Press Releases
Chesapeake Energy Corporation
During the second quarter, Chesapeake produced 67.3 billion cubic feet of natural gas equivalent (bcfe), compared to the company's most recent forecast of 64-65 bcfe. This 67.3 bcfe of production was comprised of 60.0 billion cubic feet of natural gas (bcf) (89% on an mcf equivalent basis) and 1.2 million barrels of oil (mmbo) (11% on an mcf equivalent basis).
The 2003 second quarter oil and natural gas production increased 55% year- over-year from the 2002 second quarter and 19% sequentially from the 2003 first quarter. Of the 10.5 bcfe in sequential production growth during the second quarter, only 9.5% came from acquisitions closed during the quarter. The 2003 second quarter was Chesapeake's eighth consecutive quarter of sequential production increase. During these eight quarters, Chesapeake's production has increased 72%, for an average sequential quarterly growth rate of 7%.
Reserve growth during the 2003 second quarter was also significant as production of 67 bcfe was replaced by 201 bcfe of new proved reserves (a 300% reserve replacement rate). This growth was comprised of 112 bcfe from drilling and revisions and 96 bcfe from acquisitions, partially offset by 7 bcfe of divestitures that were sold for proceeds of $19 million. Chesapeake's internally estimated proved reserves now total approximately 2.95 trillion cubic feet of natural gas equivalent, of which 90% are natural gas and 74% are proved developed. This marks the company's seventh consecutive quarter of growth in estimated proved reserves.
Average prices realized during the 2003 second quarter (including hedging) were $26.24 per barrel of oil (bo) and $4.73 per thousand cubic feet of natural gas (mcf), for a realized gas equivalent price of $4.70 per thousand cubic feet of natural gas equivalent (mcfe). Chesapeake's realized pricing differentials to NYMEX during the quarter averaged a negative $2.15 per bo and a negative $0.70 per mcf and hedging activities generated a $0.52 loss per bo and a $0.03 gain per mcf.
Key Operational and Financial Statistics for the 2003 Second Quarter
The table below summarizes Chesapeake's key statistics during the 2003 second quarter and compares them to the 2003 first quarter and the 2002 second quarter:
Key Operational and Financial Statistics: Three Months Ended:
6/30/03 3/31/03 6/30/02
Average daily production (in mmcfe) 740 631 477
Gas as % of total production 89 89 89
Natural gas production (in bcf) 60.0 50.4 38.5
Average realized gas price ($/mcf) (A) 4.73 4.51 3.38
Oil production (in mbbls) 1,224 1,060 823
Average realized oil price ($/bbl) (A) 26.24 27.27 26.55
Natural gas equivalent production (in bcfe) 67.3 56.8 43.4
Gas equivalent realized price ($/mcfe) (A) 4.70 4.52 3.50
General and administrative costs ($/mcfe) 0.09 0.10 0.09
Production taxes ($/mcfe) 0.25 0.33 0.18
Lease operating expenses ($/mcfe) 0.51 0.55 0.56
Interest expense ($/mcfe) 0.56 0.62 0.57
DD&A of oil and gas properties ($/mcfe) 1.36 1.35 1.17
Operating cash flow ($ in millions) (B) 226.1 167.7 96.6
Operating cash flow ($/mcfe) 3.36 2.96 2.23
Ebitda ($ in millions) (C) 266.1 230.0 120.8
Ebitda ($/mcfe) 3.95 4.05 2.78
Net income available to common
shareholders ($ in millions) 76.3 70.0 22.5
(A) includes the effects of hedging
(B) cash flow provided by operating activities before changes in assets
and liabilities
(C) defined as income before income taxes, interest expense, and
depreciation, depletion and amortization expense
Chesapeake Updates Forecasts and Hedging Information
Chesapeake's initial 2003 third quarter and updated full-year 2003 and 2004 forecasts are attached to this release in a revised Outlook dated July 28, 2003 and labeled as Schedule "A". The company's previous guidance of June 24, 2003 is provided for comparative reference only and is labeled as Schedule "B". The new Outlook reflects an increase in projected 2003 full- year production volumes to 258-262 bcfe, up from 255-260 bcfe included in the company's June 24, 2003 Outlook. This increased production forecast is attributable to Chesapeake's drilling programs generating better than previously forecasted production volumes. The company has now increased its full-year 2003 production estimate by 35% since the beginning of the year.
