Chesapeake Energy Corporation Reports Record Earnings,
Cash Flow and Ebitda In Second Quarter of 2000
Company Posts Second Quarter 2000 Net Income of $32 Million,
Operating Cash Flow of $60 Million and Ebitda of $82 Million on
Revenue of $134 Million And
Production of 34 Bcfe
OKLAHOMA CITY, July 27 /PRNewswire/ -- Chesapeake Energy Corporation
(NYSE: CHK) today reported its financial and operating results for the second
quarter of 2000. For the quarter, Chesapeake generated net income of
$31.6 million ($0.22 per diluted common share), operating cash flow of
$59.7 million ($0.41 per diluted common share), and ebitda (operating cash
flow plus interest expense) of $81.5 million on revenue of $134.5 million.
Production for the quarter was 34.1 billion cubic feet of natural gas
equivalent (bcfe), comprised of 29.3 billion cubic feet of natural gas (bcf)
and 791 thousand barrels of oil (mbo). Gas production increased 8.5% from the
second quarter of 1999 and 2.1% from the first quarter of 2000. Average
prices realized during the second quarter of 2000 were $24.46 per barrel of
oil (bo) and $2.76 per thousand cubic feet (mcf) of natural gas, for a gas
equivalent price of $2.94 per mcfe.
By contrast, during the second quarter of 1999, Chesapeake generated net
income of $8.1 million ($0.04 per diluted common share), operating cash flow
of $34.7 million ($0.34 per diluted common share), and ebitda of $54.9 million
on revenue of $80.9 million. Production for the second quarter of 1999 was
33.6 bcfe, comprised of 27.0 bcf and 1,089 mbo. Average prices realized were
$16.01 per bo and $1.88 per mcf of natural gas, for a gas equivalent price of
$2.03 per mcfe.
The table below summarizes Chesapeake's key statistics during the current
quarter and compares them to the first quarter of 2000 and the second quarter
of 1999:
Three Months Ended
6/30/00 3/31/00 6/30/99
Average daily production (in mmcfe) 375 373 369
Gas as % of total production 86 85 81
Natural gas production (in bcf) 29.3 28.7 27.0
Average gas sales price ($/mcf) 2.76 2.30 1.88
Oil production (in mbbls) 791 864 1,089
Average oil sales price ($/bbl) 24.46 24.58 16.01
Natural gas equivalent production
(in bcfe) 34.1 33.9 33.6
Gas equivalent sales price ($/mcfe) 2.94 2.57 2.03
General and administrative costs
($/mcfe) .09 .09 .10
Production taxes ($/mcfe) .17 .15 .08
Lease operating expenses ($/mcfe) .37 .37 .33
Interest expense ($/mcfe) .64 .61 .60
DD&A of oil and gas properties
($/mcfe) .73 .72 .72
Operating cash flow ($ in millions) 59.7 47.7 34.7
Operating cash flow ($/mcfe) 1.75 1.40 1.03
Ebitda ($ in millions) 81.5 68.5 54.9
Ebitda ($/mcfe) 2.39 2.02 1.64
Net income ($ in millions) 31.6 21.2 8.1
Finding Costs Remain Low and PV-10 Increases Significantly to $2.3 Billion
In 1999 Chesapeake generated some of the lowest finding and development
costs in the industry, replacing 186% of its 134 bcfe of production at an
average finding cost of $0.65 per mcfe and ending the year with 1,206 bcfe of
proved reserves. Building on its strong reserve replacement and finding cost
performance last year, Chesapeake replaced its production by over 200% in the
first half of 2000 at a finding cost of significantly less than the company's
target of $0.85 per mcfe. Estimated proved reserves as of June 30, 2000 were
1,300 bcfe and pro forma for the pending Gothic acquisition would have been
1,600 bcfe.
