1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1997
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Act
of 1934
For the transition period from __________ to __________
COMMISSION FILE NO. 1-13726
CHESAPEAKE ENERGY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1395733
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6100 NORTH WESTERN AVENUE
OKLAHOMA CITY, OKLAHOMA 73118
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(405) 848-8000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
At October 31, 1997 there were 70,429,017 shares of the registrant's $.01
par value Common Stock outstanding.
2
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at September 30, 1997
and June 30, 1997...............................................................................3
Consolidated Statements of Operations for the Three
Months Ended September 30, 1997 and 1996 .......................................................4
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1997 and 1996 .................................................5
Notes to Consolidated Financial Statements .....................................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk....................................................................................18
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
September 30, June 30,
1997 1997
--------- ---------
($ in thousands)
CURRENT ASSETS:
Cash and cash equivalents $ 51,182 $ 124,017
Restricted cash 4,600 --
Short-term investments 85,478 104,485
Accounts receivable:
Oil and gas 24,285 30,845
Joint interest and other, net of allowances
of $346,000 and $387,000, respectively 27,363 25,311
Related parties 7,299 7,401
Note receivable 18,000 --
Inventory 4,625 4,854
Other 941 692
--------- ---------
Total Current Assets 223,773 297,605
--------- ---------
PROPERTY AND EQUIPMENT:
Oil and gas properties, at cost based on full cost accounting:
Evaluated oil and gas properties 960,741 865,516
Unevaluated properties 131,194 128,505
Less: accumulated depreciation, depletion and amortization (460,534) (431,983)
--------- ---------
631,401 562,038
Other property and equipment 63,652 50,379
Less: accumulated depreciation and amortization (5,754) (5,051)
--------- ---------
Total Property and Equipment 689,299 607,366
--------- ---------
OTHER ASSETS 18,597 44,097
--------- ---------
TOTAL ASSETS $ 931,669 $ 949,068
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt $ -- $ 1,380
Accounts payable 81,731 86,817
Accrued liabilities and other 18,532 28,701
Revenues and royalties due others 23,686 29,428
--------- ---------
Total Current Liabilities 123,949 146,326
--------- ---------
LONG-TERM DEBT, NET 508,971 508,950
--------- ---------
REVENUES AND ROYALTIES DUE OTHERS 7,541 6,903
--------- ---------
DEFERRED INCOME TAXES -- --
--------- ---------
CONTINGENCIES AND COMMITMENTS -- --
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 10,000,000 shares
authorized; none issued -- --
Common Stock, $.01 par value, 100,000,000 shares authorized; 70,376,462 and
70,276,975 shares issued and outstanding at September 30, 1997
and June 30, 1997, respectively 704 703
Paid-in capital 433,201 432,991
Accumulated earnings (deficit) (142,697) (146,805)
--------- ---------
Total Stockholders' Equity 291,208 286,889
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 931,669 $ 949,068
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------
1997 1996
------- -------
($ in thousands,
except per share data)
REVENUES:
Oil and gas sales $45,667 $36,753
Oil and gas marketing sales 26,865 12,184
Interest and other 5,878 848
------- -------
Total Revenues 78,410 49,785
------- -------
COSTS AND EXPENSES:
Production expenses and taxes 5,180 2,530
Oil and gas marketing expenses 26,690 11,866
Oil and gas depreciation,
depletion and amortization 28,550 17,029
Depreciation and amortization
of other assets 1,142 952
General and administrative 2,760 1,671
Interest 8,575 2,817
------- -------
Total Costs and Expenses 72,897 36,865
------- -------
INCOME BEFORE INCOME TAXES 5,513 12,920
INCOME TAX EXPENSE:
Current -- --
Deferred -- 4,716
------- -------
Total Income Tax Expense -- 4,716
------- -------
NET INCOME $ 5,513 $ 8,204
======= =======
NET INCOME PER COMMON SHARE:
PRIMARY $ .08 $ .13
======= =======
FULLY-DILUTED $ .08 $ .13
======= =======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
PRIMARY 72,699 64,258
======= =======
FULLY-DILUTED 73,243 64,338
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
--------- ---------
($ in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 5,513 $ 8,204
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation, depletion and amortization 29,297 17,545
Deferred taxes -- 4,716
Amortization of loan costs 395 436
Amortization of bond discount 20 142
(Gain) loss on sale of assets (2,695) 6
Bad debt expense 25 --
Equity in earnings of investees 140 --
Other adjustments -- (206)
CHANGES IN CURRENT ASSETS AND LIABILITIES 9,929 (4,890)
--------- ---------
Cash provided by operating activities 42,624 25,953
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration, development and acquisition
of oil and gas properties (99,095) (87,350)
Proceeds from sale of assets and other 1,190 8,642
Investment in service operations -- (2,545)
Other investments (3,000) --
Additions to property, equipment and other (13,360) (1,870)
--------- ---------
Cash used in investing activities (114,265) (83,123)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on common stock (1,405) --
Proceeds from long-term borrowings -- 10,000
Payments on long-term borrowings -- (2,135)
Cash received from exercise of stock options 226 191
Other (15) (80)
--------- ---------
Cash provided by (used in) financing activities (1,194) 7,976
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (72,835) (49,194)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 124,017 51,638
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 51,182 $ 2,444
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(unaudited)
1. Interim Financial Statements
The accompanying unaudited consolidated financial statements of Chesapeake
Energy Corporation and Subsidiaries (the "Company") have been prepared in
accordance with the instructions to Form 10-Q as prescribed by the Securities
and Exchange Commission. All material adjustments (consisting solely of normal
recurring adjustments) which, in the opinion of management, are necessary for a
fair presentation of the results for the interim periods have been reflected.
