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OKLAHOMA CITY, Okla.--(BUSINESS WIRE)--
Chesapeake Energy Corporation (NYSE:CHK) today announced a listing
of major topics that will be addressed at its 2008 Investor and
Analyst Meeting that will be held in Oklahoma City, OK on October 15
and 16, 2008.
Financial Topics
Sale of Leasehold and Producing Properties: Chesapeake continues
to make progress in its previously announced plans to sell certain
leasehold and producing properties to build its cash reserves during
the ongoing financial market crisis. The company is planning to
generate cash proceeds of $2.5-3.0 billion in the 2008 fourth quarter
from the sale of a 25% interest in the Marcellus Shale, the sale of
leasehold and associated production in three other areas and the sale
of its fourth volumetric production payment (VPP), all of which are
currently underway. In addition, the company is also engaged in active
discussion with multiple parties about an investment in its midstream
operations. Raising additional funds from asset sales in this
environment will provide the company with more financial flexibility
and the ability to either reduce debt more than previously planned or
to potentially repurchase common stock.
Capital Spending: In response to lower natural gas prices, the
company intends to further reduce its capital expenditures budget by
approximately $1.5 billion in 2009 and 2010 through a combination of
reduced drilling and lower leasehold expenditures. These amounts are
incremental to the $3.2 billion reduction in capital expenditures the
company announced on September 22, 2008 and further cuts for the 2008
fourth quarter are underway.
Corporate Liquidity: To ensure that its revolving credit facility
could be fully utilized in these turbulent economic times, the company
borrowed the remaining capacity under its facility at the end of the
2008 third quarter and invested the cash proceeds in short-term U.S.
Treasury and other highly liquid securities. As a result, on September
30, 2008, the company had cash and cash equivalents on hand of
approximately $1.5 billion. All 36 lenders that participate in
Chesapeake's revolving credit facility fully funded their commitment,
with the exception of Lehman Brothers, which has filed for bankruptcy
protection and did not fund its $11 million share of the advance. The
company's revolving credit facility matures in November 2012 and its
first maturity of senior unsecured notes is in July 2013.
Assuming the successful completion of the planned asset sales and
as a result of the additional capital expenditure reductions discussed
above, Chesapeake anticipates generating excess cash of approximately
$1.5-2.0 billion in the 2008 fourth quarter and approximately $1.0-1.5
billion in each of 2009 and 2010. The company's goal is to end 2008
with approximately $2.5-3.0 billion of cash on hand.
Debt Covenants: Chesapeake is in compliance with all of its debt
covenants. The covenants under the company's revolving bank credit
facility require that the company maintain a "Consolidated
Indebtedness to Consolidated Total Capitalization Ratio" (debt to cap
ratio) of less than 0.70:1 and a "Consolidated Indebtedness to EBITDA
Ratio" (debt to EBITDA ratio) of less than 3.75:1. At June 30, 2008
the company's debt to cap ratio was 0.57:1 and its debt to EBITDA
ratio was 2.05:1. The ratios for these metrics at September 30, 2008
were similar to or better than levels at June 30, 2008.
Hedging: For the 2008 fourth quarter and for the full years 2009
and 2010, Chesapeake has hedged through swaps and collars
approximately 81%, 72% and 46% of its expected natural gas and oil
production at average prices of $9.50, $9.63 and $9.89 per thousand
cubic feet of natural gas equivalent (mcfe), respectively. In
addition, Chesapeake has collected approximately $375 million in
premiums for written calls with strike prices above current market
prices for its natural gas and oil production in the 2008 fourth
quarter and for the full years 2009 and 2010. A portion of the
company's hedging positions contain provisions that limit counter
party exposure through "kicked out" price levels, which would
terminate a hedge for a particular month when the NYMEX settlement
price is below a specified kick out price at contract expiration and
result in no financial cash payment by either the counterparty or
Chesapeake. The company has consistently utilized kick out swaps for a
portion of its production and over the past 57 months, only four
months have resulted in any portion of the company's hedges being
kicked out.
As of September 30, 2008, Chesapeake's natural gas and oil hedging
positions had a positive mark-to-market value of approximately $40
million, an improvement of $6.6 billion since June 30, 2008. The
company's hedging arrangements are with a diversified group of 19
different counterparties.
Lehman Brothers' Exposure: The company's financial exposure to
Lehman Brothers included amounts for unpaid natural gas sales and
amounts due and owing under various derivative contracts. Chesapeake
received cash payment for all natural gas physically marketed through
a former affiliate of Lehman Brothers, Eagle Energy Partners I, L.P.,
when Electricite de France SA acquired Eagle last month. With respect
to the loss on the terminated derivative contracts, the company
estimates that the amount by which the net value of financial natural
gas and oil hedges with Lehman exceed the amount anticipated to be
received by the company from selling or rehedging the gas will not
exceed $50 million.
Operational Highlights
Proved and Unproved Reserves: As of September 30, 2008,
Chesapeake's estimated proved reserves were 12.1 trillion cubic feet
of natural gas equivalent (tcfe), net of 0.4 tcfe of proved reserves
sold during the 2008 third quarter. The company also estimates that on
its 15.6 million net acres of leasehold, it has an inventory of
approximately 37,000 net drillsites and owns approximately 60 tcfe of
risked unproved reserves (190 tcfe of unrisked unproved reserves),
including 14 tcfe in the Haynesville Shale, 7 tcfe in the Fayetteville
Shale and 5 tcfe in the Barnett Shale.
