<PAGE> 1
CHESAPEAKE ENERGY CORPORATION
OUTLOOK
DECEMBER 4, 2000
We have adopted a policy of providing investors with guidance on certain factors
that affect our future financial performance. As of December 4, 2000, we are
using the following key operating assumptions in our projections for the fourth
quarter 2000 and full year 2001. The key operating assumptions for 2001 assume
the completion of the pending merger with Gothic Energy Corporation in January
2001.
<TABLE>
<CAPTION>
QUARTER ENDING YEAR ENDING
DECEMBER 31, 2000 DECEMBER 31, 2001
<S> <C> <C>
PRODUCTION
Oil - Mbo 675 - 725 2,750 - 3,250
Gas - Bcf 28.5 - 29 148 - 155
Gas Equivalent-Mmcfe 32.7 - 32.9 165 - 175
NYMEX PRICES
Oil - $/Bo $26.67 $24.50
Gas - $/Mcf $4.93 $3.50
DIFFERENTIALS
Oil - $/Bo -$0.80 -$0.80
Gas - $/Mcf -$0.30 -$0.30
OPERATING COSTS PER mcfe
Production Expense .38 - .40 .32 - .35
Production Taxes (6% of O&G revenues) .26 - .28 .18 - .22
General and administrative .11 - .13 .10 - .11
DD&A - oil and gas .79 - .81 .86 - .92
Depreciation of other assets .05 - .06 .05 - .06
Interest expense .64 - .66 .62 - .68
OTHER INCOME AND EXPENSE PER mcfe
Marketing gross profit .02 - .04 .02 - .04
Other income .01 - .03 .01 - .05
BOOK TAX RATE - PRIMARILY DEFERRED 1 - 2% 35 - 40%
EQUIVALENT SHARES OUTSTANDING
Basic 152,000 m 157,000 m
Diluted 167,000 m 172,000 m
CAPITAL EXPENDITURES
Drilling $35,000 m $190,000 - $210,000 m
SENSITIVITY TO PRICE CHANGE - FOR EACH $1.00/bbl
P.V. 10% $14 mm $15 mm(1)
Cash flow from operations $0.7 mm $2.5 - $3.0 mm(1)
SENSITIVITY TO PRICE CHANGE - FOR EACH $0.10/mcf
P.V. 10% $60 mm $72 mm
Cash flow from operations $2.9 mm $15 - $16 mm
</TABLE>
-----------------------
1) Current reserves pro forma for Gothic merger.
COMMODITY HEDGING ACTIVITIES
Periodically the Company utilizes hedging strategies to hedge the price of a
portion of its future oil and gas production. These strategies include:
(i) swap arrangements that establish an index-related price above which the
Company pays the counterparty and below which the Company is paid by the
counterparty,
(ii) the purchase of index-related puts that provide for a "floor" price
below which the counterparty pays the Company the amount by which the
price of the commodity is below the contracted floor,
(iii) the sale of index-related calls that provide for a "ceiling" price above
which the Company pays the counterparty the amount by which the price of
the commodity is above the contracted ceiling,
(iv) basis protection swaps, which are arrangements that guarantee the price
differential of oil or gas from a specified delivery point or points,
and
<PAGE> 2
(v) collar arrangements that establish an index-related price below which
the counterparty pays the Company and a separate index-related price
above which the Company pays the counterparty.
Commodity markets are volatile, and as a result, Chesapeake's hedging activity
is dynamic. As market conditions warrant, the Company may elect to settle a
hedging transaction prior to its scheduled maturity date and, as a result,
realize a gain or loss on the transaction.
Results from commodity hedging transactions are reflected in oil and gas sales
to the extent related to the Company's oil and gas production. The Company only
enters into commodity hedging transactions related to the Company's oil and gas
production volumes or CEMI's physical purchase or sale commitments. Gains or
losses on crude oil and natural gas hedging transactions are recognized as price
adjustments in the months of related production.
As of September 30, 2000, the Company had the following open natural gas swap
arrangements designed to hedge a portion of the Company's domestic gas
production for periods after September 2000:
<TABLE>
<CAPTION>
NYMEX-INDEX
VOLUME STRIKE PRICE
MONTHS (MMBtu) (PER MMBtu)
------ -------- ------------
<S> <C> <C>
October 2000................................ 930,000 $ 2.57
</TABLE>
If the swap arrangement listed above had been settled on September 30, 2000, the
Company would have incurred a loss of $2.6 million. Subsequent to September 30,
2000 the Company settled the October 2000 natural gas swap for a loss of $3.3
million, which will be recognized as a price adjustment in October 2000.
