Chesapeake Energy Corporation Reports Financial and Operational Results for the 2009 Second Quarter.Company Reports 2009 Second Quarter Adjusted Net Income to Common Shareholders of $377 Million, or $0.62 per Fully Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. Common Share, on Revenue of $1.67 Billion; Net Income Available to Common Shareholders Was $237 Million, or $0.39 per Fully Diluted Common Share Company Reports 2009 Second Quarter Production of 2.453 Bcfe per Day, an Increase of 4% over 2009 First Quarter Production and 5% over 2008 Second Quarter Production Company Increases Proved Reserves proved reserves The quantity of minerals expected to be recoverable under current economic and operating conditions. The amount of proved reserves is important in valuing the stock of a company with significant holdings in natural resources. by 0.7 Tcfe to 12.5 Tcfe and Delivers 2009 Second Quarter Drilling and Net Acquisition Costs of $0.72 per Mcfe; Company Record Set for Organic Reserve Additions and Reserve Replacement During a Six-Month Period Company Provides Update on 2009 Asset Monetization Monetization The securitization of the gross revenues of a contract. Initiatives and Hedging Positions OKLAHOMA CITY Oklahoma City (1990 pop. 444,719), state capital, and seat of Oklahoma co., central Okla., on the North Canadian River; inc. 1890. The state's largest city, it is an important livestock market, a wholesale, distribution, industrial, and financial center, and a farm -- Chesapeake Energy Chesapeake Energy (NYSE: CHK) is a producer of natural gas in the United States and according to their 3Q 2007 report, is the largest independent producer, third overall (including majors) and the most active driller of new wells in the US. Corporation (NYSE NYSE See: New York Stock Exchange :CHK CHK Check CHK CHKDSK (File Name Extension) CHK Chuuk, Caroline Islands, Micronesia (airport code) CHK Check File ) today announced financial and operating results for the 2009 second quarter. For the quarter, Chesapeake Chesapeake, ship Chesapeake, U.S. frigate, famous for her role in the Chesapeake affair (June 22, 1807) and for her battle with the H.M.S. Shannon (June 1, 1813). The Chesapeake left Norfolk, Va. reported net income to common shareholders of $237 million ($0.39 per fully diluted common share), operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. of $1.006 billion (defined as cash flow from operating activities before changes in assets and liabilities) and ebitda of $763 million (defined as net income before income taxes, interest expense, and depreciation, depletion depletion n. when a natural resource (particularly oil) is being used up. The annual amount of depletion may, ironically, provide a tax deduction for the company exploiting the resource because if the resource they are exploiting runs out, they will no longer be able and amortization expense) on revenue of $1.673 billion and production of 223 billion cubic feet of natural gas equivalent (bcfe). The company's 2009 second quarter results include a realized natural gas and oil hedging gain of $597 million. The results also include various items that are typically not included in published estimates of the company's financial results by certain securities analysts. Excluding the items detailed below, Chesapeake generated adjusted net income to common shareholders for the 2009 second quarter of $377 million ($0.62 per fully diluted common share) and adjusted ebitda of $1.030 billion. The excluded items and their effects on 2009 second quarter reported results are detailed as follows: * a net unrealized noncash after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. mark-to-market Mark-to-market Adjustment of the book value or collateral value of a security to reflect current market value. loss of $109 million resulting from the company's natural gas, oil and interest rate hedging programs; * an after-tax charge of $21 million related to restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and relocation RELOCATION, Scotch law, contracts. To let again to renew a lease, is called a relocation. 2. When a tenant holds over after the expiration of his lease, with the consent of his landlord, this will amount to a relocation. costs in the company's Eastern Division and certain other work force reduction costs; and * a combined after-tax charge of $10 million related to estimated bad debts owed to Chesapeake that may be uncollectible Adj. 1. uncollectible - not capable of being collected; "a bad (or uncollectible) debt" bad invalid - having no cogency or legal force; "invalid reasoning"; "an invalid driver's license" , the impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of an investment and a loss on exchanges of certain of the company's contingent convertible senior notes for shares of common stock. The various items described above do not materially affect the calculation of operating cash flow. A reconciliation of operating cash flow, ebitda, adjusted ebitda and adjusted net income to comparable financial measures calculated in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting is presented on pages 15 - 19 of this release. Key Operational and Financial Statistics Summarized The table below summarizes Chesapeake's key results during the 2009 second quarter and compares them to results during the 2009 first quarter and the 2008 second quarter. [TABLE OMITTED] [TABLE OMITTED] 2009 Second Quarter Average Daily Production Increases 4% over 2009 First Quarter Production and 5% over 2008 Second Quarter Production As announced on July 30, 2009, the company's daily