<PAGE> 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 March 31, 1996
[ ] 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)
DELAWARE 73-1395733
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6104 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 April 30, 1996, there were 19,899,547 shares of the registrant's
$.10 par value Common Stock outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Index to Financial Statements
and
Management's Discussion and Analysis
<TABLE>
<CAPTION>
Page
----
<S> <C>
Chesapeake Energy Corporation:
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1996
and June 30, 1995 . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the Three
and Nine Months Ended March 31, 1996 and 1995 . . . . . 4
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 1996 and 1995 . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 13
Chesapeake Exploration Limited Partnership:
Item 1. Financial Statements
Balance Sheets at March 31, 1996 and
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . 19
Statements of Operations for the Three and
Nine Months Ended March 31, 1996 and 1995 . . . . . . . 20
Statements of Cash Flows for the
Nine Months Ended March 31, 1996 and 1995 . . . . . . . 21
Notes to Financial Statements . . . . . . . . . . . . . 22
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 23
</TABLE>
Page 2
<PAGE> 3
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
March 31, June 30,
1996 1995
--------- ---------
($ in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 25,948 $ 55,535
Accounts receivable:
Oil and gas sales 12,242 10,644
Gas marketing sales 6,189 --
Joint interest and other, net of allowance for
doubtful accounts of $237,000 and $452,000 27,138 26,317
Related parties 1,847 4,386
Inventory 7,066 8,926
Other 1,798 633
--------- ---------
Total Current Assets 82,228 106,441
--------- ---------
PROPERTY AND EQUIPMENT:
Oil and gas properties, at cost based on full cost accounting:
Evaluated oil and gas properties 279,668 165,302
Unevaluated properties 76,265 27,474
Less: accumulated depreciation, depletion and amortization (77,089) (41,821)
--------- ---------
278,844 150,955
Service properties, equipment, and other 22,505 16,966
Less: accumulated depreciation and amortization (5,797) (4,120)
--------- ---------
Total Property and Equipment 295,552 163,801
--------- ---------
OTHER ASSETS 6,939 6,451
--------- ---------
TOTAL ASSETS $ 384,719 $ 276,693
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt $ 8,496 $ 9,993
Accounts payable 62,491 33,438
Related party payables 6,000 --
Accrued liabilities and other 8,048 7,572
Revenues and royalties due others 31,977 23,786
Income taxes payable 116 116
--------- ---------
Total Current Liabilities 117,128 74,905
--------- ---------
LONG-TERM DEBT 184,084 145,754
--------- ---------
REVENUES AND ROYALTIES DUE OTHERS 5,465 3,779
--------- ---------
DEFERRED INCOME TAXES 13,285 7,280
--------- ---------
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY:
Common Stock, $.10 par value, 45,000,000 shares
authorized at March 31, 1996; $.0033 par value,
20,000,000 shares authorized at June 30, 1995;
17,843,149 and 17,540,832 shares issued and outstanding
at March 31, 1996 and June 30, 1995, respectively 1,784 58
Paid-in capital 32,354 30,295
Accumulated earnings 30,619 14,622
--------- ---------
Total Stockholders' Equity 64,757 44,975
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 384,719 $ 276,693
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 3
<PAGE> 4
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
($ in thousands, ($ in thousands,
except per share data) except per share data)
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $30,887 $14,025 $77,237 $36,501
Gas marketing sales 11,558 -- 15,345 --
Oil and gas service operations 1,700 1,763 5,317 6,514
Interest and other 250 68 2,041 976
------- ------- ------- -------
Total Revenues 44,395 15,856 99,940 43,991
------- ------- ------- -------
COSTS AND EXPENSES:
Production expenses and taxes 2,136 1,357 5,839 2,648
Gas marketing expenses 10,788 -- 14,554 --
Oil and gas service operations 1,244 1,433 4,263 5,325
Oil and gas depreciation,
depletion and amortization 13,035 6,653 35,268 15,725
Depreciation and amortization
of other assets 766 626 2,151 1,590
General and administrative, net 1,435 722 3,347 2,367
Interest 3,173 1,518 9,717 4,455
------- ------- ------- -------
Total Costs and Expenses 32,577 12,309 75,139 32,110
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 11,818 3,547 24,801 11,881
INCOME TAX EXPENSE 4,195 1,242 8,804 3,992
------- ------- ------- -------
NET INCOME $ 7,623 $ 2,305 $15,997 $ 7,889
======= ======= ======= =======
EARNINGS PER COMMON SHARE COMPUTATION:
NET INCOME AVAILABLE TO COMMON $ 7,623 $ 2,305 $15,997 $ 7,889
======= ======= ======= =======
NET INCOME PER COMMON SHARE $ .39 $ .12 $ .83 $ .43
======= ======= ======= =======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 19,490 18,642 19,328 18,443
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 4
<PAGE> 5
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
March 31,
------------------------
1996 1995
--------- ---------
($ in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 15,997 $ 7,889
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation, depletion and amortization 36,550 16,942
Deferred taxes 8,804 3,992
Amortization of loan costs 869 373
Amortization of bond discount 421 427
Gain on sale of fixed assets and other (366) (164)
Purchases and sales of trading securities, net (850) --
Other adjustments (129) 34
CHANGES IN CURRENT ASSETS AND LIABILITIES 38,819 7,737
--------- ---------
Cash provided by operating activities 100,115 37,230
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration development and acquisition
of oil and gas properties (171,523) (81,323)
Proceeds from sale of oil and gas
equipment, leasehold and other 8,366 13,505
Proceeds from sale of property, equipment and other 783 835
Investment in gas marketing company, net of
cash acquired (363) --
Additions to property, equipment and other (6,334) (5,859)
--------- ---------
Cash used in investing activities (169,071) (72,842)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 41,650 35,082
Payments on long-term borrowings (3,267) (11,740)
Cash received from exercise of stock options 986 737
--------- ---------
Cash provided by financing activities 39,369 24,079
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (29,587) (11,533)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 55,535 16,225
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 25,948 $ 4,692
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 5
<PAGE> 6
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(unaudited)
1. Accounting Principles
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 and nine months ended March 31, 1996, are not
necessarily indicative of the results for the full fiscal year.
As used in this Form 10-Q, the terms "Restricted Subsidiaries" and "Subsidiary
Guarantors" include Chesapeake Operating, Inc. ("COI"), Lindsay Oil Field
Supply, Inc., Sander Trucking Company, Inc., Whitmire Dozer Service, Inc., and
Chesapeake Exploration Limited Partnership ("CEX"), and the terms "Unrestricted
Subsidiaries" and "Non-Guarantor Subsidiaries" include Chesapeake Gas
Development Corporation ("CGDC") and Chesapeake Energy Marketing, Inc. ("CEM"),
each of which is a direct or indirect wholly owned subsidiary of the Company.
2. Recent Transactions
On April 9, 1996, the Company issued 1,650,000 shares of Common Stock in a
public offering at a price of $53.00 per share, which resulted in net proceeds
to the Company of approximately $82.6 million before certain expenses of the
offering. On April 9, 1996, the Company also issued $120 million in 9 1/8%
Senior Notes due 2006 (the "9 1/8% Notes"), which resulted in net proceeds to
the Company of approximately $116.0 million before certain expenses of the
offering. The 9 1/8% Notes were issued at 99.931% of par. On April 12, 1996,
the underwriters of the Company's Common Stock Offering exercised an
over-allotment option to purchase an additional 346,500 shares of Common Stock
at a price of $53.00 per share, resulting in additional net proceeds to the
Company of approximately $17.3 million, before certain expenses.
On April 30, 1996, the Company purchased interests in certain producing and
non-producing oil and gas properties from Amerada Hess Corporation for $35
million, subject to adjustment for activity after the effective date of January
1, 1996. The properties are located in the Knox and Golden Trend fields of
southern Oklahoma, most of which are operated by the Company. The Company
estimates that it acquired approximately 58 billion cubic feet equivalent
("Bcfe") of proved oil and gas reserves. Additionally, the Company acquired
approximately 14,000 net acres of unevaluated leasehold.
Page 6
<PAGE> 7
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(unaudited)
3. Senior Notes
12% Notes
The Company has outstanding $47.5 million in aggregate principal amount of 12%
Notes which mature in March 2001. The 12% Notes bear interest at an annual rate
of 12%, payable semiannually on each March 1 and September 1. The 12% Notes are
senior obligations of the Company and are secured by a pledge of all of the
issued and outstanding capital stock of, and partnership interests in, the
Company's Restricted Subsidiaries. In addition, the 12% Notes are fully and
unconditionally guaranteed, jointly and severally, by the Restricted
Subsidiaries. The only subsidiary's securities which constitute a substantial
portion of the collateral for the 12% Notes are the partnership interests in
CEX, a limited partnership which is 10% owned by COI, as the sole general
partner, and 90% owned directly by the Company, as the sole limited partner.
Separate financial statements of CEX are presented elsewhere in this Form 10-Q.
10 1/2% Notes
The Company has outstanding $90 million in aggregate principal amount of 10
1/2% Notes which mature June 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 the Company's Restricted
Subsidiaries.
9 1/8% Notes
On April 9, 1996 the Company issued $120 million in aggregate principal amount
of 9 1/8% Senior Notes due 2006 which mature April 15, 2006. The 9 1/8% Notes
bear interest at an annual rate of 9 1/8%, payable semiannually on each April
15 and October 15, commencing October 15, 1996. The 9 1/8% Notes are senior,
unsecured obligations of the Company, and are fully and unconditionally
guaranteed, jointly and severally, by the Company's Restricted Subsidiaries.
Set forth below are condensed consolidating financial statements of CEX, the
other Subsidiary Guarantors, all Subsidiary Guarantors combined, the
Non-Guarantor Subsidiaries and the Company. The CEX limited partnership
condensed financial statements were prepared on a separate entity basis as
reflected in the Company's books and records and include all material costs of
doing business as if the partnership were on a stand-alone basis except that
interest is not charged or allocated on intercompany advances. No provision has
been made for income taxes because the partnership is not a tax paying entity.
