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Going From Bad to Downright Dreadful at Chesapeake

Brian Stoffel
June 7, 2012

To say that 2012 has been a year Chesapeake Energy (NYSE: CHK  ) shareholders would like to forget is a vast understatement. For those just catching up, let's review:

  • Natural gas -- which accounted for more than half of the company's revenue in 2011 -- hit multiyear lows due to supply gluts.
  • The stock's price is down more than 22% year to date.
  • It was reported that CEO Aubrey McClendon was leveraged to the hilt to participate in a company perk that put his interests at odds with shareholders'.
  • McClendon and SandRidge Energy (NYSE: SD  ) CEO Tom Ward ran a hedge fund when Ward still worked at Chesapeake that took up a great deal of their time and energy. The fund's existence raised questions of trading on insider information.

Today, a special report released by Reuters -- "The Lavish and Leveraged Life of Aubrey McClendon" -- is adding even more fuel to the fire.

A few details
The report, which Reuters put together after conducting several interviews and reviewing both public filings and internal documents, reveals just how over-the-top the company's chief executive can go.

First, there is AKM Operations, a small division of the company employing six full-time workers. Their main task: managing several business aspects of McClendon's personal life. Though regulatory filings make reference to the existence of such a group, its true scope was never made clear to shareholders. In 2010, this group worked over 15,000 hours and cost the company $3 million. It appears, however, that McClendon reimbursed the company for the bulk of the expenses.

Where that money is coming from, on the other hand, is another question. According to the report: "Although McClendon's net worth is pegged by Forbes at $1.1 billion, he has mortgaged much of what he owns: the restaurants, the wine, the boats, the homes, proceeds from three accounts at Goldman Sachs, his stake in private companies and his stake in thousands of Chesapeake wells."

McClendon owns a 19% stake in the Oklahoma City Thund