(Reuters) - Chesapeake Energy Corp agreed to replace four current board members, bowing to shareholder pressure to improve corporate governance just days ahead of the natural gas producer's annual meeting.
The company's largest shareholder, Southeastern Asset Management, will nominate three of the new directors, while billionaire investor Carl Icahn and his affiliates will pick the fourth, it said on Monday.
Chesapeake, the nation's second biggest natural gas producer, has been under intense scrutiny from investors after Reuters reported in April that Chief Executive Aubrey McClendon had taken out more than $1 billion in loans, using his personal stakes in thousands of company wells as collateral.
Four current Chesapeake directors will resign after the new directors are appointed, although it did specify which board members will step down.
It said McClendon, who recently agreed to drop the role of chairman, will remain on the board.
The move was praised by both big shareholders in a statement released by the company. Icahn, who recently had a 7.6 percent stake in the company, has been agitating for changes to Chesapeake's board.
"We are pleased that Chesapeake is being responsive to issues raised by us and many of the company's other shareholders. These steps to reconstitute the board will enhance oversight and provide greater accountability," O. Mason Hawkins, CEO of Southeastern, said in the Chesapeake statement.
Icahn, who has sharply criticized the Chesapeake board, said in a filing to the U.S. Securities and Exchange Commission he would continue to consult on the selection of a new chairman and assets sales, and did not want the company' current low valuation to discourage potential buyers of the whole company.
McClendon has not raised the possibility of selling Chesapeake, focusing instead on selling assets, such as its holdings in the West Texas Permian Basin, to close a funding gap estimated at more than $10 billion this year.
The sale, as well as well as the auction of other properties, are crucial for the company, which has accumulated one of the nation's largest portfolios of oil and gas leases.
But a drop in the price of natural gas to its lowest levels in a decade has squeezed cash flow, and forced the Oklahoma City-based company to sharply reduce spending.
Last week, debt rating agency Moody's Investors Service warned Chesapeake must sell at least $7 billion in assets to avoid breaching a loan covenant.
"Even $7 billion in asset sales could place Chesapeake's covenant compliance for its revolving credit facility in some doubt and the company would still face a significant funding gap in 2013," Moody's said in a note.
The company's shares rose 2 percent to $15.90 in early trading.
(Reporting By Michael Erman and Matt Daily; Editing by Gerald E. McCormick and Jeffrey Benkoe)