Page 7
<PAGE> 8
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(unaudited)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1996
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY GUARANTORS
-----------------------------------
ALL NON-GUARANTOR COMPANY
CEX OTHERS COMBINED SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 12,292 $ 12,292 $ 1,395 $ 12,261 $ -- $ 25,948
Accounts receivable, net 14,549 27,564 42,113 6,980 -- (1,677) 47,416
Inventory -- 7,032 7,032 34 -- -- 7,066
Other -- 569 569 12 1,217 -- 1,798
--------- --------- --------- --------- --------- --------- ---------
Total Current Assets 14,549 47,457 62,006 8,421 13,478 (1,677) 82,228
--------- --------- --------- --------- --------- --------- ---------
PROPERTY AND EQUIPMENT:
Oil and gas properties 270,952 (15,901) 255,051 24,617 -- -- 279,668
Unevaluated leasehold 76,265 -- 76,265 -- -- -- 76,265
Other property and equipment -- 15,197 15,197 21 7,287 -- 22,505
Less: accumulated depreciation,
depletion and amortization (69,752) (5,408) (75,160) (7,349) (377) -- (82,886)
--------- --------- --------- --------- --------- --------- ---------
Total Property & Equipment 277,465 (6,112) 271,353 17,289 6,910 -- 295,552
--------- --------- --------- --------- --------- --------- ---------
INVESTMENTS IN SUBSIDIARIES
AND INTERCOMPANY ADVANCES 55,344 297,707 353,051 7,325 198,179 (558,555) --
--------- --------- --------- --------- --------- --------- ---------
OTHER ASSETS 675 12 687 946 5,306 -- 6,939
--------- --------- --------- --------- --------- --------- ---------
TOTAL ASSETS $ 348,033 $ 339,064 $ 687,097 $ 33,981 $ 223,873 $(560,232) $ 384,719
========= ========= ========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current
maturities of long-term debt $ -- $ 5,227 $ 5,227 $ 3,240 $ 29 $ -- $ 8,496
Accounts payable and other 378 101,405 101,783 4,947 3,604 (1,702) 108,632
--------- --------- --------- --------- --------- --------- ---------
Total Current Liabilities 378 106,632 107,010 8,187 3,633 (1,702) 117,128
--------- --------- --------- --------- --------- --------- ---------
LONG-TERM DEBT 35,000 2,277 37,277 10,560 136,247 -- 184,084
--------- --------- --------- --------- --------- --------- ---------
REVENUES PAYABLE -- 5,465 5,465 -- -- -- 5,465
--------- --------- --------- --------- --------- --------- ---------
DEFERRED INCOME TAXES -- 19,235 19,235 962 (6,912) -- 13,285
--------- --------- --------- --------- --------- --------- ---------
INTERCOMPANY PAYABLES 238,606 235,269 473,875 8,284 72,601 (554,760) --
--------- --------- --------- --------- --------- --------- ---------
STOCKHOLDERS' EQUITY:
Common Stock -- 117 117 2 1,667 (2) 1,784
Other 74,049 (29,931) 44,118 5,986 16,637 (3,768) 62,973
--------- --------- --------- --------- --------- --------- ---------
Total Stockholders' Equity 74,049 (29,814) 44,235 5,988 18,304 (3,770) 64,757
--------- --------- --------- --------- --------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 348,033 $ 339,064 $ 687,097 $ 33,981 $ 223,873 $(560,232) $ 384,719
========= ========= ========= ========= ========= ========= =========
</TABLE>
Page 8
<PAGE> 9
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(unaudited)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY GUARANTORS
-----------------------------------
ALL NON-GUARANTOR COMPANY
CEX OTHERS COMBINED SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 53,227 $ 53,227 $ 5 $ 2,303 $ -- $ 55,535
Accounts receivable, net 9,867 30,693 40,560 777 10 -- 41,347
Inventory -- 8,895 8,895 31 -- -- 8,926
Other -- 633 633 -- -- -- 633
--------- --------- --------- --------- --------- ---------
Total Current Assets 9,867 93,448 103,315 813 2,313 -- 106,441
--------- --------- --------- --------- --------- --------- ---------
PROPERTY AND EQUIPMENT:
Oil and gas properties 163,521 (16,723) 146,798 18,504 -- -- 165,302
Unevaluated leasehold 27,474 -- 27,474 -- -- -- 27,474
Other property and equipment -- 12,199 12,199 -- 4,767 -- 16,966
Less: accumulated depreciation,
depletion and amortization (36,959) (3,847) (40,806) (4,861) (274) -- (45,941)
--------- --------- --------- --------- --------- --------- ---------
Total Property & Equipment 154,036 (8,371) 145,665 13,643 4,493 -- 163,801
--------- --------- --------- --------- --------- --------- ---------
INVESTMENTS IN SUBSIDIARIES
AND INTERCOMPANY ADVANCES 17,559 181,914 199,473 -- 176,795 (376,268) --
--------- --------- --------- --------- --------- --------- ---------
OTHER ASSETS 776 41 817 123 5,511 -- 6,451
--------- --------- --------- --------- --------- --------- ---------
TOTAL ASSETS $ 182,238 $ 267,032 $ 449,270 $ 14,579 $ 189,112 $(376,268) $ 276,693
========= ========= ========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current
maturities of long-term debt $ -- $ 7,757 $ 7,757 $ 2,200 $ 36 $ -- $ 9,993
Accounts payable and other 516 61,777 62,293 -- 2,619 -- 64,912
--------- --------- --------- --------- --------- --------- ---------
Total Current Liabilities 516 69,534 70,050 2,200 2,655 -- 74,905
--------- --------- --------- --------- --------- --------- ---------
LONG-TERM DEBT 10 1,326 1,336 8,600 135,818 -- 145,754
--------- --------- --------- --------- --------- --------- ---------
REVENUES PAYABLE -- 3,779 3,779 -- -- -- 3,779
--------- --------- --------- --------- --------- --------- ---------
DEFERRED INCOME TAXES -- 9,621 9,621 164 (2,505) -- 7,280
--------- --------- --------- --------- --------- --------- ---------
INTERCOMPANY PAYABLES 140,236 201,959 342,195 3,307 30,766 (376,268) --
--------- --------- --------- --------- --------- --------- ---------
STOCKHOLDERS' EQUITY:
Common Stock -- 31 31 1 58 (32) 58
Other 41,476 (19,218) 22,258 307 22,320 32 44,917
--------- --------- --------- --------- --------- --------- ---------
Total Stockholders' Equity 41,476 (19,187) 22,289 308 22,378 -- 44,975
--------- --------- --------- --------- --------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 182,238 $ 267,032 $ 449,270 $ 14,579 $ 189,112 $(376,268) $ 276,693
========= ========= ========= ========= ========= ========= =========
</TABLE>
Page 9
<PAGE> 10
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY GUARANTORS
-----------------------------------
ALL NON-GUARANTOR COMPANY
CEX OTHERS COMBINED SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED
-------- -------- -------- ------------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED MARCH 31, 1996:
REVENUES:
Oil and gas sales $ 72,112 $ -- $ 72,112 $ 5,125 $ -- $ -- $ 77,237
Gas marketing sales -- -- -- 17,964 -- (2,619) 15,345
Oil and gas service operations -- 5,317 5,317 -- -- -- 5,317
Interest and other -- 1,379 1,379 105 557 -- 2,041
-------- -------- -------- -------- -------- -------- --------
Total Revenues 72,112 6,696 78,808 23,194 557 (2,619) 99,940
-------- -------- -------- -------- -------- -------- --------
COSTS AND EXPENSES:
Production expenses and taxes 4,884 437 5,321 518 -- -- 5,839
Gas marketing expenses -- -- -- 17,173 -- (2,619) 14,554
Oil and gas service operations -- 4,263 4,263 -- -- -- 4,263
Oil and gas depreciation,
depletion and amortization 33,359 -- 33,359 1,909 -- -- 35,268
Other depreciation and amortization 181 1,176 1,357 44 750 -- 2,151
General and administrative, net 807 1,735 2,542 291 514 -- 3,347
Interest and other 308 97 405 551 8,761 -- 9,717
-------- -------- -------- -------- -------- -------- --------
Total Costs & Expenses 39,539 7,708 47,247 20,486 10,025 (2,619) 75,139
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 32,573 (1,012) 31,561 2,708 (9,468) -- 24,801
INCOME TAX EXPENSE (BENEFIT) -- 11,275 11,275 962 (3,433) -- 8,804
-------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS) $ 32,573 $(12,287) $ 20,286 $ 1,746 $ (6,035) $ -- $ 15,997
======== ======== ======== ======== ======== ======== ========
FOR THE NINE MONTHS ENDED MARCH 31, 1995:
REVENUES:
Oil and gas sales $ 35,764 $ -- $ 35,764 $ 737 $ -- $ -- $ 36,501
Oil and gas service operations -- 6,514 6,514 -- -- -- 6,514
Interest and other -- 902 902 -- 74 -- 976
-------- -------- -------- -------- -------- -------- --------
Total Revenues 35,764 7,416 43,180 737 74 -- 43,991
-------- -------- -------- -------- -------- -------- --------
COSTS AND EXPENSES:
Production expenses and taxes 2,144 391 2,535 113 -- -- 2,648
Oil and gas service operations -- 5,325 5,325 -- -- -- 5,325
Oil and gas depreciation,
depletion and amortization 15,353 -- 15,353 372 -- -- 15,725
Other depreciation and amortization 97 1,147 1,244 1 345 -- 1,590
General and administrative, net 687 1,055 1,742 33 592 -- 2,367
Interest and other 122 296 418 96 3,941 -- 4,455
-------- -------- -------- -------- -------- -------- --------
Total Costs & Expenses 18,403 8,214 26,617 615 4,878 -- 32,110
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX 17,361 (798) 16,563 122 (4,804) -- 11,881
INCOME TAX EXPENSE (BENEFIT) -- 3,992 3,992 -- -- -- 3,992
-------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS) $ 17,361 $ (4,790) $ 12,571 $ 122 $ (4,804) $ -- $ 7,889
======== ======== ======== ======== ======== ======== ========
</TABLE>
Page 10
<PAGE> 11
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY GUARANTORS
-----------------------------------
ALL NON-GUARANTOR COMPANY
CEX OTHERS COMBINED SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED
-------- -------- -------- ------------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED MARCH 31, 1996:
REVENUES
Oil and gas sales $ 28,579 $ -- $ 28,579 $ 2,308 $ -- $ -- $ 30,887
Gas marketing sales -- -- -- 13,594 -- (2,036) 11,558
Oil and gas service operations -- 1,700 1,700 -- -- -- 1,700
Interest and other -- 143 143 99 8 -- 250
-------- -------- -------- -------- -------- -------- --------
28,579 1,843 30,422 16,001 8 (2,036) 44,395
-------- -------- -------- -------- -------- -------- --------
COSTS AND EXPENSES
Production expenses and taxes 1,785 144 1,929 207 -- -- 2,136
Gas marketing expenses -- -- -- 12,824 -- (2,036) 10,788
Oil and gas service operations -- 1,244 1,244 -- -- -- 1,244
Oil and gas depreciation 12,300 -- 12,300 735 -- -- 13,035
Other depreciation & amortization 72 435 507 26 233 -- 766
General and administrative, net 280 763 1,043 190 202 -- 1,435
Interest and Other 280 44 324 201 2,648 -- 3,173
-------- -------- -------- -------- -------- -------- --------
14,717 2,630 17,347 14,183 3,083 (2,036) 32,577
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX 13,862 (787) 13,075 1,818 (3,075) -- 11,818
-------- -------- -------- -------- -------- -------- --------
INCOME TAX EXPENSE (BENEFIT) -- 4,713 4,713 646 (1,164) -- 4,195
-------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS) $ 13,862 $ (5,500) $ 8,362 $ 1,172 $ (1,911) $ -- $ 7,623
======== ======== ======== ======== ======== ======== ========
FOR THE THREE MONTHS ENDED MARCH 31, 1995:
REVENUES
Oil and gas sales $ 13,494 $ -- $ 13,494 $ 531 $ -- $ -- $ 14,025
Oil and gas service operations -- 1,763 1,763 -- -- -- 1,763
Interest and other -- 30 30 -- 38 -- 68
-------- -------- -------- -------- -------- -------- --------
13,494 1,793 15,287 531 38 -- 15,856
-------- -------- -------- -------- -------- -------- --------
COSTS AND EXPENSES
Production expenses and taxes 1,111 163 1,274 83 -- -- 1,357
Oil and gas service operations -- 1,433 1,433 -- -- -- 1,433
Oil and gas depreciation 6,360 -- 6,360 293 -- -- 6,653
Other depreciation & amortization (120) 621 501 1 124 -- 626
General and administrative, net 252 283 535 27 160 -- 722
Interest and Other 89 595 684 96 738 -- 1,518
-------- -------- -------- -------- -------- -------- --------
7,692 3,095 10,787 500 1,022 -- 12,309
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX 5,802 (1,302) 4,500 31 (984) -- 3,547
-------- -------- -------- -------- -------- -------- --------
INCOME TAX EXPENSE (BENEFIT) -- 1,242 1,242 -- -- -- 1,242
-------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS) $ 5,802 $ (2,544) $ 3,258 $ 31 $ (984) $ -- $ 2,305
======== ======== ======== ======== ======== ======== ========
</TABLE>
Page 11
<PAGE> 12
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY GUARANTORS