production for the 2009 second quarter averaged 2.453 bcfe, an increase of 86 million cubic feet of natural gas equivalent (mmcfe), or 4%, over the 2.367 bcfe produced per day in the 2009 first quarter and an increase of 125 mmcfe, or 5%, over the 2.328 bcfe produced per day in the 2008 second quarter. Adjusted for the company's 2009 voluntary production curtailments due to low natural gas and oil prices (which averaged approximately 74 mmcfe per day during the 2009 second quarter), the company's three 2008 volumetric volumetric /vol·u·met·ric/ (vol?u-met´rik) pertaining to or accompanied by measurement in volumes. vol·u·met·ric adj. Of or relating to measurement by volume. production payment sales (which averaged approximately 139 mmcfe per day during the 2009 second quarter) and the estimated impact from the company's 2008 sales of Woodford Shale and Fayetteville Shale properties (which would have averaged approximately 81 mmcfe per day during the 2009 second quarter), Chesapeake's sequential and year-over-year production growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. would have been 4% and 16%, respectively, after making similar adjustments to prior quarters. The company is not currently curtailing production, but may do so again later this summer or fall as market conditions dictate TO DICTATE. To pronounce word for word what is destined to be at the same time written by another. Merlin Rep. mot Suggestion, p. 5 00; Toull. Dr. Civ. Fr. liv. 3, t. 2, c. 5, n. 410. . The company also expects that rising pipeline and gathering system pressures during the next few months will likely result in involuntary involuntary adj. or adv. without intent, will, or choice. Participation in a crime is involuntary if forced by immediate threat to life or health of oneself or one's loved ones, and will result in dismissal or acquittal. INVOLUNTARY. natural gas production curtailments across the industry. Chesapeake's average daily production for the 2009 second quarter consisted of 2.245 billion cubic feet of natural gas (bcf) and 34,637 barrels of oil and natural gas liquids (bbls). The company's 2009 second quarter production of 223.2 bcfe was comprised of 204.3 bcf (92% on a natural gas equivalent basis) and 3.152 million barrels of oil and natural gas liquids (mmbbls) (8% on a natural gas equivalent basis). Average Realized Prices, Hedging Results and Hedging Positions Detailed Average prices realized during the 2009 second quarter (including realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. or losses from natural gas and oil derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. , but excluding unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. or losses on such derivatives) were $5.56 per thousand cubic feet (mcf) and $56.72 per bbl, for a realized natural gas equivalent price of $5.89 per thousand cubic feet of natural gas equivalent (mcfe). Realized gains from natural gas and oil hedging activities during the 2009 second quarter generated a $2.88 gain per mcf and a $3.13 gain per bbl for a 2009 second quarter realized hedging gain of $597 million, or $2.68 per mcfe. Without realized hedging gains, the company's average realized prices for the 2009 second quarter would have been $2.68 per mcf and $53.59 per bbl, for a natural gas equivalent price of $3.21 per mcfe. Excluding hedging activity, Chesapeake's average realized pricing basis differentials to NYMEX See New York Mercantile Exchange. NYMEX See New York Mercantile Exchange (NYM). during the 2009 second quarter were a negative $0.83 per mcf and a negative $6.03 per bbl. By comparison, average prices realized during the 2008 second quarter (including realized gains or losses from natural gas and oil derivatives, but excluding unrealized gains or losses on such derivatives) were $8.18 per mcf and $76.96 per bbl, for a realized natural gas equivalent price of $8.55 per mcfe. Realized losses Realized Loss A loss recognized when assets are sold for a price lower than the original purchase price. Notes: A portion of the realized loss may be applied against a capital gain or realized profit to reduce taxes. from natural gas and oil hedging activities during the 2008 second quarter generated a $1.55 loss per mcf and a $42.85 loss per bbl for a 2008 second quarter realized hedging loss of $423 million, or $1.99 per mcfe. Without realized hedging gains, the company's average realized prices for the 2008 second quarter would have been $9.73 per mcf and $119.81 per bbl, for a natural gas equivalent price of $10.54 per mcfe. Excluding hedging activity, Chesapeake's average realized pricing basis differentials to NYMEX during the 2008 second quarter were a negative $1.21 per mcf and a negative $4.17 per bbl. The following tables summarize sum·ma·rize intr. & tr.v. sum·ma·rized, sum·ma·riz·ing, sum·ma·riz·es To make a summary or make a summary of. sum Chesapeake's open hedge position through swaps and collars as of August 3, 2009. Depending on changes in natural gas and oil futures markets futures market, a commodity exchange where contracts for the future delivery of grain, livestock, and precious metals are bought and sold. Speculation in futures serves to protect both the developers and the users of the commodities from unfavorable and unpredictable and management's view of underlying natural gas and oil supply and demand trends, Chesapeake may either increase or decrease its hedging positions at any time in the future without notice. