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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported)
NOVEMBER 18, 1998 (November 4, 1998)
CHESAPEAKE ENERGY CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OKLAHOMA 1-13726 73-1395733
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(State or other jurisdiction (Commission (IRS Employer Identification No.)
of incorporation) File Number)
6100 NORTH WESTERN AVENUE, OKLAHOMA CITY, OKLAHOMA 73118
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(Address of principal executive offices) (Zip Code)
(405) 848-8000
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(Registrant's telephone number, including area code)
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
On November 4, 1998, Chesapeake Energy Corporation ("Chesapeake")
issued a press release to report 1998 third quarter results.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits. The following exhibit is filed herewith:
99. Press Release issued by the Registrant on November 4, 1998.
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SIGNATURE
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 hereunto duly authorized.
CHESAPEAKE ENERGY CORPORATION
BY: /s/ AUBREY K. MCCLENDON
--------------------------------------
Aubrey K. McClendon,
Chief Executive Officer
Dated: November 17, 1998
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EXHIBIT INDEX
-------------
EXHIBIT DESCRIPTION
- ------- -----------
99 Press Release issued by the Registrant on November 4, 1998.
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EXHIBIT 799.01
CONTACT: MARC ROWLAND, CHIEF FINANCIAL OFFICER
(405) 879-9232
FOR IMMEDIATE RELEASE TOM PRICE, JR.,VICE PRESIDENT-
NOVEMBER 4, 1998 CORPORATE DEVELOPMENT
(405) 879-9257
CHESAPEAKE ENERGY CORPORATION
REPORTS 1998 THIRD QUARTER RESULTS
OKLAHOMA CITY, OKLAHOMA, NOVEMBER 4, 1998 -- Chesapeake Energy Corporation today
reported its 1998 third quarter oil and gas production increased 89% to 36.3
billion cubic feet equivalent (bcfe) compared to 19.2 bcfe for the 1997 third
quarter. On a daily basis, Chesapeake's production increased to 394 million
cubic feet of natural gas equivalent (mmcfe) compared to the 208 mmcfe produced
during the 1997 third quarter.
Chesapeake's operating cash flow, before changes in working capital, was $32.4
million or $0.33 per common share, an 8% decrease from the 1997 comparable
quarter. Total revenue for the 1998 third quarter was $107.1 million, a 37%
increase from the 1997 third quarter. During the 1998 third quarter, Chesapeake
received an average of $12.41 per barrel of oil and $1.88 per mcf of gas
resulting in a price of $1.93 per thousand cubic feet of natural gas equivalent
(mcfe). In last year's third quarter, Chesapeake received $18.48 per barrel of
oil and $2.12 per mcf of gas for a price of $2.38 per mcfe.
Primarily as a result of lower oil and gas prices and higher interest expense,
Chesapeake reported a net loss of $4.2 million for the 1998 third quarter. After
payment of preferred dividends of $4.0 million, the net loss to common
shareholders was $8.2 million, or $0.08 per common share, compared to net income
of $5.5 million, or $0.08 per common share in the 1997 comparable quarter.
Common shares outstanding averaged 98.0 million during the 1998 third quarter,
but were reduced to 96.7 million by the end of the quarter as a result of the
completion of the company's common stock repurchase program.
DEVELOPMENT DRILLING UPDATE
In the Bradley area of southern Oklahoma, the Truman 3-27 is currently producing
7,100 mcfe from the Simpson formation at 14,200'. Chesapeake owns a 62% working
interest in this well with Anadarko Petroleum Corporation and Belco Oil and Gas
Corp. owning 22% and 14%, respectively. The Truman 3-27 is Chesapeake's fourth
successful 3-D test drilled in the Bradley area during 1998. The company is now
drilling its fifth Simpson test and plans to drill an additional six Bradley and
Knox area 3-D wells during 1999.
In the Cement area of southern Oklahoma, located approximately 20 miles
northwest of the Knox Field, Chesapeake and Gothic Energy Corporation recently
participated in the Night 1-
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16, a three-zone discovery. The well has been initially completed in only the
deepest payzone and is currently producing 4,400 mcfe per day. Chesapeake and
Gothic own 36% and 30% working interests in this well. Chesapeake's
geoscientists continue to evaluate the newly acquired 100,000 acre Cement 3-D
survey and have already identified numerous additional prospects. Cement is one
of Oklahoma's largest fields, having produced more than two trillion cubic feet
of natural gas equivalent (tcfe) since its discovery in 1917.
