April 18, 2012 / 10:48 AM / 7 years ago

Exclusive - Chesapeake CEO took out $1.1 billion in unreported loans

Chesapeake Energy Corp. CEO Aubrey McClendon (R) and actor Rob Lowe (L) and watch the Oklahoma City Thunder play the Los Angeles Lakers in a NBA basketball game in at Chesapeake Energy Arena in Oklahoma City, Oklahoma in this February 23, 2012, file photo. McClendon is one of the most successful energy entrepreneurs of recent decades. But he hasn't always proved popular with shareholders of the company he co-founded, the second-largest natural gas producer in the United States. Now, a series of previously undisclosed loans to McClendon could once again put Chesapeake's CEO and shareholders at odds. REUTERS/Steve Sisney

HOUSTON (Reuters) - Aubrey McClendon, the CEO of Chesapeake Energy Corp (CHK.N), has borrowed as much as $1.1 billion over the last three years against his stake in thousands of company wells - a move that analysts, academics and attorneys who reviewed loan documents say raises the potential for conflicts of interest.

The loans, which haven’t been previously detailed to shareholders, are used to fund McClendon’s operating costs for an unusual corporate perk that offers him a chance to invest in a 2.5 percent interest in every well the company drills. McClendon in turn is using the 2.5 percent stakes as collateral on those same loans, documents filed in five states show.

The size and nature of the loans raise questions about whether McClendon’s personal financial deals could compromise his fiduciary duty to Chesapeake investors, experts who reviewed the documents told Reuters.

Both McClendon and Chesapeake said the loans don’t pose any conflict of interest. And they are private transactions that the company has no responsibility to disclose or to vet, Chesapeake said. “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.

The revelation comes as McClendon is scrambling to help Chesapeake weather a multi-billion-dollar cash shortfall amid a plunge in natural gas prices.

McClendon’s biggest personal lender, EIG Global Energy Partners, has also been a big financier for Chesapeake. EIG and other investors have helped Chesapeake raise more than $2 billion through the sale of preferred shares that provide very favourable terms to the buyers.

Reporting By Anna Driver and Brian Grow; Editing by Blake Morrison

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