The results for the three months ended September 30, 1997, are not necessarily
indicative of the results for the full fiscal year.
2. Recent Events
On October 22, 1997 the Company announced that it had agreed to acquire two
Oklahoma City-based independent oil and gas producers that own total proved
reserves of approximately 160 billion cubic feet of natural gas equivalent
("Bcfe"). In the larger of the two acquisitions, the Company has reached an
agreement to acquire by merger the Mid-Continent operations of DLB Oil & Gas,
Inc. ("DLB"). In its Mid-Continent division, DLB owns approximately 130 Bcfe of
proved reserves, additional probable and possible reserves, nine gas gathering
systems, and a gas marketing subsidiary based in Houston, Texas. The DLB
acquisition is valued at approximately $150 million. The Company also reached an
agreement to acquire AnSon Production Company ("AnSon"), a privately owned oil
and gas producer that owns approximately 30 Bcfe of proved reserves, additional
probable and possible reserves, undeveloped mineral interests, and a gas
marketing subsidiary based in Oklahoma City. The AnSon acquisition is valued at
approximately $43 million.
On November 13, 1997, the Company announced that it had signed a definitive
agreement to merge with Hugoton Energy Corporation ("Hugoton") in a
stock-for-stock transaction. The merger agreement provides for a fixed exchange
ratio of 1.3 shares of the Company's common stock for each share of Hugoton
stock, resulting in Hugoton's shareholders owning approximately 26% of the
Company following the transaction. Based upon the closing price of the Company's
common stock on November 12, 1997, Hugoton's 20.9 million fully-diluted shares
outstanding, and the assumption by the Company of $105 million of Hugoton's
debt, the transaction is valued at approximately $380 million. Hugoton has
approximately 300 Bcfe of proved reserves.
On November 13, 1997, the Company also announced that it had entered into an
agreement to purchase from Pan East Petroleum Corporation, a Canadian
exploration and production company ("Pan East"), 11.9 million treasury shares of
Pan East's common stock at a price per share of $2.50 (Cdn) in a private
placement. Based on Pan East's existing 48 million outstanding shares and the
Company's previous open market purchase of 100,000 Pan East shares, the Company
will own approximately 12 million shares, or 19.9% of Pan East's outstanding
common stock, for an investment of $30 million (Cdn), or $22 million (U.S.). The
purpose of the private placement is to assist Pan East in financing its share of
the exploration, development and acquisition activities under a proposed joint
venture with the Company during the next two years. Both the private placement
and the joint venture are scheduled to close on or before November 30, 1997.
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In November 1997, the Company received proceeds of approximately $108 million in
connection with the initial public offering of Bayard Drilling Technologies,
Inc. ("Bayard") common stock. After underwriting fees, the Company received
approximately $21.40 per share for the 4,194,000 shares of Bayard it sold in the
offering. In addition, the Company received $18 million as repayment of a loan
made to Bayard during fiscal 1997. The sale of stock is expected to yield a
pre-tax gain of approximately $74 million.
The Company recently announced its decision to change its year-end to December
31. The Company believes this change will make its financial results more easily
comparable to those of its peer group. Accordingly, the Company will file a
transition report on Form 10-K for the six month period between the closing date
of the Company's most recent fiscal year ended June 30, 1997 and the opening
date of the new fiscal year beginning January 1, 1998.
3. Legal Proceedings
On October 15, 1996, Union Pacific Resources Company ("UPRC") filed suit against
the Company in the U.S. District Court for the Northern District of Texas, Fort
Worth Division alleging (a) infringement and inducing infringement of UPRC's
claim to a patent (the "UPRC Patent") for an invention involving a method of
maintaining a borehole in a stratigraphic zone during drilling, and (b) tortious
interference with certain business relations between UPRC and certain of its
former employees. UPRC's claims against the Company are based on services
provided by a third party vendor to the Company. UPRC is seeking injunctive
relief, damages of an unspecified amount, including actual, enhanced,
consequential and punitive damages, interest, costs and attorney's fees. The
Company believes that it has meritorious defenses to UPRC's allegations and has
requested the court to declare the UPRC Patent invalid. The Company has also
filed a motion to limit the scope of UPRC's claims and for summary judgment. No
prediction can be made as to the outcome of the matter.
As previously disclosed, the Company and certain of its officers and directors
are currently involved in various purported class actions alleging violations of
the Securities Exchange Act of 1934. The plaintiffs assert that the defendants
made materially false and misleading statements and failed to disclose material
facts about the success of the Company's exploration efforts, principally in the
Louisiana Trend. As a result, the complaints allege, the price of the Company's
common stock was artificially inflated during periods beginning as early as
January 25, 1996 and ending on June 27, 1997, when the Company issued a press
release announcing disappointing drilling results in the Louisiana Trend and a
full-cost ceiling writedown to be reflected in its June 30, 1997 financial
statements. The plaintiffs further allege that certain of the named individual
defendants sold common stock during the class period when they knew or should
have known adverse nonpublic information. Each case seeks a determination that
the suit is a proper class action, certification of the plaintiff as a class
representative and damages in an unspecified amount, together with costs of
litigation, including attorneys' fees. The Company and the individual defendants
believe that these actions are without merit, and intend to defend against them
vigorously.
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4. Restricted Cash
The Company is required to deposit margin cash with the counterparty to certain
hedging arrangements when commodity futures prices exceed the index-related
fixed price stated in the agreement less the amount of open credit established
by the counterparty. The amount of restricted margin cash on deposit at
September 30, 1997 was $4.6 million.