In the Sahara area of northwest Oklahoma, Chesapeake has recently completed the
London 4-19, Etha May 1-10, and Barbara 4-15 wells which are producing at a
combined daily rate of 3,200 mcfe. Chesapeake owns a 29% working interest in the
London 4-19, 84% in the Etha May 1-10 and 48% in the Barbara 4-15, with Gothic
owning a 50% working interest in the Barbara 4-15. Chesapeake continues to
maintain a 4-5 rig program in Sahara where the company expects to develop
average reserves of 0.7 bcfe at an average cost of $300,000 per well. Each
Sahara rig can drill approximately 24 wells per year.
In the West Panhandle Field of Texas, Chesapeake has accumulated one of the
largest reserve positions in this prolific natural gas field through its 1998
transactions with Occidental Petroleum Corporation and Hugoton Energy
Corporation. The 300 wells acquired by Chesapeake in West Panhandle have already
produced more than 3.3 tcfe since the 1930's. During the 1998 third quarter,
these properties produced an average of 39,000 mcfe per day net to Chesapeake's
interest. Chesapeake has been able to increase the productive capability from
its West Panhandle properties by approximately 10% since the properties were
acquired in March and April of 1998. During the fourth quarter of 1998, further
increases are projected as a result of additional planned production
enhancements.
Although Chesapeake has postponed increased development of its oil-oriented
Louisiana Austin Chalk assets until oil prices improve, the company continues to
successfully drill in the Independence portion of the Texas Austin Chalk Trend
where production is 100% natural gas. In Independence, Chesapeake completed the
Hahn 1-H during the third quarter and is now drilling an offset, the Hahn 2-H,
that should begin producing in the fourth quarter. The Hahn 1-H has produced 4.0
bcfe in its first 97 days of production and is currently producing 36,000 mcfe
per day. Estimated gross ultimate reserves for the Hahn 1-H are 17 bcfe.
Chesapeake owns a 44% working interest in both Hahn wells with Belco, Union
Pacific Resources Corporation and Swift Energy Company owning 37%, 16% and 1%,
respectively.
EXPLORATORY DRILLING UPDATE
In the Tuscaloosa Trend in Louisiana, initial completion activities began this
week on the State Lease 15421. Because of the 21,000' depth of the well and the
need to evaluate multiple potentially productive zones, completion activities
will not be finalized for several weeks. After final completion, initial sales
rates will be provided in an operations update press release.
In other Tuscaloosa drilling, Chesapeake reached total depth of 19,295' on its
Kaiser 50 well located 29 miles east of the State Lease 15421. The well was
logged earlier this week and despite encountering a number of highly porous
sands that were consistent with the company's 3-D seismic interpretation, the
logs indicated all prospective zones were wet,
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suggesting probable hydrocarbon migration out of the reservoir prior to the
present structural setting. The results of the Kaiser 50 downgrade two
offsetting prospects, but Chesapeake's 33 other Tuscaloosa prospects are
unaffected. The company's third Tuscaloosa well, the Brown 22, located four
miles from the State Lease 15421, is drilling ahead on its way to projected
total depth of 21,900'.
Chesapeake has recently spudded the first test of its 85,000 acres of 3-D
seismic in the Peach Creek Prospect of Wharton County, Texas. Scheduled as a
9,500' Yegua test, the Rust 1 is projected to reach total depth in the next
several weeks. To date, 20 3-D prospects have been identified on Chesapeake's
leasehold in Wharton County.
In the Deep Arbuckle project in the Knox Field of Grady County, Oklahoma,
Marathon Oil Corporation has reached projected total depth of 19,750' in the 18%
Chesapeake-owned J. Kaye 3-33. Marathon's initial two discoveries in the Deep
Arbuckle are producing at a combined rate of 23,000 mcfe per day. Based on 3-D
seismic, Chesapeake has identified 13 Deep Arbuckle locations on its leasehold
in Knox and plans to drill two of these locations in 1999.
MANAGEMENT COMMENT
Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented, "During
the past year we have transformed Chesapeake into one of the largest onshore
North American natural gas producers. We are dedicated to enhancing the value of
our 1.3 tcfe of proved reserves and our 1.6 tcfe of probable and possible
reserves through a disciplined and diversified drilling program focused on
utilizing our extensive 3-D seismic inventory. Using 15 development rigs and 5
exploratory rigs, we are executing a balanced drilling program dedicated to
delivering cost-effective and value-added results.
The combination of Chesapeake's operating expense structure and drilling costs
declining to their lowest levels in several years provides an excellent
opportunity to further develop our substantial natural gas reserve base and
prospect inventory. Chesapeake's focus on building long-lived natural gas assets
is best evidenced by the company's reserves-to-production ratio of almost ten
years and a proved reserve base weighted 83% to natural gas. Assuming a
compounded 7% annual growth rate during the next five years as our minimum goal,
we expect to increase our proved reserve base by 50% to 2.0 tcfe and increase
our production by 50% to over 200 bcfe per year, while maintaining a natural gas
concentration in excess of 80%.
