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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) MARCH 19, 1999 (March 18, 1999)
CHESAPEAKE ENERGY CORPORATION
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(Exact name of registrant as specified in its charter)
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<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)
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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 18, 1999, Chesapeake Energy Corporation ("Chesapeake") issued
a press release reporting 1998 results.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits. The following exhibit is filed herewith:
99. Press Release issued by the Registrant on March 18, 1999.
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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: March 19, 1999
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EXHIBIT INDEX
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EXHIBIT
NUMBER DESCRIPTION
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99 Press Release issued by the Registrant on March 18, 1999.
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CONTACT: MARC ROWLAND, CHIEF FINANCIAL OFFICER
(405) 879-9232
FOR IMMEDIATE RELEASE TOM PRICE, JR.,VICE PRESIDENT-
MARCH 18, 1999 CORPORATE DEVELOPMENT
(405) 879-9257
CHESAPEAKE ENERGY CORPORATION
REPORTS 1998 RESULTS
OKLAHOMA CITY, OKLAHOMA, MARCH 18, 1999 - Chesapeake Energy Corporation (NYSE:
CHK) today reported its 1998 year-end financial and operating results. For the
year, Chesapeake increased its production by 62% and increased proved reserves
by 144%, resulting in a reserve replacement rate of 493%. However, due primarily
to the severe decline in oil and natural gas prices during 1998, Chesapeake
incurred a net loss of $934 million on revenues of $382 million. Cash flow from
operations for 1998 was $115 million and EBITDA (cash flow from operations plus
interest expense) was $183 million.
Contributing to the 1998 results were non-cash impairment charges totaling $881
million to writedown the book value of Chesapeake's oil and gas properties by
$826 million, its Louisiana midstream gas gathering assets by $25 million and
its investment in Gothic Energy Corporation's preferred stock by $30 million. In
1997, Chesapeake reported impairment charges of $346 million and a net loss of
$233 million on revenues of $390 million. Cash flow from operations for 1997 was
$153 million and EBIDTA was $183 million (both 1997 numbers exclude a $74
million gain from the Bayard Drilling sale in November 1997).
The impairment charges in 1998 and 1997 were largely caused by the reduction in
the present value (discounted at 10%) of the company's 1.1 trillion cubic feet
of natural gas equivalent reserves (tcfe) from $2.1 billion (pro forma for
acquisitions in 1998) using pricing as of January 1, 1997 to $0.7 billion using
pricing as of December 31, 1998. In addition, Chesapeake's estimated
undiscounted future net revenues from its proved reserves decreased from $3.9
billion (pro forma for acquisitions in 1998) using pricing as of January 1, 1997
to $1.2 billion using pricing as of December 31, 1998. During the past two
years, the price of oil used in Chesapeake's asset writedown calculations has
declined 57% to $10.48 per barrel and the price of natural gas has declined 53%
to $1.68 per thousand cubic feet (mcf).
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As a result of the asset impairment charges and the company's lower finding
costs projected for 1999, the depreciation rate for the company's oil and gas
properties during 1999 is estimated to be $0.75 per thousand cubic feet of gas
equivalent (mcfe), one of the lowest depreciation rates in the industry.
Consequently, Chesapeake's future earnings will be higher than they otherwise
would have been without the writedowns. In addition, the company estimates that
if it had changed its method of accounting for oil and gas properties to
successful efforts, its aggregate writedowns would have been reduced by at least
$500 million.
PRODUCTION AND PROVED RESERVES INCREASE TO RECORD LEVELS
During 1998, Chesapeake's oil and natural gas production increased to 130
billion cubic feet of natural gas equivalent (bcfe), an increase of 62% over
1997's production of 80 bcfe. The company's proved reserves also increased to
record levels in 1998, reaching 1,091 bcfe, an increase of 144% from 1997's 448
bcfe. Moreover, if Chesapeake had used November 1998 prices ($2.16 per mcf and
$11.45 per barrel) rather than December 1998 prices ($1.68 per mcf and $10.48
per barrel), the company's reported proved reserves would have increased by 75
bcfe to 1,166 bcfe, and the present value (discounted at 10%) of those proved
reserves would have been approximately $0.9 billion and the undiscounted future
revenue would have been $1.7 billion.