5. Senior Notes
10 1/2% Notes
The Company has outstanding $90 million in aggregate principal amount of 10 1/2%
Notes which mature June 1, 2002. The 10 1/2% Notes bear interest at an annual
rate of 10 1/2%, payable semiannually on each June 1 and December 1. The 10 1/2%
Notes are senior, unsecured obligations of the Company and are fully and
unconditionally guaranteed, jointly and severally, by certain subsidiaries of
the Company (the "Guarantor Subsidiaries").
9 1/8% Notes
The Company has outstanding $120 million in aggregate principal amount of 9 1/8%
Senior Notes which mature April 15, 2006. The 9 1/8% Notes bear interest at an
annual rate of 9 1/8%, payable semiannually on each April 15 and October 15. The
9 1/8% Notes are senior, unsecured obligations of the Company and are fully and
unconditionally guaranteed, jointly and severally, by the Guarantor
Subsidiaries.
7 7/8% Notes
The Company has outstanding $150 million in aggregate principal amount of 7 7/8%
Senior Notes which mature March 15, 2004. The 7 7/8% Notes bear interest at the
rate of 7 7/8%, payable semiannually on each March 15 and September 15. The
7 7/8% Notes are senior, unsecured obligations of the Company and are fully and
unconditionally guaranteed, jointly and severally, by the Guarantor
Subsidiaries.
8 1/2% Notes
The Company has outstanding $150 million in aggregate principal amount of 8 1/2%
Senior Notes which mature March 15, 2012. The 8 1/2% Notes bear interest at the
rate of 8 1/2%, payable semiannually on each March 15 and September 15. The
8 1/2% Notes are senior, unsecured obligations of the Company and are fully and
unconditionally guaranteed, jointly and severally, by the Guarantor
Subsidiaries.
Set forth below are condensed consolidating financial statements of the
Guarantor Subsidiaries, the Company's subsidiaries which are not guarantors
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of the Senior Notes (the "Non-Guarantor Subsidiaries") and the Company. Separate
audited financial statements of each Guarantor Subsidiary have not been provided
because management has determined that they are not material to investors. The
Guarantor Subsidiaries are Chesapeake Operating, Inc., Chesapeake Exploration
Limited Partnership, Chesapeake Louisiana Limited Partnership, Chesapeake Energy
Louisiana Corporation and Chesapeake Gas Development Corporation, and the
Non-Guarantor Subsidiaries are Chesapeake Energy Marketing, Inc. and Chesapeake
Canada Corporation. Prior to June 30, 1997 Chesapeake Gas Development
Corporation was a Non-Guarantor Subsidiary.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(unaudited)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 1997
($ IN THOUSANDS)
GUARANTOR NON-GUARANTOR COMPANY
SUBSIDIARIES SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED
------------ ------------- --------- ------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ (6,345) $ 6,651 $ 50,876 $ -- $ 51,182
Restricted cash 4,600 -- -- -- 4,600
Short-term investments -- 2,026 83,452 -- 85,478
Accounts receivable, net 44,732 17,786 2,058 (5,629) 58,947
Notes receivable -- -- 18,000 -- 18,000
Inventory 4,521 104 -- -- 4,625
Other 904 22 15 -- 941
--------- --------- --------- --------- ---------
Total Current Assets 48,412 26,589 154,401 (5,629) 223,773
--------- --------- --------- --------- ---------
PROPERTY AND EQUIPMENT:
Oil and gas properties 960,690 51 -- -- 960,741
Unevaluated leasehold 131,200 (6) -- -- 131,194
Other property and equipment 48,009 349 15,294 -- 63,652
Less: accumulated depreciation,
depletion and amortization (465,432) -- (856) -- (466,288)
--------- --------- --------- --------- ---------
Total Property & Equipment 674,467 394 14,438 -- 689,299
--------- --------- --------- --------- ---------
INVESTMENTS IN SUBSIDIARIES
AND INTERCOMPANY ADVANCES 81,755 -- 791,374 (873,129) --
--------- --------- --------- --------- ---------
OTHER ASSETS 4,950 653 12,994 -- 18,597
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 809,584 $ 27,636 $ 973,207 $(878,758) $ 931,669
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current
maturities of long-term debt $ -- $ -- $ -- $ -- $ --
Accounts payable and other 101,776 16,783 11,023 (5,633) 123,949
--------- --------- --------- --------- ---------
Total Current Liabilities 101,776 16,783 11,023 (5,633) 123,949
--------- --------- --------- --------- ---------
LONG-TERM DEBT -- -- 508,971 -- 508,971
--------- --------- --------- --------- ---------
REVENUES PAYABLE 7,541 -- -- -- 7,541
--------- --------- --------- --------- ---------
DEFERRED INCOME TAXES -- -- -- -- --
--------- --------- --------- --------- ---------
INTERCOMPANY PAYABLES 784,903 (301) -- (784,602) --
--------- --------- --------- --------- ---------
STOCKHOLDERS' EQUITY:
Common Stock 10 1 694 (1) 704
Other (84,646) 11,153 452,519 (88,522) 290,504
--------- --------- --------- --------- ---------
Total Stockholders' Equity (84,636) 11,154 453,213 (88,523) 291,208
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 809,584 $ 27,636 $ 973,207 $(878,758) $ 931,669
========= ========= ========= ========= =========
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(unaudited)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1997
($ IN THOUSANDS)
GUARANTOR NON-GUARANTOR COMPANY
SUBSIDIARIES SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED
------------ ------------- --------- ------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ (6,534) $ 4,363 $ 126,188 $ -- $ 124,017
Short-term investments -- 4,324 100,161 -- 104,485
Accounts receivable, net 47,379 19,943 3,022 (6,787) 63,557
Inventory 4,795 59 -- -- 4,854
Other 666 26 -- -- 692
--------- --------- --------- --------- ---------
Total Current Assets 46,306 28,715 229,371 (6,787) 297,605
--------- --------- --------- --------- ---------
