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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) DECEMBER 17, 1998
(December 16, 1998)
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 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 December 16, 1998, Chesapeake Energy Corporation ("Chesapeake")
issued a press release announcing its 1999 capital budget and the suspension of
the cash dividend on its preferred stock.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits. The following exhibit is filed herewith:
99. Press Release issued by the Registrant on December 16, 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
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Aubrey K. McClendon,
Chief Executive Officer
Dated: December 16, 1998
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EXHIBIT INDEX
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EXHIBIT DESCRIPTION
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99 Press Release issued by the Registrant on December 16, 1998.
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CONTACTS:
MARC ROWLAND, CHIEF FINANCIAL OFFICER
(405) 897-9232
FOR IMMEDIATE RELEASE TOM PRICE, JR., VICE PRESIDENT-
DECEMBER 16, 1998 CORPORATE DEVELOPMENT
(405) 879-9257
CHESAPEAKE ENERGY CORPORATION ANNOUNCES 1999 CAPITAL
BUDGET AND CASH DIVIDEND SUSPENSION ON PREFERRED STOCK
OKLAHOMA CITY, OKLAHOMA, DECEMBER 16, 1998 -- Chesapeake Energy Corporation
(NYSE:CHK) announced today that its Board of Directors has approved a 1999
capital budget of $100 million for drilling and $25 million for acquisitions.
The budget will be funded from a projected $100 million of cash flow from
operations and $75-100 million of non-core asset sales, resulting in anticipated
cash receipts exceeding budgeted capital expenditures by $50-75 million.
Chesapeake's 1999 capital expenditure budget assumes production of approximately
100 billion cubic feet of natural gas and 4.2 million barrels of oil and
realized wellhead prices of $13.30 per barrel of oil and $1.90 per mcf of
natural gas, for a natural gas equivalent (mcfe) price of $1.97. In addition,
the company believes its lease operating and production tax expenses, general
and administrative costs and interest costs will average $0.47, $0.16, and $0.61
per mcfe, respectively. Based on this cost structure of $1.24 per mcfe,
Chesapeake believes it will generate a cash flow margin in the top quartile of
its peer group.
Chesapeake's finding and development costs have declined substantially as a
result of focusing in the second half of 1998 on its lower-risk Mid-Continent
developmental drilling and on its 3-D seismic delineated exploration program.
For 1999, Chesapeake projects finding and development costs of $0.75 per mcfe,
which should enable the company to replace at least 100% of its production
through its drilling program.
In addition to reducing the capital expenditure budget, Chesapeake's Board has
also approved suspending the $4 million quarterly cash dividend on the company's
7% convertible preferred stock. The preferred dividends will not be paid until
higher commodity prices provide the ability under two of the company's four debt
indentures to permit resumption of these dividends. In the interim, all
dividends on Chesapeake's 7% convertible preferred stock will accrue in
accordance with the terms of the preferred stock's Certificate of Designation.
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Along with reducing the company's drilling capital expenditure budget to match
its cash flow and suspending the preferred stock dividend, Chesapeake is taking
three additional steps in response to anticipated low oil and gas prices in
1999. First, the company is continuing its non-core asset disposition program.
In the past three months, the company has disposed of approximately $26 million
of primarily oil-producing assets in non-core areas with limited upside
potential. In addition, Chesapeake has recently received $24 million of the $26
million of anticipated total proceeds from its announced transactions with Poco
Petroleums Ltd. and Pan East Petroleum Corp. Chesapeake's 1999 budget
anticipates further proceeds of $75-100 million from additional non-core asset
sales.
Second, Chesapeake is continuing its staff reduction and field office
consolidation program begun in the third quarter. Since June 30, the company has
reduced its staff by 17%, or approximately 100 employees, has closed or is
selling four field offices, and has sold or agreed to sell approximately 900
properties, which represents 15% of its well count but less than 2% of its
assets.
Finally, Chesapeake has recently executed natural gas hedging arrangements
covering approximately 45% of the company's anticipated February through May
1999 natural gas production at an average NYMEX price of approximately $2.00 per
mcfe.
Aubrey K. McClendon, Chesapeake's Chairman and CEO, stated, "As a result of
greatly reduced finding costs, we believe our 1999 budget should enable the
company to maintain 1998 production levels, increase proved reserves and
significantly improve corporate liquidity in order to outlast low oil and
natural gas prices. The majority of Chesapeake's proved reserves are long-lived
natural gas properties with low operating expenses and predictable production
profiles. These properties' attractive characteristics provide the ability to
delay a more aggressive development program until commodity prices improve.
While we cannot predict the future direction of oil prices, strong natural gas
fundamentals should generate substantial natural gas price increases in the
years ahead. We believe natural gas supply will decline because of reduced
industry investment and demand will increase due to expected growth in the
residential, industrial and power generation sectors."
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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 six-month transition period ended December 31, 1997 and the report filed on
Form 10-Q for the three months ended September 30, 1998.
Chesapeake Energy Corporation is an independent oil and natural gas producer
headquartered in Oklahoma City. The company's operations are focused on
developmental and exploratory 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.