In addition, Chesapeake has added to its hedging positions since the June 24, 2003 update. Currently, the company has hedged the following percentages of its projected 2003-2007 oil and natural gas production:
Oil Natural Gas Quarter or Year % Hedged $ NYMEX % Hedged $ NYMEX 3Q 2003 79% $ 28.07 62% $ 5.50 4Q 2003 79% $ 28.07 63% $ 5.72 Remaining 2003 79% $ 28.07 62% $ 5.61 2004 63% $ 27.85 26% $ 5.51 2005 --- --- 15% $ 4.79 2006 --- --- 9% $ 4.74 2007 --- --- 9% $ 4.76
Depending on changes in oil and natural gas futures markets and the company's view of underlying supply and demand trends, the company may either increase or decrease its hedging positions in the future.
Standard & Poor's Raises Chesapeake's Credit Ratings
On July 10, 2003, Standard & Poor's Rating Services raised Chesapeake's corporate credit rating to BB-. At the same time, S & P assigned its BBB- rating to the company's recently amended $350 million secured revolving credit facility due 2007. This is the first time Chesapeake has received an investment grade rating on any of its outstanding debt and evidences Chesapeake's continuing commitment to strengthening its balance sheet.
Management Comments
Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented, "We are pleased to announce Chesapeake's very strong second quarter earnings report, which features exceptional growth in production and proved reserves, low operating and administrative costs, high operating margins and increased production forecasts for the remainder of 2003 and for 2004. Chesapeake's value-creating financial and operating results are being driven by its distinctive Mid-Continent focus on successful deep-gas exploration and on finding, completing and quickly integrating small and medium-sized acquisitions. Because of the company's unique scale in the Mid-Continent, its technological advantages in deep gas exploration and its unrivaled Mid- Continent 3-D seismic and leasehold inventory, we believe Chesapeake's production and reserve growth trends should be sustainable and should enable the company to continue generating significant increases in shareholder value in the years ahead."
Conference Call Information
A conference call has been scheduled for Tuesday morning, July 29, 2003 at 9:00 a.m. EDT to discuss the earnings release. The telephone number to access the conference call is 913.981.5533. For those unable to participate in the conference call, a replay will be available from 12:00 p.m. EDT on Tuesday, July 29, 2003 through midnight EDT on Friday, August 15, 2003. The number to access the conference call replay is 719.457.0820 and the passcode is 448860. The conference call will also be simulcast live on the Internet and can be accessed at www.chkenergy.com by selecting "Conference Calls" under the "Investor Relations" section. The webcast of the conference call will be available on the website for one year.
This press release and the accompanying Outlooks include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements give our current expectations or forecasts of future events. They include estimates of oil and gas reserves, expected oil and gas production and future expenses, projections of future oil and gas prices, planned capital expenditures for drilling, leasehold acquisitions and seismic data, and statements concerning anticipated cash flow and liquidity, business strategy and other plans and objectives for future operations. Disclosures concerning derivative contracts and their estimated contribution to our future results of operations are based upon market information as of a specific date. These market prices are subject to significant volatility. Although we believe the expectations and forecasts reflected in these and other forward-looking statements are reasonable, we can give no assurance they will prove to have been correct. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Factors that could cause actual results to differ materially from expected results are described under "Risk Factors" in Item 1 of our 2002 Form 10-K and subsequent filings with the Securities and Exchange Commission. They include the volatility of oil and gas prices; adverse effects our substantial indebtedness could have on our operations and future growth; our ability to compete effectively against strong oil and gas companies and majors; the cost and availability of drilling and production services; possible financial losses as a result of our commodity price risk management activities; uncertainties inherent in estimating quantities of oil and gas reserves, including reserves we acquire, projecting future rates of production and the timing of development expenditures; exposure to potential liabilities of acquired properties; our ability to replace reserves; the availability of capital; changes in interest rates; and drilling and operating risks. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release, and we undertake no obligation to update this information.