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] As of July 31, 2009, Chesapeake's natural gas and oil hedging positions with 14 different counterparties Counterparties The parties on either side of an interest rate swap or a currency, equity or commodity swap, or to an options or futures position. had a positive mark-to-market value of approximately $900 million. The company's updated forecasts for 2009 and 2010 are attached to this release in an Outlook dated August 3, 2009, labeled as Schedule "A," which begins on page 20. This Outlook has been changed from the Outlook dated May 4, 2009, attached as Schedule "B," which begins on page 25, to reflect various updated information. Company Increases Proved Natural Gas and Oil Reserves Oil reserves refer to portions of oil in place that are claimed to be recoverable under economic constraints. Oil in the ground is not a "reserve" unless it is claimed to be economically recoverable, since as the oil is extracted, the cost of recovery increases incrementally by 0.7 Tcfe to 12.5 Tcfe and Delivers 2009 Second Quarter Drilling and Net Acquisition Costs of $0.72 per Mcfe; Company Record Set for Organic Reserve Additions and Reserve Replacement During a Six-Month Period Chesapeake began the 2009 second quarter with estimated proved reserves of 11.851 trillion One thousand times one billion, which is 1, followed by 12 zeros, or 10 to the 12th power. See space/time. (mathematics) trillion - In Britain, France, and Germany, 10^18 or a million cubed. In the USA and Canada, 10^12. cubic feet of natural gas equivalent (tcfe) and ended the 2009 second quarter with 12.525 tcfe, an increase of 674 bcfe, or 6%. During the 2009 second quarter, Chesapeake replaced 223 bcfe of production with an estimated 897 bcfe of new proved reserves for a reserve replacement rate of 402%. The quarter's reserve movement included 493 bcfe of extensions, 343 bcfe of positive performance revisions, 156 bcfe of positive revisions resulting from natural gas and oil price increases between March 31, 2009 and June 30, 2009 and 95 bcfe of net divestitures. Chesapeake's total drilling and net acquisition costs for the 2009 second quarter were $0.72 per mcfe. This calculation excludes costs of $236 million for the acquisition of unproved properties and leasehold An estate, interest, in real property held under a rental agreement by which the owner gives another the right to occupy or use land for a period of time. leasehold n. , $153 million for capitalized interest Capitalized interest Interest that is not immediately expensed, but rather is considered as an asset and is then amortized through the income statement over time. In the context of project financing, interest that is paid by additional borrowing. on unproved properties, and $26 million for seismic and asset retirement obligations Asset Retirement Obligations provide for future disposal of assets as required by SFAS 143 [1]. Firms must recognize the ARO liability in the period it was acquired, generally acquisition. , and also excludes positive revisions of proved reserves from higher natural gas and oil prices. Excluding these items and acquisition and divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). activity, Chesapeake's exploration and development costs through the drillbit during the 2009 second quarter were $0.87 per mcfe, giving effect to the benefit of $311 million in drilling carries associated with the Haynesville ($118 million), Fayetteville ($166 million) and Marcellus ($27 million) joint ventures. A complete reconciliation of 2009 second quarter proved reserves and finding and acquisition costs is presented on page 11 of this release. During the 2009 first half, Chesapeake increased its estimated proved reserves 474 bcfe, or 4%, from 12.051 tcfe at year-end 2008. For the 2009 first half, Chesapeake replaced 436 bcfe of production with an estimated 910 bcfe of new proved reserves for a reserve replacement rate of 209%. The reserve movement in the 2009 first half included 920 bcfe of extensions, 740 bcfe of positive performance revisions, 664 bcfe of downward revisions resulting from a decrease in natural gas prices between December 31, 2008 and June 30, 2009 and 86 bcfe of net divestitures. Chesapeake's 1,660 bcfe of extensions and performance revisions in the 2009 first half set a company record for the highest level of organic reserve additions during a six-month period and its organic reserve replacement rate of 381% for the six-month period was also the highest in the company's history. Chesapeake's total drilling and net acquisition costs for the 2009 first half were $1.18 per mcfe. This calculation excludes costs of $746 million for the acquisition of unproved properties and leasehold, $314 million for capitalized interest on unproved properties, and $95 million for seismic and asset retirement obligations, and also excludes downward revisions of proved reserves from lower natural gas and oil prices. Excluding these items and acquisition and divestiture activity, Chesapeake's exploration and development costs through the drillbit during the 2009 first half were $1.15 per mcfe, giving effect to the benefit of $580 million in drilling carries associated with the Haynesville ($204 million), Fayetteville ($337 million) and Marcellus ($39 million) joint ventures. A complete reconciliation of 2009 first half proved reserves and finding and acquisition costs is presented on page 12 of this release. Chesapeake continued the industry's most active drilling program during the 2009 first half, and drilled 580 gross operated wells (432 net wells with an average working interest of 74%) and participated in another 581 gross wells operated by other companies (44 net wells with an average working interest