PROPERTY AND EQUIPMENT:
Oil and gas properties 865,485 31 -- -- 865,516
Unevaluated leasehold 128,519 (14) -- -- 128,505
Other property and equipment 33,486 1,904 14,989 -- 50,379
Less: accumulated depreciation,
depletion and amortization (436,276) -- (758) -- (437,034)
--------- --------- --------- --------- ---------
Total Property & Equipment 591,214 1,921 14,231 -- 607,366
--------- --------- --------- --------- ---------
INVESTMENTS IN SUBSIDIARIES
AND INTERCOMPANY ADVANCES 817 -- 680,439 (681,256) --
--------- --------- --------- --------- ---------
OTHER ASSETS 4,961 673 38,463 -- 44,097
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 643,298 $ 31,309 $ 962,504 $(688,043) $ 949,068
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current
maturities of long-term debt $ 1,380 $ -- $ -- $ -- $ 1,380
Accounts payable and other 122,241 17,527 11,965 (6,787) 144,946
--------- --------- --------- --------- ---------
Total Current Liabilities 123,621 17,527 11,965 (6,787) 146,326
--------- --------- --------- --------- ---------
LONG-TERM DEBT -- -- 508,950 -- 508,950
--------- --------- --------- --------- ---------
REVENUES PAYABLE 6,903 -- -- -- 6,903
--------- --------- --------- --------- ---------
DEFERRED INCOME TAXES -- -- -- -- --
--------- --------- --------- --------- ---------
INTERCOMPANY PAYABLES 589,111 1,492 -- (590,603) --
--------- --------- --------- --------- ---------
STOCKHOLDERS' EQUITY:
Common Stock 11 1 693 (2) 703
Other (76,348) 12,289 440,896 (90,651) 286,186
--------- --------- --------- --------- ---------
Total Stockholders' Equity (76,337) 12,290 441,589 (90,653) 286,889
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 643,298 $ 31,309 $ 962,504 $(688,043) $ 949,068
========= ========= ========= ========= =========
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
($ IN THOUSANDS)
GUARANTOR NON-GUARANTOR COMPANY
SUBSIDIARIES SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ------------ ------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997:
REVENUES:
Oil and gas sales $ 45,049 $ -- $ -- $ 618 $ 45,667
Oil and gas marketing sales -- 44,326 -- (17,461) 26,865
Interest and other 135 487 20,118 (14,862) 5,878
-------- -------- -------- -------- --------
Total Revenues 45,184 44,813 20,118 (31,705) 78,410
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Production expenses and taxes 5,180 -- -- -- 5,180
Oil and gas marketing expenses -- 43,533 -- (16,843) 26,690
Oil and gas depreciation,
depletion and amortization 28,550 -- -- -- 28,550
Other depreciation and amortization 628 21 493 -- 1,142
General and administrative 2,578 265 (83) -- 2,760
Interest 12,246 33 11,158 (14,862) 8,575
-------- -------- -------- -------- --------
Total Costs & Expenses 49,182 43,852 11,568 (31,705) 72,897
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (3,998) 961 8,550 -- 5,513
INCOME TAX EXPENSE (BENEFIT) -- -- -- -- --
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ (3,998) $ 961 $ 8,550 $ -- $ 5,513
======== ======== ======== ======== ========
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996:
REVENUES:
Oil and gas sales $ 34,789 $ 1,691 $ -- $ 273 $ 36,753
Oil and gas marketing sales -- 21,914 -- (9,730) 12,184
Interest and other 115 409 324 -- 848
-------- -------- -------- -------- --------
Total Revenues 34,904 24,014 324 (9,457) 49,785
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Production expenses and taxes 2,347 183 -- -- 2,530
Oil and gas marketing expenses -- 21,323 -- (9,457) 11,866
Oil and gas depreciation,
depletion and amortization 16,373 656 -- -- 17,029
Other depreciation and amortization 534 31 387 -- 952
General and administrative 1,173 236 262 -- 1,671
Interest 33 105 2,679 -- 2,817
-------- -------- -------- -------- --------
Total Costs & Expenses 20,460 22,534 3,328 (9,457) 36,865
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX 14,444 1,480 (3,004) -- 12,920
INCOME TAX EXPENSE (BENEFIT) 5,272 540 (1,096) -- 4,716
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 9,172 $ 940 $ (1,908) $ -- $ 8,204
======== ======== ======== ======== ========
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
GUARANTOR NON-GUARANTOR COMPANY
SUBSIDIARIES SUBSIDIARIES (PARENT) CONSOLIDATED
------------ ------------- -------- ------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997:
CASH FLOWS FROM OPERATING ACTIVITIES: $ 647 $ 6,108 $ 35,869 $ 42,624
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas properties (99,067) (28) -- (99,095)
Proceeds from sale of assets 1,190 -- -- 1,190
Other investments -- -- (3,000) (3,000)
Other additions (14,590) 1,555 (325) (13,360)
--------- --------- --------- ---------
(112,467) 1,527 (3,325) (114,265)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received from exercise
of stock options -- -- 226 226
Dividends paid on common stock -- -- (1,405) (1,405)
Other -- (15) -- (15)
Intercompany advances, net 112,009 (5,332) (106,677) --
--------- --------- --------- ---------
112,009 (5,347) (107,856) (1,194)
--------- --------- --------- ---------
Net increase (decrease) in cash 189 2,288 (75,312) (72,835)
Cash, beginning of period (6,534) 4,363 126,188 124,017
--------- --------- --------- ---------
Cash, end of period $ (6,345) $ 6,651 $ 50,876 $ 51,182
========= ========= ========= =========
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996:
CASH FLOWS FROM OPERATING ACTIVITIES: $ 27,667 $ 222 $ (1,936) $ 25,953
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas properties (87,341) (9) -- (87,350)
Proceeds from sales 8,642 -- -- 8,642
Investment in service operations (2,545) -- -- (2,545)
Other additions (1,196) (49) (625) (1,870)
--------- --------- --------- ---------
(82,440) (58) (625) (83,123)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 10,000 -- -- 10,000
