chesapeake energy

Activist investor Carl Icahn has successfully lobby for significant board reform at Chesapeake Energy Corporation (NYSE:CHK), with the firm announcing yesterday that four of the non-executive directors will be replaced. Chesapeake will also be appointing a new non-executive Chairman of the Board, though he has yet to be officially named. Icahn reiterated his commitment to push for fiscal restraint and increased oversight following the announcement.

Icahn became involved with Chesapeake Energy Corporation (NYSE:CHK) after natural gas prices collapsed, exposing years of aggressive capital spending and questionable financial arrangements centered on CEO Aubrey McClendon. Many investors questioned the oversight that the Board had provided over the last decade, and whether the group was too closely tied to Chesapeake management. Two directors will be pointed by each of Southern Asset Management Inc., the firm’s largest shareholder, and Mr. Icahn.

Despite the new directors and greater oversight moving forward for Chesapeake, questions linger around whether the firm can overcome the troubles of its past. The firm reported a first quarter loss of over seventy million, and announced that it may run out of cash sometime in 2013 if the firm fails to liquidate a number of properties. One advisor, James Sullivan with Alembic Global, suggests that Chesapeake’s cash flow shortfall in 2013 will surpass $22 billion. Chesapeake’s own cash flow projections are based on realized crude prices of approximately $100 per barrel, and if price levels don’t increase, the firm will come under more pressure to sell assets at fire sale prices.

Chesapeake Energy Corporation (NYSE:CHK) directors have been tangled up in the midst of questionable arrangements with both McClendon and the firm, including having related firms make personal loans to McClendon backstopped by ownership interests in Chesapeake properties. There were a number of other potential conflicts of interest with the board including one director heading a key Chesapeake supplier and the children of another director being appointed to highly lucrative positions within Chesapeake.