We believe North American natural gas prices will substantially outperform oil
prices in the years ahead. Our positive view on natural gas prices is based
primarily on projected increases in gas consumption for electrical generation
resulting from new plant construction and conversion of existing nuclear plants,
together with the industry's demonstrated inability to increase gas supply by
meaningful amounts. We believe there is only a small likelihood of significant
U.S. gas supply increases occurring in the next few years, especially in light
of greatly reduced capital flows into the industry, a 40% decline in North
American drilling rig utilization for gas wells, and a steepening of Gulf Coast
and Canadian decline curves. Therefore, we believe the stage is set for natural
gas producers to lead the energy industry
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in the year 2000 and beyond. We have positioned Chesapeake to take advantage of
this gathering strength in the North American natural gas market."
The information in this release includes certain forward-looking statements that
are based on assumptions that in the future may prove not to have been accurate.
Those statements, and Chesapeake Energy Corporation's business and prospects,
are subject to a number of risks, including production variances from
expectations, uncertainties about estimates of reserves, volatility of oil and
gas prices, the need to develop and replace reserves, the substantial capital
expenditures required to fund operations, environmental risks, drilling and
operating risks, risks related to exploratory and developmental drilling,
competition, government regulation, and the ability of the company to implement
its business strategy. These and other risks are described in the company's
documents and reports that are available from the United States Securities and
Exchange Commission, including the report filed on Form 10-K for the six-month
transition period ended December 31, 1997 and the report filed on Form 10-Q for
the six months ended June 30, 1998.
Chesapeake Energy Corporation is an independent oil and natural gas producer
headquartered in Oklahoma City. The company's operations are focused on
exploratory and developmental drilling and producing property and corporate
acquisitions in major onshore producing areas of the United States and Canada.
The company's Internet address is http://www.chesapeake-energy.com.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ IN 000'S, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED: SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------------- -------------------------------
$ $/MCFE $ $/MCFE
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales 70,082 1.93 45,667 2.38
Oil and gas marketing sales 36,256 1.00 26,865 1.40
Interest and other 778 0.02 5,878 0.31
------- ------- ------- -------
Total revenues 107,116 2.95 78,410 4.09
------- ------- ------- -------
EXPENSES:
Production expenses 14,208 0.39 3,894 0.20
Production taxes 1,976 0.05 1,286 0.07
Oil and gas marketing expenses 34,720 0.96 26,690 1.39
Impairment of oil and gas properties - - - -
Impairment of other assets - - - -
Depreciation, depletion, and amortization
of oil and gas properties 34,069 0.94 28,550 1.49
Depreciation and amortization of other assets 2,518 0.07 1,142 0.06
General and administrative 5,197 0.14 2,760 0.14
Interest 18,577 0.51 8,575 0.45
------- ------- ------- -------
Total expenses 111,265 3.06 72,897 3.80
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (4,149) (0.11) 5,513 0.29
PROVISION (BENEFIT) FOR INCOME TAXES - - - -
------- ------- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (4,149) (0.11) 5,513 0.29
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
applicable income tax - - - -
------- ------- ------- -------
NET INCOME (LOSS) (4,149) (0.11) 5,513 0.29
PREFERRED STOCK DIVIDENDS (4,026) (0.11) - -
------- ------- ------- -------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS (8,175) (0.22) 5,513 0.29
------- ------- ------- -------
CASH FLOW FROM OPERATING ACTIVITIES (1) 32,438 0.89 35,205 1.84
------- ------- ------- -------
EARNINGS (LOSS) PER COMMON SHARE (BASIC):
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (0.08) - 0.08 -
EXTRAORDINARY ITEM - - - -
------- ------- ------- -------
NET INCOME (LOSS) (0.08) - 0.08 -
------- ------- ------- -------
EARNINGS (LOSS) PER COMMON SHARE
(ASSUMING DILUTION):
