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)
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JUNE 25, 2003 (JUNE 24, 2003)
CHESAPEAKE ENERGY CORPORATION
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(Exact name of Registrant as specified in its Charter)
OKLAHOMA 1-13726 73-1395733
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
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)
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
Chesapeake Energy Corporation ("Chesapeake") issued a Press Release on
June 24, 2003. The following was included in the Press Release:
CHESAPEAKE ENERGY CORPORATION ANNOUNCES $220 MILLION
OF MID-CONTINENT NATURAL GAS ACQUISITIONS, INCREASED
2003 PRODUCTION FORECAST, INITIAL 2004 PRODUCTION
FORECAST AND ADDITIONS TO HEDGING POSITIONS
TRANSACTIONS WITH OXLEY PETROLEUM AND OTHERS FURTHER STRENGTHEN
CHESAPEAKE'S POSITIONS IN THE ANADARKO AND ARKOMA BASINS
OF THE MID-CONTINENT REGION
OKLAHOMA CITY, OKLAHOMA, JUNE 24, 2003 - Chesapeake Energy Corporation
(NYSE:CHK) today announced the acquisition of $220 million of Mid-Continent gas
assets through its recent acquisition of privately-owned Oxley Petroleum Company
and several other recently completed and pending smaller acquisitions. In these
transactions, Chesapeake has acquired or agreed to acquire an internally
estimated 135 billion cubic feet of gas equivalent proved reserves (bcfe) for
$220 million. After allocating $40 million of this purchase price to gas plants,
gas gathering systems and unevaluated leasehold, Chesapeake's acquisition cost
per mcfe of proved reserves is $1.33.
Current production from the acquired properties is approximately 35
million cubic feet of natural gas equivalent production (mmcfe) per day and the
proved reserves have a reserves-to-production index of 10.6 years, are 99%
natural gas and are 75% proved developed. Initial lease operating expenses on
the acquired properties are expected to average $0.45 per thousand cubic feet of
gas equivalent (mcfe), compared to $0.54 per mcfe for Chesapeake during 2002 and
approximately $0.70 per mcfe for the company's peer group during 2002.
The Oxley acquisition closed on May 30, 2003 and the other transactions
have closed in recent months or will close before July 31, 2003. The company
intends to finance the acquisitions using cash on hand and short-term borrowings
from its $350 million bank credit facility.
BACKGROUND INFORMATION ON OXLEY PETROLEUM COMPANY
Oxley Petroleum was founded in Tulsa in 1962 by John C. Oxley and has been
managed in recent years by Stephen M. "Mike" Oxley. Over the past 41 years, the
Oxley family built one of the premier privately-owned natural gas companies in
Oklahoma. Oxley's primary focus was the Arkoma Basin, a prolific gas-producing
region located in eastern Oklahoma and western Arkansas where Chesapeake already
owns approximately 250 bcfe of estimated proved reserves and produces
approximately 50 mmcfe per day. Of the properties being acquired, 82% are
located in townships in which Chesapeake owns existing interests. Chesapeake
believes its consolidation of assets in these townships will create numerous
operational efficiencies and enhanced drilling opportunities.
The majority of the other acquired assets are located in the Greater
Mayfield area of Beckham County in western Oklahoma, where Chesapeake is very
active. In Greater Mayfield, Chesapeake is currently drilling seven deep
Springer wells to an average depth of 20,000 feet. Greater Mayfield is
Chesapeake's most important exploratory area and in 2003 the company expects to
spend approximately 10% of its projected $600 million capital expenditure budget
further exploring and developing this area.
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CHESAPEAKE BENEFITS FROM INCREASING MID-CONTINENT SCALE
Chesapeake remains focused on continuing to build an unprecedented scale of
operations in the prolific natural gas fields of the Anadarko and Arkoma basins
in the Mid-Continent. During the past five years, the company has actively
consolidated ownership in key Mid-Continent gas fields through acquisitions of
long-lived gas reserves owned by AnSon, Hugoton, DLB, Enervest, OXY, Barrett,
Apache, Gothic, Staghorn, Questar, Sapient, Ram, Canaan, Focus, EnCana, Priam,
Williams, OG&E, ONEOK, Vintage, El Paso and now Oxley. Through these and other
acquisitions since 1998, Chesapeake has acquired 2.5 trillion cubic feet of gas
equivalent proved reserves (tcfe) at an average cost of $1.14 per mcfe. Through
this consolidation effort, Chesapeake has emerged as Oklahoma's largest natural
gas producer, with an estimated 2003 gas production market share of 16%. In
addition, the company is the operator of or a participant in approximately 50%
of the 125 wells currently being drilled in Oklahoma, providing the company with
unequalled access to current geological information across the state. Chesapeake
believes this knowledge provides it with unique competitive advantages in
executing its business strategy.
MANAGEMENT COMMENTS
Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented,
"Today's announcements provide further evidence of our ongoing commitment to
creating industry-leading shareholder value through a sharp strategic focus on
further consolidation of high-quality Mid-Continent gas assets, timely hedging
decisions and successful Mid-Continent deep gas exploration. Today's announced
acquisitions fit perfectly with our existing Mid-Continent assets and with
Chesapeake's business strategy of creating value by delivering profitable
organic growth from our unique deep gas exploration program and by acquiring and
developing low-cost, long-lived, under-exploited natural gas assets in the
Mid-Continent region."