Payments on borrowings (1,230) (900) (5) (2,135)
Cash received from exercise
of stock options -- -- 191 191
Other -- -- (80) (80)
Intercompany advances, net 29,970 3,984 (33,954) --
--------- --------- --------- ---------
38,740 3,084 (33,848) 7,976
--------- --------- --------- ---------
Net increase (decrease) in cash
and cash equivalents (16,033) 3,248 (36,409) (49,194)
Cash, beginning of period 4,061 2,751 44,826 51,638
--------- --------- --------- ---------
Cash, end of period $ (11,972) $ 5,999 $ 8,417 $ 2,444
========= ========= ========= =========
Page 13
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PART I. FINANCIAL INFORMATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT EVENTS
On October 22, 1997, the Company announced that it had agreed to acquire two
Oklahoma City-based independent oil and gas producers that own total proved
reserves of approximately 160 billion cubic feet of natural gas equivalent
("Bcfe"). In the larger of the two acquisitions, the Company has reached an
agreement to acquire by merger the Mid-Continent operations of DLB Oil & Gas,
Inc. ("DLB"). In its Mid-Continent division, DLB owns approximately 130 Bcfe of
proved reserves, additional probable and possible reserves, nine gas gathering
systems, and a gas marketing subsidiary based in Houston, Texas. The DLB
acquisition is valued at approximately $150 million. The Company also reached an
agreement to acquire AnSon Production Company ("AnSon"), a privately owned oil
and gas producer that owns approximately 30 Bcfe of proved reserves, additional
probable and possible reserves, undeveloped mineral interests, and a gas
marketing subsidiary based in Oklahoma City. The AnSon acquisition is valued at
approximately $43 million.
On November 13, 1997, the Company announced that it had signed a definitive
agreement to merge with Hugoton Energy Corporation ("Hugoton") in a
stock-for-stock transaction. The merger agreement provides for a fixed exchange
ratio of 1.3 shares of the Company's common stock for each share of Hugoton
stock, resulting in Hugoton's shareholders owning approximately 26% of the
Company following the transaction. Based upon the closing price of the Company's
common stock on November 12, 1997, Hugoton's 20.9 million fully-diluted shares
outstanding, and the assumption by the Company of $105 million of Hugoton's
debt, the transaction is valued at approximately $380 million. Hugoton has
approximately 300 Bcfe of proved reserves.
On November 13, 1997, the Company also announced that it had entered into an
agreement to purchase from Pan East Petroleum Corporation, a Canadian
exploration and production company ("Pan East"), 11.9 million treasury shares of
Pan East's common stock at a price per share of $2.50 (Cdn) in a private
placement. Based on Pan East's existing 48 million outstanding shares and the
Company's previous open market purchase of 100,000 Pan East shares, the Company
will own approximately 12 million shares, or 19.9% of Pan East's outstanding
common stock, for an investment of $30 million (Cdn), or $22 million (U.S.). The
purpose of the private placement is to assist Pan East in financing its share of
the exploration, development and acquisition activities under a proposed joint
venture with the Company during the next two years. Both the private placement
and the joint venture are scheduled to close on or before November 30, 1997.
In November 1997, the Company received proceeds of approximately $108 million in
connection with the initial public offering of Bayard Drilling Technologies,
Inc. ("Bayard") common stock. After underwriting fees, the Company received
approximately $21.40 per share for the 4,194,000 shares of Bayard it sold in the
offering. In addition, the Company received $18 million as repayment of a loan
made to Bayard during fiscal 1997. The sale of stock is expected to yield a
pre-tax gain of approximately $74 million.
The Company recently announced its decision to change its year-end to December
31. The Company believes this change will make its financial results more easily
comparable to those of its peer group. Accordingly, the Company will file a
transition report on Form 10-K for the six month period between the closing date
of the Company's most recent fiscal year ended June 30, 1997 and the opening
date of the new fiscal year beginning January 1, 1998 (the "Transition Period").
THREE MONTHS ENDED SEPTEMBER 30, 1997 VS. SEPTEMBER 30, 1996
Net income for the three months ended September 30, 1997 (the "Current Quarter")
was $5.5 million, a $2.7 million decrease from net income of $8.2 million for
the quarter ended September 30, 1996 (the "Prior Quarter"). This decrease was
caused primarily by the Company's higher oil and gas production expenses,
depreciation, depletion and amortization of oil and gas properties, and interest
expenses in the Current Quarter, offset by higher oil and gas revenues resulting
from higher production and higher gas prices and increases in interest and other
income.
Revenues from oil and gas sales for the Current Quarter were $45.7 million, an
increase of $8.9 million, or 24%, from the Prior Quarter. Gas production
decreased to 13.9 billion cubic feet ("Bcf"), a decrease of 1.4 Bcf, or 9%,
compared to the Prior Quarter. Oil production increased 372 thousand barrels
("MBbls"), or 75%, from 498 MBbls to 870 MBbls. In the Current Quarter, the
Company received an average oil price of $18.48 per barrel ("Bbl") (net of
hedging losses of $0.2 million), a decrease of $2.71 per Bbl, or 13%, from the
$21.19 per Bbl realized in the Prior Quarter. Gas price realizations increased
to $2.12 per thousand cubic feet (AMcf@) in the Current Quarter inclusive of
hedging gains of $0.6 million, an increase of 24% from the $1.71 per Mcf
realized in the Prior Quarter.