of 8%). The company's drilling success rate was 99% for both company-operated and non-operated wells. Also during the 2009 first half, Chesapeake invested $1.509 billion in operated wells (using an average of 104 operated rigs) and $401 million in non-operated wells (using an average of 53 non-operated rigs) for total drilling, completing and equipping e·quip tr.v. e·quipped, e·quip·ping, e·quips 1. a. To supply with necessities such as tools or provisions. b. costs of $1.910 billion (net of carries). As of June 30, 2009, the present value of future net cash flows, discounted at 10% per year, of Chesapeake's estimated proved reserves (PV-10) was $11.076 billion using field differential adjusted prices based on NYMEX quarter-end prices of $3.89 per mcf and $70.00 per bbl. Chesapeake's PV-10 changes by approximately $400 million for every $0.10 per mcf change in natural gas prices and approximately $65 million for every $1.00 per bbl change in oil prices. By comparison, the December 31, 2008 PV-10 of the company's proved reserves was $15.601 billion ($11.833 billion applying the SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System 69 standardized standardized pertaining to data that have been submitted to standardization procedures. standardized morbidity rate see morbidity rate. standardized mortality rate see mortality rate. measure) using field differential adjusted prices based on NYMEX year-end prices of $5.71 per mcf and $44.61 per bbl. The June 30, 2008 PV-10 of the company's proved reserves was $51.5 billion using field differential adjusted prices based on NYMEX quarter-end prices of $13.10 per mcf and $140.02 per bbl. The company calculates the standardized measure of future net cash flows in accordance with SFAS 69 only at year end because applicable income tax information on properties, including recently acquired natural gas and oil interests, is not readily available at other times during the year. As a result, the company is not able to reconcile the interim period-end PV-10 values to the standardized measure at such dates. The only difference between the two measures is that PV-10 is calculated before considering the impact of future income tax expenses, while the standardized measure includes such effects. In addition to the PV-10 value of its proved reserves and the very significant value of its undeveloped leasehold, particularly in the Haynesville, Marcellus, Barnett and Fayetteville Shale plays and in the Colony and Texas Panhandle panhandle, in geography, a strip of land projecting from the main body of an area and shaped like the handle of a pan, such as the panhandles of West Virginia, Texas, and Alaska. Granite granite, coarse-grained igneous rock of even texture and light color, composed chiefly of quartz and feldspars. It usually contains small quantities of mica or hornblende, and minor accessory minerals may be present. Wash plays, the net book value of the company's other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. (including gathering systems, compressors, land and buildings, investments and other noncurrent assets Noncurrent asset Any asset that is expected to be held for the whole year, not sold or exchanged, such as real estate, machinery, or a patent. noncurrent asset ) was $6.369 billion as of June 30, 2009, $5.822 billion as of December 31, 2008 and $4.585 billion as of June 30, 2008. Company Updates Asset Monetization Plans During 2009 and 2010, Chesapeake plans to increase its liquidity, reduce its borrowings under its revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility and also strengthen its balance sheet through asset monetizations and the growth of its proved reserve base. As part of this plan, Chesapeake is targeting to monetize Monetize 1. To convert into money. 2. To convert from securities into currency that can be used to purchase goods and services. Notes: For example, you'll often hear Internet marketers talk about "monetizing website visitors. leasehold, producing properties, midstream mid·stream n. 1. The middle part of a stream. 2. The part of a course that is neither at the beginning nor at the end: the midstream of life. Noun 1. assets and other assets for a range of $2.35 to $3.05 billion in 2009 and $1.25 to $1.80 billion in 2010. The company anticipates utilizing the monetization proceeds for capital expenditures and to reduce borrowings under its revolving credit facility. Since March 31, 2009, the company has sold or agreed to sell approximately $900 million of assets including producing properties and gathering assets located primarily in Louisiana Louisiana (ləwē'zēăn`ə, l  ē'–), state in the S central United States. It is bounded by Mississippi, with the Mississippi R. for $208 million (closed
June 30), certain midstream and real estate surface assets for $172
million (closed on various dates in the second quarter), producing
properties in central Texas for $75 million (closed July 1), and certain
other midstream assets in multiple transactions for a total of
approximately $70 million (closings anticipated on various dates in the
third quarter). In addition, the company today sold certain
Chesapeake-operated long-lived producing assets in South Texas in its
