EXHIBIT INDEX
Exhibit Description
99 Press Release issued by the Registrant on April 28, 2003
EXHIBIT 99
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
OKLAHOMA CITY, OKLAHOMA, APRIL 28, 2003 - Chesapeake Energy Corporation
(NYSE: CHK) 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 $4.52 per thousand cubic feet of
natural gas equivalent (mcfe).
2
KEY OPERATIONAL AND FINANCIAL STATISTICS FOR THE 2003 FIRST QUARTER
The table below summarizes Chesapeake's key statistics during the 2003
first quarter and compares them to the 2002 fourth quarter and the 2002 first
quarter:
Key Operations or Financial Statistics: Three Months Ended:
-------------------
3/31/03 12/31/02 3/31/02
------- -------- -------
Average daily production (in mmcfe) 631 538 466
Gas as % of total production 89 89 88
Natural gas production (in bcf) 50.4 43.9 36.9
Average realized gas price ($/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.
3
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.
4
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
============ ============
5
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
=============== ===============
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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
================ =================
7
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 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 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.
8
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. NYMEX
Aveg. Price
Open NYMEX Including Assuming
Straight Strike Gain from Open & Gas
Swaps of Open Closed Closed Production Open 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%
9
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.
10