres in Hancock County. Drillers have the prospects of obtaining valuable ethane, propane, butane and pentane from the local wet gas region.
Shares of Chesapeake Energy closed at $15.58 on the New York Stock Exchange on Thursday. This is up from $14.65 per share last week, but down from $17.18 two weeks ago. The price is less than half of the $35.75 price recorded on Aug. 2; and is less than one-third of the $54.77 price from May 2008.
Though the company continues taking steps to stabilize its value and allay concerns, potential pitfalls persist. These issues are highlighted by Chairman and Chief Executive Officer Aubrey McClendon's dealings regarding the personal 2.5 percent stake he has taken in the company's drilling operations in Marshall, Ohio and Brooke counties.
Via firms such as Jamestown Resources and Larchmont Resources, McClendon took his 2.5 percent stake in Ohio, Marshall and Brooke counties. Chesapeake is a publicly owned company traded on the NYSE. Conversely, Jamestown and Larchmont are privately held by McClendon. Jamestown and Larchmont gained interest in thousands of acres of Chesapeake leases signed by local mineral owners.
McClendon has since agreed to end this practice by June 30, 2014 - and to eventually relinquish his chairmanship of the company. According to the letter to shareholders, the company is taking other measures to reduce debt, including eliminating the use of company aircraft for personal travel, replacing annual cash bonuses with performance based awards, establishing minimum stock ownership guidelines, and retaining an independent compensation adviser.
In the effort to replace McClendon as the company's chairman, board members are considering candidates with no previous substantive relationship with the company. The shareholder letter stated these officials are "making progress" in find McClendon's replacement.