<PAGE> 1
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) JULY 29, 1999 (JULY 28, 1999)
-------------------------------
CHESAPEAKE ENERGY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
OKLAHOMA 1-13726 73-1395733
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(State or other jurisdiction (Commission (IRS Employer Identification No.)
of incorporation) File Number)
</TABLE>
6100 NORTH WESTERN AVENUE, OKLAHOMA CITY, OKLAHOMA 73118
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(405) 848-8000
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(Registrant's telephone number, including area code)
<PAGE> 2
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
On July 28, 1999, Chesapeake Energy Corporation ("Chesapeake") issued a
press release to report second quarter and first half 1999 results. The July 28,
1999 press release is filed herewith as Exhibit 99 and incorporated herein by
reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits. The following exhibit is filed herewith:
99. Press Release issued by the Registrant on July 28, 1999.
2
<PAGE> 3
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/ AUBREY K. MCCLENDON
--------------------------------------
AUBREY K. MCCLENDON
Chairman of the Board and
Chief Executive Officer
Dated: July 29, 1999
<PAGE> 4
EXHIBIT INDEX
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
99 Press Release issued by the Registrant on July 28, 1999.
</TABLE>
<PAGE> 1
CONTACT: MARC ROWLAND,
CHIEF FINANCIAL OFFICER
(405) 879-9232
FOR IMMEDIATE RELEASE TOM PRICE, JR.,VICE PRESIDENT-
JULY 28, 1999 CORPORATE DEVELOPMENT
(405) 879-9257
CHESAPEAKE ENERGY CORPORATION REPORTS STRONG
SECOND QUARTER AND FIRST HALF 1999 RESULTS
COMPANY POSTS NET INCOME OF $8 MILLION, CASH FLOW OF $35 MILLION
AND EBITDDA OF $55 MILLION ON REVENUE OF $81 MILLION FOR QUARTER
OKLAHOMA CITY, OKLAHOMA, JULY 28, 1999 - Chesapeake Energy Corporation (NYSE:
CHK) today reported its second quarter and first half 1999 financial and
operating results. For the quarter, Chesapeake generated net income of $8.1
million ($0.04 per common share after accrued preferred dividends), cash flow
from operations of $34.7 million ($0.34 per common share), Ebitdda (cash flow
from operations plus interest expense) of $54.9 million and revenue of $80.9
million on 33.6 billion cubic feet of natural gas equivalent (bcfe) production.
Average prices realized during the quarter were $16.01 per barrel of oil and
$1.88 per mcf of natural gas for a gas equivalent price of $2.03 per mcfe.
By comparison, during the second quarter of 1998 Chesapeake generated a net loss
before extraordinary items of $234.7 million ($2.29 per common share), cash flow
from operations of $37.1 million ($0.35 per common share), Ebitdda of $55.7
million and revenue of $109.3 million on production of 37.2 bcfe and a realized
gas equivalent price of $2.03 per mcfe.
The table below summarizes Chesapeake's key statistics during the quarter and
compares them to the first quarter of 1999 and the second quarter of 1998:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------
6/30/99 3/31/99 6/30/98
------- ------- -------
<S> <C> <C> <C>
Average daily production (in mmcfe) 369 370 409
Natural gas production (in bcf) 27.0 25.7 26.3
Average gas sales price ($/mcf) 1.88 1.48 1.99
Oil production (in mbbls) 1,089 1,273 1,822
Average oil sales price ($/bbl) 16.01 10.92 12.85
Natural gas equivalent production (in bcfe) 33.6 33.3 37.2
Gas equivalent sales price ($/mcfe) 2.03 1.56 2.03
Gas as % of total production 81 77 71
General and administrative costs ($/mcfe) 0.10 0.12 0.14
Production taxes and lease expenses ($/mcfe) 0.41 0.48 0.46
Interest expense ($/mcfe) 0.60 0.60 0.50
Depletion of oil and gas properties ($/mcfe) 0.72 0.70 1.18
Cash flow from operations ($ in millions) 34.7 13.4 37.1
Cash flow from operations ($/mcfe) 1.03 0.40 1.00
Ebitdda ($ in millions) 54.9 33.3 55.7
Net income ($ in millions) 8.1 (12.0) (248.1)
Total cash costs (LOE, G&A, interest) ($/mcfe) 1.11 1.20 1.10
</TABLE>
<PAGE> 2
BUDGET INFORMATION AND 1999 FORECASTS
Because of Chesapeake's large inventory of attractive drilling opportunities,
lower service industry costs, and higher oil and gas prices, Chesapeake has
increased its 1999 drilling budget to $120 million from $90 million. As before,
the company anticipates funding its 1999 drilling cap-ex from cash on hand and
cash flow from operations.