During 1998, Chesapeake replaced its production of 130 bcfe by 493%, adding 773
bcfe of proven reserves during the year at a finding and development cost of
$1.23 per mcfe. Excluding reserve revisions due to lower prices, Chesapeake's
1998 reserve replacement rate was 552% and its 1998 finding and development
costs were $1.12 per mcfe.
The table below summarizes the company's production and reserve statistics:
<TABLE>
<CAPTION>
Three Months Ended 12 Months Ended
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12/31/98 12/31/97 % Change 12/31/98 12/31/97 % Change
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<S> <C> <C> <C> <C> <C> <C>
Production revenue (millions) $60.9 $50.0 22 $256.9 $198.4 29
Natural gas production (bcf) 25.4 13.4 90 94.4 59.2 59
Average gas sales price ($/mcf) $1.79 $2.36 (24) $1.92 $2.20 (13)
Oil production (mbbls) 1,407 987 43 5,976 3,511 70
Average oil sales price ($) $11.04 $18.69 (41) $12.70 $19.39 (35)
Natural gas equivalent production (bcfe) 33.8 19.3 75 130.3 80.3 62
Gas equivalent sales price per mcfe $1.80 $2.59 (31) $1.97 $2.47 (20)
Average daily production (mmcfe/day) 367.6 209.9 75 356.9 220.0 62
Cash flow from operations (millions) $19.5 $32.2 (39) $115.2 $152.8 (25)
Cash flow from operations per share $0.20 $0.45 (56) $1.21 $2.16 (44)
EBIDTA (millions) $39.8 $41.1 (3) $183.4 $182.6 ---
Proved reserves (bcfe) 1,091 448 144 1,091 448 144
SEC PV-10 (millions) $661.0 $466.5 42 $661.0 $466.5 42
Average shares outstanding (millions) 96.7 71.2 36 94.9 70.7 34
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BUDGET INFORMATION AND 1999 FORECASTS
Because of projected lower oil and gas prices and higher debt levels,
Chesapeake's 1999 capital budget has been reduced to $90 million for drilling,
leasehold and seismic expenditures and to $25 million for acquisitions to
consolidate interests in the company's
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core operating areas. Chesapeake anticipates funding this level of cap-ex from
cash on hand, cash flow from operations, and proceeds from miscellaneous asset
sales. The company's 1999 budget assumes a realized gas equivalent price of
$1.94. Since Chesapeake began upgrading its asset portfolio in late 1998, the
company has received approximately $40 million from asset sales, and anticipates
receiving an additional $20 million in asset sales in the first half of 1999 and
$25 million in the second half of 1999. Properties being sold are principally
low-margin oil assets acquired in the Hugoton and DLB transactions.
As of March 1, 1999, Chesapeake had cash balances of $30 million, bank
borrowings of $25 million, unused bank credit of $25 million, and had the
ability under its debt indentures to increase its secured bank borrowings to
$115 million. Chesapeake's long term debt of $920 million is 100% unsecured, has
an average maturity of seven years, a fixed average interest rate of 9.1%, a
first maturity in 2004 ($150 million), and has no maintenance covenants.
During 1999, Chesapeake anticipates producing an estimated 120-125 bcfe,
approximately 80% of which will be natural gas. Based on this level of
production, the company expects its lease operating expenses (including
production taxes) will average $0.47 per mcfe, interest costs will average $0.65
per mcfe, and general and administrative costs will average $0.13 per mcfe,
resulting in a total operating cost structure of approximately $1.25 per mcfe.
The company intends to update its 1999 projections with the release of each
quarter's results.