On June 2, 2000, the Company entered into a natural gas basis protection swap
transaction for 13,500,000 MMBtu for the period of January 2001 through March
2001. This transaction requires that the counterparty pay the Company if the
NYMEX price exceeds the Houston Ship Channel Beaumont/Texas Index by more than
$0.0675 for each of the related months of production. If the NYMEX price less
$0.0675 does not exceed the Houston Ship Channel Beaumont/Texas Index for each
month, the Company will pay the counterparty. Gains or losses on basis swap
transactions are recognized as price adjustments in the month of related
production.
The Company also had closed a transaction designed to hedge a portion of the
Company's domestic natural gas production as of September 30, 2000. The net
unrecognized loss resulting from this transaction, $0.7 million as of September
30, 2000, will be recognized as a price adjustment in October 2000, the month of
related production.
Subsequent to September 30, 2000, the Company entered into natural gas collar
transactions designed to hedge 60,000 MMBtu per day throughout 2001 at an
average NYMEX-defined high strike price (cap) of $6.08 per MMBtu and an average
NYMEX-defined low strike price (floor) of $4.00 per MMBtu. In addition, the
Company entered into the following natural gas swap arrangements designed to
hedge a portion of the Company's domestic gas production for periods after
September 2000:
<TABLE>
<CAPTION>
MONTHLY NYMEX-INDEX
VOLUME STRIKE PRICE
MONTHS (MMBtu) (PER MMBtu)
-------- ------------
<S> <C> <C>
December 2000.................................................................... 3,720,000 $ 5.9960
January 2001..................................................................... 4,960,000 6.0335
February 2001.................................................................... 4,200,000 5.6721
March 2001....................................................................... 4,650,000 5.1142
April 2001....................................................................... 5,100,000 4.7878
May 2001......................................................................... 5,270,000 4.6262
June 2001........................................................................ 3,900,000 4.6058
July 2001........................................................................ 4,030,000 4.5944
August 2001...................................................................... 4,030,000 4.5822
September 2001................................................................... 3,900,000 4.5668
October 2001..................................................................... 620,000 4.7950
</TABLE>
<PAGE> 3
As of September 30, 2000, the Company had the following open crude oil swap
arrangements designed to hedge a portion of the Company's domestic crude oil
production for periods after September 2000:
<TABLE>
<CAPTION>
MONTHLY NYMEX-INDEX
VOLUME STRIKE PRICE
MONTHS (Bbls) (PER Bbl)
------ ------- -------------
<S> <C> <C>
October 2000..................................................................... 125,000 $28.42
November 2000.................................................................... 125,000 28.42
December 2000.................................................................... 125,000 28.42
</TABLE>
If the swap arrangements listed above had been settled on September 30, 2000,
the Company would have incurred a loss of $1.7 million. Subsequent to September
30, 2000, the Company entered into crude oil swap arrangements designed to hedge
5,000 barrels per day at a NYMEX Index strike price of $29.76 per barrel in
January through December 2001, and 10,000 barrels per month at an average price
of $29.12 per barrel.
The key operating assumptions presented in the table are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Although we believe that the
expectations reflected in these forward-looking statements are reasonable, we
can give you no assurance that such expectations will prove to have been
correct. Various factors could cause actual results to differ materially from
those projected, including, without limitation, those discussed under Risk
Factors in the proxy statement/prospectus for the Gothic acquisition dated
November 1, 2000, a form of which is included in our registration statement on
Form S-4 (file no. 333-47330) filed with the Securities and Exchange Commission
on November 1, 2000. Such factors are our substantial indebtedness, fluctuations
in the prices of oil and gas, the need to replace reserves, the substantial
capital requirements of our business, substantial uncertainties inherent in
estimating quantities of oil and gas reserves, projecting future rates of
production and the timing of development expenditures, operating risks,
restrictions imposed by lenders, the effects of governmental and environmental
regulation, pending or future litigation, conflicts of interest our CEO and COO
may have, and uncertainties related to the proposed business combination with
Gothic. We caution you not to place undue reliance on these forward-looking
statements, which speak only as of the date set forth above.