The following table sets forth oil and gas production for the Company's primary
operating areas during the Current Quarter.
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15
Producing Oil Gas Total Percent
Operating Areas Wells(a) (MBls) (MMcf) (MMcfe) %
--------------- ------ ------ ------ ------ ------
Giddings 220 114 8,532 9,216 48%
Louisiana Trend 67 460 1,817 4,577 24%
Oklahoma 277 185 3,168 4,278 22%
All Other 100 111 424 1,090 6%
------ ------ ------ ------ ------
Total 664 870 13,941 19,161 100%
====== ====== ====== ====== ======
(a) Includes wells being drilled at September 30, 1997
Revenues from the Company's oil and gas marketing operations in the Current
Quarter were $26.9 million as compared to $12.2 million in the Prior Quarter.
Oil and gas marketing expenses were $26.7 million and $11.9 million in the
Current Quarter and Prior Quarter, respectively, resulting in a gross profit
margin of $0.2 million and $0.3 million, respectively.
Production expenses and taxes increased to $5.2 million in the Current Quarter
from $2.5 million in the Prior Quarter. This increase was the result of a
significant increase in oil sales volumes during the Current Quarter as well as
significantly higher lifting costs in the Louisiana Trend. On a gas equivalent
production unit ("Mcfe") basis, production expenses and taxes were $0.27 per
Mcfe in the Current Quarter compared to $0.14 per Mcfe in the Prior Quarter. The
Company expects that operating costs during the remainder of the Transition
Period and during 1998 will increase because of the Company's increased drilling
efforts in the Louisiana Trend and the Williston Basin, both of which are oil
prone areas with significant associated water production which results in higher
operating costs than gas prone areas, higher lifting costs associated with
production to be acquired from Hugoton, DLB and AnSon, and reduced severance tax
exemptions as compared to existing exemptions in the Giddings Field.
Depreciation, depletion and amortization ("DD&A") of oil and gas properties for
the Current Quarter was $28.6 million, an increase of $11.6 million from the
Prior Quarter. The increase in DD&A expense for oil and gas properties between
quarters is the result of a 0.8 Bcfe increase in sales volumes and an increase
in the DD&A rate per Mcfe. The average DD&A rate per Mcfe, a function of
capitalized and estimated future development costs and the related proved
reserves, was $1.49 for the Current Quarter and $0.93 for the Prior Quarter. The
Company believes the DD&A rate will continue to increase during the Transition
Period based on projected higher finding costs for wells drilled in the
Louisiana Trend.
Depreciation and amortization of other assets increased to $1.1 million in the
Current Quarter as compared to $1.0 million in the Prior Quarter. This increase
is primarily the result of higher amortization expense related to debt issuance
costs and higher depreciation related to the Company's acquisition of additional
buildings and equipment in its Oklahoma City office complex.
General and administrative expenses increased to $2.8 million during the Current
Quarter, a $1.1 million, or 65%, increase from the Prior Quarter. This increase
is the result of the continued growth of the Company. On an Mcfe basis, general
and administrative expenses were $0.14 per Mcfe in the Current Quarter as
compared to $0.09 per Mcfe in the Prior Quarter. The Company capitalized $1.4
million and $0.7 million of payroll and other internal costs directly related to
oil and gas exploration and development activities, net of partner
reimbursements, in the Current Quarter and Prior Quarter, respectively. The
Company believes general and administrative expenses will increase substantially
as the result of, and upon completion of, the announced acquisitions.
Interest expense increased to $8.6 million during the Current Quarter, a $5.8
million increase from the Prior Quarter, as a result of higher levels of
interest associated with the issuance of $300 million of Senior Notes in March
1997. In addition, during the Current Quarter the Company capitalized $2.6
million of interest costs representing the estimated costs to carry its
unevaluated leasehold inventory, compared to $4.2 million in the Prior Quarter.
This decrease in capitalized interest costs is the result of lower investments
being carried during the Current Quarter in leasehold that has yet to be
evaluated than in the Prior Quarter, as well as a lower capitalization rate
during the Current Quarter. The Company expects interest expense to increase
based upon the Company's assumption of certain liabilities associated with the
announced acquisitions.
Page 15
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The Company recorded no net income tax expense during the Current Quarter as
compared to $4.7 million recorded in the Prior Quarter. At June 30, 1997 the
Company recorded a $64.1 million valuation allowance against its net deferred
tax asset. All income taxes recorded during the Current Quarter were offset by a
corresponding reduction to the valuation allowance. The Company does not
anticipate recording any income tax until such time as the Company can
demonstrate that it is more likely than not that it will generate future taxable
income sufficient to utilize its existing net operating loss carryforwards.
HEDGING ACTIVITIES
The Company periodically utilizes various strategies to hedge the price of a
portion of its future oil and gas production. These strategies include (1) 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, (2)
collar transactions that establish a defined set price above which the Company
pays the counterparty and a separate defined set price below which the
counterparty pays the Company, with a NYMEX price between the two resulting in
no payment by either party, (3) 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, (4) 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, and (5) basis protection swaps. Results from hedging
transactions are reflected in oil and gas sales to the extent related to the
Company's oil and gas production. The Company has not entered into hedging
transactions unrelated to the Company's oil and gas production or physical
purchase or sale commitments.