Chesapeake Energy Corporation is one of the eight largest independent natural gas producers in the U.S. Headquartered in Oklahoma City, the company's operations are focused on exploratory and developmental drilling and producing property acquisitions in the Mid-Continent region of the United States. The company's Internet address is www.chkenergy.com .
CHESAPEAKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in 000's, except per share data)
(unaudited)
THREE MONTHS ENDED: June 30, 2003 June 30, 2002
$ $/mcfe $ $/mcfe
REVENUES:
Oil and gas sales 316,172 4.69 152,009 3.50
Risk management income (loss) 3,084 0.05 (481) (0.01)
Oil and gas marketing sales 110,296 1.64 42,785 0.99
Total revenues 429,552 6.38 194,313 4.48
OPERATING COSTS:
Production expenses 34,263 0.51 24,242 0.56
Production taxes 17,101 0.25 7,911 0.18
General and administrative 6,000 0.09 3,859 0.09
Oil and gas marketing expenses 106,857 1.59 41,181 0.95
Depreciation, depletion, and
amortization of oil and
gas properties 91,570 1.36 50,778 1.17
Depreciation and amortization
of other assets 4,122 0.06 3,652 0.08
Total operating costs 259,913 3.86 131,623 3.03
INCOME FROM OPERATIONS 169,639 2.52 62,690 1.45
OTHER INCOME (EXPENSE):
Interest and other income 781 0.01 3,992 0.09
Interest expense (37,773) (0.56) (24,690) (0.57)
Loss on repurchases of debt --- --- (273) (0.01)
Total other income (expense) (36,992) (0.55) (20,971) (0.49)
Income Before Income Taxes 132,647 1.97 41,719 0.96
Income Tax Expense
Current --- --- --- ---
Deferred 50,407 0.75 16,686 0.38
Total income tax expense 50,407 0.75 16,686 0.38
NET INCOME 82,240 1.22 25,033 0.58
Preferred Stock Dividends (5,979) (0.09) (2,530) (0.06)
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS 76,261 1.13 22,503 0.52
EARNINGS PER COMMON SHARE:
Basic $0.36 $0.14
Assuming dilution $0.31 $0.13
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
(in 000's):
Basic 214,341 165,963
Assuming dilution 263,919 191,947
CHESAPEAKE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in 000's, except per share data)
(unaudited)
SIX MONTHS ENDED: June 30, 2003 June 30, 2002
$ $/mcfe $ $/mcfe
REVENUES:
Oil and gas sales 572,504 4.61 293,980 3.45
Risk management income (loss) 30,794 0.25 (79,949) (0.94)
Oil and gas marketing sales 200,604 1.62 70,118 0.82
Total revenues 803,902 6.48 284,149 3.33
OPERATING COSTS:
Production expenses 65,720 0.53 46,302 0.54
Production taxes 35,698 0.29 13,127 0.15
General and administrative 11,665 0.09 8,153 0.10
Oil and gas marketing expenses 196,215 1.58 67,688 0.79
Depreciation, depletion, and
amortization of oil and
gas properties 168,184 1.36 99,397 1.17
Depreciation and amortization
of other assets 7,806 0.06 6,762 0.08
Total operating costs 485,288 3.91 241,429 2.83
INCOME FROM OPERATIONS 318,614 2.57 42,720 0.50
OTHER INCOME (EXPENSE):
Interest and other income 1,544 0.01 5,537 0.07
Interest expense (72,800) (0.58) (51,650) (0.61)
Loss on repurchases of debt --- --- (864) (0.01)
Total other income (expense) (71,256) (0.57) (46,977) (0.55)
Income (Loss) Before Income Taxes
and Cumulative Effect of
Accounting Change 247,358 2.00 (4,257) (0.05)
Income Tax Expense (Benefit)
Current --- --- --- ---
Deferred 93,998 0.76 (1,704) (0.02)
Total income tax expense (benefit) 93,998 0.76 (1,704) (0.02)
NET INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 153,360 1.24 (2,553) (0.03)
Cumulative Effect of Accounting
Change, Net of Tax 2,389 0.02 --- ---
NET INCOME (LOSS) 155,749 1.26 (2,553) (0.03)
Preferred Stock Dividends (9,505) (0.08) (5,062) (0.06)
NET INCOME (LOSS) AVAILABLE
TO COMMON SHAREHOLDERS 146,244 1.18 (7,615) (0.09)
EARNINGS PER COMMON SHARE:
Basic
Income (Loss) Before Cumulative
Effect of Accounting Change $0.70 $(0.05)
Cumulative Effect of Accounting
Change 0.01 ---
Net Income (Loss) $0.71 $(0.05)
Assuming dilution
Income (Loss) Before Cumulative
