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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
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<S> <C>
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) NOVEMBER 1, 1999 (OCTOBER 28, 1999)
-----------------------------------
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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 October 28, 1999, Chesapeake Energy Corporation ("Chesapeake")
issued a press release reporting record earnings and cash flow for the third
quarter of 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits. The following exhibit is filed herewith:
99. Press Release issued by the Registrant on October 28, 1999.
2
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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/ AUBREY K. MCCLENDON
------------------------------------
AUBREY K. MCCLENDON
Chairman of the Board and
Chief Executive Officer
Dated: November 1, 1999
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EXHIBIT INDEX
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<CAPTION>
EXHIBIT DESCRIPTION
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<S> <C>
99 Press Release issued by the Registrant on October 28, 1999.
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EXHIBIT 99
CONTACT: MARC ROWLAND,
CHIEF FINANCIAL OFFICER
(405) 879-9232
FOR IMMEDIATE RELEASE TOM PRICE, JR.,VICE PRESIDENT-
OCTOBER 28, 1999 CORPORATE DEVELOPMENT
(405) 879-9257
CHESAPEAKE ENERGY CORPORATION REPORTS RECORD
EARNINGS AND CASH FLOW FOR THE THIRD QUARTER OF 1999
COMPANY POSTS NET INCOME OF $18 MILLION, CASH FLOW OF $43 MILLION
AND EBITDA OF $64 MILLION ON REVENUE OF $102 MILLION FOR THIRD QUARTER
OKLAHOMA CITY, OKLAHOMA, OCTOBER 28, 1999 - Chesapeake Energy Corporation
(NYSE: CHK) today reported its financial and operating results for the third
quarter and first nine months of 1999. For the quarter, Chesapeake generated
net income of $18.1 million ($0.14 per common share after preferred dividends),
cash flow from operations of $43.4 million ($0.45 per common share), ebitda
(cash flow from operations plus interest expense) of $63.8 million and revenue
of $102.1 million on 32.7 billion cubic feet of natural gas equivalent (bcfe)
production. Average prices realized during the quarter were $18.90 per barrel
of oil and $2.26 per mcf of natural gas for a gas equivalent price of $2.40 per
mcfe.
By comparison, during the third quarter of 1998 Chesapeake generated a net loss
of $4.1 million ($0.08 per common share after preferred dividends), cash flow
from operations of $32.4 million ($0.33 per common share), ebitda of $51.0
million and revenue of $106.3 million on production of 36.3 bcfe and a realized
gas equivalent price of $1.93 per mcfe.
The table below summarizes Chesapeake's key statistics during the quarter and
compares them to the second quarter of 1999 and the third quarter of 1998:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------
9/30/99 6/30/99 9/30/98
------- ------- -------
<S> <C> <C> <C>
Average daily production (in mmcfe) 355 369 394
Gas as % of total production 84 81 74
Natural gas production (in bcf) 27.4 27.0 26.8
Average gas sales price ($/mcf) 2.26 1.88 1.88
Oil production (in mbbls) 875 1,089 1,571
Average oil sales price ($/bbl) 18.90 16.01 12.41
Natural gas equivalent production (in bcfe) 32.7 33.6 36.3
Gas equivalent sales price ($/mcfe) 2.40 2.03 1.93
</TABLE>
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<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------
9/30/99 6/30/99 9/30/98
------- ------- -------
<S> <C> <C> <C>
General and administrative costs ($/mcfe) .08 .10 .14
Production taxes ($/mcfe) .11 .08 .05
Lease operating expenses ($/mcfe) .36 .33 .39
Interest expense ($/mcfe) .63 .60 .51
Depletion of oil and gas properties ($/mcfe) .70 .72 .94
Cash flow from operations ($ in millions) 43.4 34.7 32.4
Cash flow from operations ($/mcfe) 1.33 1.03 .89
Ebitda ($ in millions) 63.8 54.9 51.0
Net income (loss) ($ in millions) 18.1 8.1 (4.1)
</TABLE>
Adjusted for property sales, Chesapeake's third quarter 1999 total oil and gas
production was unchanged from the second quarter of 1999 and 5% lower than the
1998 third quarter. However, also adjusted for property sales, the company's
third quarter 1999 gas production increased 3% over the 1999 second quarter and
5% over the 1998 third quarter.
BUDGET INFORMATION, YEAR 2000 FORECASTS AND LIQUIDITY
Chesapeake's present budget for 2000 assumes a realized natural gas equivalent
price of $2.51 per mcfe, which is based on current average NYMEX oil and gas
prices of $21.55 per barrel and $2.74 per mcf. The budget also assumes
differentials to NYMEX prices of $1.42 per barrel and $0.32 per mcf, or $0.35
per mcfe. The company is projecting production of 135 bcfe and per mcfe lease
operating expenses of $0.51 (including 22% greater production taxes due to
higher anticipated wellhead prices), interest costs of $0.62, general and
administrative costs of $0.10 and depletion of oil and gas properties of $0.78.