fifth volumetric production payment transaction (VPP VPP Voluntary Protection Program (OSHA)VPP Velocity Prediction Program (to predict sail boat performance) VPP Virtual Presence Protocol VPP Volts Peak to Peak VPP Virtual Presence Post ) for proceeds of $371 million, or $5.46 per mcfe of proved reserves. The assets included proved reserves of approximately 68 bcfe and current net production of approximately 55 mmcfe per day. Chesapeake is planning to sell certain non-Haynesville Shale producing assets in Louisiana in its sixth VPP in the next 90 days for approximately $225-$250 million and also other mature producing assets in the second half of 2009 for approximately $200 million. The company is also working to finalize fi·nal·ize tr.v. fi·nal·ized, fi·nal·iz·ing, fi·nal·iz·es To put into final form; complete or conclude: "They have jointly agreed ... agreements with a private equity investor to sell a 50% minority interest in its Barnett Shale The Barnett Shale is a geological formation of economic significance. It consists of sedimentary rocks of Mississippian age in the U.S. State of Texas. The formation is estimated to stretch from the city of Dallas to west of the city of Fort Worth and south, covering 5,000 square and Mid-Continent natural gas gathering and processing assets in the company's midstream subsidiary, Chesapeake Midstream Partners. The company anticipates completing the midstream transaction in the 2009 third quarter for proceeds of more than $550 million. Finally, Chesapeake continues to have discussions with several companies about a possible joint venture on some or all of its Barnett Shale leasehold in a transaction targeted for completion by year-end 2009. Management Comments Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented, "We are pleased to report our financial and operational results for the 2009 second quarter. Chesapeake was able to deliver very solid results for the quarter despite the 70% drop in natural gas prices over the past year as a result of our successful hedging program, strong operating capabilities Noun 1. operating capability - the capability of a technological system to perform as intended performance capability capability, capableness - the quality of being capable -- physically or intellectually or legally; "he worked to the limits of his , low cost structure, powerful assets and very attractive joint venture arrangements. "We are particularly proud of our very strong quarterly proved reserve additions of 741 bcfe at a finding and net acquisition cost of $0.72 per mcfe and our outstanding organic reserve additions of 836 bcfe at a drilling cost of only $0.87 per mcfe. During the quarter, we benefited from $311 million of drilling carries and we anticipate receiving more than $3.7 billion of additional carries through 2013. We believe these carries, in combination with our very low-cost Big 4 shale and two major Granite Wash plays will result in very high returns on invested capital, reduced capital expenditures and a rapidly improving balance sheet for years to come. "Our high level of hedging at attractive prices should continue to insulate in·su·late tr.v. in·su·lat·ed, in·su·lat·ing, in·su·lates 1. To cause to be in a detached or isolated position. See Synonyms at isolate. 2. Chesapeake from potentially soft natural gas prices during the remainder of 2009. We believe that dramatically reduced U.S. drilling activity should soon lead to steep natural gas production declines in the industry. This should work to tighten natural gas markets, lift natural gas prices and improve the company's profitability in 2010 and beyond. "Chesapeake's 2009 asset monetization program is on track with $900 million of proceeds captured to date and multiple transactions progressing toward completion in the second half of 2009 that will lead to total asset monetizations for the year of between $2.35 and $3.05 billion. We anticipate this program, combined with strong operating cash flow, will enable the company to continue funding its highly economic investment program solely from internal resources while at the same time reducing the company's debt levels both absolutely and on a per proved mcfe basis. We believe Chesapeake is very well positioned to deliver substantial quarterly increases in value to our investors in the years ahead." Conference Call Information A conference call to discuss this release has been scheduled for Tuesday morning, August 4, 2009, at 9:00 a.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT . The telephone number to access the conference call is 913-981-5574 or toll-free 888-596-2560. The passcode for the call is 3824854. We encourage those who would like to participate in the call to dial the access number between 8:50 and 9:00 a.m. EDT. For those unable to participate in the conference call, a replay will be available for audio playback Playback could mean:
Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the and can be accessed by going to Chesapeake's website at www.chk.com in the "Events" subsection subsection Noun any of the smaller parts into which a section may be divided Noun 1. subsection - a section of a section; a part of a part; i.e. of the "Investors" section of our website. The webcast of the conference call will be available on our website for one year. This press release and the accompanying Outlooks include "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements give our current expectations or forecasts of future events. They include estimates of natural gas and oil reserves, expected natural gas and oil production and future expenses, assumptions regarding future natural gas and oil prices, planned capital expenditures and anticipated asset acquisitions and sales, as well as statements concerning anticipated cash flow and liquidity, business strategy and other plans and objectives for future operations. Disclosures concerning the fair value of derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. contracts and their estimated contribution