Chesapeake's current 1999 budget forecast assumes a realized gas equivalent
price of $2.06 per mcfe. This is based on average 1999 NYMEX prices of $16.75
per barrel and $2.23 per mcf and average differentials to NYMEX prices of $1.75
per barrel and $0.30 per mcf, production of 125 bcfe (80% natural gas), lease
operating expenses (including production taxes) of $0.47 per mcfe, interest
costs of $0.65 per mcfe, and general and administrative costs of $0.12 per mcfe.
Using current NYMEX strip prices, Chesapeake's estimated second half 1999
average revenue realization would be $2.50 per mcfe, including differentials to
NYMEX prices that are currently being realized of $1.25 per barrel and $0.25 per
mcf. At these prices, the company's earnings, cash flow, and Ebitdda during the
second quarter would have increased by approximately $15 million.
RESERVE REPLACEMENT RESULTS, HEDGING AND LIQUIDITY
During the first half of 1999, Chesapeake produced 66.9 bcfe and replaced this
production through the drillbit by approximately 140% at an estimated finding
cost of $0.75 per mcfe. The company's successful, lower risk drilling program
during the first half of 1999 increased Chesapeake's estimated proved reserves
to 1,125 bcfe, while also increasing the proved developed component of its
reserves to 82% by value and 75% by volume, increases from 80% and 70%,
respectively, at year-end 1998.
Chesapeake has hedged approximately 90% of its forecasted oil production for the
next 12 months in collar transactions with an average floor of $17.75 and an
average ceiling price of $20.25 per barrel. The company is beginning to hedge a
portion of its gas production for April - October 2000.
Chesapeake's liquidity also improved during the quarter. At June 30, 1999, the
company's cash balances were $28 million and working capital was $16 million, a
$60 million improvement from March 31, 1999.
<PAGE> 3
DIVESTITURE OF LOW VALUE PROPERTIES LARGELY COMPLETED
Although Chesapeake's operating costs have traditionally been among the lowest
in the industry, they improved 15% in the second quarter of 1999 compared to the
first quarter, largely from high-grading the company's asset portfolio.
Since late 1998 and through the second quarter of 1999, Chesapeake has generated
$55 million from its non-core asset sales program. During August 1999, the
company expects to receive an additional $35 million from three scheduled
non-core asset sales, which will largely conclude the company's asset
rationalization program. Through this program, Chesapeake will have reduced its
property count by 43% from approximately 7,000 wellbores to 4,000 wellbores
while selling only 6% of the company's 1998 year-end proved reserves.
OPERATIONAL UPDATE
Despite the difficult financial environment of the first half of 1999,
Chesapeake remained active in all of its core operating areas. Highlights to
date include the following:
Mid-Continent. The location of 60% of Chesapeake's proved reserves, the
gas-oriented, long reserve life Mid-Continent continues as the focus of the
company's drilling and acquisition efforts. During the first half of 1999,
Chesapeake drilled 39 gross wells (34 net) and completed 90% of them as
producers. In addition, Chesapeake participated in 21 gross wells (four net)
drilled by others, of which 100% were also completed as producers. During 1999,
the company has been the most active driller in the Mid-Continent and has seven
rigs currently drilling. The Mid-Continent accounted for $24 million of the
company's capital expenditures for the first half of 1999 and is budgeted for
$34 million in the second half.
