Chesapeake Energy: Carl Icahn as investor? Sure!

Chesapeake Energy CEO says he would welcome the activist investor who often calls for change in management. Shares of Chesapeake Energy have plunged nearly 40 percent in less than two months. 

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    The Chesapeake Energy Corp. campus is seen in Oklahoma City in this April file photo. The natural gas producer has been trying to calm Wall Street worries about its financial position, telling investors on Monday it was confident it would complete asset sales to plug a funding gap.
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Chesapeake Energy CEO Aubrey McClendon said Monday he'd welcome activist investor Carl Icahn as a shareholder.

Icahn, who is reportedly buying a substantial stake in the beleaguered natural gas producer, has a reputation for investing in companies and aggressively calling for change. But McClendon hinted that no shakeup was afoot in a conference call Monday to discuss a $3 billion loan from Goldman Sachs.

Chesapeake investors, who've seen the value of their shares decline about 38 percent since late March, cheered the possibility of having Icahn on their side. Shares rose more than 4 percent.

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McClendon noted that Icahn briefly invested in the company in 2010 with good results.

"He made over $500 million and called to thank me when it was over," McClendon said. "If he comes in (again), I'm pretty confident he'll make a lot of money."

Icahn didn't return a call for comment.

Icahn's investment, which was reported in The Wall Street Journal, follows two roller-coaster weeks for the country's No. 2 natural gas producer. McClendon has lost board chairmanship, and some analysts and investors are calling for his dismissal as CEO.

The Oklahoma City-based company's troubles are moored to a recent plunge in natural gas prices that sharply reduced the value of its assets. Like other natural gas producers, Chesapeake has shut down some natural gas operations and shifted more profitable crude oil and other liquid hydrocarbons.

Such a move is costly, and risky for a company with a high debt load. Chesapeake plans to increase spending by $1 billion this year to $12.6 billion in 2012.

"They just spend and spend and spend without regard to cost," said Argus Research analyst Phil Weiss, who rates the shares a "Sell."

The company has found creative ways to raise cash, including asset sales and long-term production commitments to banks. On Friday, Chesapeake announced a $3 billion loan from Goldman Sachs and the Jefferies Group. But borrowing costs are going up, and asset sales undermine its goal to produce more oil.

Chesapeake reported a net loss of $71 million, or 11 cents per share, for the first three months of the year.

Meanwhile, news reports have revealed a string of corporate governance issues at Chesapeake. Besides running up company debt, McClendon ran his own hedge fund while CEO that bet on oil and natural gas prices — commodities that Chesapeake produces. McClendon also took out a personal loan from a company that was planning to buy Chesapeake assets.

McClendon apologized to investors last week, and he sought to reassure them again on Monday.

He said Monday that better times are ahead as Chesapeake switches from buying oil and gas resources to selling them.

"What lies ahead is actually far easier to manage, and it will be far easier to invest in as well," McClendon said.

Bob Brackett with Bernstein Research said the $3 billion loan gives the company "needed wiggle room" to continue to operate and sell assets as planned. He has an "Out Perform" rating on the company.

Chesapeake Energy Corp. shares rose 64 cents, about 4.3 percent, to $15.45 in afternoon trading. That's a slight recovery from a 13.8 percent drop on Friday.


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