If the underlying assumptions listed above are achieved, Chesapeake should
generate cash flow from operations in 2000 of approximately $185 million, or
$1.90 per common share, and net income of $70 million, or $0.72 per common
share. In accordance with Chesapeake's plan to maintain a budget consistent
with internally generated cash flows, Chesapeake's preliminary capital
expenditure budget for 2000 has been set at $185 million, with $135 million
dedicated to drilling and $50 million for acquisitions.
Chesapeake's liquidity has continued to improve during the year. As of
September 30, 1999, the company's cash balances were $30 million and working
capital had grown to $9 million, a $23 million improvement from December 31,
1998. The company's $50 million bank credit facility, which was fully drawn in
the second quarter, was completely undrawn as of September 30,1999.
RECENT ACTIVITY
On September 27, 1999, Chesapeake reported its third quarter drilling
highlights. Since that date, a number of other significant wells have been
drilled.
Mid-Continent. To date in 1999, Chesapeake has been the most active operator in
the Mid-Continent with 77 wells drilled and, based on estimated 1999 production
data, the company is now the 4th largest producer of gas in the Mid-Continent,
trailing only Apache, Vastar and Amoco. Remaining in the company's
Mid-Continent leasehold inventory are approximately 750 drillsites identified
on its 850,000 gross undeveloped acres.
2
<PAGE> 3
In the Sahara area of northwest Oklahoma, Chesapeake continues to drill a
series of excellent wells. Most recent among these are the Barry 1-8, Daisy
1-22, and EOG Vall "K" 1-1, which are producing at a combined rate of 6,000
mcfe per day. These wells have estimated average reserves of 1.8 bcfe per well
with finding costs of $0.21 per mcfe. In the past 18 months, Chesapeake has
drilled 110 wells in the Sahara project in northwest Oklahoma, an area where
the company has identified over 500 drillsites with probable gross reserves of
approximately 300 bcfe at projected finding costs of $0.63 per mcfe.
In the company's high potential Chitwood area in southern Oklahoma where
multiple payzones have been identified by Chesapeake's 3-D seismic, the company
has logged and is awaiting completion of the Wilber 2-29. Logs indicate this
well is a significant Simpson discovery at a depth of 17,475'. The company has
begun drilling the Broome 2-32, an offsetting well which should reach total
projected depth of 17,100' in the first quarter of 2000.
In Western Oklahoma, the Mountain Front Project in the Deep Anadarko Basin is a
new area where the company has acquired 10,000 net leasehold acres and
identified 30 drillsites. Chesapeake's most recent completion in this area is
the K-F Strobel 1-32. The well is producing approximately 10,000 mcfe per day
from the Granite Wash at 13,525' and reserves should exceed 8.0 bcfe.
Chesapeake is currently drilling another well in the trend, the Ida Mae 1-21, a
13,600' Springer test.
Gulf Coast. Chesapeake's Texas Austin Chalk project continues to generate
outstanding results with the recent completion of the Carmona #1-H. This
19,550' single lateral horizontal well is averaging 26,000 mcfe per day through
a 26/64" choke with flowing tubing pressure of 8100#. Estimated ultimate
reserves are 12 bcfe. Based upon current natural gas prices and a completed
well cost of $2.6 million, this well should reach payout within 60 days. The
company has successfully completed three out of four Texas Austin Chalk wells
in 1999, with average per well reserves of 13 bcfe generating finding costs of
$0.40 per mcfe. The company is currently drilling its next Independence well,
the Hiram #1-H, and expects to drill five Texas Austin Chalk wells in 2000.
Also in Texas, Chesapeake has logged and is beginning completion of a 9,400'
Yegua discovery well on its 3-D delineated Peach Creek project in Wharton
County. Log analysis indicates approximately 100' of gross pay in the Frio and
Yegua formations. Chesapeake plans to drill six Frio/Yegua wells in 2000 on its
27,000 gross acres in Peach Creek.
Canada. In December, Chesapeake will begin its 1999-2000 winter drilling
program on 750,000 gross undeveloped acres in the Helmet area of far northeast
British Colombia. The continued expansion of Canadian pipeline infrastructure
has substantially reduced the historically large price differentials between
Canadian and U.S. natural gas production. Using a four rig schedule, Chesapeake
anticipates participating in 14 Helmet wells this winter.
Other Areas. Although Chesapeake is focusing predominately on natural gas
projects, the company continues to enjoy success on oil projects in the
Lovington area of Lea County, New Mexico and in the Williston Basin of North
Dakota and Montana. The company's two most recent completions in Lovington are
the Kala 1-12H and the Arrington Mayfly 2-14.
