Chesapeake Energy Corp. Downgraded, Off S&PWatch.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 7/11/97 --Standard & Poor's today has lowered its corporate credit rating and senior unsecured debt rating on Chesapeake Energy Corp. to double-`B'-minus from double-`B' and has removed the ratings from CreditWatch, where they were placed June 30, 1997.

The outlook is now stable.

The rating downgrades reflect lowered expectations regarding production growth and improvement in financial performance following the recent announcement of poor drilling results in Louisiana's Austin Chalk properties. Chesapeake indicated it will incur a $150 million-$200 million pretax write-down of its entire investment in five of the six fields within the Austin Chalk, including leaseholds and sunk drilling costs. The write-down relates primarily to acreage values, with only a small impact on proved oil and gas reserves. The company will remain an active driller in the region's most developed field, Masters Creek, as well as in five other U.S. onshore regions.

The negative financial impact includes reduced earnings and cash flow expectations, higher debt and asset leverage, and a reduction in financial flexibility. Earnings protection measures continue to be fair, with interest coverage expected in the 3.5 times (x)-4.5x range. The company has a large cash position, totaling $200 million, remaining from a recent debt issue. Although management has reduced budgeted capital expenditures for the next several years, investment is likely to outstrip internal cash flow. Financial flexibility is likely decrease as a result of the approximate 25% reduction in reported net worth to $380 million, and the recent severe erosion in the company's share price.

Chesapeake's ratings reflects a below-average competitive position as a small independent oil and gas exploration and production company, and high financial risk. Chesapeake's reserve base is small at about 500 billion cubic feet equivalent (75% gas, 36% proved developed). The company is among the most active drillers in the U.S., as measured by rig count and number of new wells drilled. Management's strategic focus is on large exploration projects in geologically complex fields with high risk and high profit potential. This focus reflects expertise in horizontal drilling, 3D seismic testing, and other advanced drilling techniques. Several producing properties, primarily in Oklahoma, carry lower risk and longer reserve lives.

OUTLOOK: Stable.

Large cash balances provide near-term ratings support. The portfolio of salable properties, as well as the still sizable equity base, provide a modest cushion from downside credit risk in the event of additional disappointing drilling results. Aggressive growth goals and the heavy debt burden will limit upgrade potential, Standard & Poor's said.---CreditWire

CONTACT: Joshua Gonze, New York (1) 212-208-1678