STRATEGIC ALTERNATIVES PROCESS
In July 1998, Chesapeake engaged investment advisors to evaluate various
strategic alternatives, including property sales or a potential sale of the
entire company. Chesapeake and its advisors have completed the process and have
concluded that its shareholders will be best served by the company pursuing its
business strategy of building value through the ownership and future development
of its long-lived natural gas assets.
MANAGEMENT TELECONFERENCE
Chesapeake's management will host a teleconference tomorrow morning, Friday,
March 19 at 9:00 a.m. Eastern Standard Time to review 1998's results. Please
call 719-457-2641 between 8:45 and 9:00 a.m. EST on March 19 if you would like
to participate. Participation will be limited to the first 250 callers.
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 nine months ended September 30, 1998. The company anticipates filing a
report on Form 10-K for the year ended December 31, 1998 by March 31, 1999.
Chesapeake Energy Corporation is an independent oil and natural gas producer
headquartered in Oklahoma City. The company's operations are focused on
developmental drilling and property acquisitions in three major onshore natural
gas producing areas of the United States and Canada. The company's Internet
address is www.chesapeake-energy.com.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION
($ IN 000'S, EXCEPT PER SHARE DATA)
(UNAUDITED)
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<CAPTION>
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THREE MONTHS ENDED: DECEMBER 31, 1998 DECEMBER 31, 1997
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$ $/MCFE $ $/MCFE
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<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales 60,925 1.80 49,990 2.59
Oil and gas marketing sales 24,608 0.73 31,376 1.63
Interest and other 353 0.01 73,088 3.79
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Total revenues 85,886 2.54 154,454 8.01
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EXPENSES:
Production expenses 14,427 0.43 3,666 0.19
Production taxes 2,154 0.06 1,248 0.06
Oil and gas marketing expenses 24,322 0.72 31,537 1.63
Impairment of oil and gas properties 360,000 10.65 110,000 5.70
Impairment of other assets 45,000 1.33 -- --
Depreciation, depletion, and amortization
of oil and gas properties 37,333 1.10 31,858 1.65
Depreciation and amortization of other assets 2,256 0.07 1,272 0.07
General and administrative 5,207 0.15 3,087 0.16
Interest 20,319 0.60 8,873 0.46
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Total expenses 511,018 15.11 191,541 9.92
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Loss Before Income Taxes and
EXTRAORDINARY ITEM (425,132) (12.57) (37,087) (1.91)
INCOME TAX BENEFIT -- -- -- --
-------- ----- -------- ----
LOSS BEFORE EXTRAORDINARY ITEM (425,132) (12.57) (37,087) (1.91)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
applicable income tax -- -- -- --
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NET LOSS (425,132) (12.57) (37,087) (1.91)
LOSS PER COMMON SHARE (BASIC AND ASSUMING
DILUTION)
LOSS BEFORE EXTRAORDINARY ITEM (4.44) -- (0.52) --
EXTRAORDINARY ITEM -- -- -- --
-------- ----- -------- ----
NET LOSS (4.44) -- (0.52) --
-------- ----- -------- ----
AVERAGE COMMON SHARES AND COMMON
EQUIVALENT SHARES OUTSTANDING
BASIC AND ASSUMING DILUTION 96,710 -- 71,165 --
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CASH FLOW FROM OPERATIONS (1) 19,457 0.58 32,203 1.67
-------- ----- -------- ----
EBITDA (2) 39,776 1.18 41,076 2.13
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THOUSANDS OF BARRELS OF OIL (MBBL): 1,407 + 43% 987
MILLIONS OF CUBIC FEET OF GAS (MMCF): 25,373 + 90% 13,385
MILLIONS OF CUBIC FEET OF GAS EQUIVALENTS (MMCFE): 33,815 + 75% 19,307
AVERAGE PRICE/BARREL $11.04 - 41% $18.69
Average price/Mcf $1.79 - 24% $2.36
AVERAGE GAS EQUIVALENT PRICE/MCFE $1.80 - 31% $2.59
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</TABLE>
(1) Income before extraordinary item, income tax, depreciation, depletion
and amortization, impairment of other assets, impairment of oil and gas
properties, and gain of $73.84 million on sale of Bayard investment in
November 1997.