Using June 30, 2000 NYMEX prices, Chesapeake estimates its PV-10 and
future undiscounted net revenue were $2.3 billion and $4.0 billion,
respectively. Pro forma for the Gothic transaction, June 30, 2000 PV-10 would
have been $2.8 billion and future undiscounted net revenue would have been
$5.1 billion. Pro forma for the Gothic transaction, a $0.10 change in natural
gas prices or a $1.00 change in oil prices affects Chesapeake's PV-10 by
$73 million and $24 million, respectively, and future undiscounted net revenue
by $135 million and $42 million, respectively.
Year 2000 Forecasts and Risk Management Update
Chesapeake's April 27, 2000 guidance on its 2000 forecasts was based on a
projected realized price of $2.64 per mcfe. That projection has now been
updated to $3.14 per mcfe, which is based on expected NYMEX average oil and
gas prices (as modified by the company's risk management hedges described
below) of $26.74 per bo and $3.42 per mcf. Chesapeake's current budget
assumes differentials to NYMEX prices of $1.00 per bo and $0.31 per mcf and
hedging losses of $1.52 per bo and $0.14 per mcf. The budget also excludes
any potential contribution from the Gothic acquisition prior to year-end.
In addition, Chesapeake is projecting 2000 production of 136 bcfe
(86% gas) and per mcfe lease operating expenses of $0.56 (including $0.18 per
mcfe of production taxes), interest costs of $0.62, general and administrative
costs of $0.10 and DD&A of oil and gas properties of $0.75.
If the forecasted targets described above are achieved, Chesapeake expects
to generate operating cash flow in 2000 of $260 million and net income of
$149 million. Chesapeake's cap-ex budget for 2000 is currently $160 million
for drilling, land and seismic with an additional $100 million dedicated to a
combination of acquisitions, debt reduction, and other general corporate
purposes, including the potential purchase of Gothic debt securities.
The impact of Chesapeake's risk management activities is included in the
projections described above. The company has hedged an estimated 27% of its
projected natural gas production for July, August and September at NYMEX
prices of approximately $2.93 per mcf. For October, the company has hedged an
estimated 18% of its gas production at an average NYMEX price of $2.55 per
mcf. None of the company's gas production has been hedged after October 2000.
In addition, approximately 40% of Chesapeake's oil production for the period
July-December 2000 has been hedged at an average price of $28.42 per barrel.
No oil or gas hedges are in place for 2001.
Preferred Stock Retirements
During the first six months of 2000, Chesapeake enhanced its balance sheet
by retiring 66% of its preferred stock, originally issued in the amount of
$230 million. In these transactions, the company has exchanged 34.2 million
shares of its common stock for $169 million of its preferred stock (3.04
million shares at a face value of $50 per share), which includes accrued
dividends of $17 million.
Operating Highlights
Chesapeake's Mid-Continent area continues to be the focus of its drilling
and acquisition activities where the company concentrates its efforts on
finding and developing long-lived natural gas reserves. Pro forma for the
inclusion of Gothic's reserves, the Mid-Continent area will account for an
estimated 74% of the company's total proved reserves and will make Chesapeake
the third largest natural gas producer in the region, trailing only BP
Amoco/Vastar and Apache.
During the second quarter Chesapeake enjoyed continuing success in its
low-risk Anadarko Shelf and Sahara areas in northwest Oklahoma as well as in
several of its significant higher potential exploration projects in the
Anadarko Basin, including Cement, Watonga-Chickasha and Mountain Front.
In the Sahara area, Chesapeake's recent completions include the Ada 1-6,
Carl 2-9, Plett 1-21, Sandra Lee 1-3, Lee 1-3, and Urban 2-24. These wells,
which are approximately 7,000' deep and cost $350,000 to drill and complete
and generally have economic lives of 25 years or more, began producing at an
average daily rate of over 1,000 mcfe per well. Since initiating this project
in 1998, Chesapeake has drilled 153 wells in Sahara, completing 95% of them as
producers.