to our future results of operations are based upon market information as of a specific date. These market prices are subject to significant volatility. We caution you not to place undue reliance on our forward-looking statements, which speak only as of the date of this press release, and we undertake no obligation to update this information. Factors that could cause actual results to differ materially from expected results are described under "Risk Factors" in Item 1A of our 2008 Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. we filed with the U.S. Securities and Exchange Commission on March 2, 2009. These risk factors include the volatility of natural gas and oil prices; the limitations our level of indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. may have on our financial flexibility; impacts the current financial crisis may have on our business and financial condition; declines in the values of our natural gas and oil properties resulting in ceiling test write-downs; the availability of capital on an economic basis, including planned asset monetization transactions, to fund reserve replacement costs; our ability to replace reserves and sustain production; uncertainties inherent in estimating quantities of natural gas and oil reserves and projecting future rates of production and the amount and timing of development expenditures; exploration and development drilling that does not result in commercially productive reserves; leasehold terms expiring ex·pire v. ex·pired, ex·pir·ing, ex·pires v.intr. 1. To come to an end; terminate: My membership in the club has expired. 2. before production can be established; hedging activities resulting in lower prices realized on natural gas and oil sales and the need to secure hedging liabilities; uncertainties in evaluating natural gas and oil reserves of acquired properties and potential liabilities; the negative impact lower natural gas and oil prices could have on our ability to borrow; drilling and operating risks Operating risk The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is created by operating leverage. Also called business risk. , including potential environmental liabilities; transportation capacity constraints CONSTRAINTS - A language for solving constraints using value inference. ["CONSTRAINTS: A Language for Expressing Almost-Hierarchical Descriptions", G.J. Sussman et al, Artif Intell 14(1):1-39 (Aug 1980)]. and interruptions that could adversely affect our cash flow; potential increased operating costs operating costs npl → gastos mpl operacionales resulting from legislative and regulatory changes such as those proposed with respect to commodity derivatives trading, natural gas and oil tax incentives and deductions, hydraulic fracturing Hydraulic fracturing is a method used to create fractures that extend from a borehole into rock formations, which are typically maintained by a proppant. The method is informally called fracing. and climate change; and adverse results in pending or future litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. . Our production forecasts are dependent upon many assumptions, including estimates of production decline rates from existing wells and the outcome of future drilling activity. Although we believe the expectations and forecasts reflected in these and other forward-looking statements are reasonable, we can give no assurance they will prove to have been correct. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Chesapeake Energy Corporation is the largest independent producer of natural gas in the U.S. Headquartered in Oklahoma City, the company's operations are focused on the development of onshore on·shore adj. 1. Moving or directed toward the shore: an onshore wind. 2. Located on the shore: an onshore beacon; an onshore patrol. adv. unconventional and conventional natural gas in the U.S. in the Barnett Shale, Haynesville Shale, Fayetteville Shale, Marcellus Shale, Anadarko Basin The Anadarko Basin is one of the most prolific natural gas reserves in North America, with ultimate gas production in excess of 100 trillion cubic feet of gas.[1] External links
References 1. , Arkoma Basin, Appalachian Basin, Permian Basin The Permian Basin is a sedimentary basin largely contained in the western part of the U.S. state of Texas. It reaches from just south of Lubbock, Texas, to just south of Midland & Odessa, extending westward into the southeastern part of the adjacent state of New Mexico. , Delaware Basin The Delaware Basin in West Texas and southern New Mexico is famous for holding large oil fields and for exposing a fossilized reef. Guadalupe Mountains National Park and Carlsbad Caverns National Park protect part of the basin. , South Texas, Texas Gulf Coast and East Texas regions of the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . Further information is available at www.chk.comwww.chk.com. