How Chesapeake Energy Can Be Saved (From Itself): Opinion

Idea No. 3: Package McClendon's well holdings into a joint venture and sell to the Chinese or Total

The controversy that has led to the current calls for McClendon's ousting comes back to the Founder Well Participation Program and the CEO's stake in company wells and the fact that he has tied personal loans to the value of the well holdings.

This presents two conflicts of interest: 1) the company could make decisions to sell certain assets based on McClendon's personal portfolio needs, and 2) the company could prioritize certain wells for drilling development based on the ones where McClendon has financial interest.

The board said this week it won't renew the program when it ends in 2015 and is negotiating with McClendon for an early termination of the program, but that doesn't imply that it will unwind the existing well stakes that McClendon has, which would require unwinding both his personal stakes in the wells and the loans in which the well stakes are used as collateral.

With Chesapeake saying it is going to sell its entire Permian basin stake in the third quarter, there will inevitably be questions about whether there was a personal reason for McClendon to part with these assets over others, and that will exist for every sale going forward. Chesapeake could fully disclose each and every well in which McClendon has a holding, well by well, and complete transparency might help.

However, it might just be better to do what McClendon does well: Create a joint venture in which McClendon can sell the well stakes to a third party, such as a Chinese national oil company or European energy giant like Total (TOT), two investors with whom McClendon has had dealings in the past.

This wouldn't just be a convenient method of providing remuneration to McClendon for his well stakes while removing the conflict of interest, but it would also be one more chance for McClendon to show off the wheeling and dealing talent that got him into this mess -- I mean that sets him apart from other CEOs -- in the first place.

Deep-pocketed, big balance sheet investors aren't the only ones who can help...

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