In Cement, the company's recent successes include the SL Robertson 2-10,
Della 1-9, MOC Erwin 1-5, and MOC Alcott 1-4. These prolific wells are
currently producing at daily rates of 27,000 mcfe, 25,000 mcfe, 18,000 mcfe,
and 11,000 mcfe, respectively. Current drilling in Cement includes the Della
2-9 and the MOC Alcott 2-4, with three more wells expected to begin drilling
before year-end.
In the Mountain Front project, an area where Chesapeake owns over 14,000
net acres of leasehold, the company's most recent completions include the KF
Cluck 3-32 and KF Strobel 2-32, which are currently producing at daily rates
of 9,000 mcfe and 7,000 mcfe, respectively. Chesapeake plans to drill or
participate in an additional 12 wells in this area during the remainder of
2000.
Management Summary
Aubrey K. McClendon, Chesapeake's Chairman and Chief Executive Officer,
commented, "Strong natural gas prices and Chesapeake's successful drilling and
acquisition programs are continuing to improve the company's operating and
financial results. Current natural gas prices, although down from their 15
year highs reached last month, are still nearly double what they were in the
second quarter of 1999 and reflect the compelling supply and demand
fundamentals that should have a profoundly positive impact on our business in
the years ahead. We repositioned Chesapeake in late 1997 and early 1998 in
anticipation of the strong natural gas pricing environment we are now
experiencing. In the years ahead, we intend to capitalize on the significant
opportunities before us to continue generating value for our shareholders."
Gothic Transaction Update
On June 30, 2000, Chesapeake entered into a letter of intent to acquire
Gothic Energy Corporation for 4.0 million shares of Chesapeake common stock.
On June 27, 2000, Chesapeake acquired 96% of Gothic's $104 million face amount
14.125% Senior Discount Notes for $22 million in cash and 9.5 million shares
of Chesapeake common stock. Based on the market price for Chesapeake stock as
of June 30, 2000, the total acquisition cost to Chesapeake will be
approximately $345 million, including $235 million of Senior Secured Notes
issued by Gothic's operating subsidiary.
After allocating $20 million of the acquisition cost to Gothic's 3-D
seismic inventory and field telemetry system, the purchase price for the
proved reserves will be approximately $1.05 per mcfe. Gothic is presently
producing approximately 80,000 mcfe per day, of which 96% is natural gas. Pro
forma for the transaction (which is expected to close in December 2000),
Chesapeake is projected to be the 10th largest independent natural gas
producer in the U.S.
Gothic Disclosure
Chesapeake Energy Corporation and Gothic Energy Corporation plan to file
with the Securities and Exchange Commission a preliminary and definitive
prospectus/proxy statement and other relevant documents concerning the
proposed transaction referenced in the foregoing information. We urge
investors to carefully read the definitive prospectus/proxy statement, and any
other relevant documents filed with the SEC, because they will contain
important information. The prospectus/proxy statement will be sent to
stockholders of Gothic Energy Corporation seeking their approval of the
proposed transaction. Investors may obtain free of charge a copy of the
definitive prospectus/proxy (when it is available) and other documents filed
by Chesapeake Energy Corporation and Gothic Energy Corporation with the SEC at
the SEC's web site, www.sec.gov. In addition, documents filed with the SEC by
Chesapeake Energy Corporation will be available free of charge upon written
request to Chesapeake Energy Corporation, 6100 North Western Avenue, Oklahoma
City, Oklahoma 73118, Attention: Marcus C. Rowland or call us at
(405) 848-8000. Documents filed with the SEC by Gothic Energy Corporation
will be available free of charge from Gothic Energy Corporation, 6120 South
Yale Avenue, Suite 1200, Tulsa, Oklahoma 74136.