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] SCHEDULE "A" CHESAPEAKE'S OUTLOOK AS OF AUGUST 3, 2009 Years Ending December 31, 2009 and 2010 Our policy is to periodically provide guidance on certain factors that affect our future financial performance. As of August 3, 2009, we are using the following key assumptions in our projections for 2009 and 2010. The primary changes from our May 4, 2009 Outlook are in italicized bold and are explained as follows: 1) Our production guidance has been updated. It reflects anticipated volumetric production payment transactions in 2009 and 2010 and does not assume any future voluntary production curtailments; 2) Projected effects of changes in our hedging positions have been updated; 3) Our NYMEX natural gas and oil price assumptions for realized hedging effects and estimating future operating cash flow have been updated for 2009 and 2010; and 4) Certain cost, book and cash income tax and share assumptions have been updated. [TABLE OMITTED] At June 30, 2009, the company had $1.3 billion of cash and cash equivalents and additional borrowing capacity under its two revolving bank credit facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities . [TABLE OMITTED] Commodity Hedging Activities The company utilizes hedging strategies to hedge the price of a portion of its future natural gas and oil production. These strategies include: [TABLE OMITTED] All of our derivative instruments Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. are net settled based on the difference between the fixed-price payment and the floating-price payment, resulting in a net amount due to or from the counterparty Counterparty The other participant, including intermediaries, in a swap or contract. . 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 lock in the gain or loss on the transaction. Chesapeake enters into natural gas and oil derivative transactions in order to mitigate mit·i·gate v. To moderate in force or intensity. mit  i·ga tion n. a portion of its exposure to adverse market changes
in natural gas and oil prices. Accordingly, associated gains or losses
from the derivative transactions are reflected as adjustments to natural
gas and oil sales. All realized gains and losses from natural gas and
oil derivatives are included in natural gas and oil sales in the month
of related production. Pursuant to SFAS 133, certain derivatives do not
qualify for designation as cash flow hedges A cash flow hedge is a hedge of the exposure to the variability of cash flow that
adj. 1. Not producing an intended effect; ineffectual: an ineffective plea. 2. Inadequate; incompetent: an ineffective teacher. is recognized currently in natural gas and oil sales. Excluding the swaps assumed in connection with the acquisition of CNR See riser card. CNR - Communication and Network Riser which are described below, the company currently has the following open natural gas swaps in place and also has the following gains from lifted natural gas trades: [TABLE OMITTED] [TABLE OMITTED] The company currently has the following open natural gas collars in place: [TABLE OMITTED] [TABLE OMITTED] The company currently has the following natural gas written call options in place: [TABLE OMITTED] The company has the following natural gas basis protection swaps in place: [TABLE OMITTED] (a) > weighted average We assumed certain liabilities related to open derivative positions in connection with the CNR acquisition in November 2005. In accordance with SFAS 141, these derivative positions were recorded at fair value in the purchase price allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as as a liability of $592 million ($19 million as of June 30, 2009). The recognition of the derivative liability and other assumed liabilities resulted in an increase in the total purchase price which was allocated to the assets acquired. Because of this accounting treatment, only cash settlements for changes in fair value subsequent to the acquisition date for the derivative positions assumed result in adjustments to our natural gas and oil revenues upon settlement. For example, if the fair value of the derivative positions assumed does not change, then upon the sale of the underlying production and corresponding settlement of the derivative positions, cash would be paid to the counterparties and there would be no adjustment to natural gas and oil revenues related to the derivative positions. If, however, the actual sales price is different from the price assumed in the original fair value calculation, the difference would be reflected as either a decrease or increase in natural gas and oil revenues, depending upon whether the sales price was higher or lower, respectively, than the prices assumed in the original fair value calculation. For accounting purposes, the net effect of these acquired hedges is that we hedged the production volumes listed below at their fair values on the date of our acquisition of CNR. Pursuant to SFAS 149 "Amendment of SFAS 133 on Derivative Instruments and Hedging Activities," the assumed CNR derivative instruments are deemed to contain a significant financing element and all cash flows associated with these positions are reported as financing activity in the statement of cash flows. The following details the CNR derivatives (natural gas swaps) we have assumed: [TABLE OMITTED] Note: Not shown above are collars covering 1.84 bcf of production in 2009 at an average floor and ceiling of $4.50 and $6.00. The company also has the following crude oil swaps in place: [TABLE OMITTED] [TABLE OMITTED] Note: Not shown above are written call options covering 3 mmbbls of oil production in 2009 at a weighted average price of $101.79 per bbl for a weighted average premium of $0.64 per bbl and 5 mmbbls of oil production in 2010 at a weighted average price of $100.71 per bbl for a weighted average premium of $1.20 per bbl. SCHEDULE "B" CHESAPEAKE'S PREVIOUS OUTLOOK AS OF MAY 4, 2009 (PROVIDED FOR REFERENCE ONLY) NOW SUPERSEDED BY OUTLOOK AS OF AUGUST 3, 2009 Years Ending December 31, 2009 and 2010 Our policy is to periodically provide guidance on certain factors that affect our future financial performance. As of May 4, 2009, we are using the following key assumptions in our projections for 2009 and 2010. The primary changes from our February 17, 2009 Outlook are in italicized