Effect of Accounting Change $0.62 $(0.05)
Cumulative Effect of Accounting
Change 0.01 ---
Net Income (Loss) $0.63 $(0.05)
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
(in 000's):
Basic 205,995 165,669
Assuming dilution 247,391 165,669
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in 000's)
(unaudited)
June 30, December 31,
2003 2002
Cash $ 35,909 $ 247,637
Other current assets 297,558 187,680
TOTAL CURRENT ASSETS 333,467 435,317
Property and equipment (net) 3,595,166 2,389,884
Deferred tax asset --- 2,071
Other assets 84,727 48,336
TOTAL ASSETS $4,013,360 $2,875,608
Current liabilities $ 415,871 $ 265,552
Long term debt 1,968,447 1,651,198
Long term liabilities 73,502 50,983
Deferred tax liability 92,068 ---
TOTAL LIABILITIES 2,549,888 1,967,733
STOCKHOLDERS' EQUITY 1,463,472 907,875
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $4,013,360 $2,875,608
COMMON SHARES OUTSTANDING 215,862 190,144
CHESAPEAKE ENERGY CORPORATION
CONDENSED CONSOLIDATED CASH FLOW DATA
(in 000's)
(unaudited)
THREE MONTHS ENDED: June 30, March 31, June 30,
2003 2003 2002
Cash provided by operating
activities $ 277,581 $ 99,052 $ 97,528
Cash (used in) investing
activities $(313,485) $(1,002,289) $(234,613)
Cash provided by financing
activities $ 33,809 $ 693,604 $ 21,429
CHESAPEAKE ENERGY CORPORATION
RECONCILIATION OF CERTAIN FINANCIAL MEASURES
(in 000's)
(unaudited)
THREE MONTHS ENDED: June 30, March 31, June 30,
2003 2003 2002
CASH PROVIDED BY OPERATING
ACTIVITIES $ 277,581 $ 99,052 $ 97,528
Adjustments:
Changes in assets and
liabilities (51,512) 68,661 (910)
OPERATING CASH FLOW* $ 226,069 $ 167,713 $ 96,618
* Operating cash flow represents net cash provided by operating
activities before changes in assets and liabilities. Operating cash
flow is presented because management believes it is a useful adjunct to
net cash provided by operating activities under accounting principles
generally accepted in the United States (GAAP). Operating cash flow is
widely accepted as a financial indicator of an oil and gas company's
ability to generate cash which is used to internally fund exploration
and development activities and to service debt. This measure is widely
used by investors and rating agencies in the valuation, comparison,
rating and investment recommendations of companies within the oil and
gas exploration and production industry. Operating cash flow is not a
measure of financial performance under GAAP and should not be
considered as an alternative to cash flows from operating, investing,
or financing activities as an indicator of cash flows, or as a measure
of liquidity.
THREE MONTHS ENDED: June 30, March 31, June 30,
2003 2003 2002
Net income $ 82,240 $ 71,120 $ 25,033
Deferred income tax expense 50,407 43,591 16,686
Interest expense 37,773 35,027 24,690
Depreciation and amortization
of other assets 4,122 3,684 3,652
Depreciation, depletion and
amortization of oil and
gas properties 91,570 76,614 50,778
EBITDA** $266,112 $230,036 $120,839
**Ebitda represents net income (loss) before cumulative effect of
accounting change, income tax expense (benefit), interest expense, and
depreciation, depletion and amortization expense. Ebitda is presented
as a supplemental financial measurement in the evaluation of our
business. We believe that it provides additional information regarding
our ability to meet our future debt service, capital expenditures and
working capital requirements. This measure is widely used by investors
and rating agencies in the valuation, comparison, rating and investment
recommendations of companies. Ebitda is also a financial measurement
that, with certain negotiated adjustments, is reported to our banks
under our bank credit facilities and is used in our financial covenants
under our bank credit facilities and our indentures governing our senior
notes. Ebitda is not a measure of financial performance under GAAP.