Conference Call Information
Chesapeake's management invites your participation in a conference call
tomorrow morning, Friday, July 28 at 9:00 a.m. EDT to discuss the contents of
this release and respond to questions. Please call 913-981-4900 between 8:50
and 9:00 am EDT tomorrow if you would like to participate in the call. For
those unable to participate, the call will also be available over the Internet
by visiting our home page at chkenergy.com and clicking on the link under
Shareholder Information or by going directly to Vcall.com. In addition, a
replay of the call will also be available by calling 719-457-0820 between
11:00 a.m. EDT Friday, July 28 through midnight Friday, August 4, 2000. The
passcode for this call is 638606.
The information in this release includes certain forward-looking
statements that are based on assumptions that in the future may prove not to
have been accurate. Those statements, and Chesapeake Energy Corporation's
business and prospects, are subject to a number of risks, including production
variances from expectations, uncertainties about estimates of reserves,
volatility of oil and gas prices, the need to develop and replace reserves,
the substantial capital expenditures required to fund operations,
environmental risks, drilling and operating risks, risks related to
exploratory and developmental drilling, competition, government regulation,
and the ability of the company to implement its business strategy. These and
other risks are described in the company's documents and reports that are
available from the United States Securities and Exchange Commission, including
the report filed on Form 10-K for the year ended December 31, 1999 and the
report filed on Form 10-Q for the quarter ended March 31, 2000.
Chesapeake Energy Corporation is the 10th largest independent natural gas
producer in the U.S (pro forma for the Gothic transaction). 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 AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in 000's, except per share data)
(unaudited)
THREE MONTHS ENDED: June 30, 2000 June 30, 1999
Mcfe $ $/Mcfe
REVENUES:
Oil and gas sales 100,221 2.94 68,272 2.03
Oil and gas
marketing sales 34,242 1.01 12,620 0.38
Total revenues 134,463 3.95 80,892 2.41
OPERATING COSTS:
Production expenses 12,581 0.37 11,183 0.33
Production taxes 5,717 0.17 2,798 0.08
General and
administrative 3,188 0.09 3,268 0.10
Oil and gas
marketing expenses 33,122 0.97 11,673 0.35
Depreciation,
depletion, and
amortization of
oil and gas
properties 24,877 0.73 24,233 0.72
Depreciation and
amortization of
other assets 1,836 0.06 1,972 0.06
Total operating
costs 81,321 2.39 55,127 1.64
INCOME FROM OPERATIONS: 53,142 1.56 25,765 0.77
OTHER INCOME (EXPENSE):
Interest and other
income 1,667 0.05 2,967 0.09
Interest expense (21,813) (0.64) (20,259) (0.60)
(20,146) (0.59) (17,292) (0.51)
Income Before Income
Taxes 32,996 0.97 8,473 0.26
Income Tax Expense 1,362 0.04 326 0.01
NET INCOME 31,634 0.93 8,147 0.25
Preferred Stock
Dividends (2,907) (0.09) (4,026) (0.12)
Gain on Redemption
of Preferred Stock 1,481 0.04 --- ---
Earnings Available to
Common Shareholders 30,208 0.88 4,121 0.13
Earnings Per Common
Share - Basic 0.26 --- 0.04 ---
Net Income Per
Common Share - Assuming
Dilution 0.22 --- 0.04 ---
Average Common Shares
and Common
Equivalent Shares
Outstanding
Basic 116,466 --- 97,049 ---
Diluted (A) 146,113 --- 101,450 ---
Operating Cash
Flow (B) 59,709 1.75 34,678 1.03
EBITDA (C) 81,522 2.39 54,937 1.64
Thousands of barrels
of oil (MBbl): 791 -27% 1,089
Millions of cubic
feet of gas (MMcf): 29,339 9% 27,032
Millions of cubic
feet of gas
equivalents (MMcfe): 34,085 2% 33,566
MMcfe per day 375 2% 369
Average price/barrel $24.46 53% $16.01
Average price/Mcf $2.76 47% $1.88
Average gas equivalent
price/Mcfe $2.94 45% $2.03
(A) Diluted shares outstanding for the three months ended June 30, 2000
includes the effect of dilutive stock options and assumes the
conversion of all convertible preferred shares into common shares as
of the beginning of the period. For the three months ended June 30,
1999, the diluted shares outstanding includes the effect of dilutive
stock options, but not the effect of the conversion of convertible
preferred shares into common shares as this would be antidilutive.