Gulf Coast. Accounting for 14% of the company's proved reserves, the Gulf Coast
is the focus of virtually all of Chesapeake's exploratory and semi-exploratory
drilling. Comprised of semi-exploratory drilling in the Texas Austin Chalk
(particularly around the Brenham area in Washington County) and 3-D based
exploratory drilling in the Tuscaloosa Trend in Louisiana and in the Wharton
County Wilcox/Yegua play in Texas, the Gulf Coast accounted for $24 million of
Chesapeake's first half drilling expenditures and is budgeted for $9 million in
the second half.
During the first half, the company drilled two gross (one net) Texas Austin
Chalk wells, one net Tuscaloosa well and no dry holes. During the second half,
Chesapeake plans to drill three Texas Austin Chalk wells and two Wharton County
wells, a 19,000' Wilcox test and a 10,000' Yegua test.
Canada. Chesapeake's assets in Canada are all located in the Helmet gas field of
northeastern British Columbia and represent 17% of the company's proved
reserves. During the 1999 winter drilling season (December 98 - March 99), the
company expended $16 million to drill 16 gross (nine net) wells, of which 94%
were successfully completed as producers. During the 2000 winter drilling
season, the company anticipates spending $15 million to drill 16 gross (nine
net) wells. Virtually all wells in Helmet target the Jean Marie formation,
located at a depth of approximately 4,000'. Chesapeake is the largest producer
in the field.
<PAGE> 4
MANAGEMENT SUMMARY
Chesapeake's Chief Executive Officer, Aubrey K. McClendon, commented, "We are
particularly encouraged by our second quarter performance. Chesapeake's gas
production increased despite production losses from asset sales, lease operating
expenses declined by 15%, our depreciation rate remains among the lowest in the
industry, our drilling operations and asset rationalization program are adding
value, and most importantly, we were profitable for the first time in the past
eight quarters.
With natural gas storage below levels of the previous year for the first time in
30 months, gas deliverability declining by approximately three bcf per day, gas
consumption increasing by one bcf per day and record electrical demand requiring
the need for increased power generation, we are optimistic about the continued
attractiveness of the natural gas industry. Because of Chesapeake's 87% natural
gas reserve concentration, the company's asset value, cash flow and earnings
have significant leverage to improving natural gas prices. In fact, for each
$0.10 increase in natural gas prices, Chesapeake's annual earnings and cash flow
increase by approximately $0.10 per share and net asset value increases by
approximately $0.50 per share. We have built a strong natural gas foundation
which should provide continuing improvements in the company's performance during
the upcoming quarters and deliver significant increases in shareholder value."
MANAGEMENT CONFERENCE CALL
Chesapeake's management will host a teleconference this afternoon, Wednesday,
July 28 at 4:30 P.M. EDT to review the 1999 second quarter's results. Please
call 913-981-5509 between 4:15 and 4:30 pm EDT today if you would like to
participate. Participation will be limited to the first 250 callers. For those
unable to participate, a replay of the call will be available from 7:30 p.m.
Wednesday, July 28 through Thursday, August 12. Access to the replay will be
available by dialing 719-457-0820 and using passcode #722696.
In addition, you may listen to a replay of the conference call over the Internet
by visiting our home page at www.chesapeake-energy.com and clicking on the link
under Shareholder Information or by going directly to Vcall at
http://www.vcall.com.
The information in this release includes certain forward-looking statements that
are based on assumptions that in the future may prove not to have been accurate.
Those statements, and Chesapeake Energy Corporation's business and prospects,
are subject to a number of risks, including production variances from
expectations, uncertainties about estimates of reserves, volatility of oil and
gas prices, the need to develop and replace reserves, the substantial capital
expenditures required to fund operations, environmental risks, drilling and
operating risks, risks related to exploratory and developmental drilling,
competition, government regulation, and the ability of the company to implement
its business strategy. These and other risks are described in the company's
documents and reports that are available from the United States Securities and
Exchange Commission, including the report filed on Form 10-K for the year ended
December 31, 1998 and the report filed on Form 10-Q for the quarter ended March
31, 1999.
