The Securities and Exchange Commission has opened an informal inquiry into Chesapeake Energy Corp's controversial program that granted Chief Executive Aubrey McClendon a share in each of the natural gas producer's wells, a source familiar with the matter said on Thursday.
That inquiry, being led by the SEC's office in Fort Worth, Texas, comes after Reuters reported about loans McClendon had obtained on those wells that raised concerns about a potential conflict of interest by the company's CEO.
Chesapeake said it would end the program that gives McClendon a 2.5 percent stake in every one of the company's thousands of wells in 2015, when the shareholder approval of the program that started in 2005 expires.
The company said in a statement earlier on Thursday that its directors had never reviewed or approved McClendon's mortgages on stakes in those wells, reversing its prior assertions that its board of directors was "fully aware" of McClendon's financing transactions around the well ownership stakes.
"The board of directors did not review, approve or have knowledge of the specific transactions engaged in by Mr. McClendon or the terms of those transactions," the company said.
Ratings agency Standard & Poor's said on Thursday the turmoil surrounding the well ownership program and McClendon's personal transactions could hamper the company's ability to meet "massive external funding requirements stemming from its currently weak operating cash flow."
S&P lowered its credit rating for Chesapeake - which has been junk grade for some time - one notch to "BB" from "BB-plus" and said another cut could occur within a few months.
Read more: http://www.reuters.com/article/2012/04/27/us-chesapeake-idUSBRE83P0PX20120427
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