bold and are explained as follows: 1) Our production guidance has been updated to reflect estimated production curtailments starting in March 2009 and estimated to continue through June 2009 as well as anticipated volumetric production payment transactions in 2009 and in 2010; 2) Projected effects of changes in our hedging positions have been updated, particularly the restructuring of certain 2010 knockout swap positions; 3) Our NYMEX natural gas and oil price assumptions for realized hedging effects and estimating future operating cash flow have been reduced for 2009; 4) Certain cost, book and cash income tax rate and share assumptions have been updated; and 5) Our rate of DD&A for natural gas and oil assets has been reduced to reflect our 2009 first quarter impairment charge. [TABLE OMITTED] At March 31, 2009, the company had $1.7 billion of cash and cash equivalents and additional borrowing capacity under its two revolving bank credit facilities. [TABLE OMITTED] Commodity Hedging Activities The company utilizes hedging strategies to hedge the price of a portion of its future natural gas and oil production. These strategies include: [TABLE OMITTED] 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 lock in the gain or loss on the transaction. Chesapeake enters into natural gas and oil derivative transactions in order to mitigate a portion of its exposure to adverse market changes in natural gas and oil prices. Accordingly, associated gains or losses from the derivative transactions are reflected as adjustments to natural gas and oil sales. All realized gains and losses from natural gas and oil derivatives are included in natural gas and oil sales in the month of related production. Pursuant to SFAS 133, certain derivatives do not qualify for designation as cash flow hedges. Changes in the fair value of these nonqualifying derivatives that occur prior to their maturity (i.e., because of temporary fluctuations in value) are reported currently in the consolidated statement of operations as unrealized gains (losses) within natural gas and oil sales. Following provisions of SFAS 133, changes in the fair value of derivative instruments designated as cash flow hedges, to the extent effective in offsetting cash flows attributable to hedged risk, are recorded in other comprehensive income until the hedged item is recognized in earnings. Any change in fair value resulting from ineffectiveness is recognized currently in natural gas and oil sales. Excluding the swaps assumed in connection with the acquisition of CNR which are described below, the company currently has the following open natural gas swaps in place and also has the following gains from lifted natural gas trades: [TABLE OMITTED] [TABLE OMITTED] The company currently has the following open natural gas collars in place: [TABLE OMITTED] [TABLE OMITTED] The company currently has the following natural gas written call options in place: [TABLE OMITTED] The company has the following natural gas basis protection swaps in place: [TABLE OMITTED] (a) > weighted average We assumed certain liabilities related to open derivative positions in connection with the CNR acquisition in November 2005. In accordance with SFAS 141, these derivative positions were recorded at fair value in the purchase price allocation as a liability of $592 million ($27 million as of March 31, 2009). The recognition of the derivative liability and other assumed liabilities resulted in an increase in the total purchase price which was allocated to the assets acquired. Because of this accounting treatment, only cash settlements for changes in fair value subsequent to the acquisition date for the derivative positions assumed result in adjustments to our natural gas and oil revenues upon settlement. For example, if the fair value of the derivative positions assumed does not change, then upon the sale of the underlying production and corresponding settlement of the derivative positions, cash would be paid to the counterparties and there would be no adjustment to natural gas and oil revenues related to the derivative positions. If, however, the actual sales price is different from the price assumed in the original fair value calculation, the difference would be reflected as either a decrease or increase in natural gas and oil revenues, depending upon whether the sales price was higher or lower, respectively, than the prices assumed in the original fair value calculation. For accounting purposes, the net effect of these acquired hedges is that we hedged the production volumes listed below at their fair values on the date of our acquisition of CNR. Pursuant to SFAS 149 "Amendment of SFAS 133 on Derivative Instruments and Hedging Activities," the assumed CNR derivative instruments are deemed to contain a significant financing element and all cash flows associated with these positions are reported as financing activity in the statement of cash flows. The following details the CNR derivatives (natural gas swaps) we have assumed: [TABLE OMITTED] Note: Not shown above are collars covering 2.75 bcf of production in 2009 at an average floor and ceiling of $4.50 and $6.00. The company also has the following crude oil swaps in place: [TABLE OMITTED] [TABLE OMITTED] Note: Not shown above are written call options covering 3,850 mbbls of oil production in 2009 at a weighted average price of $101.79 per bbl for a weighted average premium of $0.64 per bbl and 5,110 mbbls of oil production in 2010 at a weighted average price of $100.71 per bbl for a weighted average premium of $1.20 per bbl. |
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