-----------------------------------
ALL NON-GUARANTOR COMPANY
CEX OTHERS COMBINED SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED
-------- -------- -------- ------------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED MARCH 31, 1996:
CASH FLOWS FROM
OPERATING ACTIVITIES $ 50,767 $ 53,200 $ 103,967 $ 2,877 $ (6,729) $ -- $ 100,115
--------- --------- --------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas properties (159,478) (5,365) (164,843) (11,980) -- 5,300 (171,523)
Proceeds from sales 5,300 9,149 14,449 -- -- (5,300) 9,149
Investment in gas marketing
company -- -- -- 266 (629) -- (363)
Other additions (182) (3,218) (3,400) (40) (2,894) -- (6,334)
--------- --------- --------- --------- --------- --------- ---------
(154,360) 566 (153,794) (11,754) (3,523) -- (169,071)
--------- --------- --------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term
borrowings 30,000 1,350 31,350 10,300 -- -- 41,650
Payments on borrowings -- (753) (753) (2,494) (20) -- (3,267)
Cash received from exercise
of stock options -- -- -- -- 986 -- 986
Intercompany advances, net 73,593 (95,298) (21,705) 2,461 19,244 -- --
--------- --------- --------- --------- --------- --------- ---------
103,593 (94,701) 8,892 10,267 20,210 -- 39,369
--------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) in cash
and cash equivalents -- (40,935) (40,935) 1,390 9,958 -- (29,587)
Cash, beginning of period -- 53,227 53,227 5 2,303 -- 55,535
--------- --------- --------- --------- --------- --------- ---------
Cash, end of period $ -- $ 12,292 $ 12,292 $ 1,395 $ 12,261 $ -- $ 25,948
========= ========= ========= ========= ========= ========= =========
FOR THE NINE MONTHS ENDED MARCH 31, 1995:
CASH FLOWS FROM
OPERATING ACTIVITIES $ 36,643 $ 5,573 $ 42,216 $ 10 $ (4,996) $ -- $ 37,230
--------- --------- --------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas properties (81,323) -- (81,323) (5,500) -- 5,500 (81,323)
Proceeds from sales 8,881 10,959 19,840 -- -- (5,500) 14,340
Other additions 11 (3,640) (3,629) (57) (2,173) -- (5,859)
--------- --------- --------- --------- --------- --------- ---------
(72,431) 7,319 (65,112) (5,557) (2,173) -- (72,842)
--------- --------- --------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term
borrowings 28,433 1,149 29,582 5,500 -- -- 35,082
Payments on borrowings (9,933) (1,881) (11,814) (300) 374 -- (11,740)
Cash received from exercise
of stock options -- -- -- -- 737 -- 737
Intercompany advances, net 17,288 (31,133) (13,845) 383 13,462 -- --
--------- --------- --------- --------- --------- --------- ---------
35,788 (31,865) 3,923 5,583 14,573 -- 24,079
--------- --------- --------- --------- --------- --------- ---------
Net increase (decrease)in cash
and cash equivalents -- (18,973) (18,973) 36 7,404 -- (11,533)
Cash, beginning of period -- 13,946 13,946 -- 2,279 -- 16,225
--------- --------- --------- --------- --------- --------- ---------
Cash, end of period $ -- $ (5,027) $ (5,027) $ 36 $ 9,683 $ -- $ 4,692
========= ========= ========= ========= ========= ========= =========
</TABLE>
Page 12
<PAGE> 13
PART I. FINANCIAL INFORMATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT EVENTS
On April 9, 1996 the Company completed a public offering of 1,650,000 shares of
Common Stock (the "Common Stock Offering") at a price of $53.00 per share,
resulting in net proceeds to the Company of approximately $82.6 million before
certain expenses of the offering. On April 12, 1996, the underwriters of the
Company's Common Stock Offering exercised an over-allotment option to purchase
an additional 346,500 shares of Common Stock at a price of $53.00 per share,
resulting in additional net proceeds to the Company of approximately $17.3
million. On April 9, 1996 the Company also concluded the sale of $120 million
in 9 1/8% Senior Notes due 2006 (the "9 1/8% Notes"), which offering (the "9
1/8% Notes Offering") resulted in net proceeds to the Company of approximately
$116.0 million before certain expenses of the offering. The 9 1/8% Notes were
issued at 99.931% of par.
On April 30, 1996, the Company purchased interests in certain producing and
non-producing oil and gas properties from Amerada Hess Corporation for $35
million, subject to adjustment for activity after the effective date of January
1, 1996. The properties are located in the Knox and Golden Trend fields of
southern Oklahoma, most of which are operated by the Company. The Company
estimates that it acquired approximately 58 billion cubic feet equivalent
("Bcfe") of proved oil and gas reserves. Additionally, the Company acquired
approximately 14,000 net acres of unevaluated leasehold.
THREE MONTHS ENDED MARCH 31, 1996 VS. MARCH 31, 1995
Net income for the three months ended March 31, 1996 (the "Current Quarter")
was $7.6 million, a $5.3 million increase from net income of $2.3 million for
the quarter ended March 31, 1995 (the "Prior Quarter"). This increase was
caused primarily by the Company's significantly higher oil and gas production.
Revenues from oil and gas sales for the Current Quarter were $30.9 million, an
increase of $16.9 million, or 121%, from the Prior Quarter. Gas production
increased to 13.5 billion cubic feet ("Bcf"), an increase of 6.7 Bcf, or 100%,
compared to the Prior Quarter. Additionally, oil production increased 67
thousand barrels ("MBbls"), or 24%, from 275 MBbls to 342 MBbls. The increase
in oil and gas production was accompanied by increases in the average oil and
gas prices realized. In the Current Quarter, the Company received an average
oil price of $18.44 per barrel, an increase of $0.93 per barrel, or 5%, from
the $17.51 per barrel realized in the Prior Quarter. Gas price realizations
increased to $1.83 per thousand cubic feet ("Mcf") in the Current Quarter, an
increase of 34% from the $1.37 per Mcf realized in the Prior Quarter.
The following table sets forth oil and gas production for the Company's major
producing areas during the Current Quarter.
<TABLE>
<CAPTION>
PRODUCING OIL GAS TOTAL PERCENT
FIELD WELLS (MBLS) (MMCF) (MMCFE) %
----- --------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Giddings 160 215 11,365 12,657 81%
Southern Oklahoma 215 77 1,334 1,794 12
All Other 88 50 764 1,066 7
------ ------ ------ ------ ------
TOTAL 463 342 13,463 15,517 100%
====== ====== ====== ====== ======
</TABLE>
Revenues from the Company's gas marketing operations, which commenced in
December 1995 with the purchase of Chesapeake Energy Marketing, Inc. ("CEM"),
were $11.6 million. Gas marketing expenses were $10.8 million, resulting in a
gross profit margin during the Current Quarter of $0.8 million.
Page 13
<PAGE> 14
Revenues from oil and gas service operations for the Current Quarter were $1.7
million, essentially unchanged from the Prior Quarter. The gross profit margin
on service operations in the Current Quarter increased to 27% from 19% in the
Prior Quarter as the result of a different mix of operations. Margins vary,
depending upon the mix of trucking, construction and roustabout services
provided. The Company continues to de-emphasize the use of Company-owned
service equipment as a component of its exploration and production strategy. In
many of its exploration projects, the Company relies exclusively on third party
service contractors. The Company continues to pursue disposition of its service
operations by merger or sale.
Production expenses and taxes increased to $2.1 million in the Current Quarter
from $1.4 million in the Prior Quarter. This increase was the result of a
significant increase in oil and gas production volumes during the Current
Quarter. On a gas equivalent production unit ("Mcfe") basis, production
expenses and taxes were $0.14 per Mcfe in the Current Quarter compared to $0.16
per Mcfe in the Prior Quarter. Much of the Company's gas production from wells
drilled before September 1996 in the downdip Giddings Field, qualifies for
exemption from Texas state production taxes for production through August 31,
2001. Additionally, certain oil and gas production from the Company's wells in
the Knox and Sholem Alechem fields in Oklahoma qualifies for exemption until
well costs are recovered. These exemptions, combined with the fact that many of
the Company's wells are high volume gas wells that tend to have lower operating
costs per Mcfe than lower volume wells, result in the Company's low production
costs per Mcfe.
Depreciation, depletion and amortization ("DD&A") of oil and gas properties for
the Current Quarter was $13.0 million, an increase of $6.4 million from the
Prior Quarter. The increase in DD&A expense for oil and gas properties between
quarters is the result of a 7.1 Bcfe increase in production 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 $0.84 for the Current Quarter and $0.79 for the Prior Quarter.
General and administrative expenses increased to $1.4 million during the
Current Quarter, a $0.7 million, or 100%, increase from the Prior Quarter. This
increase is the result of the continued growth of the Company, including the
recent acquisition of the gas marketing operation. During the Current Quarter,
the Company capitalized $0.5 million of payroll and other internal costs
directly related to oil and gas exploration and developmental activities, net
of partner reimbursements. In the Prior Quarter, partner reimbursements
exceeded capitalized payroll and other internal costs by $0.1 million.
Interest expense increased significantly to $3.2 million during the Current
Quarter, a $1.7 million increase from the Prior Quarter, as a result of
substantially higher levels of debt outstanding during the Current Quarter.
During the Current Quarter, the Company capitalized $1.6 million of interest
costs representing the estimated costs to carry its unevaluated leasehold
inventory, compared to $0.4 million in the Prior Quarter. This increase in
capitalized interest costs is the result of significantly higher investments
made during the Current Quarter in leasehold that has yet to be evaluated.
Income tax expense increased to $4.2 million in the Current Quarter from $1.2
million in the Prior Quarter. The Company's estimated effective income tax rate
was 35.5% for the Current Quarter, compared to 35% for the Prior Quarter. The
Company estimates its effective rate based on anticipated levels of income for
the year and estimated production in excess of that allowed in computing
statutory depletion for tax purposes. The provision for income tax expense is
deferred because the Company is not currently a cash income taxpayer. The
Company has significant tax net operating loss carryovers generated from the
intangible drilling cost deduction for income tax purposes associated with the
Company's drilling activities which are available to offset regular taxable
income in the future.
NINE MONTHS ENDED MARCH 31, 1996 VS. MARCH 31, 1995
Net income for the nine months ended March 31, 1996 (the "Current Period")
increased to $16.0 million from $7.9 million for the nine months ended March
31,
Page 14
<PAGE> 15
1995 (the "Prior Period"). This increase of $8.1 million, or 103%, was caused
primarily by the Company's significantly higher oil and gas production and
lower costs per production unit.
Revenues from oil and gas sales for the Current Period were $77.2 million, an
increase of $40.7 million, or 112%, over the $36.5 million of oil and gas sales
revenues in the Prior Period. This increase was caused primarily by a 113%
increase in gas equivalent production volumes, from 20.0 Bcfe in the Prior
Period to 42.6 Bcfe in the Current Period. The production increase was
accompanied by increases in the average prices realized during the Current
Period. In the Current Period, the Company realized an average price of $1.62
per Mcf as compared to $1.51 in the Prior Period and average realized oil
prices of $17.46 in the Current Period as compared to $17.05 in the Prior
Period.
Revenues from CEM, the Company's gas marketing operation, were $15.3 million
for the Current Period. Gas marketing expenses were approximately $14.5
million, resulting in a gross profit margin of approximately $0.8 million.