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The Kala is producing 850 barrels of oil and 1,200 mcf per day and the Mayfly
is producing 900 barrels of oil and 1,400 mcf of gas per day. Each well has
estimated ultimate reserves of approximately 1.1 million barrels of oil
equivalent.
MANAGEMENT SUMMARY
Chesapeake's Chief Executive Officer, Aubrey K. McClendon, commented,
"Chesapeake's strategy of building a premier long-lived natural gas franchise
is continuing to generate very attractive financial and operating results. We
are especially pleased with the efficiency of our 1999 capital expenditure
program, which to date has replaced by over 200% our production of 100 bcfe at
a cost of only $0.68 per mcfe. We are once again generating excellent financial
results and creating substantial shareholder value enhanced by these low
finding and operating costs. With oil and gas prices remaining strong, 2000
looks like it should be another year of value-added growth for Chesapeake's
shareholders."
MANAGEMENT CONFERENCE CALL
Chesapeake's management will host a teleconference tomorrow morning, Friday,
October 29 at 10:00 a.m. EDT to review the 1999 third quarter results. Please
call 913-981-4900 between 9:45 and 9:55 am EDT tomorrow if you would like to
participate. For those unable to participate, the call will also be available
over the Internet by visiting our home page at chesapeake-energy.com and
clicking on the link under Shareholder Information or by going directly to
Vcall at Vcall.com. In addition, a replay of the call will also be available by
calling 719-457-0820 between 1:00 p.m. EDT Friday, October 29 through midnight
Friday, November 5, 1999. The passcode for this call is 785666.
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 June
30, 1999.
Chesapeake Energy Corporation is one of the 15 largest independent natural gas
producers in the U.S. 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.
4
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in 000's, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED: SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------ -------------------------
$ $/MCFE $ $/MCFE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales 78,521 2.40 70,082 1.93
Oil and gas marketing sales 23,619 0.72 36,256 1.00
-------- ---------- -------- ----------
Total revenues 102,140 3.12 106,338 2.93
-------- ---------- -------- ----------
OPERATING COSTS:
Production expenses 11,747 0.36 14,208 0.39
Production taxes 3,652 0.11 1,976 0.05
Oil and gas marketing expenses 22,851 0.70 34,720 0.96
Depreciation, depletion, and amortization
of oil and gas properties 22,816 0.70 34,069 0.94
Depreciation and amortization of other assets 1,840 0.06 2,518 0.07
General and administrative 2,736 0.08 5,197 0.14
-------- ---------- -------- ----------
Total operating costs 65,642 2.01 92,688 2.55
-------- ---------- -------- ----------
-------- ---------- -------- ----------
INCOME (LOSS) FROM OPERATIONS: 36,498 1.11 13,650 0.38
-------- ---------- -------- ----------
OTHER INCOME (EXPENSE):
Interest and other income 2,686 0.08 778 0.02
Interest expense (20,420) (0.63) (18,577) (0.51)
-------- ---------- -------- ----------
(17,734) (0.55) (17,799) (0.49)
-------- ---------- -------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 18,764 0.56 (4,149) (0.11)
INCOME TAX EXPENSE 649 0.02 -- --
-------- ---------- -------- ----------
NET INCOME (LOSS) 18,115 0.54 (4,149) (0.11)
PREFERRED STOCK DIVIDENDS (4,381) (0.13) (4,026) (0.11)
-------- ---------- -------- ----------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS 13,734 0.41 (8,175) (0.22)
======== ========= ======== ==========
EARNINGS (LOSS) PER COMMON SHARE - BASIC
Income (Loss) before extraordinary item 0.14 -- (0.08) --
Extraordinary item -- -- -- --
-------- ---------- -------- ----------
Net Income (Loss) 0.14 -- (0.08) --
======== ========= ======== ==========
EARNINGS (LOSS) PER COMMON SHARE - ASSUMING
DILUTION
Income (Loss) before extraordinary item 0.13 -- (0.08) --
Extraordinary item -- -- -- --
-------- ---------- -------- ----------
Net Income (Loss) 0.13 -- (0.08) --
======== ========= ======== ==========
AVERAGE COMMON SHARES AND COMMON EQUIVALENT SHARES
OUTSTANDING
BASIC 97,126 -- 98,046 --
DILUTED 103,576 -- 98,046 --
-------- ---------- -------- ----------
CASH FLOW FROM OPERATIONS (1) 43,420 1.33 32,438 0.89
======== ========= ======== ==========
EBITDA (2) 63,840 1.95 51,015 1.41
======== ========= ======== ==========
THOUSANDS OF BARRELS OF OIL (MBBL): 875 -44% 1,571
MILLIONS OF CUBIC FEET OF GAS (MMCF): 27,412 2% 26,842
MILLIONS OF CUBIC FEET OF GAS EQUIVALENTS (MMCFE): 32,662 -10% 36,268
MMCFE PER DAY 355.0 -10% 394.2
AVERAGE PRICE/BARREL $ 18.90 52% $ 12.41
AVERAGE PRICE/MCF $ 2.26 20% $ 1.88
AVERAGE GAS EQUIVALENT PRICE/MCFE $ 2.40 24% $ 1.93
-------- ---------- --------
</TABLE>
(1) Income before income tax and depreciation, depletion and amortization.