Chesapeake Energy Corporation is an independent natural gas producer
headquartered in Oklahoma City. The company's operations are focused on
developmental drilling and property acquisitions in the Mid-Continent region of
the United States. The company's Internet address is www.chesapeake-energy.com.
<PAGE> 5
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN 000'S, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED: JUNE 30, 1999 JUNE 30, 1998
- ------------------- ------------- -------------
$ $/MCFE $ $/MCFE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales 68,272 2.03 75,639 2.03
Oil and gas marketing sales 12,620 0.38 33,671 0.90
-------- ---------- -------- ----------
Total revenues 80,892 2.41 109,310 2.93
-------- ---------- -------- ----------
OPERATING COSTS:
Production expenses 11,183 0.33 14,673 0.39
Production taxes 2,798 0.08 2,621 0.07
Oil and gas marketing expenses 11,673 0.35 33,705 0.91
Depreciation, depletion, and amortization
of oil and gas properties 24,233 0.72 43,900 1.18
Depreciation and amortization of other assets 1,972 0.06 1,922 0.05
General and administrative 3,268 0.10 5,134 0.14
Impairment of oil and gas properties -- -- 216,000 5.80
Impairment of other assets -- -- 10,000 0.27
-------- ---------- -------- ----------
Total operating costs 55,127 1.64 327,955 8.81
-------- ---------- -------- ----------
INCOME (LOSS) FROM OPERATIONS: 25,765 0.77 (218,645) (5.88)
-------- ---------- -------- ----------
OTHER INCOME (EXPENSE):
Interest and other income 2,967 0.09 2,571 0.07
Interest expense (20,259) (0.60) (18,665) (0.50)
-------- ---------- -------- ----------
(17,292) (0.51) (16,094) (0.43)
-------- ---------- -------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 8,473 0.26 (234,739) (6.31)
INCOME TAX EXPENSE 326 0.01 -- --
-------- ---------- -------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 8,147 0.25 (234,739) (6.31)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
applicable income tax -- -- (13,334) (0.35)
-------- ---------- -------- ----------
NET INCOME (LOSS) 8,147 0.25 (248,073) (6.66)
PREFERRED STOCK DIVIDENDS (4,026) (0.12) (4,025) (0.11)
-------- ---------- -------- ----------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS 4,121 0.13 (252,098) (6.77)
-------- ---------- -------- ----------
EARNINGS (LOSS) PER COMMON SHARE (BASIC AND ASSUMING
DILUTION)
Income (Loss) before extraordinary item 0.04 -- (2.29) --
Extraordinary item -- -- (0.12) --
-------- ---------- -------- ----------
Net Income (Loss) 0.04 -- (2.41) --
-------- ---------- -------- ----------
AVERAGE COMMON SHARES AND COMMON
EQUIVALENT SHARES OUTSTANDING
BASIC 97,049 -- 104,462 --
DILUTED 101,450 -- 104,462 --
-------- ---------- -------- ----------
CASH FLOW FROM OPERATIONS (1) 34,678 1.03 37,083 1.00
-------- ---------- -------- ----------
EBITDDA (2) 54,937 1.64 55,748 1.50
-------- ---------- -------- ----------
THOUSANDS OF BARRELS OF OIL (MBBL): 1,089 1,822
MILLIONS OF CUBIC FEET OF GAS (MMCF): 27,032 26,299
MILLIONS OF CUBIC FEET OF GAS EQUIVALENTS (MMCFE): 33,566 37,231
MMCFE PER DAY 369 409
AVERAGE PRICE/BARREL $ 16.01 $ 12.85
AVERAGE PRICE/MCF $ 1.88 $ 1.99
AVERAGE GAS EQUIVALENT PRICE/MCFE $ 2.03 $ 2.03
-------- --------
</TABLE>
(1) Income before income tax, depreciation, depletion and amortization,
impairment of oil and gas properties and impairment of other assets.