"Today's announced transactions and Chesapeake's highly successful drilling
results during the second quarter should increase our company's estimated proved
reserves at June 30, 2003 to approximately 3.0 tcfe. Based on the results
achieved from our previous acquisitions in the Mid-Continent, we expect to
substantially increase the value of these newly acquired properties through
additional drilling and by reducing administrative and operating costs. We are
especially excited about enhancing our Arkoma Basin position and increasing our
already strong position in the Greater Mayfield area of the Anadarko Basin,
where our recent drillbit performance has been exceptional."
"In addition, our increased oil and natural gas hedging positions should
further strengthen the company's financial performance in the quarters ahead.
For some time now, our company had been predicting that natural gas prices would
sharply increase this summer. We have already successfully taken advantage of
higher gas prices early this summer to lock-in very attractive financial returns
for our shareholders on a significant portion of our production. We will be on
the lookout for additional attractive hedging opportunities later this summer
and fall."
This document contains 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. Forward-looking statements include estimates and give our current
expectations or forecasts of future events. They are based on our historical
operating trends, our existing commodity hedging position and our current
estimate of proved reserves. Although we believe our forward-looking statements
are reasonable, they can be affected by inaccurate assumptions or by known or
unknown risks and uncertainties. For example, statements concerning the fair
values of derivative 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. Factors that could
cause actual operating and financial results to differ materially from expected
results include the volatility of oil and gas prices, our substantial
indebtedness, our commodity price risk management activities, the cost and
availability of drilling and production services, our ability to replace
reserves, the availability of capital, uncertainties inherent in evaluating our
own reserves and the reserves we acquire, drilling and operating risks and other
risk factors described in the company's 2002 annual report on Form 10-K and
subsequent filings with the Securities and Exchange Commission.
Chesapeake Energy Corporation is one of the eight largest independent natural
gas producers in the U.S. Headquartered in Oklahoma City, the company's
operations are focused on exploratory and developmental drilling and producing
property acquisitions in the Mid-Continent region of the United States. The
company's Internet address is WWW.CHKENERGY.COM.
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ITEM 9. REGULATION FD DISCLOSURE
Chesapeake also released the following additional statements in
connection with the announcements described in Item 5:
CHESAPEAKE INCREASES 2003 PRODUCTION GUIDANCE, PROVIDES INITIAL 2004
PRODUCTION GUIDANCE AND ANNOUNCES SIGNIFICANT INCREASES
IN ITS NATURAL GAS AND OIL HEDGING POSITIONS
Chesapeake is increasing its 2003 production forecast by 6% from a range of
240-245 bcfe to a range of 255-260 bcfe to reflect the transactions announced
today and the success of the company's exploration drilling program. In April
2003, Chesapeake estimated that its daily production during the second quarter
of 2003 would average 675 mmcfe per day. The company now estimates that its
second quarter production will average more than 710 mmcfe per day. Of the 35
mmcfe per day estimated increase, 20% is attributable to the Oxley transaction
(which contributed 20 mmcfe per day to the last month of the quarter, for an
average for the quarter of 7 mmcfe per day) and 80% is attributable to better
than forecasted drilling results.
Furthermore, Chesapeake now expects its second half of 2003 production to
exceed 740 mmcfe per day, an increase of 65 mmcfe per day over April's forecast
of 675 mmcfe per day. Of this increase, 50% is attributable to the transactions
announced today and 50% is attributable to better than forecasted drilling
results. In addition, Chesapeake's initial production forecast for 2004 is
275-280 bcfe, or 760 mmcfe per day at the mid-point of this range.
During the past six weeks, Chesapeake has added substantial natural gas and
oil hedges to the hedging positions it had previously announced in April 2003.
Currently, the company has hedged the following amounts of its estimated 2003 -
2007 oil and natural gas production:
Oil Natural Gas
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QUARTER OR YEAR % Hedged $ NYMEX % Hedged $ NYMEX
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2Q 2003 71% $ 28.12 40% $ 5.10
3Q 2003 83% $ 28.07 53% $ 5.49
4Q 2003 83% $ 28.07 49% $ 5.73
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Remaining 2003 79% $ 28.08 47% $ 5.47
2004 9% $ 27.30 12% $ 5.87
2005 - - 3% $ 4.99
2006 - - 3% $ 4.84
2007 - - 3% $ 4.84
Depending on changes in oil and natural gas futures markets and underlying
supply and demand trends, the company may either increase or decrease its
hedging positions in the future.
With the filing of this report on Form 8-K, we are updating the outlook on our
website at WWW.CHKENERGY.COM. We caution you that our outlook is given as of
June 24, 2003 based on currently available information, and that we are not
undertaking any obligation to update our estimates as conditions change or other
information becomes available.
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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
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AUBREY K. MCCLENDON
Chairman of the Board and
Chief Executive Officer
Dated: June 25, 2003
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