(2) Earnings before income tax, interest expense and depreciation,
depletion and amortization.
<PAGE> 6
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN 000'S, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED: SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-------------------------- -------------------------
$ $/MCFE $ $/MCFE
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales 198,599 2.00 195,962 2.03
Oil and gas marketing sales 50,110 0.50 96,451 1.00
---------- ---------- -------- ----------
Total revenues 248,709 2.50 292,413 3.03
---------- ---------- -------- ----------
OPERATING COSTS:
Production expenses 36,922 0.37 36,775 0.38
Production taxes 8,440 0.08 6,141 0.06
Oil and gas marketing expenses 47,809 0.48 94,686 0.98
Depreciation, depletion, and amortization
of oil and gas properties 70,202 0.71 109,311 1.13
Depreciation and amortization of other assets 5,978 0.06 5,820 0.06
General and administrative 10,028 0.10 14,711 0.15
Impairment of oil and gas properties -- -- 466,000 4.83
Impairment of other assets -- -- 10,000 0.10
---------- ---------- -------- ----------
Total operating costs 179,379 1.80 743,444 7.69
---------- ---------- -------- ----------
---------- ---------- -------- ----------
INCOME (LOSS) FROM OPERATIONS: 69,330 0.70 (451,031) (4.66)
---------- ---------- -------- ----------
OTHER INCOME (EXPENSE):
Interest and other income 6,526 0.07 3,573 0.04
Interest expense (60,569) (0.61) (47,930) (0.50)
---------- ---------- -------- ----------
(54,043) (0.54) (44,357) (0.46)
---------- ---------- -------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 15,287 0.16 (495,388) (5.12)
INCOME TAX EXPENSE 975 0.01 -- --
---------- ---------- -------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 14,312 0.15 (495,388) (5.12)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
Applicable income tax -- -- (13,334) (0.14)
---------- ---------- -------- ----------
NET INCOME (LOSS) 14,312 0.15 (508,722) (5.26)
PREFERRED STOCK DIVIDENDS (12,433) (0.12) (8,051) (0.08)
---------- ---------- -------- ----------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS 1,879 0.03 (516,773) (5.34)
========== ========== ======== ==========
EARNINGS (LOSS) PER COMMON SHARE - BASIC
Income (Loss) before extraordinary item 0.02 -- (5.34) --
Extraordinary item -- -- (0.14) --
---------- ---------- -------- ----------
Net Income (Loss) 0.02 -- (5.48) --
========== ========== ======== ==========
EARNINGS (LOSS) PER COMMON SHARE - ASSUMING
DILUTION
Income (Loss) before extraordinary item 0.02 -- (5.34) --
Extraordinary item -- -- (0.14) --
---------- ---------- -------- ----------
Net Income (Loss) 0.02 -- (5.48) --
========== ========== ======== ==========
AVERAGE COMMON SHARES AND COMMON EQUIVALENT SHARES
OUTSTANDING
BASIC 97,126 -- 94,355 --
DILUTED 101,625 -- 94,355 --
---------- ---------- -------- ----------
CASH FLOW FROM OPERATIONS (1) 91,467 0.92 95,743 0.99
========== ========== ======== ==========
EBITDA (2) 152,036 1.53 143,673 1.49
========== ========== ======== ==========
THOUSANDS OF BARRELS OF OIL (MBBL): 3,237 -29% 4,569
MILLIONS OF CUBIC FEET OF GAS (MMCF): 80,118 16% 69,048
MILLIONS OF CUBIC FEET OF GAS EQUIVALENTS (MMCFE): 99,540 3% 96,462
MMCFE PER DAY 364.6 3% 353.3
AVERAGE PRICE/BARREL $ 14.79 12% $ 13.21
AVERAGE PRICE/MCF $ 1.88 -4% $ 1.96
AVERAGE GAS EQUIVALENT PRICE/MCFE $ 2.00 -1% $ 2.03
---------- ---------- --------
</TABLE>
(1) Income before income tax, depreciation, depletion and amortization,
impairment of oil and gas properties and impairment of other assets.
(2) Earnings before income tax, interest expense, depreciation, depletion and
amortization, impairment of oil and gas properties and impairment of other
assets.