(2) Income before income tax, interest expense, depreciation, depletion and
amortization, impairment of oil and gas properties and impairment of other
assets.
<PAGE> 6
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN 000'S, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED: JUNE 30, 1999 JUNE 30, 1998
- ----------------- ------------- -------------
$ $/MCFE $ $/MCFE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales 120,078 1.80 125,880 2.09
Oil and gas marketing sales 26,491 0.40 60,195 1.00
-------- ---------- -------- ----------
Total revenues 146,569 2.20 186,075 3.09
-------- ---------- -------- ----------
OPERATING COSTS:
Production expenses 25,175 0.38 22,567 0.37
Production taxes 4,788 0.07 4,165 0.07
Oil and gas marketing expenses 24,958 0.37 59,966 1.00
Depreciation, depletion, and amortization
of oil and gas properties 47,386 0.71 75,242 1.25
Depreciation and amortization of other assets 4,138 0.06 3,302 0.05
General and administrative 7,292 0.11 9,514 0.16
Impairment of oil and gas properties -- -- 466,000 7.74
Impairment of other assets -- -- 10,000 0.17
-------- ---------- -------- ----------
Total operating costs 113,737 1.70 650,756 10.81
-------- ---------- -------- ----------
INCOME (LOSS) FROM OPERATIONS: 32,832 0.50 (464,681) (7.72)
-------- ---------- -------- ----------
OTHER INCOME (EXPENSE)
Interest and other income 3,840 0.06 2,795 0.05
Interest expense (40,149) (0.60) (29,353) (0.49)
-------- ---------- -------- ----------
(36,309) (0.54) (26,558) (0.44)
-------- ---------- -------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (3,477) (0.04) (491,239) (8.16)
INCOME TAX EXPENSE 326 0.00 -- --
-------- ---------- -------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (3,803) (0.04) (491,239) (8.16)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
Applicable income tax -- -- (13,334) (0.22)
-------- ---------- -------- ----------
NET INCOME (LOSS) (3,803) (0.04) (504,573) (8.38)
PREFERRED STOCK DIVIDENDS (8,052) (0.14) (4,025) (0.07)
-------- ---------- -------- ----------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS (11,855) (0.18) (508,598) (8.45)
-------- ---------- -------- ----------
EARNINGS (LOSS) PER COMMON SHARE (BASIC AND ASSUMING
DILUTION)
Income (Loss) before extraordinary item (0.12) -- (5.35) --
Extraordinary item -- -- (0.15) --
-------- ---------- -------- ----------
Net Income (Loss) (0.12) -- (5.50) --
-------- ---------- -------- ----------
AVERAGE COMMON SHARES AND COMMON
EQUIVALENT SHARES OUTSTANDING
BASIC 97,049 -- 92,504 --
DILUTED 99,725 -- 92,504 --
-------- ---------- -------- ----------
CASH FLOW FROM OPERATIONS (1) 48,047 0.72 63,305 1.05
-------- ---------- -------- ----------
EBITDDA (2) 88,196 1.32 92,658 1.54
-------- ---------- -------- ----------
THOUSANDS OF BARRELS OF OIL (MBBL): 2,362 2,998
MILLIONS OF CUBIC FEET OF GAS (MMCF): 52,706 42,206
MILLIONS OF CUBIC FEET OF GAS EQUIVALENTS (MMCFE): 66,878 60,194
MMCFE PER DAY 370 333
AVERAGE PRICE/BARREL $ 13.27 $ 13.63
AVERAGE PRICE/MCF $ 1.68 $ 2.01
AVERAGE GAS EQUIVALENT PRICE/MCFE $ 1.80 $ 2.09
-------- --------
</TABLE>
(1) Income before income tax, depreciation, depletion and amortization,
impairment of oil and gas properties and impairment of other assets.
(2) Income before income tax, interest expense, depreciation, depletion and
amortization, impairment of oil and gas properties and impairment of other
assets.