Revenues from oil and gas service operations were $5.3 million in the Current
Period as compared to $6.5 million in the Prior Period. The gross profit margin
on service operations in the Current Period increased slightly to 20% from 18%
in the Prior Period as a result of a different mix of operations. Margins vary,
depending upon the mix of trucking, construction and roustabout services
provided. The Company's equipment was substantially fully utilized in both the
Current Period and Prior Period. The Company continues to de-emphasize the use
of Company-owned service equipment as a component of the Company's exploration
and production strategy. In many of its exploration projects, the Company
relies exclusively on third party service contractors. The Company continues to
pursue disposition of its service operations by merger or sale.
Interest and other revenues were $2.0 million in the Current Period compared to
$0.9 million in the Prior Period. This increase was due primarily to
significantly higher interest and investment income earned as a result of
working capital available to the Company for short-term investment during the
Current Period.
Production expenses and taxes increased to $5.8 million in the Current Period
from $2.6 million in the Prior Period. This increase was the result of
significant increases in oil and gas production volumes during the Current
Period and a $594,000 severance tax credit recorded in the Prior Period
attributable to production from earlier periods. Without regard to the prior
period tax credit, on a gas equivalent basis, production expenses and taxes
decreased from $0.16 per Mcfe in the Prior Period to $0.14 per Mcfe in the
Current Period. Much of the Company's gas production from wells drilled before
September 1996 in the downdip Giddings Field qualifies for exemption from Texas
state production taxes for production through August 31, 2001. Additionally,
certain oil and gas production from the Company's wells in the Knox and Sholem
Alechem fields in Oklahoma qualifies for exemption until well costs are
recovered. These exemptions, combined with the fact that many of the Company's
wells are high volume gas wells that tend to have lower operating costs per
Mcfe than lower volume wells, result in the Company's low production costs per
Mcfe.
DD&A of oil and gas properties for the Current Period was $35.3 million,
compared to $15.7 million in the Prior Period. This $19.6 million increase, or
124%, was caused primarily by the 113% increase in oil and gas production. The
DD&A rate per Mcfe increased from $0.79 in the Prior Period to $0.83 in the
Current Period.
Depreciation and amortization of other assets increased from $1.6 million in
the Prior Period to $2.2 million in the Current Period. This increase is
primarily the result of an increase in non-oil and gas property and equipment
from approximately $15.2 million at the end of the Prior Period to $22.5
million at the end of the Current Period.
General and administrative expenses increased to $3.3 million in the Current
Period, an increase of $0.9 million, or 41%, over the $2.4 million in the Prior
Period. During the Current Period, the Company capitalized $0.9 million of
payroll and other internal costs directly related to oil and gas exploration
and
Page 15
<PAGE> 16
development activities, net of partner reimbursements, compared to $0.1 million
in the Prior Period.
Interest expense increased to $9.7 million in the Current Period from $4.5
million in the Prior Period. This increase was the result of significantly
higher average levels of debt outstanding in the Current Period compared to the
Prior Period. During the Current Period, the Company capitalized $3.5 million
of interest costs attributable to the carrying costs of the Company's
unevaluated leasehold inventory positions, compared to $0.9 million of
capitalized interest costs in the Prior Period. This increase in capitalized
interest costs is the result of significantly higher investments made during
the Current Period in leasehold that has yet to be evaluated.
Income tax expense increased to $8.8 million in the Current Period from $4.0
million in the Prior Period. This increase was the result of higher income
before income taxes in the Current Period and an increase to 35.5% in the
estimated tax rate in the Current Period compared to 33.6% in the Prior Period.
The provision for income tax expense is deferred because the Company is not
currently a cash income taxpayer. The Company has significant tax net operating
loss carryovers generated from the intangible drilling cost deduction for
income tax purposes associated with the Company's drilling activities which are
available to offset regular taxable income in the future.
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 swap
and floor arrangements. The swap arrangements establish an index-related price
above which the Company pays the hedging counterparty and below which the
Company is paid by the counterparty. The floor arrangements establish an
index-related strike price for a put purchased by the Company for a cash
premium. If the index price closes below the strike price, the put seller pays
the Company the difference between the strike price and the closing index
price.
The Company has the following oil swap arrangements for periods after the
Current Period:
<TABLE>
<CAPTION>
NYMEX-Index
Month (1996) Volume(1) Strike Price
------------ --------- ------------
<S> <C> <C>
April 60,000 $18.17/Bbl
May 62,000 $18.04/Bbl
June 60,000 $17.95/Bbl
July 62,000 $17.88/Bbl
August 62,000 $17.82/bbl
</TABLE>
(1) Volume in barrels. Volume to be reduced by one-half if index price
closes below strike price.
The Company has the following gas swap arrangements for periods after the
Current Period:
<TABLE>
<CAPTION>
NYMEX-Index
Months (1996) Volume (1) Strike Price
------------- ----------- ------------
<S> <C> <C>
April-October 1,200,000 $1.830/Mmbtu
April-October 1,500,000 $1.805/Mmbtu
April-October 600,000 $1.780/Mmbtu
</TABLE>
(1) Million btu's per month ("Mmbtu").
(2) Volume is reduced by one-half if index price closes below strike price.
The Company has the following gas floor arrangements for periods after the
Current Period:
Page 16
<PAGE> 17
<TABLE>
<CAPTION>
Houston Ship Channel
Months Volume(1) Index Strike Price
------ --------- --------------------
<S> <C> <C>
August 1996-
February 1997 620,000 $2.230/Mmbtu
July-October 1996 620,000 $2.125/Mmbtu
July-October 1996 620,000 $2.132/Mmbtu
</TABLE>
(1) Mmbtu's per month
Additionally, the Company has entered into additional basis swaps which convert
a portion of the NYMEX-based natural gas swap prices from a Henry Hub Index
delivery basis into a Houston Ship Channel Index delivery basis, less an
average of $0.085/Mmbtu for May through October 1996, and certain other
exchanges designed to minimize basis risk and provide for upside in the event
natural gas prices rise. The Company experienced a short-term basis
differential of approximately $0.50/mmbtu between the NYMEX-based Henry Hub
index prices used to determine the swap settlement and the Houston Ship Channel
prices realized on hedged natural gas volumes during April 1996 that will
result in reduced natural gas price realizations for April. The Company
estimates that as a result it will realize an average gas sales price of $1.45
per Mcf for April. The Company does not anticipate significant basis
differentials for hedged volumes from May 1996 forward, based on actual May
index settlements and basis swaps established by the Company.
Gains or losses on the crude oil and natural gas swaps are recognized as price
adjustments in the month of related production. The Company estimates that had
all of the crude oil and natural gas swap agreements in effect for production
periods beginning May 1, 1996 terminated on May 10, 1996, based on the closing
prices for NYMEX futures contracts as of that date, the Company would have paid
the counterparty approximately $9.1 million, which would have represented the
"fair value" at that date. These agreements were not terminated.
CAPITAL RESOURCES AND LIQUIDITY
The Company had a working capital deficit of approximately $34.9 million as of
March 31, 1996, compared to working capital of $31.5 million at June 30, 1995.
This decrease in working capital was the result of significant capital
expenditures for exploration and development of the Company's oil and gas
properties, acquisition of undeveloped leasehold inventory, and to a lesser
extent acquisition of other assets. To a large extent these expenditures were
financed with working capital, cash flow from operations, and supplementally
with borrowings under the Company's Revolving and Term Credit Facilities.
The Company's $35 million Revolving Credit Facility with Union Bank matures in
November 2000, and provides for interest at the option of the Company equal to
(i) Union Bank's reference rate (8.25% at March 31, 1996) or (ii) the
Eurodollar Rate plus from 1.375% to 1.875%, depending on the ratio of the
amount outstanding to the commitment amount. The borrowing base and the amount
outstanding at March 31, 1996 was $35.0 million. The borrowing base will reduce
to zero thirty days prior to any scheduled principal payment under the
Company's 12% Notes, 10 1/2% Notes and 9 1/8% Notes (collectively, the "Senior
Notes"). The respective indentures governing the Company's Senior Notes limit
the incurrence of indebtedness. Without regard to the incurrence limitations,
the Company may incur secured bank indebtedness up to the greater of $15
million or 15% of the Company's adjusted consolidated net tangible assets
("ACNTA"). The Company paid all amounts outstanding under the Revolving Credit
Facility on April 9, 1996, upon the closing of the 9 1/8% Note Offering. As a
result of the 9 1/8% Notes Offering and Common Stock Offering, the Company
estimates that the ACNTA limitation described above would currently allow the
Company to incur, as permitted indebtedness, approximately $75 million in
secured bank indebtedness. At March 31, 1996, on a pro forma basis, after
giving effect to the completion of the Common Stock Offering and the 9 1/8%
Notes Offering, and the application of the net proceeds therefrom, the Company
had $277 million of
Page 17
<PAGE> 18
indebtedness, including current maturities of long-term indebtedness,
stockholders' equity of $164 million, and working capital of $146 million.
The Company's wholly-owned subsidiary, Chesapeake Gas Development Corporation
("CGDC"), has a Term Credit Facility with Union Bank with an outstanding
balance of $13.8 million at March 31, 1996. Collateral for the Term Credit
Facility is limited to CGDC's producing oil and gas properties, all of which
are located in the Knox and Golden Trend areas of southern Oklahoma. The Term
Credit Facility has not been guaranteed by the Company or any of its other
subsidiaries and has recourse only to the assets of CGDC. CGDC acquired
producing oil and gas properties from CEX in December 1994, June 1995, and
December 1995 in exchange for $5.5 million, $6.0 million and $5.3 million in
cash, respectively, using proceeds borrowed under the Term Facility. CGDC has
not guaranteed the payment of the Company's Senior Notes. The Term Credit
Facility prohibits the payment of dividends by CGDC. The Company anticipates
additional amounts of credit will be available under the Term Credit Facility
as properties are developed in southern Oklahoma.
The Company's cash provided by operating activities increased to $100.1 million
during the Current Period, compared to $37.2 million during the Prior Period.
The increase of $62.9 million is the result of increases in net income,
adjusted for non-cash charges (such as DD&A and deferred income taxes), and
cash provided by changes in current assets and current liabilities between the
two periods.
Net cash used in investing activities increased to $169.1 million in the
Current Period, up from $72.8 million in the Prior Period. The $96.3 million
increase is a result of the Company's increased drilling activity and increased
investment in leasehold during the Current Period.
The Company anticipates capital expenditures for fiscal 1996 of approximately
$240 million, of which $70 million will be for leasehold, primarily in
Louisiana. Through March 31, 1996, approximately $163.2 million had been
expended for exploration and development of the Company's oil and gas
properties net of proceeds from sale of equipment and leasehold, including
approximately $48.8 million for unevaluated leasehold, primarily in the Austin
Chalk Trend of Louisiana. Based on internal estimates as of March 31, 1996, the
Company believes that as a result of its successful exploration and development
efforts, proved oil and gas reserves have increased to approximately 355 Bcfe,
of which approximately 151 Bcfe (43%) are proved developed. Production in the
Current Period was 42.6 Bcfe, resulting in a reserve to production replacement
ratio of approximately 3.5:1.
The Company's expected cash flow from operations is subject to a number of
factors, many of which are beyond the Company's control, including the level of
production and oil and gas prices. In the event the Company experiences
unforeseen changes in its working capital position or capital resources,
management will revise its capital expenditure program accordingly.
Consolidated cash provided by financing activities was $39.4 million during the
Current Period, as compared to consolidated cash provided by financing
activities of $24.1 million during the Prior Period. The increase resulted
primarily from additional borrowings under the Revolving and Term Credit
Facilities during the Current Period.