Accordingly, it should not be considered as a substitute for net income,
income from operations, or cash flow provided by operating activities
prepared in accordance with GAAP. Ebitda is reconciled to cash provided
by operating activities as follows:
THREE MONTHS ENDED: June 30, March 31, June 30,
2003 2003 2002
CASH PROVIDED BY OPERATING
ACTIVITIES $277,581 $ 99,052 $ 97,528
Changes in assets and liabilities (51,512) 68,661 (910)
Interest expense 37,773 35,027 24,690
Risk management income (loss) 3,084 27,710 (481)
Other non-cash items (814) (414) 12
EBITDA $266,112 $230,036 $120,839
SCHEDULE "A"
CHESAPEAKE'S OUTLOOK
As of July 28, 2003
Quarter Ending September 30, 2003; Year Ending December 31, 2003; Year Ending December 31, 2004.
We have adopted a policy of periodically providing investors with guidance on certain factors that affect our future financial performance. As of July 28, 2003, we are using the following key operating assumptions in our projections for the third quarter of 2003, full year 2003, and full year 2004.
The primary changes from our June 24, 2003 guidance are in italicized bold and are explained as follows:
1) We have updated the projected effects from changes in our hedging
positions.
2) We have included our expectations for future NYMEX oil and gas prices
to illustrate hedging effects only, they are not a forecast of our
expectations for 2003 oil and natural gas prices.
3) We have increased our projected oil and natural gas production for the
full year 2003 and 2004.
4) We have included third quarter 2003 projections for the first time.
Quarter Ending Year Ending Year Ending
September 30, December 31, December 31,
2003 2003 2004
Estimated Production
Oil - Mbo 1,200 4,700 4,700
Gas - Bcf 60.5 - 61.0 230 - 234 249 - 253
Gas Equivalent - Bcfe 67.5 - 68.0 258 - 262 277 - 281
Daily gas equivalent
midpoint - in Mmcfe 735 710 765
NYMEX Prices (for calculation
of hedging effects only)
Oil - $/Bo $25.00 $28.19 $24.00
Gas - $/Mcf $5.43 $5.79 $4.50
Estimated Differentials to
NYMEX Prices
Oil - $/Bo -$2.50 -$2.23 -$2.00
Gas - $/Mcf -$0.50 -$0.50 -$0.50
Estimated Hedging Effects
(based on expected NYMEX
prices above)
Oil - $/Bo +$2.64 -$0.24 +$2.43
Gas - $/Mcf +$0.24 -$0.25 +$0.29
Operating Costs per Mcfe
Production expense $0.53 - 0.57 $0.53 - 0.57 $0.57 - $0.60
Production taxes (generally
6% of O&G revenues) $0.31 - 0.33 $0.31 - 0.33 $0.27 - $0.30
General and
administrative $0.09 - 0.10 $0.09 - 0.10 $0.09 - $0.10
DD&A - oil and gas $1.35 - 1.40 $1.35 - 1.40 $1.37 - $1.42
Depreciation of
other assets $0.08 - 0.10 $0.08 - 0.10 $0.08 - $0.10
Interest expense $0.60 - 0.65 $0.60 - 0.65 $0.55 - $0.60
Other Income and Expense
per Mcfe (A)
Marketing and
Other income $0.02 - 0.04 $0.02 - 0.04 $0.02 - $0.04
Book Tax Rate - All Deferred 38% 38% 38%
Equivalent Shares Outstanding
Basic 216,000 m 214,000 m 218,000
Diluted 266,000 m 258,000 m 268,000
Capital Expenditures:
Drilling, Land and
Seismic $150 - $155 mm $600 - $650 mm $600 - $650 mm
(A) Does not include non-cash risk management income or loss (SFAS 133)
or the cumulative effect of the adoption of SFAS 143.
