NEW YORK ( TheStreet) -- Chesapeake Energy's ( CHK) board and CEO roles are now split after the company's co-founder and chief executive Aubrey McClendon was replaced as chairman by former ConocoPhillips ( CHK) chair Archie Dunham. The move is the biggest change in a sweeping overhaul of the struggling gas giant's board announced in June and put in place on Thursday. Chesapeake Energy also said it elected four other independent members to its nine-member Board of Directors ,including three proposed by the company's largest shareholder Southeastern Asset Management and one proposed by activist investor Carl Icahn who recently took a large stake in the Oklahoma City-based oil and gas driller. Southeastern Asset Management has elected Bob Alexander, Brad Martin and Frederic Poses to Chesapeake's board, while Icahn has nominated Vincent Intrieri. Those elections and Dunham's replacement of embattled CEO McClendon as chairman come as a quick response to Southeastern and Icahn's calls for changes to Chesapeake Energy's board that will help the company better manage its finances as a cash crunch looms. After director Charles T. Maxwell retired from Chesapeake's board at the company's June 8 annual meeting, Richard Davidson, Kathleen M. Eisbrenner, Frank Keating and Don Nickles have resigned. Earlier in June, the New York City comptroller had asked for the removal of Oklahoma State University President Burns Hargis and former Union Pacific Chairman Richard K. Davidson as directors. Hargis and Davidson resigned after they weren't re-elected by shareholders at Chesapeake's annual meeting. Of the changes, Chesapeake CEO McClendon welcomed new board members to help on the execution of, "our common mission to deliver to our shareholders the substantial net asset value we have created in the past seven years as Chesapeake has helped lead the unconventional resource revolution in the energy industry," in a press release. "We believe this board will prudently guide, assist and complement management's efforts to capture its potential," said Southeastern Asset Management chairman Mason Hawkins in a press release. "Chesapeake is now heading in the right direction. With the Board providing strong oversight, the management team will be sharply focused on realizing the value of its assets and the company will be well positioned to create substantial value for shareholders going forward," added Icahn in a statement.
Directors remaining on Chesapeake's board are McClendon, Louis Simpson, Pete Miller, said the company in a press release. Final board assignments will be made by the reconstituted board, the Chesapeake added, and also said that it will continue to push to have its entire board up for election in 2013, after previously pushing for staggered elections. Earlier in June, Chesapeake Energy said that following "extensive discussions" with its two largest shareholders, Southeastern Asset Management and Icahn, it had agreed to add four new independent directors to replace four existing independent directors who will resign from Chesapeake's board. The company also sold its midstream assets to privately held Global Infrastructure Partners for $4 billion in its biggest deal of 2012 as an over $10 billion cash shortfall continues to weigh on the company's shares. The board changes and asset sales move, are Chesapeake's largest strategic decisions since questions emerged about CEO Aubrey McClendon's stewardship of the nation's second-largest gas driller. In two separate deals, the Oklahoma City-based driller agreed to sell its stake in Chesapeake Midstream Partners and another subsidiary, Chesapeake Midstream Development, for a total of $4 billion. While the sales will help Chesapeake Energy to repair its finances, investors and analysts still expect billions more in asset sales. "The proceeds of these transactions are an important part of our 2012 asset sales program that is on track to generate cash proceeds of $11.5-14.0 billion," said McClendon of Chesapeake's pipeline unit sale. He stressed that the move brings Chesapeake's divestiture total to $6.6 billion for the year, with its Permian asset sale and Mississippi Lime joint venture among other businesses that will be sold in the second half of 2012. "Importantly, the sale of
Chesapeake Midstream will also reduce previously planned capital expenditures by approximately $3.0 billion over the next three years," noted McClendon. For Icahn, who announced a 7.6% share stake in Chesapeake in late May, new directors and asset sales appear to be a quick answer to his activist calls for more independence on Chesapeake's board to impart better financial management as the company works to sell assets, amid decade-low natural gas prices.
The stock price suffers because of the enormous risk associated with an ever changing business strategy, enormous capital funding gap, poor governance, and unchecked risk taking," Icahn wrote in late May letter to Chesapeake's board, adding, " What is important is that this pernicious funding gap, which we believe this board has created, must be filled." At Chesapeake's shareholder meeting, Reuters reported that CEO McClendon said the company would dedicate its oil and gas focus to just 10 basins, after previously embarking on a "land grab" of shale drilling assets across the U.S. "It will be a completely different company to invest in," McClendon said. In Thursday trading, Chesapeake shares rose slightly to $19.09. The stock has gained over 20% from levels that UBS analysts calculate Icahn bought Chesapeake Energy shares for in May. Year-to-date shares are off over 14% and over 30% in the past 12 months, amid concerns about its finances and CEO McClendon's 2.5% personal investment in almost all of the wells that the company has drilled over the years. Underlying a board shakeup and the initiation of asset sales, it's important for investors to remember that a shoring up of the balance sheet will remain a key focus for the oil and gas company in 2012. Moody's calculates the company needs to sell $7 billion in assets to avoid a ratings downgrade and breach of its debt covenants. "Even $7 billion in asset sales could place Chesapeake's covenant compliance for its revolving credit facility in some doubt, and the company would still face a significant funding gap in 2013," wrote Moody's analyst Peter Speer on May 31. For more on Carl Icahn, see his investment portfolio. For more on energy stocks, see the energy stocks bought and sold by hedge funds in the latest quarter. See 5 ways Chesapeake Energy can be saved from itself for more on how it can initiate a share turnaround. -- Written by Antoine Gara in New York