FORWARD LOOKING STATEMENTS
When used in this document, the words "anticipate", "estimate", "believe" and
similar expressions are intended to identify forward looking statements. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties occur, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected.
Among the key factors that have a direct bearing on the Company's ability to
attain its goals are oil and gas prices, the ability to develop reserves and
replace production at levels and costs estimated by the Company, the ability to
fund the significant capital expenditures anticipated, environmental risks,
drilling and operating risks, competition, government regulation, and the
ability of the Company to manage significant anticipated growth and implement
its overall business strategy.
Page 18
<PAGE> 19
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP
(A WHOLLY-OWNED PARTNERSHIP OF CHESAPEAKE ENERGY CORPORATION)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
March 31, June 30,
1996 1995
--------- ---------
($ in thousands)
<S> <C> <C>
CURRENT ASSETS:
Accounts receivable $ 14,549 $ 9,867
--------- ---------
Total Current Assets 14,549 9,867
--------- ---------
PROPERTY AND EQUIPMENT:
Oil and gas properties, at cost based on full cost accounting:
Evaluated oil and gas properties 270,952 163,521
Unevaluated properties 76,265 27,474
Less: accumulated depreciation, depletion and amortization (69,752) (36,959)
--------- ---------
Total Property and Equipment 277,465 154,036
--------- ---------
INTERCOMPANY RECEIVABLES:
Chesapeake Energy Corporation 46,373 14,682
Chesapeake Gas Development Corporation 8,590 2,877
Other 381 --
--------- ---------
55,344 17,559
--------- ---------
OTHER ASSETS 675 776
--------- ---------
TOTAL ASSETS $ 348,033 $ 182,238
========= =========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accrued Expenses $ 378 $ 516
--------- ---------
Total Current Liabilities 378 516
--------- ---------
LONG-TERM DEBT 35,000 10
--------- ---------
INTERCOMPANY PAYABLES:
Chesapeake Operating, Inc. 236,416 138,046
Lindsay Oil Field Supply, Inc. 2,190 2,190
--------- ---------
238,606 140,236
--------- ---------
CONTINGENCIES AND COMMITMENTS
PARTNERS' CAPITAL:
Contributions 424 424
Accumulated Earnings 73,625 41,052
--------- ---------
Total Partners' Capital 74,049 41,476
--------- ---------
TOTAL LIABILITIES & PARTNERS' CAPITAL $ 348,033 $ 182,238
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 19
<PAGE> 20
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP
(A WHOLLY-OWNED PARTNERSHIP OF CHESAPEAKE ENERGY CORPORATION)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
($ in thousands) ($ in thousands)
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $ 28,579 $ 13,494 $ 72,112 $ 35,764
-------- -------- -------- --------
Total revenues 28,579 13,494 72,112 35,764
-------- -------- -------- --------
COSTS AND EXPENSES:
Production expenses and taxes 1,785 1,111 4,884 2,144
Oil and gas depreciation,
depletion and amortization 12,300 6,360 33,359 15,353
Amortization 72 (120) 181 97
General and administrative 280 252 807 687
Interest 280 89 308 122
-------- -------- -------- --------
Total costs and expenses 14,717 7,692 39,539 18,403
-------- -------- -------- --------
NET INCOME $ 13,862 $ 5,802 $ 32,573 $ 17,361
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 20
<PAGE> 21
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP
(A WHOLLY-OWNED PARTNERSHIP OF CHESAPEAKE ENERGY CORPORATION)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
--------- ---------
($ in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 32,573 $ 17,361
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Oil and gas depreciation 33,359 15,353
Amortization 181 97
CHANGES IN CURRENT ASSETS AND LIABILITIES (15,346) 3,832
--------- ---------
Cash provided by operating activities 50,767 36,643
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Development and acquisition of oil
and gas properties (159,478) (81,323)
Proceeds from sales of fixed assets and other -- 3,381
Sale of properties to CGDC 5,300 5,500
Other additions (182) 11
--------- ---------
Cash used in investing activities (154,360) (72,431)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term borrowings 30,000 28,433
Payments on long-term borrowings - -- (9,933)
Financial resources and proceeds on
intercompany transactions 220,513 128,064
Financial resources and payments
applied to intercompany transactions (146,920) (110,776)
--------- ---------
Cash provided by financing activities 103,593 35,788
--------- ---------
NET INCREASE (DECREASE) IN CASH -- --
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD -- --
--------- ---------
CASH & CASH EQUIVALENTS, END OF PERIOD $ -- $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 21
<PAGE> 22
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. Accounting Principles
The accompanying unaudited financial statements of Chesapeake Exploration
Limited Partnership ("CEX") 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 nine months ended March 31, 1996, are not necessarily
indicative of the results to be expected for the full fiscal year.
The CEX financial statements were prepared on a separate entity basis as
reflected in the Company's books and records and include all material costs of
doing business as if the partnership were on a stand-alone basis, except that
interest is not charged on intercompany accounts, or allocated.
These financial statements should be read in conjunction with the March 31,
1996 consolidated financial statements and related notes of Chesapeake Energy
Corporation and Subsidiaries (the "Company") included in this Form 10-Q and the
Company's annual report on Form 10-K for the year ended June 30, 1995.
Page 22
<PAGE> 23
PART I. FINANCIAL INFORMATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED
MARCH 31, 1996 VS. MARCH 31, 1995
CEX represents substantially all of the Company's oil and gas operations.
Therefore, the discussion in Management's Discussion and Analysis of Financial
Condition and Results of Operations, included elsewhere in this report, for the
Company relate primarily to CEX.
CEX is a member of the consolidated group of companies of which Chesapeake
Energy Corporation is the parent company. Although CEX has separate financing
capabilities, CEX is largely dependent on the Company and the Company is
dependent on the operations of CEX. Accordingly, capital resources and
liquidity issues for CEX are not typical of an entity that operates on a stand
alone basis and therefore should be considered only in conjunction with the
discussion of the Company's capital resources and liquidity included elsewhere
in this report.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- - Not applicable.
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
Page 23
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as a part of this report:
Exhibit No.
4.1 Agreement dated as of March 7, 1996, Agreement dated
as of March 8, 1996, Agreement dated as of March 27,
1996 and Fourth Amendment to Amended and Restated
Credit Agreement dated as of April 2, 1996, among
Chesapeake Energy Corporation, Chesapeake Exploration
Limited Partnership, an Oklahoma Limited Partnership
and Union Bank.
11 Statement regarding computation of earnings
per common share
27 Financial Data Schedule
(b) Form 8-K
No reports on Form 8-K were filed during the three months ended March
31, 1996.
Page 24
<PAGE> 25
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)
May 15, 1996 /s/ Aubrey K. McClendon
- ------------- -----------------------------
Date Aubrey K. McClendon
Chairman and
Chief Executive Officer
May 15, 1996 /s/ Marcus C. Rowland
- ------------- -----------------------------
Date Marcus C. Rowland
Vice President and
Chief Financial Officer
Page 25
<PAGE> 26
Index to Exhibits
Exhibit No. Description Page
- ----------- ----------- ----
4.1 Agreement dated as of March 7, 1996, Agreement dated as of
March 8, 1996, Agreement dated as of March 27, 1996 and
Fourth Amendment to Amended and Restated Credit Agreement
dated as of April 2, 1996, among Chesapeake Energy
Corporation, Chesapeake Exploration Limited Partnership, an
Oklahoma Limited Partnership and Union Bank.
11 Statement regarding computation of earnings
per common share
27 Financial Data Schedule
<PAGE> 1
AGREEMENT
March 7, 1996
Chesapeake Exploration Limited Partnership,
an Oklahoma limited partnership
Chesapeake Energy Corporation
6104 N. Western
Oklahoma City, OK 73118
Re: Amended and Restated Credit Agreement dated as of March 22,
1994, as amended by the First Amendment to Amended and
Restated Credit Agreement dated as of December 27, 1994, the
Second Amendment to Amended and Restated Credit Agreement
dated as of May 25, 1995 and the Third Amendment to Amended
and Restated Credit Agreement dated as of February 5, 1996 (as
so amended, the "Credit Agreement") among Chesapeake
Exploration Limited Partnership, an Oklahoma limited
partnership ("Borrower"), Chesapeake Energy Corporation
("CEC") and Union Bank ("Lender")
Gentlemen:
You have requested, and Lender has agreed, to amend the definition of
"Companies" in the Credit Agreement to exclude Chesapeake Energy Marketing,
Inc. In consideration of the mutual covenants and agreements contained herein
and in the Credit Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Lender, Borrower and
CEC agree as follows:
1. The definition of "Companies" in Section 1.01 of the Credit
Agreement is hereby amended in its entirety to read as
follows:
"'Companies' means any of Borrower, CEC and any
subsidiary of CEC (except, however, Chesapeake Gas Development
Corporation and Chesapeake Energy Marketing, Inc.)."
2. The Credit Agreement as hereby amended is hereby ratified and
confirmed in all respects. Any reference to the Credit
Agreement in any Loan Document shall be deemed to refer to
this Agreement also. The execution, delivery and effectiveness
of this Agreement shall not, except as expressly provided
herein operate as a waiver of any right, power or remedy of
Lender under the Credit Agreement or any other Loan Document
nor constitute a waiver of any provision of the Credit
Agreement or any other Loan Documents.
<PAGE> 2
3. This Agreement is a Loan Document and all provisions in the
Credit Agreement pertaining to Loan Documents apply hereto.
Any capitalized terms used herein have the meanings given them
in the Credit Agreement.
4. This Agreement may be separately executed in counterparts and
by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one
and the same Agreement.
Please indicate your agreement to the foregoing by signing where
indicated below.
Yours very truly,
UNION BANK
By: /s/ RANDALL L. OSTERBERG
-------------------------------------
Randall L. Osterberg
Vice President
AGREED TO AS OF THE DATE FIRST
WRITTEN ABOVE
CHESAPEAKE EXPLORATION LIMITED
PARTNERSHIP
By: CHESAPEAKE OPERATING, INC.,
its general partner
By: /s/ AUBREY K. MCCLENDON
-------------------------------
Aubrey K. McClendon,
President
CHESAPEAKE ENERGY CORPORATION
By: /s/ AUBREY K. MCCLENDON
------------------------------------
Aubrey K. McClendon
Chief Executive Officer
<PAGE> 3
CONSENT AND AGREEMENT
Chesapeake Energy Corporation ("CEC") hereby consents to the
provisions of this Agreement and the transactions contemplated herein, and
hereby ratifies and confirms its Amended and Restated Guaranty Agreement dated
as of December 27, 1994 made by CEC for the benefit of Lender, and agrees that
CEC's obligations and covenants thereunder are unimpaired hereby and shall
remain in full force and effect.
CHESAPEAKE ENERGY CORPORATION
By: /s/ AUBREY K. MCCLENDON
-------------------------------------
Aubrey K. McClendon,
Chief Executive Officer
<PAGE> 4
CONSENT AND AGREEMENT
The undersigned hereby consent to the provisions of this Agreement and
the transactions contemplated herein, and hereby ratify and confirm the
Intercompany Subordination Agreement dated as of March 22, 1994 made for the
benefit of Lender, and agree that the undersigned's obligations and covenants
thereunder are unimpaired hereby and shall remain in full force and effect.
CHESAPEAKE EXPLORATION LIMITED
PARTNERSHIP, as successor of
Chesapeake Exploration Company
By: CHESAPEAKE OPERATING, INC.,
its general partner
By: /s/ AUBREY K. MCCLENDON
-----------------------------------
Aubrey K. McClendon, President
CHESAPEAKE ENERGY CORPORATION
By: /s/ AUBREY K. MCCLENDON
-------------------------------------
Name:
Title:
CHESAPEAKE OPERATING, INC.