Commodity Hedging Activities
Periodically the Company utilizes hedging strategies to hedge the price of a portion of its future oil and gas production. These strategies include:
(i) swap arrangements that establish an index-related price above
which the Company pays the counterparty and below which the
Company is paid by the counterparty,
(ii) the purchase of index-related puts that provide for a "floor"
price below which the counterparty pays the Company the amount by
which the price of the commodity is below the contracted floor,
(iii) the sale of index-related calls that provide for a "ceiling" price
above which the Company pays the counterparty the amount by which
the price of the commodity is above the contracted ceiling,
(iv) basis protection swaps, which are arrangements that guarantee the
price differential of oil or gas from a specified delivery point
or points, and
(v) collar arrangements that establish an index-related price below
which the counterparty pays the Company and a separate index-
related price above which the Company pays the counterparty.
Commodity markets are volatile, and as a result, Chesapeake's hedging activity is dynamic. As market conditions warrant, the Company may elect to settle a hedging transaction prior to its scheduled maturity date and, as a result, realize a gain or loss on the transaction.
Results from commodity hedging transactions are reflected in oil and gas sales to the extent related to the Company's oil and gas production. The Company only enters into commodity hedging transactions related to the Company's oil and gas production volumes or Chesapeake Energy Marketing, Inc.'s physical purchase or sale commitments. Gains or losses on crude oil and natural gas hedging transactions are recognized as price adjustments in the months of related production.
The Company currently has in place the following natural gas hedging arrangements:
% Hedged
Avg. NYMEX
Avg. Price Open Swap
NYMEX Including Positions
Strike Open Assuming as a % of
Open Price Gain from and Gas Estimated
Swaps Of Open Locked Locked Production Total Gas
in Bcf's Swaps Swaps Positions in Bcf's of: Production
2003:
3rd Qtr 37.7 $5.45 $0.05 $5.50 60.8 62%
4th Qtr 38.3 $5.65 $0.07 $5.72 60.9 63%
Remaining
2003 76.0 $5.55 $0.06 $5.61 121.7 62%
% Hedged
Avg. NYMEX
Avg. Price Open Swap
NYMEX Including Positions
Strike Open Assuming as a % of
Open Price Gain from and Gas Estimated
Swaps Of Open Locked Locked Production Total Gas
in Bcf's Swaps Swaps Positions in Bcf's of: Production
2004:
1st Qtr 26.4 $6.12 $0.08 $6.20 61.4 43%
2nd Qtr 17.0 $5.06 $0.00 $5.06 62.3 27%
3rd Qtr 11.0 $4.92 $0.00 $4.92 63.5 17%
4th Qtr 11.0 $5.13 $0.00 $5.13 63.8 17%
Total 2004 65.4 $5.48 $0.03 $5.51 251.0 26%
Total 2005 40.2 $4.79 $0.00 $4.79 260.0 15%
Total 2006 25.6 $4.74 $0.00 $4.74 270.0 9%
Total 2007 25.6 $4.76 $0.00 $4.76 280.0 9%
Chesapeake has also entered into the following natural gas basis protection swaps:
Assuming Gas
Annual Production in
Volume in Bcf's NYMEX less: Bcf's of: % Hedged
2003 Remaining 82.8 $0.188 121.7 68%
2004 157.4 0.173 251.0 63%
2005 109.5 0.156 260.0 42%
2006 47.5 0.155 270.0 18%
2007 63.9 0.166 280.0 23%
2008 64.0 0.166 290.0 22%
2009 37.0 0.160 300.0 12%
562.1 $0.169* 1,772.7 32%
* weighted average
The Company has entered into the following crude oil hedging arrangements:
% Hedged
Open Swap
Positions
Avg. as % of
Open NYMEX Assuming Oil Total
Swaps in Strike Production in Estimated
Mmbo's Price Mmbo's of: Production
Q3 - 2003* 948 $28.07 1,200 79%
Q4 - 2003* 948 $28.07 1,200 79%
Remaining 2003 1,896 $28.07 2,400 79%
Q1 - 2004* 877 $27.76 1,175 75%
Q2 - 2004* 797 $27.81 1,175 68%
Q3 - 2004* 644 $27.94 1,175 55%
Q4 - 2004* 644 $27.94 1,175 55%
Total 2004 2,962 $27.85 4,700 63%
*Swaps with a knockout provision for days in which NYMEX closes below $21.00.