As of September 30, 1997, the Company had the following oil swap arrangements
for periods after September 1997:
NYMEX-Index
Month Volume(Bbls) Strike Price (per Bbl)
----- ------------ ----------------------
October 1997 31,000 $18.19
November 1997 30,000 $18.13
December 1997 31,000 $18.08
January through June 1998 724,000 $19.82
The Company entered into oil swap arrangements to cancel the effect of the swaps
for the months of October through December at an average price of $20.79 per
Bbl.
As of September 30, 1997, the Company had the following gas hedging arrangements
for periods after September 1997:
NYMEX
Months Volume (MMBtu) Index Strike Price (per MMBtu)
------ -------------- ------------------------------
October 1997 4,340,000 $2.421
November 1997 3,000,000 2.560
December 1997 2,480,000 3.036
January 1998 2,480,000 3.039
February 1998 2,240,000 2.835
The Company entered into a gas swap arrangement to cancel the effect of
1,240,000 MMBtu of the October hedged volumes at a price of $2.157 per MMBtu.
The December 1997 through February 1998 transactions represent calls sold by the
Company, for which $1.9 million in advance premium was received.
The Company has also entered into the following collar transactions:
NYMEX- NYMEX-
Defined Low Defined High
Months Volume (MMBtu) Strike Price Strike Price
- ----- -------------- ------------ ------------
March 1998 1,240,000 $ 2.693 $ 2.33
April 1998 1,200,000 2.483 2.11
Page 16
17
These transactions require that the Company pay the counterparty if NYMEX
exceeds the defined high strike price and that the counterparty pay the Company
if NYMEX is less than the defined low strike price.
The Company has entered into a curve lock for 4.9 Bcf of gas which gives the
Company the option to hedge April 1999 through November 1999 gas based upon a
negative $0.285 differential to the December 1998 NYMEX gas price any time
between the strike date and December 1998.
Gains or losses on crude oil and natural gas hedging transactions are recognized
as price adjustments in the month of related production. The Company estimates
that had all of the crude oil and natural gas hedging agreements in effect for
production periods beginning October 1, 1997 terminated on September 30, 1997,
based on the closing prices for NYMEX futures contracts as of that date, the
Company would have paid the counterparty approximately $2.9 million, which would
have represented the "fair value" at that date. These agreements were not
terminated.
The Company's oil and gas marketing subsidiary periodically enters into various
hedging transactions designed to hedge against physical purchase commitments
made by it. Gains or losses on these transactions are recorded as adjustments to
Oil and Gas Marketing Sales in the consolidated statements of operations and are
not considered by management to be material.
CAPITAL RESOURCES AND LIQUIDITY
As of September 30, 1997, the Company had working capital of $99.8 million. This
working capital position does not include the $74 million in net proceeds
received from the Bayard transaction in November 1997. The Company has estimated
that its capital expenditures for the Transition Period will be approximately
$175 million, including approximately $150 million for drilling, completion and
production expenditures, and the balance for acreage acquisition, seismic
programs and general corporate purposes, but excluding acquisitions. The Company
has not yet developed capital expenditure budgets in connection with the
announced acquisitions of DLB, AnSon and Hugoton. The capital expenditure budget
is largely discretionary, and can be adjusted by the Company based on operating
results or other factors. The Company believes it has sufficient capital
resources, including expected cash flow from operations and asset sales, to fund
its exploration and development program for the foreseeable future.
During November 1997, the Company announced it had entered into agreements to
acquire DLB, AnSon and Hugoton through stock-for-stock mergers. While the number
of shares to be issued in the DLB and AnSon mergers will be determined by the
market price of the Company's common stock for a stated period prior to closing,
based on the closing price of the Company's common stock on November 13, 1997
the Company would issue 6.8 million and 4.5 million shares to acquire DLB and
AnSon, respectively. The Company will issue approximately 27.2 million shares to
acquire Hugoton. As a result of the mergers, the Company's aggregate liabilities
will increase by approximately $190 million. The AnSon transaction is expected
to close in November 1997. The DLB and Hugoton transactions are expected to
close in the first quarter of 1998. The Company currently maintains no
commercial bank credit facility, but anticipates refinancing the DLB and Hugoton
debt at closing with a new commercial bank credit facility. The Company is
currently negotiating with a lender to arrange this facility.
Also during November 1997, the Company announced its plans to purchase 11.9
million treasury shares from Pan East at a price of $2.50 (Cdn) per share, or an
aggregate purchase price of approximately $21.1 million (U.S.). The Company will
finance this investment using its existing working capital and expects this
transaction to close on or before November 30, 1997.
The Company's cash provided by operating activities increased to $42.6 million
during the Current Quarter, compared to $26.0 million during the Prior Quarter.
The increase of $16.6 million is the result of cash provided by changes in
current assets and current liabilities between the two periods.
Net cash used in investing activities increased to $114.3 million in the Current
Quarter, up from $83.1 million in the Prior Quarter. The $31.2 million increase
is primarily a result of the Company's increased drilling activity and increased
investment in gas gathering and processing facilities during the Current
Quarter.
Consolidated cash used in financing activities was $1.2 million during the
Current Quarter, as compared to consolidated cash provided by financing
activities of $8.0 million during the Prior Quarter. The change resulted
primarily from having no borrowings during the Current Quarter as
Page 17
18
well as the payment of $1.4 million of dividends on the Company's common stock
during the Current Quarter.
The Company is subject to certain routine legal proceedings, none of which are
expected to have a material adverse effect upon the Company's financial
condition or operations. The Company is also involved in certain litigation for
which the Company is unable to predict the ultimate financial impact (see Part
II, Item 1).
