Is Aubrey McClendon Suddenly the World's Most Generous CEO?

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Aubrey McClendonHounded by his shareholders, excoriated by analysts, and now under investigation by both the IRS and the SEC, Chesapeake Energy (CHK) CEO Aubrey McClendon caved in to the pressure Tuesday and announced he's resigning as company chairman. On top of that, he's agreeing to end his participation in Chesapeake's "Founder Well Participation Program" 18 months early "without compensation."

These are the headlines this week. Now here's the real story.

As CEO and also chairman of both Chesapeake's board of directors and its employee compensation and benefits committee (hint: CEOs are "employees" too), McClendon wore three hats simultaneously -- and possessed great power to determine the size of his own paycheck. One benefit he secured for himself was a spot in the FWPP, which permitted him to purchase 2.5% shares of all the wells Chesapeake drilled in any given year.

McClendon's contract guaranteed him the right to continue investing in new wells at the aforementioned 2.5% level through the end of 2015. In order to placate shareholders, though, he's agreed to halt participation in June 2014. Is that important?

Chesapeake certainly wants us to think so. In the company's press release, Chesapeake's board points out not once, but twice, how very harsh its treatment of its CEO will be: "Mr. McClendon will receive no compensation of any kind in connection with the early termination of the FWPP."

What's more: "Mr. McClendon [has] a contractual right to participate and invest as a working interest owner (with up to a 2.5% working interest) in new wells ... [but] Mr. McClendon has agreed to forego such contractual right 18 months early without compensation."


Pretty generous of him -- except for two things. First, due to the low price of natural gas these days, Chesapeake is already cutting back on drilling new wells. It's entirely possible that even if the FWPP contract remained in force, there wouldn't be many new profitable wells to invest in anyway. And second, despite assuring investors that McClendon's out of the program -- twice! -- Chesapeake fails to explain exactly what this means. Are they asking him to repay and cancel the loans he's taken out to finance his investments? To forfeit his interest in the wells he's already invested in?

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Because if they're not asking this, and McClendon gets to keep the well shares he's already bought, then according to The Wall Street Journal, this man personally owns "the oil-and-gas equivalent of 810 billion cubic feet of gas -- roughly equal to Brazil's annual consumption."

Cry him a river.

Motley Fool contributor Rich Smith holds no position in any company mentioned. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy.



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