Chesapeake Energy Corporation Posts Strong Results for First Quarter 2003; Production and Proved Reserves Set Records
Company Reports 2003 First Quarter Net Income Available to Common Shareholders of $70 Million and Operating Cash Flow of $168 Million On Revenue of $374 Million and Production of 57 Bcfe; Proved Reserves Increase 27% to 2.8 Tcfe
PRNewswire-FirstCall
OKLAHOMA CITY

Chesapeake Energy Corporation today reported its financial and operating results for the 2003 first quarter. For the quarter, Chesapeake generated net income available to common shareholders of $70.0 million ($0.32 per fully diluted common share) and operating cash flow of $167.7 million (defined as cash flow from operating activities before changes in assets and liabilities) on revenue of $374.4 million.

The company's 2003 first quarter net income available to common shareholders of $70.0 million included a $17.2 million after-tax risk management gain (a non-cash item resulting from the application of SFAS 133 to the company's derivative contracts that do not qualify for hedge accounting) and a $2.4 million after-tax gain resulting from the cumulative effect of an accounting change for the adoption of SFAS 143 for asset retirement obligations.

Production for the 2003 first quarter was 56.8 billion cubic feet of natural gas equivalent (bcfe), comprised of 50.4 billion cubic feet of natural gas (bcf) (89%) and 1.06 million barrels of oil (mmbo) (11%). Oil and natural gas production increased 35% from the 2002 first quarter and 15% compared to the 2002 fourth quarter. The 2003 first quarter marked Chesapeake's seventh consecutive quarter of production growth compared to seven consecutive quarters of production decline in the industry. During the past seven quarters, Chesapeake's production has increased 45%, for an average per quarter growth rate of 6%. Reserve growth during the 2003 first quarter was also significant as production of 57 bcfe was replaced by 660 bcfe of new proved reserves (a 1,150% reserve replacement rate). This growth was comprised of 564 bcfe from acquisitions, 82 bcfe from drilling and 14 bcfe from positive revisions.

Average prices realized during the 2003 first quarter (after hedging) were $27.27 per barrel of oil (bo) and $4.51 per thousand cubic feet of natural gas (mcf), for a realized gas equivalent price of $4.52 per thousand cubic feet of natural gas equivalent (mcfe).

Key Operational and Financial Statistics for the 2003 First Quarter

The table below summarizes Chesapeake's key statistics during the 2003 first quarter and compares them to the 2002 fourth quarter and the 2002 first quarter:

  Key Operations or Financial Statistics:            Three Months Ended:
                                                3/31/03   12/31/02   3/31/02
  Average daily production (in mmcfe)             631        538       466
  Gas as % of total production                     89         89        88
  Natural gas production (in bcf)                50.4       43.9      36.9
  Average realized gas price ($/mcf) (A)         4.51       4.00      3.30
  Oil production (in mbbls)                     1,060        941       830
  Average realized oil price ($/bbl) (A)        27.27      24.67     24.05
  Natural gas equivalent production (in bcfe)    56.8       49.5      41.9
  Gas equivalent realized price ($/mcfe) (A)     4.52       4.01      3.39
  General and administrative costs ($/mcfe)       .10        .11       .10
  Production taxes ($/mcfe)                       .33        .21       .12
  Lease operating expenses ($/mcfe)               .55        .54       .53
  Interest expense ($/mcfe)                       .62        .63       .64
  DD&A of oil and gas properties ($/mcfe)        1.35       1.28      1.16
  Operating cash flow ($ in millions) (B)       167.7      128.2      85.9
  Operating cash flow ($/mcfe)                   2.96       2.59      2.05
  Net income (loss) available to common
   shareholders ($ in millions)                  70.0       23.7     (30.1)

  (A) includes the effects of hedging
  (B) cash flow provided by operating activities before changes in assets
      and liabilities


       Updated 2003 Second Quarter and Full Year Forecasts Attached

Chesapeake's updated second quarter 2003 and full-year 2003 forecasts are attached to this release in a revised Outlook dated April 28, 2003. The most significant change in the Outlook is an increase in projected 2003 second quarter and full-year production volumes. For the second quarter and full- year 2003, Chesapeake now believes it will produce 61 - 62 bcfe and 240 - 245 bcfe. These increased production ranges are primarily attributable to Chesapeake's deep drilling programs generating better than previously forecasted production volumes. The company has now increased its second quarter and full-year production estimates by 7% and 4%, respectively, since the beginning of the year.