FORWARD LOOKING STATEMENTS
All statements other than statements of historical fact contained in this Form
10-Q, including statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are forward-looking statements. When used
herein, the words "budget", "budgeted", "anticipate", "expects", "estimates",
"believes", "seeks", "goals", "intends", or "projects" and similar expressions
are intended to identify forward-looking statements. It is important to note
that the Company's actual results could differ materially from those projected
by such forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, no
assurance can be given that such expectations will prove correct. Factors that
could cause the Company's results to differ materially from the results
discussed in such forward-looking statements include but are not limited to the
following: production variances from expectations, volatility of oil and gas
prices, the need to develop and replace its reserves, the substantial capital
expenditures required to fund its operations, environmental risks, drilling and
operating risks, risks related to exploration and development drilling,
uncertainties about estimates of reserves, competition, government regulation,
and the ability of the Company to implement its business strategy. All
forward-looking statements in this document are expressly qualified in their
entirety by the cautionary statements in this paragraph.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- Not applicable
Page 18
19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 15, 1996, Union Pacific Resources Company ("UPRC") filed suit
against the Company in the U.S. District Court for the Northern District of
Texas, Fort Worth Division alleging (a) infringement and inducing infringement
of UPRC's claim to a patent (the "UPRC Patent") for an invention involving a
method of maintaining a borehole in a stratigraphic zone during drilling, and
(b) tortious interference with certain business relations between UPRC and
certain of its former employees. UPRC's claims against the Company are based on
services provided by a third party vendor to the Company. UPRC is seeking
injunctive relief, damages of an unspecified amount, including actual, enhanced,
consequential and punitive damages, interest, costs and attorney's fees. The
Company believes that it has meritorious defenses to UPRC's allegations and has
requested the court to declare the UPRC Patent invalid. The Company has also
filed a motion to limit the scope of UPRC's claims and for summary judgment. No
prediction can be made as to the outcome of the matter.
As previously disclosed in the Company's Form 10-K for the year ended June
30, 1997, the Company and certain of its officers and directors are defendants
in various purported class actions alleging violations of Sections 10b-5 and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
In addition to those previously disclosed, the following additional
purported class actions have been filed:
Nathaniel J. Hirsch v. Aubrey K. McClendon, Thomas L. Ward, Marcus C.
Rowland, Henry J. Hood, Steven C. Dixon, J. Mark Lester, and Chesapeake
Energy Corporation, filed in the U.S. District Court for the Western
District of Oklahoma on October 14, 1997.
Kay Chestnut v. Chesapeake Energy Corporation, Aubrey K. McClendon, Thomas
L. Ward, Marcus C. Rowland, Shannon T. Self, Walter C. Wilson, Henry J.
Hood, Steven C. Dixon and J. Mark Lester, filed in the U.S. District Court
for the Western District of Oklahoma on October 16, 1997.
Of the previously disclosed cases, Leslie Joseph Klein IRA v. Chesapeake
Energy Corporation et al. has been dismissed, and two others, Albion Financial
LLC v. Chesapeake Energy Corporation et al. and Elmo G. Hubble v. Chesapeake
Energy Corporation et al., have been transferred to the U.S. District Court for
the Western District of Oklahoma. The plaintiffs have filed an unopposed motion
to consolidate all the purported class action suits.
The plaintiffs assert that the defendants made materially false and
misleading statements and failed to disclose material facts about the success of
the Company's exploration efforts, principally in the Louisiana Trend. As a
result, the complaints allege, the price of the Company's common stock was
artificially inflated during periods beginning as early as January 25, 1996 and
ending on June 27, 1997, when the Company issued a press release announcing
disappointing drilling results in the Louisiana Trend and a full-
Page 19
20
cost ceiling writedown to be reflected in its June 30, 1997 financial
statements. The plaintiffs further allege that certain of the named individual
defendants sold common stock during the class period when they knew or should
have known adverse nonpublic information. Each case seeks a determination that
the suit is a proper class action, certification of the plaintiff as a class
representative and damages in an unspecified amount, together with costs of
litigation, including attorneys' fees. The Company and the individual defendants
believe that these actions are without merit, and intend to defend against them
vigorously.
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21
ITEM 2. CHANGES IN SECURITIES
- - Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- - Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - Not applicable
ITEM 5. OTHER INFORMATION
- - Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as a part of this report:
Exhibit No.
-----------
10.2.4 Employment Agreement dated as of July 1, 1997 between
Steven C. Dixon and Chesapeake Energy Corporation.
11 Statement regarding computation of earnings per common share
27 Financial Data Schedule
(b) Form 8-K
During the quarter ended September 30, 1997, the Company filed the
following Current Reports on Form 8-K dated:
July 8, 1997 announcing operations updates,
August 28, 1997 announcing fiscal 1997 results, and
September 19, 1997 announcing the declaration of a quarterly cash
dividend.
Page 21
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHESAPEAKE ENERGY CORPORATION
-----------------------------
(Registrant)
November 14, 1997 /s/ AUBREY K. MCCLENDON
- ----------------- ------------------------------
Date Aubrey K. McClendon
Chairman and
Chief Executive Officer
November 14, 1997 /s/ MARCUS C. ROWLAND
- ----------------- ------------------------------
Date Marcus C. Rowland
Senior Vice President and
Chief Financial Officer
Page 22
23
Index to Exhibits
Exhibit No. Description Page
- ----------- ----------- ----
10.2.4 Employment Agreement dated as of July 1, 1997 between
Steven C. Dixon and Chesapeake Energy Corporation.
11 Statement regarding computation of earnings per common
share
27 Financial Data Schedule
Page 23