By: /s/ AUBREY K. MCCLENDON
-------------------------------------
Name:
Title:
SANDER TRUCKING COMPANY, INC.
By: /s/ AUBREY K. MCCLENDON
-------------------------------------
Name:
Title:
<PAGE> 5
WHITMIRE DOZER SERVICE, INC.
By: /s/ AUBREY K. MCCLENDON
-------------------------------------
Name:
Title:
LINDSAY OIL FIELD SUPPLY, INC.
By: /s/ AUBREY K. MCCLENDON
-------------------------------------
Name:
Title:
<PAGE> 6
CONSENT AND AGREEMENT
The undersigned hereby consents to the provisions of this Agreement
and the transactions contemplated herein, and hereby ratifies and confirms the
Intercompany Subordination Agreement dated as of December 27, 1994 made for the
benefit of Lender, and agrees that the undersigned's obligations and covenants
thereunder are unimpaired hereby and shall remain in full force and effect.
CHESAPEAKE GAS DEVELOPMENT CORPORATION
By: /s/ AUBREY K. MCCLENDON
-------------------------------------
Name:
Title:
<PAGE> 7
AGREEMENT
March 8, 1996
Chesapeake Exploration Limited Partnership,
an Oklahoma limited partnership
Chesapeake Energy Corporation
6104 N. Western
Oklahoma City, OK 73118
Re: Amended and Restated Credit Agreement dated as of March 22,
1994, as amended by the First Amendment to Amended and
Restated Credit Agreement dated as of December 27, 1994, the
Second Amendment to Amended and Restated Credit Agreement
dated as of May 25, 1995, the Third Amendment to Amended and
Restated Credit Agreement dated as of February 5, 1996, and
the Agreement dated as of March 7, 1996 (as so amended, the
"Credit Agreement") among Chesapeake Exploration Limited
Partnership, an Oklahoma limited partnership ("Borrower"),
Chesapeake Energy Corporation ("CEC") and Union Bank ("Lender")
Gentlemen:
You have requested, and Lender has agreed, to increase the Borrowing
Base. In consideration of the mutual covenants and agreements contained herein
and in the Credit Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Lender, Borrower and
CEC agree as follows:
1. The first sentence of Section 3.06(a) of the Credit Agreement
is hereby amended in its entirety to read as follows:
"At any time during the period from March 1, 1996 until the
first Redetermination Date occurring thereafter, the amount of
the Borrowing Base shall be an amount equal to $35,000,000
minus the sum of all Reductions to such date."
2. The Credit Agreement as hereby amended is hereby ratified and
confirmed in all respects. Any reference to the Credit
Agreement in any Loan Document shall be deemed to refer to
this Agreement also. The execution, delivery and effectiveness
of this Agreement shall not, except as expressly provided
herein operate as a waiver of any right, power or remedy of
Lender under the Credit Agreement or any other Loan Document
nor constitute a waiver of any provision of the Credit
Agreement or any other Loan Documents.
<PAGE> 8
3. This Agreement is a Loan Document and all provisions in the
Credit Agreement pertaining to Loan Documents apply hereto.
Any capitalized terms used herein have the meanings given them
in the Credit Agreement.
4. This Agreement may be separately executed in counterparts and
by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one
and the same Agreement.
5. This Agreement shall become effective when (i) Lender shall
have received a counterpart of this Agreement executed by
Borrower and CEC and (ii) Borrower has paid to Lender a
facility fee of $37,500 (.375% of the increase in the
Borrowing Base).
Please indicate your agreement to the foregoing by signing where
indicated below.
Yours very truly,
UNION BANK
By: /s/ RANDALL L. OSTERBERG
-------------------------------------
Randall L. Osterberg
Vice President
AGREED TO AS OF THE DATE FIRST
WRITTEN ABOVE
CHESAPEAKE EXPLORATION LIMITED
PARTNERSHIP
By: CHESAPEAKE OPERATING, INC.,
its general partner
By: /s/ AUBREY K. McCLENDON
--------------------------------
Aubrey K. McClendon,
President
CHESAPEAKE ENERGY CORPORATION
By: /s/ AUBREY K. McCLENDON
------------------------------------
Aubrey K. McClendon
Chief Executive Officer
<PAGE> 9
CONSENT AND AGREEMENT
Chesapeake Energy Corporation ("CEC") hereby consents to the
provisions of this Agreement and the transactions contemplated herein, and
hereby ratifies and confirms its Amended and Restated Guaranty Agreement dated
as of December 27, 1994 made by CEC for the benefit of Lender, and agrees that
CEC's obligations and covenants thereunder are unimpaired hereby and shall
remain in full force and effect.
CHESAPEAKE ENERGY CORPORATION
By: /s/ AUBREY K. McCLENDON
-------------------------------------
Aubrey K. McClendon,
Chief Executive Officer
<PAGE> 10
CONSENT AND AGREEMENT
The undersigned hereby consent to the provisions of this Agreement and
the transactions contemplated herein, and hereby ratify and confirm the
Intercompany Subordination Agreement dated as of March 22, 1994 made for the
benefit of Lender, and agree that the undersigned's obligations and covenants
thereunder are unimpaired hereby and shall remain in full force and effect.
CHESAPEAKE EXPLORATION LIMITED
PARTNERSHIP, as successor of
Chesapeake Exploration Company
By: CHESAPEAKE OPERATING, INC., its
general partner
By: /s/ Aubrey K. McClendon
----------------------------------
Aubrey K. McClendon,
President
CHESAPEAKE ENERGY CORPORATION
By: /s/ Aubrey K. McClendon
-------------------------------------
Name:
Title:
CHESAPEAKE OPERATING, INC.
By: /s/ Aubrey K. McClendon
-------------------------------------
Name:
Title:
SANDER TRUCKING COMPANY, INC.
By: /s/ Aubrey K. McClendon
-------------------------------------
Name:
Title:
<PAGE> 11
WHITMIRE DOZER SERVICE, INC.
By: /s/ Aubrey K. McClendon
-------------------------------------
Name:
Title:
LINDSAY OIL FIELD SUPPLY, INC.
By: /s/ Aubrey K. McClendon
-------------------------------------
Name:
Title:
<PAGE> 12
CONSENT AND AGREEMENT
The undersigned hereby consents to the provisions of this Agreement
and the transactions contemplated herein, and hereby ratifies and confirms the
Intercompany Subordination Agreement dated as of December 27, 1994 made for the
benefit of Lender, and agrees that the undersigned's obligations and covenants
thereunder are unimpaired hereby and shall remain in full force and effect.
CHESAPEAKE GAS DEVELOPMENT CORPORATION
By: /s/ Aubrey K. McClendon
-------------------------------------
Name:
Title:
<PAGE> 13
AGREEMENT
March 27, 1996
Chesapeake Exploration Limited Partnership,
an Oklahoma limited partnership
Chesapeake Energy Corporation
6104 N. Western
Oklahoma City, OK 73118
Re: Amended and Restated Credit Agreement dated as of March 22,
1994, as amended by the First Amendment to Amended and
Restated Credit Agreement dated as of December 27, 1994, the
Second Amendment to Amended and Restated Credit Agreement
dated as of May 25, 1995, the Third Amendment to Amended and
Restated Credit Agreement dated as of February 5, 1996, and
the Agreement dated as of March 7, 1996 (as so amended, the
"Credit Agreement") among Chesapeake Exploration Limited
Partnership, an Oklahoma limited partnership ("Borrower"),
Chesapeake Energy Corporation ("CEC") and Union Bank
("Lender")
Gentlemen:
You have requested, and Lender has agreed, to provide a $10,000,000
line of credit. In consideration of the mutual covenants and agreements
contained herein and in the Credit Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Lender, Borrower and CEC agree as follows:
1. Definitions. The definition of "Loans" in Section 1.01 of the
Original Agreement is hereby amended in its entirety to read as follows:
"'Loans' means the Revolving Loans, the Term Loan and the Line
of Credit, and each, individually, a Loan."
The definition of "Notes" in Section 1.01 of the Original Agreement is
hereby amended in its entirety to read as follows:
"'Notes' means the Revolving Note, the Term Note, the Line of
Credit Note and all renewals and extensions thereof and/or
replacements or substitutions therefor."
The first sentence of the definition of "Revolving Commitment" in
Section 1.01 of the Original Agreement is hereby amended in its entirety to
read as follows:
"'Revolving Commitment', at any time, means $35,000,000, less
the sum of all reductions pursuant to Section 2.04."
<PAGE> 14
2. Line of Credit. The following Article Three-A is hereby added
to the Credit Agreement immediately following Article Three:
ARTICLE THREE-A
LINE OF CREDIT
3A.01. Line of Credit. Subject to the terms and conditions of
this Agreement, the Lender agrees to lend to the Borrower, on a
revolving basis in one or more Advances (the "Line of Credit") during
the period beginning on March 27, 1996 and ending on April 29, 1996,
the amounts requested by Borrower in writing to Lender, so long as the
aggregate principal amount of Advances outstanding at any time under
the Line of Credit does not exceed $10,000,000 (the "Line of Credit
Commitment").
The Borrower must give at least one Business Day's prior
written notice of any requested Advance under the Line of Credit. Upon
fulfillment of all applicable conditions with respect to an Advance
under the Line of Credit, the Lender shall pay or deliver federal or
other immediately available funds to the order of the Borrower at the
Borrower's operating account at the principal office of the Lender in
the amount of the requested Advance.
3A.02. Line of Credit Commitment Fee. The Borrower agrees to
pay to the Lender in arrears on April 30, 1996 (the "Line of Credit
Maturity Date") a commitment fee computed at a rate per annum
(calculated and computed on the basis of the actual days elapsed)
equal to three-eighths of one percent (0.375%) on the average daily
unborrowed amount of the Line of Credit Commitment.
3A.03. Use of Proceeds. The proceeds of the Line of Credit
shall be used to support CEC's cash collateral obligations under that
certain Commodity Hedge Agreement between Banque Paribas and CEC, as
in effect on March 26, 1996.
3A.04. Line of Credit Note. The Advances made under Section
3A.01 shall be evidenced by a promissory note of the Borrower (the
"Line of Credit Note") in the form of Exhibit "3A-1", which note
shall (i) be dated March 27, 1996, (ii) be in the principal amount of
the Line of Credit Commitment, (iii) bear interest in accordance with
Section 3A.05 and (iv) be payable to the order of Lender at its
principal office or at such other place as the Lender shall designate.
3A.05. Interest Rate. Borrower may from time to time
designate all or any portion of the outstanding Line of Credit as a
Fixed Rate Portion; provided that without the consent of Lender
Borrower may make no such election during the continuance of a
Default. Each election by Borrower of a Fixed Rate Portion shall be
made in accordance with and
<PAGE> 15
subject to the provisions of Section 3.03 hereof. The Base Rate
Portion of the Line of Credit outstanding from day to day shall bear
interest at the rate per annum from day to day equal to the lesser of
(i) the Adjusted Base Rate, or (ii) the Maximum Rate. Each Fixed Rate
Portion of the Line of Credit outstanding from day to day shall bear
interest on each day during the related Interest Period at the related
Line of Credit Fixed Rate (as defined below) in effect as of such day
for such Fixed Rate Portion. After maturity, which shall include,
without limitation, the maturity stated or by acceleration, the
principal of and overdue interest on the Line of Credit Note and all
other obligations shall bear interest, to the extent permitted by law,
from such maturity until the date paid at a rate per annum from day to
day equal to the Default Rate.