SCHEDULE "B"
CHESAPEAKE'S PREVIOUS OUTLOOK AS OF JUNE 24, 2003
(PROVIDED FOR REFERENCE ONLY)
NOW SUPERSEDED BY OUTLOOK AS OF JULY 28, 2003
Quarter Ending June 30, 2003; Year Ending December 31, 2003; Year Ending December 31, 2004.
We have adopted a policy of periodically providing investors with guidance on certain factors that affect our future financial performance. As of June 24, 2003, we are using the following key operating assumptions in our projections for the second quarter of 2003, full year 2003, and full year 2004.
The primary changes from our April 28, 2003 guidance are in italicized bold and are explained as follows:
1) We have updated the projected effects from changes in our hedging
positions.
2) We have included our expectations for future NYMEX oil and gas prices
to illustrate hedging effects only, they are not a forecast of our
expectations for 2003 oil and natural gas prices.
3) We have increased our projected oil and natural gas production for the
second quarter 2003 and full year 2003.
4) We have included 2004 projections for the first time.
Quarter Ending Year Ending Year Ending
June 30, Dec. 31, Dec. 31,
2003 2003 2004
Estimated Production
Oil - Mbo 1,150 4,500 4,500
Gas - Bcf 57 - 58 228 - 233 248 - 253
Gas Equivalent - Bcfe 64 - 65 255 - 260 275 - 280
Daily gas equivalent midpoint
- in Mmcfe 710 705 760
NYMEX Prices (for calculation of
hedging effects only)
Oil - $/Bo $27.40 $27.82 $24.00
Gas - $/Mcf $5.40 $5.81 $4.50
Estimated Differentials to
NYMEX Prices
Oil - $/Bo -$2.00 -$1.92 -$2.00
Gas - $/Mcf -$0.50 - $0.60 -$0.50 - $0.60 -$0.50 - $0.60
Estimated Hedging Effects
(based on expected NYMEX
prices above)
Oil - $/Bo +$0.50 +$0.03 +$0.29
Gas - $/Mcf +$0.06 -$0.25 +$0.18
Operating Costs per Mcfe
Production expense $0.53 - 0.57 $0.53 - 0.57 $0.57 - $0.60
Production taxes (generally
7% of O&G revenues) $0.31 - 0.33 $0.31 - 0.33 $0.27 - $0.30
General and administrative $0.09 - 0.10 $0.09 - 0.10 $0.09 - $0.10
DD&A - oil and gas $1.32 - 1.37 $1.32 - 1.37 $1.37 - $1.42
Depreciation of other
assets $0.08 - 0.10 $0.08 - 0.10 $0.08 - $0.10
Interest expense $0.60 - 0.65 $0.60 - 0.65 $0.55 - $0.60
Other Income and Expense
per Mcfe (A)
Marketing and Other income $0.02 - 0.04 $0.02 - 0.04 $0.02 - $0.04
Book Tax Rate - All Deferred 38% 38% 38%
Equivalent Shares Outstanding
Basic 215,000 m 212,000 m 216,000
Diluted 262,000 m 255,000 m 264,000
Capital Expenditures:
Drilling, Land and Seismic $150 - $155 mm $600 - $650 mm $600 mm
(A) Does not include non-cash risk management income or loss (SFAS 133)
or the cumulative effect of the adoption of SFAS 143.
Commodity Hedging Activities
Periodically the Company utilizes hedging strategies to hedge the price of a portion of its future oil and gas production. These strategies include:
(i) swap arrangements that establish an index-related price above which
the Company pays the counterparty and below which the Company is
paid by the counterparty,
(ii) the purchase of index-related puts that provide for a "floor"
price below which the counterparty pays the Company the amount by
which the price of the commodity is below the contracted floor,
(iii) the sale of index-related calls that provide for a "ceiling" price
above which the Company pays the counterparty the amount by which
the price of the commodity is above the contracted ceiling,
(iv) basis protection swaps, which are arrangements that guarantee the
price differential of oil or gas from a specified delivery point or
points, and
(v) collar arrangements that establish an index-related price below
which the counterparty pays the Company and a separate index-
related price above which the Company pays the counterparty.