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (0.08) - 0.08 -
EXTRAORDINARY ITEM - - - -
------- ------- ------- -------
NET INCOME (LOSS) (0.08) - 0.08 -
------- ------- ------- -------
AVERAGE COMMON SHARES AND COMMON
EQUIVALENT SHARES OUTSTANDING
BASIC 98,046 - 70,376 -
ASSUMING DILUTION 98,046 - 72,699 -
------- ------- ------- -------
THOUSANDS OF BARRELS OF OIL (MBBL): 1,571 + 81% 870
MILLIONS OF CUBIC FEET OF GAS (MMCF): 26,842 + 93% 13,941
MILLIONS OF CUBIC FEET OF GAS EQUIVALENTS (MMCFE): 36,268 + 89% 19,161
AVERAGE PRICE/BARREL $ 12.41 - 33% $ 18.48
AVERAGE PRICE/MCF $ 1.88 - 11% $ 2.12
AVERAGE GAS EQUIVALENT PRICE/MCFE $ 1.93 - 19% $ 2.38
------- ------- -------
</TABLE>
(1) Income (loss) before extraordinary item, depreciation, depletion and
amortization, income tax, impairment of oil and gas properties, and
impairment of other assets.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ IN 000'S, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED: SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------------- -------------------------------
$ $/MCFE $ $/MCFE
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales 195,962 2.03 148,420 2.43
Oil and gas marketing sales 96,451 1.00 73,018 1.20
Interest and other 3,573 0.04 14,585 0.24
------- ------ ------- -----
Total revenues 295,986 3.07 236,023 3.87
------- ------ ------- -----
EXPENSES:
Production expenses 36,775 0.38 11,071 0.18
Production taxes 6,141 0.06 3,342 0.05
Oil and gas marketing expenses 94,686 0.98 72,282 1.19
Impairment of oil and gas properties 466,000 4.83 236,000 3.87
Impairment of other assets 10,000 0.10 - -
Depreciation, depletion, and amortization
of oil and gas properties 109,311 1.13 95,571 1.57
Depreciation and amortization of other assets 5,820 0.06 3,088 0.05
General and administrative 14,711 0.15 7,823 0.13
Interest 47,930 0.50 20,909 0.34
------- ------ ------- -----
Total expenses 791,374 8.19 450,086 7.38
------- ------ ------- -----
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (495,388) (5.12) (214,063) (3.51)
PROVISION (BENEFIT) FOR INCOME TAXES - - (17,898) (0.29)
------- ------ ------- -----
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (495,388) (5.12) (196,165) (3.22)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
applicable income tax (13,334) (0.14) (177) -
------- ------ ------- -----
NET INCOME (LOSS) (508,722) (5.26) (196,342) (3.22)
PREFERRED STOCK DIVIDENDS (8,051) (0.08) - -
------- ------ ------- -----
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS (516,773) (5.34) (196,342) (3.22)
------- ------ ------- -----
CASH FLOW FROM OPERATING ACTIVITIES (1) 95,743 0.99 120,596 1.98
------- ------ ------- -----
EARNINGS (LOSS) PER COMMON SHARE (BASIC):
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (5.34) - (2.79) -
EXTRAORDINARY ITEM (0.14) - - -
------- ------ ------- -----
NET INCOME (LOSS) (5.48) - (2.79) -
------- ------ ------- -----
EARNINGS (LOSS) PER COMMON SHARE
(ASSUMING DILUTION):
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (5.34) - (2.79) -
EXTRAORDINARY ITEM (0.14) - - -
------- ------ ------- -----
NET INCOME (LOSS) (5.48) - (2.79) -
------- ------ ------- -----
AVERAGE COMMON SHARES AND COMMON
EQUIVALENT SHARES OUTSTANDING
BASIC 94,355 - 70,376 -
ASSUMING DILUTION 94,355 - 70,376 -
------- ------ ------- -----
THOUSANDS OF BARRELS OF OIL (MBBL): 4,569 + 81% 2,524
MILLIONS OF CUBIC FEET OF GAS (MMCF): 69,048 + 51% 45,851
MILLIONS OF CUBIC FEET OF GAS EQUIVALENTS (MMCFE): 96,462 + 58% 60,995
AVERAGE PRICE/BARREL $ 13.21 - 33% $ 19.66
AVERAGE PRICE/MCF $ 1.96 - 9% $ 2.15
AVERAGE GAS EQUIVALENT PRICE/MCFE $ 2.03 - 17% $ 2.43
------- ------ -------
</TABLE>
(1) Income (loss) before extraordinary item, depreciation, depletion and
amortization, income tax, impairment of oil and gas properties, and
impairment of other assets.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
SUMMARIZED CONSOLIDATED BALANCE SHEET
($ IN 000'S)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
----------- ----------
<S> <C> <C>
Current assets $ 117,289 $ 217,721
Property and equipment 1,028,481 679,187
Other assets 81,504 55,876
----------- ----------
TOTAL ASSETS $ 1,227,274 $ 952,784
----------- ----------
Current liabilities $ 119,300 $ 153,480
Long-term liabilities 931,579 519,098
Stockholders' equity 176,395 280,206
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,227,274 $ 952,784
----------- ----------
</TABLE>
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