Production Outlook: The company affirms its previously announced
production growth outlook of 18% for 2008 and 16% for 2009 and 2010.
Chesapeake is currently using 145 operated drilling rigs, anticipates
operating approximately 135-140 rigs by year-end 2008 and expects to
keep its rig count flat to down in 2009 and 2010.
Haynesville Shale: Chesapeake now owns or has commitments for
approximately 700,000 gross acres (480,000 net acres and excluding
120,000 net acres owned by the company's 20% joint venture partner
Plains Exploration and Production, Inc. (NYSE:PXP)) in the Haynesville
Shale play in northwest Louisiana and East Texas, encompassing
approximately 20% of the estimated 3.5 million acre play. On this
leasehold, the company estimates that it has 14 tcfe of risked
unproved reserves (29 tcfe unrisked). Chesapeake now has 16 horizontal
Haynesville Shale wells producing approximately 65 million cubic feet
of natural gas equivalent (mmcfe) gross (50 mmcfe net). The company's
last six horizontal wells have had gross average initial production
rates exceeding 10 mmcfe per day and the company has gained even
greater confidence in its average estimated ultimate recovery estimate
(EUR) of 6.5 billion cubic feet of natural gas equivalent (bcfe) per
well. Chesapeake is currently operating 14 rigs in the play and
anticipates operating an average approximately 25 rigs in 2009.
Management Comments
Aubrey K. McClendon, Chesapeake's Chief Executive Officer,
commented, "We are pleased to highlight the steps Chesapeake is taking
to further enhance its financial strength and also to highlight the
tremendous growth in the company's resource potential. We look forward
to providing extensive operational details and showcasing the
attractiveness of our corporate strategy, the quality of the company's
assets, the breadth of Chesapeake's technical expertise, the value of
the company's asset monetization strategies, our unique corporate
culture and our vision for the future at our Investor and Analyst
Meeting at our corporate headquarters on October 15 and 16."
Web Cast Information
Chesapeake's 2008 Investor and Analyst Meeting will be webcast
live on the Internet from 2:30 pm EDT to 5:45 pm EDT on Wednesday,
October 15 and from 8:30 am EDT to 1:00 pm EDT on Thursday, October
16. The webcast can be accessed by going to Chesapeake's website at
www.chk.com and selecting the "News & Events" section. The replay of
the webcast will be available on the company's website for
approximately 30 days. The meeting's slide show presentation can also
be accessed by going to the company's website and selecting
"Presentations" in the "Investor Relations" section.
Chesapeake Energy Corporation is the largest producer of natural
gas in the U.S. Headquartered in Oklahoma City, the company's
operations are focused on exploratory and developmental drilling and
corporate and property acquisitions in the Fort Worth Barnett Shale,
Haynesville Shale, Fayetteville Shale, Anadarko Basin, Arkoma Basin,
Appalachian Basin, Permian Basin, Delaware Basin, South Texas, Texas
Gulf Coast and Ark-La-Tex regions of the United States. Further
information is available at www.chk.com.
This news release 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
give our current expectations or forecasts of future events. They
include planned asset sales, estimates of capital expenditures, and
expected natural gas and oil production, as well as statements
concerning liquidity, expected uses of future excess cash flow,
business strategy and other plans and objectives for future
operations. The company believes that its expectations are based on
reasonable assumptions. No assurance, however, can be given that such
expectations will prove to have been correct. A number of factors
could cause actual results to differ materially from the projections,
anticipated results or other expectations expressed in this news
release, including oil and natural gas price volatility, the ability
to execute on production and development plans, market conditions that
may impact our ability to engage in asset sales and monetizations,
creditworthiness of the counterparties with whom we do business and
other similar factors. See "Risk Factors" in our 2007 Annual Report on
Form 10-K and other filings with the Securities and Exchange
Commission (the "SEC") for a more complete discussion of risk factors
that could cause actual results to differ from those projected. The
company undertakes no obligation to publicly update or revise any
forward-looking statements.
Production forecasts are dependent upon many assumptions,
including estimates of production decline rates from existing wells
and the outcome of future drilling activity. Although the company
believe the expectations and forecasts reflected in these and other
forward-looking statements are reasonable, it 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.
The SEC has generally permitted natural gas and oil companies, in
filings made with the SEC, to disclose only proved reserves that a
company has demonstrated by actual production or conclusive formation
tests to be economically and legally producible under existing
economic and operating conditions. The company uses the term
"unproved" to describe volumes of reserves potentially recoverable
through additional drilling or recovery techniques that the SEC's
guidelines prohibit from appearing in filings with the SEC. These
estimates are by their nature more speculative than estimates of
proved reserves and accordingly are subject to substantially greater
risk of actually being realized. While the company believes its
calculations of unproved drillsites and estimates of unproved reserves
are reasonable, such calculations and estimates have not been reviewed
by third-party engineers or appraisers.
Source: Chesapeake Energy Corporation