In addition, Chesapeake took advantage of a two-week period of relatively weak gas prices in late March and early April to reduce its 2003 gas hedges to 53 bcf. In doing so, the company locked in $9 million of hedging gains and increased to 69% its exposure to market prices for remaining estimated 2003 gas production levels. Chesapeake may reinstate some or all of these hedges if gas prices increase this spring or summer.

Management Comments

Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented, "We are pleased to announce Chesapeake's very strong first quarter earnings, exceptional growth in proved reserves and production, low operating costs, high operating margins and increased production forecasts for the remainder of 2003. Chesapeake's value-creating financial and operating results are being driven by its distinctive Mid-Continent focus on successful deep-gas exploration and small to medium-sized acquisitions. Because of the company's unique scale, its technological advantages and its unrivaled Mid-Continent 3-D seismic and leasehold inventory, we believe Chesapeake's production and reserve growth trends are 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, April 29, 2003 at 9:00 am 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 pm EDT on Tuesday, April 29 through midnight Monday, May 12, 2003. The number to access the conference call replay is 719.457.0820 and the passcode is 643335. 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 document includes "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 statements regarding oil and gas reserve estimates, planned capital expenditures, the drilling of oil and gas wells and future acquisitions, expected oil and gas production, cash flow and anticipated liquidity, business strategy and other plans and objectives for future operations, expected future expenses and utilization of net operating loss carryforwards. Statements concerning the fair values of 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 and include the volatility of oil and gas prices, our substantial indebtedness, the strength and financial resources of our competitors, the cost and availability of drilling and production services, our commodity price risk management activities, including counterparty contract performance risk, uncertainties inherent in estimating quantities of oil and gas reserves, projecting future rates of production and the timing of development expenditures, our ability to replace reserves, the availability of capital, uncertainties in evaluating oil and gas reserves of acquired properties and associated potential liabilities, declines in the values of our oil and gas properties resulting in ceiling test write-downs, drilling and operating risks, our ability to generate future taxable income sufficient to utilize our NOLs before expiration, future ownership changes which could result in additional limitations to our NOLs, adverse effects of governmental and environmental regulation, losses possible from pending or future litigation and the loss of officers or key employees. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this document, and we undertake no obligation to update this information. We urge you to carefully review and consider the disclosures made in this and our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business.

Chesapeake Energy Corporation is one of the 8 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:                    March 31, 2003     March 31, 2002
                                           $      $/mcfe      $      $/mcfe
  REVENUES:
    Oil and gas sales                   256,332    4.52    141,971    3.39
    Risk management income (loss)        27,710    0.49    (79,468)  (1.90)
    Oil and gas marketing sales          90,308    1.59     27,333    0.65
      Total revenues                    374,350    6.60     89,836    2.14
  OPERATING COSTS:
    Production expenses                  31,457    0.55     22,060    0.53
    Production taxes                     18,597    0.33      5,216    0.12
    General and administrative            5,665    0.10      4,294    0.10
    Oil and gas marketing expenses       89,358    1.58     26,507    0.63
    Depreciation, depletion, and
     amortization of oil and
     gas properties                      76,614    1.35     48,619    1.16
    Depreciation and amortization
     of other assets                      3,684    0.06      3,110    0.08
      Total operating costs             225,375    3.97    109,806    2.62

  INCOME (LOSS) FROM OPERATIONS         148,975    2.63    (19,970)  (0.48)

  OTHER INCOME (EXPENSE):
    Interest and other income               763    0.01      1,545    0.03
    Interest expense                    (35,027)  (0.62)   (26,960)  (0.64)
    Loss on repurchases of debt             ---     ---       (591)  (0.01)
      Total other income (expense)      (34,264)  (0.61)   (26,006)  (0.62)

