Shares in Chesapeake Energy fell nearly 10% on Wednesday after a Reuters report that chief executive Aubrey McClendon had borrowed as much as $1.1 billion over the last three years against his stake in thousands of company wells.
The stock dropped 9.6% to $17.28 in early afternoon. Shares
last traded at that level in July 2009.
The volume of Chesapeake shares changing hands was more than
double the 10-day moving average, and the stock was the most actively traded on
the New York Stock Exchange.
"It's certainly not a positive article," Capital
One Southcoast analyst Marshall Carver told Reuters. "I think that has
something to do with" the stock drop.
At a previously planned presentation to analysts and
investors Wednesday morning, McClendon did not mention the Reuters report.
The chief executive, who appeared subdued compared with his
usual upbeat demeanour, was not asked about the report as he discussed the
company's drilling programme and asset sales.
The news threatens to "put a cloud" over the
company's planned initial public offering of its oilfield services unit, Brean
Murray analyst Ray Deacon said.
"Now that loan documents are made public, it just adds
another layer of complexity to an already opaque corporate web," Deacon
As quoted in the Reuters story, McClendon and Chesapeake
said the loans did not pose any conflict of interest. The loans are private
transactions that the company has no responsibility to disclose or to vet,
"There are no covenants or obligations in my loan
documents or mortgages that bind Chesapeake in any way," McClendon wrote
in an email to Reuters.
But traders appeared to be erring on the side of caution.
"I think where there is smoke, there may be fire, and
investors are still in a shoot-first mentality," said David Lutz, a trader
a Stifel Nicolaus in Baltimore.
The loans, which have not been previously detailed to
shareholders, were used to fund McClendon's operating costs for an unusual
corporate perk that offers him a chance to invest in a 2.5% interest in every
well the company drills.
McClendon in turn used the 2.5% stakes as collateral on
those same loans, documents filed in five states showed.
Analysts, academics and attorneys who reviewed the loan
documents said the arrangement raised the potential for conflicts of interest.
Companies involved in natural gas production have seen their
shares hit recently as excess supply and warm weather undercut prices of the