Thursday, June 28, 2012

Cockroaches At Cheseapeake

Shares of Chesapeake Energy are cheap enough nowadays to attract a number of new investors. But for so many years, this company was run like it was CEO McClendon's personal slush fund.

For some of its egregious practices, Chesapeake has been featured a number of times on The company has also been featured here on this site, thanks to what appear to be enormous wealth transfers from its shareholders to its CEO. While outside investors including Icahn have now improved oversight, investors should heed Buffett's warning: "There's never just one cockroach in the kitchen."

Though its clear from the actions we *do* know about that McClendon cares little for long-term shareholder value, the scary parts now are the problems we *don't* know about. Yesterday, however, shareholders got a hint that there are likely many more skeletons in the closet, for which shareholders may have to pay dearly.

McClendon appears to be caught colluding with fellow energy firm Encana in keeping land prices low. During a bidding war for land containing energy resources, McClendon sent an e-mail which included the following to his deputy: "Doug: time to smoke a peace pipe with ECA on this one if we are bidding each other up." (ECA is the ticker symbol for Encana.) This article details how the two companies reportedly discussed how to handle negotiations with at least nine private land owners!

It's too early to tell what the penalties (if any) will be to Chesapeake for these activities, but does anyone believe this is the last of the cockroaches?

Disclosure: No position

1 comment:

Dividend Maven said...

CHK has too much uncertainty and negative management news for this investor.

Thanks for spelling out some of the latest developments.