Aubrey McClendon, CEO of Chesapeake Energy Corporation (NYSE:CHK) denied any involvement in the company’s stock price plunge in October 2008 after selling almost all of his shares (31 million) to satisfy margin calls. The company’s stock value went down by 80% within 90 days.
McClendon emphasized in an e-mail sent to Chesapeake Energy Corporation (NYSE:CHK) employees in October 10, 2008 that the stock price of the company was affected by the global financial crises, which was caused by the bankruptcy of the Lehman Brothers. He also explained that the company paid twice as much in drilling rights and the price decrease in natural gas brought negative impact on the investment opportunities of the company for profitable new.
He also advised the employees to “just ignore” the decline of the stock price and hold down on expenses. McClendon said, “It’s just investors in full-scale panic across the globe right now, selling whatever they can. It is imperative that we negotiate lease prices reflective of today’s economic conditions. So make sure you negotiate everything extra long and hard.” In addition, he said, “What was a fair price 90 days ago for a lease is now overpriced by a factor of at least 2x, given the dramatic worsening of natural gas and financial markets.” Due to the unfavorable market situation, Chesapeake employees recommended the reduction of lease offers. Chesapeake management decided to cancel its drilling rights agreement with Peak Energy Corp., which lead to a lawsuit.
According to the lawyers of Peak Energy Corp., “The transaction failed to close because market conditions had changed, Chesapeake ran into cash flow problems and Chesapeake was looking for excuses to back out of its pending deals for Haynesville Shale properties.”
In September 2011, United States District Judge John Ward ordered Chesapeake to pay $19.7 million in damages to Peak Energy Corp. Judge Ward cited that the Chesapeake’s management “wrongfully” cancelled its agreement to purchase oil and gas rights from Peak Energy Corp.
McClendon’s e-mail to employees in 2008 was included in the company’s appeals court filings to the Federal Court in Marshall Texas in connection with the drilling rights lawsuit. Chesapeake officials also argued that the company did enter into final agreement with Peak Energy Corp. due to its failure to provide a final list of leases to be included in the agreement.
Instead of pursuing its agreement with Peak Energy Corp., Chesapeake invested in oil fields in Ohio and Oklahoma to gain more profits. However, the company issued a warning to its investors last month that it might experience cash shortage if it will not be able to divest its $7.4 billion assets by the end of December. Chesapeake plans to sell its interest in Chesapeake Midstream Partners LP for $2 billion to Global Infrastructure Partners and to raise more than $ 2 billion by divesting its pipeline development unit and central U.S. conduits to Chesapeake Midstream Partners, L.P. (NYSE:CHKM).
Chesapeake is the second larger gas producer in the United States. For the past year, the company lost nearly 40 percent of its market value due to the instability of energy prices and the controversies surrounding McClendon’s personal financial transactions. McClendon vacated his position as Chairman of the company. Archie Dunham succeeded as Chairman on June 21.