  Income (Loss) Before Income
   Taxes and Cumulative
    Effect of Accounting Change         114,711    2.02    (45,976)  (1.10)
  Income Tax Expense (Benefit)           43,591    0.77    (18,390)  (0.44)

  NET INCOME (LOSS) BEFORE CUMULATIVE
   EFFECT OF ACCOUNTING CHANGE           71,120    1.25    (27,586)  (0.66)

  Cumulative Effect of Accounting
   Change, Net of Tax                     2,389    0.04        ---     ---

  NET INCOME (LOSS)                      73,509    1.29    (27,586)  (0.66)

  Preferred Stock Dividends              (3,526)  (0.06)    (2,532)  (0.06)

  NET INCOME (LOSS) AVAILABLE TO COMMON
   SHAREHOLDERS                          69,983    1.23    (30,118)  (0.72)

  EARNINGS PER COMMON SHARE:

    Basic
      Income (Loss) Before Cumulative
       Effect of Accounting Change        $0.34             $(0.18)
      Cumulative Effect of Accounting
       Change                              0.01                ---
      Net Income (Loss)                   $0.35             $(0.18)

    Assuming dilution
      Income (Loss) Before Cumulative
       Effect of Accounting Change        $0.31             $(0.18)
      Cumulative Effect of Accounting
       Change                              0.01                ---
      Net Income (Loss)                   $0.32             $(0.18)

  WEIGHTED AVERAGE COMMON AND COMMON
    EQUIVALENT SHARES OUTSTANDING:

    Basic                               197,608            165,372

    Assuming dilution                   230,672            165,372


                        CHESAPEAKE ENERGY CORPORATION
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (in 000's)
                                 (unaudited)

                                              March 31,     December 31,
                                                2003           2002

  Cash and cash equivalents                   $38,337        $247,719
  Other current assets                        303,990         187,598
       TOTAL CURRENT ASSETS                   342,327         435,317

  Property and equipment (net)              3,354,042       2,389,884
  Deferred tax asset                              ---           2,071
  Other assets                                 73,213          48,336
       TOTAL ASSETS                        $3,769,582      $2,875,608

  Current liabilities                        $340,534        $265,552
  Long term debt                            1,948,725       1,651,198
  Long term liabilities                        67,412          50,983
  Deferred tax liability                       40,368             ---
       TOTAL LIABILITIES                    2,397,039       1,967,733

  STOCKHOLDERS' EQUITY                      1,372,543         907,875

  TOTAL LIABILITIES & STOCKHOLDERS'
   EQUITY                                  $3,769,582      $2,875,608

  COMMON SHARES OUTSTANDING                   213,749         190,144


                        CHESAPEAKE ENERGY CORPORATION
                 RECONCILIATION OF CERTAIN FINANCIAL MEASURES
                                  (in 000's)
                                 (unaudited)

  THREE MONTHS ENDED:                         March 31,      March 31,
                                                2003           2002

  CASH PROVIDED BY OPERATING ACTIVITIES       $99,052        $117,297

  Adjustments:
    Changes in assets and liabilities          68,661         (31,385)

  OPERATING CASH FLOW*                       $167,713         $85,912

* 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:                         March 31,      March 31,
                                                2003           2002

  Net income (loss) before cumulative
   effect of accounting change                $71,120       $(27,586)

  Income tax expense (benefit)                 43,591        (18,390)
  Interest expense                             35,027         26,960
  Depreciation and amortization of other assets 3,684          3,110
  Depreciation, depletion and amortization
   of oil and gas properties                   76,614         48,619

  EBITDA**                                   $230,036        $32,713

** 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 (loss), income (loss) 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:                        March 31,    March 31,
                                               2003        2002

  CASH PROVIDED BY OPERATING ACTIVITIES       $99,052    $117,297

  Changes in assets and liabilities            68,661     (31,385)
  Interest expense                             35,027      26,960
  Risk management income (loss)                27,710     (79,468)
  Other non-cash items                           (414)       (691)

  EBITDA                                     $230,036     $32,713


                                 OUTLOOK

                              April 28, 2003

  Quarter Ending June 30, 2003; Year Ending December 31, 2003.