(B) Income before income tax and depreciation, depletion and
amortization.
(C) Earnings before income tax, interest expense, and depreciation,
depletion and amortization.
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in 000's, except per share data)
(unaudited)
SIX MONTHS ENDED: June 30, 2000 June 30, 1999
Mcfe $ $/Mcfe
REVENUES:
Oil and gas sales 187,514 2.76 120,078 1.80
Oil and gas
marketing sales 61,610 0.90 26,491 0.40
Total revenues 249,124 3.66 146,569 2.20
OPERATING COSTS:
Production expenses 25,126 0.37 25,175 0.38
Production taxes 10,933 0.16 4,788 0.07
General and
administrative 6,220 0.09 7,292 0.11
Oil and gas
marketing expenses 59,666 0.88 24,958 0.37
Depreciation,
depletion, and
amortization of
oil and gas
properties 49,360 0.73 47,386 0.71
Depreciation and
amortization of
other assets 3,702 0.05 4,138 0.06
Total operating
costs 155,007 2.28 113,737 1.70
INCOME FROM OPERATIONS: 94,117 1.38 32,832 0.50
OTHER INCOME (EXPENSE):
Interest and
other income 2,859 0.04 3,840 0.05
Interest expense (42,677) (0.63) (40,149) (0.60)
(39,818) (0.59) (36,309) (0.55)
Income (Loss)
Before Income Taxes 54,299 0.79 (3,477) (0.05)
Income Tax Expense 1,463 0.02 326 0.01
NET INCOME (LOSS) 52,836 0.77 (3,803) (0.06)
Preferred Stock
Dividends (6,949) (0.10) (8,052) (0.12)
Gain on Redemption
of Preferred Stock 11,895 0.18 --- ---
Earnings (Loss)
Available to
Common Shareholders 57,782 0.85 (11,855) (0.18)
Earnings (Loss) Per
Common Share - Basic 0.53 --- (0.12) ---
Net Income (Loss)
Per Common Share
- Assuming Dilution 0.36 --- (0.12) ---
Average Common Shares
and Common Equivalent
Shares Outstanding
Basic 108,196 --- 97,049 ---
Diluted (A) 146,285 --- 97,049 ---
Operating Cash
Flow (B) 107,361 1.58 48,047 0.72
EBITDA (C) 150,038 2.21 88,196 1.32
Thousands of barrels
of oil (MBbl): 1,655 -30% 2,362
Millions of cubic
feet of gas (MMcf): 58,086 10% 52,706
Millions of cubic
feet of gas
equivalents (MMcfe): 68,016 2% 66,878
MMcfe per day 374 1% 369
Average price/barrel $24.52 85% $13.27
Average price/Mcf $2.53 51% $1.68
Average gas
equivalent price/Mcfe $2.76 53% $1.80
(A) Diluted shares outstanding for the six months ended June 30, 2000
includes the effect of dilutive stock options and assumes the
conversion of all convertible preferred shares into common shares as
of the beginning of the period. For the six months ended June 30,
1999, the diluted shares outstanding did not include the effect of
dilutive stock options, or the effect of the conversion of
convertible preferred shares into common shares as this would be
antidilutive.
(B) Income before income tax and depreciation, depletion and
amortization.
(C) Earnings before income tax, interest expense, and depreciation,
depletion and amortization.
SOURCE Chesapeake Energy Corporation
CO: Chesapeake Energy Corporation
ST: Oklahoma
IN: OIL
SU: ERN
07/27/2000 16:01 EDT prnewswire.com |