For purposes of this Section 3A.05 the term "Line of Credit
Fixed Rate" means, with respect to each particular Fixed Rate Portion
and the associated Eurodollar Rate and Reserve Percentage, the rate
per annum calculated by Lender (rounded upwards, if necessary, to the
next higher 0.01%) determined on a daily basis pursuant to the
following formula:
Fixed Rate =
Eurodollar Rate
--------------------------- + A
100.0% - Reserve Percentage
where A shall mean 1.875%.
3A.06. Principal Payments. The unpaid principal balance,
together with accrued and unpaid interest thereon, of the Line of
Credit Note shall be due and payable on the Line of Credit Maturity
Date. If at any time Banque Paribas releases cash collateral under the
Commodity Hedge Agreement, Borrower shall promptly thereafter make a
prepayment of the Line of Credit Note in an amount equal to such
released cash collateral.
3. Conditions Precedent. This Agreement shall become effective as
of the date first above written when, and only when, Borrower shall have paid
to Lender a facility fee of $37,500, and Lender shall have received, at
Lender's office:
(i) a counterpart of this Agreement executed and
delivered by Borrower and CEC, along with the Line of Credit Note,
(ii) Lender shall received a certificate of the general
partner of Borrower dated the date of this Agreement certifying that
attached thereto is a true and complete copy of a certificate of
authority adopted by the general partner of Borrower authorizing the
execution, delivery and performance of this Agreement and the Line of
Credit Note and certifying the true signatures of the officer of
<PAGE> 16
Borrower authorized to sign this Agreement and the Line of Credit
Note, and
(iii) an opinion of legal counsel for the Borrower,
addressed to Lender, to the effect that this Agreement and the Line of
Credit Note have been duly authorized, executed and delivered by
Borrower and that the Credit Agreement and the Line of Credit Note
constitute the legal, valid and binding obligations of Borrower,
enforceable in accordance with their terms (subject, as to enforcement
of remedies, to applicable bankruptcy, reorganization, insolvency and
similar laws and to moratorium laws and other laws affecting
creditors, rights generally from time to time in effect).
4. Ratification. The Credit Agreement as hereby amended is hereby
ratified and confirmed in all respects. Any reference to the Credit Agreement
in any Loan Document shall be deemed to refer to this Agreement also. The
execution, delivery and effectiveness of this Agreement shall not, except as
expressly provided herein operate as a waiver of any right, power or remedy of
Lender under the Credit Agreement or any other Loan Document nor constitute a
waiver of any provision of the Credit Agreement or any other Loan Documents.
5. Loan Document. This Agreement and the Line of Credit Note are
each a Loan Document and all provisions in the Credit Agreement pertaining to
Loan Documents apply hereto and thereto. Any capitalized terms used herein have
the meanings given them in the Credit Agreement.
6. Counterparts. This Agreement may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Agreement.
Please indicate your agreement to the foregoing by signing where
indicated below.
Yours very truly,
UNION BANK
By: /s/ RANDALL L. OSTERBERG
-------------------------------------
Randall L. Osterberg
Vice President
By: /s/ AUBREY K. McCLENDON
-------------------------------------
Name: Aubrey K. McClendon
Title:
<PAGE> 17
AGREED TO AS OF THE DATE FIRST
WRITTEN ABOVE
CHESAPEAKE EXPLORATION LIMITED
PARTNERSHIP
By: CHESAPEAKE OPERATING, INC.,
its general partner
By: /s/ AUBREY K. McCLENDON
------------------------------
Aubrey K. McClendon,
President
CHESAPEAKE ENERGY CORPORATION
By: /s/ AUBREY K. McCLENDON
-----------------------------------
Aubrey K. McClendon
Chief Executive Officer
<PAGE> 18
CONSENT AND AGREEMENT
Chesapeake Energy Corporation ("CEC") hereby consents to the
provisions of this Agreement and the transactions contemplated herein, and
hereby ratifies and confirms its Amended and Restated Guaranty Agreement dated
as of December 27, 1994 ("Guaranty Agreement") made by CEC for the benefit of
Lender, and agrees that CEC's obligations and covenants thereunder are
unimpaired hereby and shall remain in full force and effect. CEC hereby further
acknowledges and agrees that the Line of Credit Note is a "Note" for purposes
of the definition of "Guaranteed Debt" in the Guaranty Agreement.
CHESAPEAKE ENERGY CORPORATION
By: /s/ AUBREY K. McCLENDON
-------------------------------------
Aubrey K. McClendon,
Chief Executive Officer
<PAGE> 19
CONSENT AND AGREEMENT
The undersigned hereby consent to the provisions of this Agreement and
the transactions contemplated herein, and hereby ratify and confirm the
Intercompany Subordination Agreement dated as of March 22, 1994 made for the
benefit of Lender, and agree that the undersigned's obligations and covenants
thereunder are unimpaired hereby and shall remain in full force and effect.
CHESAPEAKE EXPLORATION LIMITED
PARTNERSHIP, as successor of
Chesapeake Exploration Company
By: CHESAPEAKE OPERATING, INC., its
general partner
By: /s/ AUBREY K. McCLENDON
----------------------------------
Aubrey K. McClendon,
President
CHESAPEAKE ENERGY CORPORATION
By: /s/ AUBREY K. McCLENDON
-------------------------------------
Name:
Title:
CHESAPEAKE OPERATING, INC.
By: /s/ AUBREY K. McCLENDON
-------------------------------------
Name:
Title:
SANDER TRUCKING COMPANY, INC.
By: /s/ AUBREY K. McCLENDON
-------------------------------------
Name:
Title:
<PAGE> 20
WHITMIRE DOZER SERVICE, INC.
By: /s/ AUBREY K. McCLENDON
-------------------------------------
Name:
Title:
LINDSAY OIL FIELD SUPPLY, INC.
By: /s/ AUBREY K. McCLENDON
-------------------------------------
Name:
Title:
<PAGE> 21
CONSENT AND AGREEMENT
The undersigned hereby consents to the provisions of this Agreement
and the transactions contemplated herein, and hereby ratifies and confirms the
Intercompany Subordination Agreement dated as of December 27, 1994 made for the
benefit of Lender, and agrees that the undersigned's obligations and covenants
thereunder are unimpaired hereby and shall remain in full force and effect.
CHESAPEAKE GAS DEVELOPMENT CORPORATION
By: /s/ AUBREY K. McCLENDON
-------------------------------------
Name: Aubrey K. McClendon
Title:
<PAGE> 22
CONSENT AND AGREEMENT
The undersigned hereby consents to the provisions of this Agreement
and the transactions contemplated herein, and hereby ratifies and confirms the
Intercompany Subordination Agreement dated as of February 5, 1996 made for the
benefit of Lender, and agrees that the undersigned's obligations and covenants
thereunder are unimpaired hereby and shall remain in full force and effect.
CHESAPEAKE ENERGY MARKETING, INC.
By: /s/ AUBREY K. McCLENDON
-------------------------------------
Name: Aubrey K. McClendon
Title:
<PAGE> 23
FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (herein
called this "Amendment") is made as of the 2nd day of April, 1996 by and among
Chesapeake Exploration Limited Partnership, an Oklahoma limited partnership,
("Borrower"), Chesapeake Energy Corporation, a Delaware corporation ("CEC") and
Union Bank ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower (as successor of Chesapeake Exploration Company, an
Oklahoma general partnership), CEC as guarantor and Lender entered into that
certain Amended and Restated Credit Agreement dated as of March 22, 1994, as
amended by that certain First Amendment to Amended and Restated Credit
Agreement dated as of December 27, 1994, that certain Second Amendment to
Amended and Restated Credit Agreement dated as of May 25, 1995, that certain
Third Amendment to Amended and Restated Credit Agreement dated as of February
5, 1996 that certain Agreement dated as of March 7, 1996, that certain
Agreement dated as of March 8, 1996, and that certain Agreement dated as of
March 27, 1996 (as so amended, the "Original Agreement") for the purposes and
consideration therein expressed, pursuant to which Lender became obligated to
make loans to Borrower as therein provided; and
WHEREAS, Borrower, CEC and Lender desire to amend the Original
Agreement as expressly set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Original Agreement, in
consideration of the loans which may hereafter be made by Lender to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS AND REFERENCES
Section 1.1 Terms Defined in the Original Agreement. Unless the
context otherwise requires or unless otherwise expressly defined herein, the
terms defined in the Original Agreement shall have the same meanings whenever
used in this Amendment.
Section 1.2. Other Defined Terms. Unless the context otherwise
requires, the following terms when used in this Amendment shall have the
meanings assigned to them in this Section 1.2.
"Amendment" means this Fourth Amendment to Amended and
Restated Credit Agreement.
"Credit Agreement" means the Original Agreement as amended
hereby.
<PAGE> 24
ARTICLE II.
AMENDMENTS TO ORIGINAL AGREEMENT
Section 2.1. Amendments to Definitions.
(a) The definitions of "Indenture" and "Indenture Documents" in
Section 1.01 of the Original Agreement are hereby amended in their entirety to
read as follows:
"'Indenture' means any of (i) that certain Indenture entered
into among CEC, the Subsidiary Guarantors (as defined therein) and the
Trustee, setting forth the terms and conditions of the FORTY-SEVEN
MILLION FIVE HUNDRED THOUSAND DOLLARS ($47,500,000.00) of First
Indenture Notes issued by CEC and the guaranties thereof by the
Subsidiary Guarantors; (ii) that certain Indenture entered into among
CEC, the Subsidiary Guarantors (as defined therein) and the Trustee,
setting forth the terms and conditions of the NINETY MILLION DOLLARS
($90,000,000.00) of Second Indenture Notes issued by CEC and the
guaranties thereof by the Subsidiary Guarantors; or (iii) that certain
Indenture entered into among CEC, the Subsidiary Guarantors (as
defined therein) and the Trustee, setting forth the terms and
conditions of Third Indenture Notes in an amount of up to ONE HUNDRED
TWENTY FIVE MILLION DOLLARS ($125,000,000.00) issued by CEC and the
guaranties thereof by the Subsidiary Guarantors."
"'Indenture Documents' means one or more of the Indenture, the
Indenture Notes, the Offering Memoranda, the warrant agreements and
the purchase agreement or agreements with the purchasers pursuant to
the Offering Memoranda, each of the foregoing in the form of the
drafts attached hereto with such changes thereto as the Lender, the
Trustee and CEC reasonably agree, and any and all other agreements or
documents (and any amendments or supplements thereto or modifications
or restatements thereof) executed or delivered pursuant to the terms
of any Indenture or in connection therewith."
(b) The definitions of "Indenture Notes" and "Offering Memorandum"
in the Original Agreement are deleted and the following definitions of
"Indenture Notes", "Offering Memoranda", and "Third Indenture Notes" are
hereby added to Section 1.01 of the Original Agreement:
"'Indenture Notes' means the First Indenture Notes, the Second
Indenture Notes and the Third Indenture Notes."
"'Offering Memoranda' means (i) the final offering memorandum
dated March 31, 1994 with respect to the First Indenture Notes and
warrants to be issued in connection with the First Indenture Notes;
(ii) the final offering memorandum dated May 18, 1995 with respect to
the Second
2
<PAGE> 25
Indenture Notes; and (iii) the prospectus dated April 3, 1996 with
respect to the Third Indenture Notes."
"'Third Indenture Notes' means all of the Senior Notes due
2006 in the aggregate principal amount of up to ONE HUNDRED TWENTY
FIVE MILLION DOLLARS ($125,000,000.00) to be issued by CEC pursuant to
the April 1, 1996 Indenture.
Section 2.2. Amendment to Negative Covenants.