We have adopted a policy of periodically providing investors with guidance on certain factors that affect our future financial performance. As of April 28, 2003, we are using the following key operating assumptions in our projections for the second quarter of 2003 and full year 2003.

The primary changes from our April 9, 2003 guidance 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 production for the remainder of 2003.


                                        Quarter Ending     Year Ending
                                        June 30, 2003   December 31, 2003

  Estimated Production
    Oil - Mbo                             950 - 1,000      3,600 - 3,700
    Gas - Bcf                              55 - 56           218 - 223
    Gas Equivalent - Bcfe                  61 - 62           240 - 245
  NYMEX Prices (for calculation of
   hedging effects only)
    Oil - $/Bo                             $25.33              $26.80
    Gas - $/Mcf                             $5.05               $5.41
  Estimated Corporate Differentials
   to NYMEX Prices
    Oil - $/Bo                             -$2.00              -$1.92
    Gas - $/Mcf                        -$0.50 - $0.60     -$0.50 - $0.60
  Estimated Hedging Effects (based
   on expected NYMEX prices above)
    Oil - $/Bo                             +$2.39              +$0.70
    Gas - $/Mcf                            +$0.21              -$0.23
  Operating Costs per Mcfe
    Production expense                  $0.53 - 0.57       $0.53 - 0.57
    Production taxes (generally
     7% of O&G revenues)                $0.31 - 0.33       $0.31 - 0.33
    General and administrative          $0.09 - 0.10       $0.09 - 0.10
    DD&A - oil and gas                  $1.32 - 1.37       $1.32 - 1.37
    Depreciation of other assets        $0.08 - 0.10       $0.08 - 0.10
    Interest expense                    $0.65 - 0.70       $0.65 - 0.70
  Other Income and Expense per Mcfe (A)
    Marketing and Other income          $0.02 - 0.04       $0.02 - 0.04

  Book Tax Rate - All Deferred               38%                38%
  Equivalent Shares Outstanding
    Basic                                 215,000 m          212,000 m
    Diluted                               262,000 m          255,000 m

  Capital Expenditures:
    Drilling, Land and Seismic           $150 - $155 mm     $575 - $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,
  (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, and

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.              Avg. NYMEX
                              NYMEX                Price
                    Open      Strike             Including  Assuming
                  Straight    Price    Gain from   Open &     Gas     Open
                   Swaps     Of Open    Closed    Closed   Production Swap
                   (mmcf)     Swaps     Swaps    Positions    Of:  Positions
  2003:

  2nd Qtr          21,550     $4.81     $0.20     $5.01     55,000     39%

  3rd Qtr          16,560     $4.68     $0.11     $4.79     57,000     29%

  4th Qtr          14,420     $4.85     $0.17     $5.02     58,000     25%

  Remaining 2003   52,530     $4.78     $0.16     $4.94    170,000     31%

  2004:

  1st Qtr             600     $5.68     $1.33     $7.01     59,000      1%


The Company has entered into the following natural gas basis hedging arrangements:

                       Annual                      Assuming Flat Gas
                   Volume (mmcf)   NYMEX less:      Production of:  % Hedged
  2003 Remaining      107,800        0.188
  2003 Total          143,250        0.182              220,000        65%
  2004                157,380        0.173              223,000        71%
  2005                109,500        0.156              223,000        49%
  2006                 47,450        0.155              223,000        21%
  2007                 63,875        0.166              223,000        29%
  2008                 64,050        0.166              223,000        29%
  2009                 36,500        0.160              223,000        16%
                      622,005        0.169*

  * weighted average

  The Company has entered into the following crude oil hedging arrangements:


                                     Avg. NYMEX
                         Volume        Strike
                         (Mbo)         Price

  Q2 - 2003*             819.0         28.12

  Q3 - 2003*             828.0         28.12

  Q4 - 2003*             828.0         28.12

  Remaining 2003       2,475.0         28.12

* Swaps with a knockout price of $21.00 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