December 8, 2005
Mr. Marcus C. Rowland
Executive Vice President and Chief Financial Officer
Chesapeake Energy Corporation
6100 North Western Avenue
Oklahoma City, OK 73118
Re: Chesapeake Energy Corporation
Form 10-K for the Fiscal Year Ended December 31, 2004
Filed March 9, 2005
File No. 1-13726
Dear Mr. Rowland:
We have reviewed your Form 10-K for the Fiscal Year Ended
December 31, 2004 and have the following comments. We have
limited
our review of your filing to those issues we have addressed in our
comments. Where indicated, we think you should revise your
document
in response to these comments. If you disagree, we will consider
your explanation as to why our comment is inapplicable or a
revision
is unnecessary. Please be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide
us
with information so we may better understand your disclosure.
After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K for the Fiscal Year Ended December 31, 2004
Business, page 2
Proved Reserves, page 8
1. We note your disclosure of the table calculating the "Present
Value" of your proved reserves (or what is more commonly known as
PV10) as of December 31, 2004, which differs from the standardized
measure, as calculated and presented in accordance with SFAS 69.
Please be advised that this disclosure is considered a non-GAAP
measure. As such, you must provide all disclosures required by
Item
10(e) of Regulation S-K. We also note the disclosure of this
measure
in Note 11 on page 96. As the disclosure is not in accordance
with
GAAP, please remove the measure from your financial statement
disclosures.
Properties, page 22
Oil and Gas Reserves, page 23
2. We also note the disclosure of "estimated future net revenue"
of
$19,584,358 as of December 31, 2004. This disclosure appears to
be a
non-GAAP measure. Therefore, you must provide all disclosures
required by Item 10(e) of Regulation S-K. Please revise your
disclosures accordingly.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 29
Executive Summary, page 30
3. We note your disclosure of reserve replacement ratios during
2004,
2003 and 2002 and your definition of reserve replacement included
on
page 20. Please expand your disclosure to address the following:
* Identify the status of the proved reserves that have been added
(e.g., proved developed vs. proved undeveloped). It is not
appropriate to calculate this ratio using non-proved reserve
quantities or proved reserve additions that include both proved
reserve additions attributable to consolidated entities and
investments accounted for using the equity method.
* Explain whether or not the historical sources of reserve
additions
are expected to continue and the extent to which external factors
outside of management`s control impact the amount of reserve
additions from that source from period to period.
* Explain the nature of and the extent to which uncertainties
still
exist with respect to newly discovered reserves, including, but
not
limited to regulatory approval, changes in oil and gas prices, the
availability of additional development capital and the
installation
of additional infrastructure.
* Indicate the time horizon of when the reserve additions are
expected to be produced to provide a better understanding of when
these reserve additions could ultimately be converted to cash
inflows.
* Disclose the limitations of this measure.
Financial Statements and Supplementary Data, page 57
Consolidated Statements of Operations, page 62
4. Please revise your consolidated statements of operations and
the
selected financial data presented on page 28 to remove the
separate
disclosure and line item titled "stock compensation expense". We
believe this presentation is inappropriate as there is no
provision
within SFAS 123R for such separate disclosure in the income
statement. You may also refer to SAB 107, Section F.
Consolidated Statements of Cash Flows, page 63
5. Please revise your consolidated statements of cash flows and
the
selected financial data relating to cash flows presented on page
29
to remove the subtotal and disclosure of "cash provided by
operating
activities before changes in assets and liabilities". The
presentation of this amount is inappropriate as SFAS 95 does not
provide for the disclosure of such balance.
Consolidated Statements of Stockholders` Equity, page 65
6. Revise your consolidated statements of stockholders` equity or
disclose in a footnote the changes in number of shares of each
class
of preferred and common stock for each period in which an income
statement is presented. Please refer to Regulation S-X, Rule 5-
02.29
and .30 for further guidance.
1. Basis of Presentation and Summary of Significant Accounting
Policies, page 67
Oil and Gas Properties, page 67
7. We note you have a significant investment in leasehold and 3-D
seismic inventories. Please expand your footnotes and tell us in
detail how you account for this investment in seismic data under
the
full cost method. In your response, specifically address when
these
amounts are capitalized, how the amounts are identified with
evaluated and unevaluated property and at what point the amounts
are
transferred into the full cost pool. Please quantify the amounts
recorded in your financial statements as of September 30, 2005 and
December 31, 2004 and 2003.
3. Senior Notes and Revolving Bank Credit Facility, page 74
8. We note your senior notes are fully and unconditionally
guaranteed
by all your subsidiaries on a joint and several basis. Confirm
that
all subsidiary guarantors are wholly-owned and therefore meet the
conditions of Rule 3-10(f) of Regulation S-X.
9. Stockholder`s Equity, Restricted Stock and Stock Options, page
83
9. On the face of the consolidated statement of operations, you
have
reflected a loss on conversion and exchange of preferred stock of
$36,678 during the year ended December 31, 2004. However, your
current footnote disclosure states only that conversions of
preferred
stock occurred during the year. Please expand your footnotes to
address the loss recognized upon conversion and how the amount of
the
loss was determined.
Closing Comments
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested information. Detailed cover letters
greatly
facilitate our review. Please understand that we may have
additional
comments after reviewing your amendment and responses to our
comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Shannon Buskirk at (202) 551-3717 if you have
questions regarding comments on the financial statements and
related
matters. Please contact me at (202) 551-3684 with any other
questions.
Sincerely,
April M. Sifford
Branch Chief
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Mr. Marcus C. Rowland
Chesapeake Energy Corporation
December 8, 2005
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-7010
DIVISION OF
CORPORATION FINANCE
MAIL STOP 7010