Section 7.11 of the Original Agreement is hereby amended to read as follows:
"7.11. Indenture Notes. No Company will directly or
indirectly, (i) amend or modify any terms of any of the Indenture
Documents (other than amendments or modifications of the type
permitted under Article Nine of any Indenture which would not
otherwise be a Default or Event of Default hereunder), (ii)
repurchase, redeem, prepay, whether optional or, subject to clause
(iii) hereof, mandatory, or defease any of the Indenture Notes (other
than scheduled payments of accrued interest) or (iii) take any action
or fail to take any action which would obligate CEC or any Company to
repurchase, redeem or prepay any of the Indenture Notes other than
scheduled payments of accrued interest and the scheduled mandatory
redemption of 25% of the original principal amount of the First
Indenture Notes on March 1 of 1998, 1999, 2000 and 2001."
Section 2.3. Amendments to Events of Default.
Section 8.01 (k) of the Original Agreement is hereby amended in its
entirety to read as follows:
"(k) Either (i) any principal amount of any of the Indenture
Notes shall be subject to a required repurchase, redemption or
prepayment (including without limitation under or pursuant to Article
Three, Article Four or Article Eight of any Indenture) other than the
scheduled mandatory redemption of 25% of the original payment amount
of the First Indenture Notes on March 1 of 1998, 1999, 2000 and 2001
or (ii) an Event of Default (as defined in any Indenture) shall occur
under any Indenture."
ARTICLE III.
CONDITIONS OF EFFECTIVENESS
Section 3.1 Effective Date. This Amendment shall become effective as
of the date first above written when, and only when, (i) Lender shall have
received, at Lender's office, a counterpart of this Amendment executed and
delivered by Borrower and (ii) Lender shall have received a certificate of the
general partner of Borrower dated the date of this Amendment certifying that
3
<PAGE> 26
attached thereto is a true and complete copy of a certificate of authority
adopted by the general partner of Borrower authorizing the execution, delivery
and performance of this Amendment and certifying the names and true signatures
of the officers of Borrower authorized to sign this Amendment, along with such
supporting documents as Lender may reasonably request.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.1. Representations and Warranties of Borrower and CEC. In order
to induce Lender to enter into this Amendment, Borrower and CEC represent and
warrant to Lender that:
(a) The representations and warranties contained in
Article V, subsections 5.01 to 5.21, inclusive, of the Original
Agreement are true and correct at and as of the time of the
effectiveness hereof.
(b) Borrower and CEC are duly authorized to execute and
deliver this Amendment and are and will continue to be duly authorized
to borrow monies and to perform their obligations under the Credit
Agreement. Borrower and CEC have duly taken all partnership and
corporate action necessary to authorize the execution and delivery of
this Amendment and to authorize the performance of the obligations of
Borrower and CEC hereunder.
(c) The execution and delivery by Borrower and CEC of
this Amendment, the performance by Borrower and CEC of their
obligations hereunder and the consummation of the transactions
contemplated hereby do not and will not conflict with any provision of
law, statute, rule or regulation or of the partnership agreement of
Borrower or the articles of incorporation and bylaws of CEC, or of any
material agreement, judgment, license, order or permit applicable to
or binding upon Borrower and CEC, or result in the creation of any
lien, charge or encumbrance upon any assets or properties of Borrower
and CEC. Except for those which have been obtained, no consent,
approval, authorization or order of any court or governmental
authority or third party is required in connection with the execution
and delivery by Borrower and CEC of this Amendment or to consummate
the transactions contemplated hereby.
(d) When duly executed and delivered, this Amendment and
the Credit Agreement will each be a legal and binding obligation of
Borrower and CEC, enforceable in accordance with its terms, except as
limited by bankruptcy, insolvency or similar laws of general
application relating to the enforcement of creditors, rights and by
equitable principles of general application.
4
<PAGE> 27
(e) The audited annual Consolidated financial statements
of CEC dated as of June 30, 1995, and the unaudited quarterly
Consolidated financial statements of CEC dated as of December 31, 1995
fairly present CEC's Consolidated financial position at such dates and
the Consolidated results of CEC's operations and changes in CEC's
Consolidated cash flow for the respective periods thereof. Copies of
such financial statements have heretofore been delivered to Lender.
Since December 31, 1995, no material adverse change has occurred in
the financial condition or businesses of Borrower or in the
Consolidated financial condition or businesses of CEC.
ARTICLE V.
MISCELLANEOUS
Section 5.1. Ratification of Agreements. The Original Agreement as
hereby amended and each other Loan Document affected hereby are ratified and
confirmed in all respects. Any reference to the Credit Agreement in any Loan
Document shall be deemed to be a reference to the Original Agreement as hereby
amended. The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein or therein, operate as a waiver of any
right, power or remedy of Lender under the Credit Agreement or any other Loan
Document nor constitute a waiver of any provision of the Credit Agreement or
any other Loan Document.
Section 5.2. Survival of Agreements. All representations, warranties,
covenants and agreements of Borrower and CEC herein shall survive the execution
and delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loan, and shall further survive until
all of the Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by Borrower or CEC or any
Company hereunder or under the Credit Agreement to Lender shall be deemed to
constitute representations and warranties by, and/or agreements and covenants
of, Borrower and CEC under this Amendment and under the Credit Agreement.
Section 5.3. Loan Documents. This Amendment is a Loan Document, and
all provisions in the Credit Agreement pertaining to Loan Documents apply
hereto.
Section 5.4. Governing Law. This Amendment shall be governed by and
construed in accordance the laws of the State of Texas and any applicable laws
of the United States of America in all respects, including construction,
validity and performance.
Section 5.5. Counterparts. This Amendment may be separately executed
in counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Amendment.
5
<PAGE> 28
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first written above by their duly authorized
officers.
BORROWER:
CHESAPEAKE EXPLORATION LIMITED
PARTNERSHIP
By: CHESAPEAKE OPERATING, INC.,
its general partner
By: /s/ AUBREY K. McCLENDON
----------------------------------
Aubrey K. McClendon, President
LENDER:
UNION BANK
By: /s/ RANDALL L. OSTERBERG
--------------------------------------
Randall L. Osterberg,
Vice President
By: /s/ AUBREY K. McCLENDON
--------------------------------------
By: Aubrey K. Mcclendon
Title:
6
<PAGE> 29
CONSENT AND AGREEMENT
Chesapeake Energy Corporation ("CEC") hereby consents to the
provisions of this Amendment and the transactions contemplated herein, and
hereby ratifies and confirms its Amended and Restated Guaranty Agreement dated
as of December 27, 1994 made by CEC for the benefit of Lender, and agrees that
CEC's obligations and covenants thereunder are unimpaired hereby and shall
remain in full force and effect.
IN WITNESS WHEREOF, this Consent and Agreement is executed this 2nd
day of April, 1996.
CHESAPEAKE ENERGY CORPORATION
By: /s/ AUBREY K. McCLENDON
--------------------------------------
Aubrey K. McClendon,
Chief Executive Officer
<PAGE> 30
CONSENT AND AGREEMENT
The undersigned hereby consent to the provisions of this Amendment and
the transactions contemplated herein, and hereby ratify and confirm the
Intercompany Subordination Agreement dated as of March 22, 1994 made for the
benefit of Lender, and agree that the undersigned's obligations and covenants
thereunder are unimpaired hereby and shall remain in full force and effect.
IN WITNESS WHEREOF, this Consent and Agreement is executed this 2nd
day of April, 1996.
CHESAPEAKE EXPLORATION LIMITED
PARTNERSHIP, as successor of
Chesapeake Exploration Company
By: CHESAPEAKE OPERATING, INC., its
general partner
By: /s/ AUBREY K. McCLENDON
-----------------------------------
Aubrey K. McClendon, President
CHESAPEAKE ENERGY CORPORATION
By: /s/ AUBREY K. McCLENDON
---------------------------------------
Name: Aubrey K. McClendon
Title:
CHESAPEAKE OPERATING, INC.
By: /s/ AUBREY K. McCLENDON
--------------------------------------
Name: Aubrey K. McClendon
Title:
SANDER TRUCKING COMPANY, INC.
By: /s/ AUBREY K. McCLENDON
--------------------------------------
Name: Aubrey K. McClendon
Title:
<PAGE> 31
WHITMIRE DOZER SERVICE, INC.
By: /s/ AUBREY K. McCLENDON
--------------------------------------
Name:
Title:
LINDSAY OIL FIELD SUPPLY, INC.
By: /s/ AUBREY K. McCLENDON
--------------------------------------
Name:
Title:
2
<PAGE> 32
CONSENT AND AGREEMENT
The undersigned hereby consents to the provisions of this Amendment
and the transactions contemplated herein, and hereby ratifies and confirms the
Intercompany Subordination Agreement dated as of December 27, 1994 made for the
benefit of Lender, and agrees that the undersigned's obligations and covenants
thereunder are unimpaired hereby and shall remain in full force and effect.
IN WITNESS WHEREOF, this Consent and Agreement is executed this 2nd
day of April, 1996.
CHESAPEAKE GAS DEVELOPMENT CORPORATION
By: /s/ AUBREY K. McCLENDON
--------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 11
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
STATEMENT OF NET INCOME PER SHARE
($ in thousands, except per share)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ -----------------
1996 1995 1996 1995
-------- ------- ------- -------
<S> <C> <C> <C> <C>
PRIMARY INCOME PER SHARE
Computation for statement of operations
Net income per statement of operations $ 7,623 $ 2,305 $15,997 $ 7,889
======= ======= ======= =======
Common shares outstanding 17,843 17,493 17,843 17,493
Adjustment to weighted average
common shares outstanding:
Add dilutive effect of:
Employee Options 1,647 1,149 1,485 950
------- ------- ------- -------
Weighted average common shares and common
equivalent shares outstanding, as adjusted 19,490 18,642 19,328 18,443
======= ======= ======= =======
Net income per common share,
as adjusted $ .39 $ .12 $ .83 $ .43
======= ======= ======= =======
FULLY DILUTED INCOME PER SHARE
Net income applicable to common stock as
shown in primary computation above $ 7,623 $ 2,305 $15,997 $ 7,889
======= ======= ======= =======
Common shares outstanding 17,843 17,493 17,843 17,493
Adjustment to weighted average
common shares outstanding:
Add fully dilutive effect of:
Employee Options 1,704 1,353 1,721 1,236
------- ------- ------- -------
Weighted average common shares and common
equivalent shares outstanding, as adjusted 19,547 18,846 19,564 18,729
======= ======= ======= =======
Fully diluted net income per common share $ .39 $ .12 $ .82 $ .42
======= ======= ======= =======
</TABLE>
_________
(A) The calculations for the Nine Months Ended March 31, 1996 and 1995, are
submitted in accordance with Regulation S-K Item 601(b)(11).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF MARCH 31, 1996 AND STATEMENT OF OPERATIONS FOR NINE MONTHS ENDED
MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q,
MARCH 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 25,948
<SECURITIES> 0
<RECEIVABLES> 47,653
<ALLOWANCES> 237
<INVENTORY> 7,066
<CURRENT-ASSETS> 82,228
<PP&E> 378,438
<DEPRECIATION> 82,886
<TOTAL-ASSETS> 384,719
<CURRENT-LIABILITIES> 117,128
<BONDS> 184,084
<COMMON> 1,784
0
0
<OTHER-SE> 62,973
<TOTAL-LIABILITY-AND-EQUITY> 384,719
<SALES> 97,899
<TOTAL-REVENUES> 99,940
<CGS> 24,656
<TOTAL-COSTS> 65,422
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,717
<INCOME-PRETAX> 24,801
<INCOME-TAX> 8,804
<INCOME-CONTINUING> 15,997
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,997
<EPS-PRIMARY> .83
<EPS-DILUTED> .82
</TABLE>