(2) Earnings before extraordinary item, income tax, interest expense,
depreciation, depletion and amortization, impairment of other assets,
impairment of oil and gas properties, and gain of $73.84 million on
sale of Bayard investment in November 1997.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION
($ IN 000'S, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
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THREE MONTHS ENDED: DECEMBER 31, 1998 DECEMBER 31, 1997
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$ $/MCFE $ $/MCFE
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<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales 256,887 1.97 198,410 2.47
Oil and gas marketing sales 121,059 0.93 104,394 1.30
Interest and other 3,926 0.03 87,673 1.09
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Total revenues 381,872 2.93 390,477 4.86
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EXPENSES:
Production expenses 51,202 0.39 14,737 0.18
Production taxes 8,295 0.06 4,590 0.06
Oil and gas marketing expenses 119,008 0.91 103,819 1.29
Impairment of oil and gas properties 826,000 6.34 346,000 4.31
Impairment of other assets 55,000 0.42 -- --
Depreciation, depletion, and amortization
of oil and gas properties 146,644 1.13 127,429 1.59
Depreciation and amortization of other assets 8,076 0.06 4,360 0.05
General and administrative 19,918 0.15 10,910 0.14
Interest 68,249 0.53 29,782 0.37
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Total expenses 1,302,392 9.99 641,627 7.99
-------- ----- -------- ----
Loss Before Income Taxes and
EXTRAORDINARY ITEM (920,520) (7.06) (251,150) (3.13)
INCOME TAX BENEFIT -- -- (17,898) (0.22)
-------- ----- -------- ----
LOSS BEFORE EXTRAORDINARY ITEM (920,520) (7.06) (233,252) (2.91)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
applicable income tax (13,334) (0.10) (177) --
-------- ----- -------- ----
NET LOSS (933,854) (7.16) (233,429) (2.91)
LOSS PER COMMON SHARE (BASIC AND ASSUMING
DILUTION)
LOSS BEFORE EXTRAORDINARY ITEM (9.83) -- (3.30) --
EXTRAORDINARY ITEM (0.14) -- -- --
-------- ----- -------- ----
NET LOSS (9.97) -- (3.30) --
-------- ----- -------- ----
AVERAGE COMMON SHARES AND COMMON
EQUIVALENT SHARES OUTSTANDING
BASIC AND ASSUMING DILUTION 94,911 -- 70,672 --
-------- ----- -------- ----
CASH FLOW FROM OPERATIONS (1) 115,200 0.88 152,799 1.90
-------- ----- -------- ----
EBITDA (2) 183,449 1.41 182,581 2.27
-------- ----- -------- ----
THOUSANDS OF BARRELS OF OIL (MBBL): 5,976 + 70% 3,511
MILLIONS OF CUBIC FEET OF GAS (MMCF): 94,421 + 59% 59,236
MILLIONS OF CUBIC FEET OF GAS EQUIVALENTS (MMCFE): 130,277 + 62% 80,302
AVERAGE PRICE/BARREL $12.70 - 35% $19.39
Average price/Mcf $1.92 - 13% $2.20
AVERAGE GAS EQUIVALENT PRICE/MCFE $1.97 - 20% $2.47
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</TABLE>
(1) Income before extraordinary item, income tax, depreciation, depletion
and amortization, impairment of other assets, impairment of oil and gas
properties, and gain of $73.84 million on sale of Bayard investment in
November 1997.
(2) Earnings before extraordinary item, income tax, interest expense,
depreciation, depletion and amortization, impairment of other assets,
impairment of oil and gas properties, and gain of $73.84 million on
sale of Bayard investment in November 1997.
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