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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) MARCH 5, 1998
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CHESAPEAKE ENERGY CORPORATION
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(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
of incorporation) File Number) Identification No.)
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 March 5, 1998, Chesapeake Energy Corporation ("Chesapeake") reported
preliminary financial results for the six-month transition period ended December
31, 1997. The March 5, 1998 press release is filed herewith as Exhibit 99, and
is incorporated herein by reference.
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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, thereunto duly authorized.
CHESAPEAKE ENERGY CORPORATION
BY: /S/ MARCUS C. ROWLAND
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MARCUS C. ROWLAND
Senior Vice President - Finance
and Chief Financial Officer
Dated: March 5, 1998
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
Exhibit 99.1 Press Release dated March 5, 1998.
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CONTACT: MARC ROWLAND, CHIEF FINANCIAL OFFICER
(405)848-8000, EXT. 232
FOR IMMEDIATE RELEASE TOM PRICE, JR.,VICE PRESIDENT-
MARCH 5, 1998 CORPORATE DEVELOPMENT
(405)848-8000, EXT. 257
CHESAPEAKE ENERGY CORPORATION ANNOUNCES
PRELIMINARY TRANSITION PERIOD RESULTS
OKLAHOMA CITY, OKLAHOMA, MARCH 5, 1998 -- Chesapeake Energy Corporation
(NYSE:CHK) today reported preliminary financial results for the six-month
transition period ended December 31, 1997. Chesapeake has previously announced a
change in its year-end from June 30 to December 31. As a result, Chesapeake's
transition period results cover only the six months described above and there
are no directly comparable prior year results. The company anticipates releasing
final results for the transition period in late March.
PRODUCTION VOLUMES AND RESERVE AMOUNTS
During the twelve-month period ended December 31, 1997, Chesapeake produced 80
billion cubic feet of gas equivalent (bcfe) for average daily production of 220
million cubic feet of gas equivalent, compared to 70 bcfe produced in the twelve
months ended December 31, 1996. For 1998, Chesapeake expects to produce
approximately 135 bcfe, assuming the completion of the Hugoton merger by March
15, the DLB merger by April 30, and today's announced acquisition of Texas
Panhandle properties from Occidental by May 29, 1998. The closing date for the
DLB merger has been rescheduled to April 30 from March 31.
As of December 31, 1997, Chesapeake's estimated proved reserves were 18 million
barrels of oil and 339 billion cubic feet of natural gas, or 448 bcfe, an 11%
increase from the 403 bcfe of reserves by the company as of June 30, 1997. The
company replaced approximately 215% of its 39 bcfe of production during the
six-month period between reserve reports. As of December 31, 1997, the present
value of the estimated future net revenue attributable to Chesapeake's estimated
proved reserves (before income taxes and discounted at 10%) ("SEC PV-10") is
expected to be $467 million, using an average price of $17.62 per barrel of oil
and $2.29 per Mcf of natural gas.
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If reserves from the DLB, Hugoton, Ranger, Enervest and Occidental transactions
were included in the December 31, 1997 report, Chesapeake's estimated proved
reserves would have been approximately 1,050 bcfe with an estimated SEC PV-10
value of approximately $1.0 billion.
FULL-COST CEILING TEST RESULTS IN LOSS
Chesapeake expects to report a $110 million impairment of oil and gas assets
under the ceiling test provisions of full-cost accounting rules which will
result in a net loss of approximately $35 million on revenue of approximately
$233 million for the six months ended December 31, 1997. The company expects to
report operating cash flow for this period of approximately $141 million
(including $74 million from the Bayard transaction) on production of
approximately 39 bcfe.
Under the rules mandated by the Securities and Exchange Commission, to the
extent the carrying cost of a company's oil and gas assets associated with its
proved reserves exceeds the discounted present value of its proved reserves, the
difference must be recognized as an additional charge against earnings. Because
of the steep decline in oil prices and higher finding and drilling costs in the
second half of 1997, at year-end Chesapeake's capitalized costs exceeded the
discounted present value of its proved reserves, resulting in the impairment.
The company's Louisiana properties produce approximately 60% oil and the value
associated with those reserves are therefore particularly sensitive to changes
in oil prices.
Future full-cost ceiling writedowns could be caused by further declines in oil
and/or gas prices, by the accounting adjustments associated with the company's
ongoing acquisition strategy, or by downward revisions in reserve estimates. Any
such additional writedowns would also be non-cash charges and would result in a
decrease in the company's earnings for the period of the writedown and in
shareholders' equity, but would increase the company's earnings in periods
subsequent to those writedowns because of decreased depletion and depreciation
charges.
MANAGEMENT COMMENT
Aubrey K. McClendon, Chesapeake's Chairman and Chief Executive Officer remarked,
"Chesapeake's results in 1997 were a marked departure from those delivered
during the prior three years. We are determined to return to the level of
success expected by our shareholders and generated by the company prior to this
year. We believe our recently announced acquisitions, combined with the
company's high-potential exploration projects, provide a bright future for
Chesapeake, and that improved results in 1998 will be generated by a revised
growth strategy consisting of:
o focusing on lower-risk development drilling and acquisitions of
longer life reserves in the Mid-Continent;
o continuing to develop our Austin Chalk properties in Texas and
Lousiana, but at a reduced pace from 1997 and 1996;
o delivering high impact results from the company's exploration
program;
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o developing a significant Canadian asset base focused on gas
reserves;
and
o continuing to create innovative joint venture arrangements in
existing core areas or in new areas.
We are confident this strategy will deliver significantly improved results to
our shareholders in 1998 as we balance our growth potential through drilling
with a well-conceived and well-timed acquisitions strategy."
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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 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 its reserves, the substantial
capital expenditures required to fund its 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 fiscal year ended June 30, 1997.
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