Commodity markets are volatile, and as a result, Chesapeake's hedging activity is dynamic. As market conditions warrant, the Company may elect to settle a hedging transaction prior to its scheduled maturity date and, as a result, realize a gain or loss on the transaction.
Results from commodity hedging transactions are reflected in oil and gas sales to the extent related to the Company's oil and gas production. The Company only enters into commodity hedging transactions related to the Company's oil and gas production volumes or Chesapeake Energy Marketing, Inc.'s physical purchase or sale commitments. Gains or losses on crude oil and natural gas hedging transactions are recognized as price adjustments in the months of related production.
The Company has entered into the following natural gas hedging arrangements:
% Hedged
Avg. NYMEX
Avg. Price Open Swap
NYMEX Including Positions
Strike Open Assuming as a % of
Open Price Gain from and Gas Estimated
Swaps Of Open Locked Locked Production Total Gas
in Bcf's Swaps Swaps Positions in Bcf's of: Production
2003:
2nd Qtr 23.0 $4.92 $0.18 $5.10 57.5 40%
3rd Qtr 32.2 $5.46 $0.03 $5.49 61.0 53%
4th Qtr 30.1 $5.67 $0.06 $5.73 61.6 49%
Remaining
2003 85.3 $5.39 $0.08 $5.47 180.1 47%
% Hedged
Avg. NYMEX
Avg. Price Open Swap
NYMEX Including Positions
Strike Open Assuming as a % of
Open Price Gain from and Gas Estimated
Swaps Of Open Locked Locked Production Total Gas
in Bcf's Swaps Swaps Positions in Bcf's of: Production
2004:
1st Qtr 16.4 $6.34 $0.05 $6.39 62.0 26%
2nd Qtr 7.6 $5.22 $0.00 $5.22 62.3 12%
3rd Qtr 2.8 $5.11 $0.00 $5.11 62.7 4%
4th Qtr 2.8 $5.29 $0.00 $5.29 63.0 4%
Total 2004 29.6 $5.84 $0.03 $5.87 250.0 12%
Total 2005 7.3 $4.99 $0.00 $4.99 260.0 3%
Total 2006 7.3 $4.84 $0.00 $4.84 270.0 3%
Total 2007 7.3 $4.84 $0.00 $4.84 280.0 3%
Chesapeake has also entered into the following natural gas basis protection swaps:
Assuming Gas
Annual Production in
Volume in Bcf's NYMEX less: Bcf's of: % Hedged
2003 Remaining 120.0 $0.188 180.1 67%
2004 157.4 0.173 250.0 63%
2005 109.5 0.156 260.0 42%
2006 47.5 0.155 270.0 18%
2007 63.9 0.166 280.0 23%
2008 64.0 0.166 290.0 22%
2009 37.0 0.160 300.0 12%
599.3 $0.169* 1,830.1 33%
* weighted average
The Company has entered into the following crude oil hedging arrangements:
% Hedged
Open Swap
Positions
Avg. Assuming as % of
Open NYMEX Oil Total
Swaps in Strike Production in Estimated
Mmbo's Price Mmbo's of: Production
Q3 - 2003* 948 $28.07 1,145 83%
Q4 - 2003* 948 $28.07 1,145 83%
Remaining 2003 2,715 $28.08 3,440 79%
Q1 - 2004* 240 $27.30 1,125 21%
Q2 - 2004* 160 $27.30 1,125 14%
Q3 - 2004* 0 $0.00 1,125 0%
Q4 - 2004* 0 $0.00 1,125 0%
Total 2004 400 $27.30 4,500 9%
*Swaps with a knockout provision for days in which NYMEX closes below $21.00.
SOURCE: Chesapeake Energy Corporation
CONTACT: Marc Rowland, Executive Vice President and Chief Financial
Officer, +1-405-879-9232, or Tom Price, Jr., Senior Vice President-Investor
Relations, +1-405-879-9257, both of Chesapeake Energy Corporation
Web site: http://www.chkenergy.com/
Company News On-Call: http://www.prnewswire.com/comp/138877.html
