-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RaMf3A5Il0THKVxtiYq9LAdvxmqotNmpN7UmldcXfSa4iHTJWo4c1Iuir21wc7If cZ/AmerTnyL/S/BpxUmT/Q== 0000895126-03-000130.txt : 20031030 0000895126-03-000130.hdr.sgml : 20031030 20031030163715 ACCESSION NUMBER: 0000895126-03-000130 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20031030 ITEM INFORMATION: FILED AS OF DATE: 20031030 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHESAPEAKE ENERGY CORP CENTRAL INDEX KEY: 0000895126 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 731395733 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13726 FILM NUMBER: 03967098 BUSINESS ADDRESS: STREET 1: 6100 N WESTERN AVE CITY: OKLAHOMA CITY STATE: OK ZIP: 73118 BUSINESS PHONE: 4058488000 MAIL ADDRESS: STREET 1: 6100 NORTH WESTERN AVE CITY: OKLAHOMA CITY STATE: OK ZIP: 73118 8-K 1 chk103003.txt THIRD QUARTERR 2003 EARNINGS 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) - ------------------------------------------------------------------------------- OCTOBER 30, 2003 (OCTOBER 30, 2003) CHESAPEAKE ENERGY CORPORATION - ------------------------------------------------------------------------------- (Exact name of Registrant as specified in its Charter) OKLAHOMA 1-13726 73-1395733 - ------------------------------------------------------------------------------- (State or other jurisdiction (Commission File No.) (IRS Employer of incorporation) Identification No.) 6100 NORTH WESTERN AVENUE, OKLAHOMA CITY, OKLAHOMA 73118 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (405) 848-8000 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) INFORMATION TO BE INCLUDED IN THE REPORT ITEM 12. DISCLOSURE OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION We issued a press release on October 30, 2003, which includes information regarding our consolidated results of operations and financial condition as of and for the quarterly period ended September 30, 2003. It also includes updated information on our 2003 outlook. The text of that press release is attached to this Report as an exhibit and is incorporated by reference herein. The press release contains information concerning financial measures that we use that may be considered "non-GAAP financial measures" under Securities and Exchange Commission rules. Specifically, the press release contains information concerning operating cash flow (defined as cash flow from operating activities before changes in assets and liabilities) and EBITDA, each of which is reconciled in the press release to cash from operating activities, the most directly comparable financial measure reported under generally accepted accounting principles. With the filing of this report on Form 8-K and the issuance of the attached press release, we are also updating our future outlook, which can be found on our website at WWW.CHKENERGY.COM. We caution you that our outlook is given as of September 30, 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. This information, including the exhibit attached hereto, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as may be expressly set forth by specific reference in this Report other than under Item 12 hereof. 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 -------------------------------- AUBREY K. MCCLENDON Chairman of the Board and Chief Executive Officer Dated: October 30, 2003 2 EX-99 3 chk103003a.txt PRESS RELEASE 3Q2003 EARNINGS CHESAPEAKE ENERGY CORPORATION POSTS STRONG OPERATIONAL AND FINANCIAL RESULTS FOR THE THIRD QUARTER OF 2003 THIRD QUARTER 2003 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS REACHES $82 MILLION ON REVENUE OF $455 MILLION AND PRODUCTION OF 71 BCFE COMPANY ALSO REPORTS SIGNIFICANT ADDITIONS TO ITS OIL AND NATURAL GAS HEDGING POSITIONS, INCREASES ITS 2003 AND 2004 PRODUCTION FORECASTS ONCE AGAIN AND ANNOUNCES $200 MILLION ACQUISITION OF NATURAL GAS PROPERTIES OKLAHOMA CITY, OKLAHOMA, OCTOBER 30, 2003 - Chesapeake Energy Corporation (NYSE:CHK) today reported its financial and operating results for the 2003 third quarter. For the quarter, Chesapeake generated net income available to common shareholders of $81.9 million ($0.33 per fully diluted common share), operating cash flow of $247.7 million (defined as cash flow from operating activities before changes in assets and liabilities) and ebitda of $285.3 million (defined as income before income taxes, interest expense, and depreciation, depletion and amortization expense) on revenue of $454.5 million. The company's 2003 third quarter net income available to common shareholders included a $0.4 million ($0.00 per share) after-tax non-cash unrealized gain recorded in oil and gas sales resulting from the application of SFAS 133 to the company's oil and natural gas derivative contracts that do not qualify for hedge accounting. In addition, interest expense included a $1.9 million ($0.01 per share) after-tax non-cash unrealized loss resulting from the application of SFAS 133 to the company's interest rate derivative contracts that do not qualify for hedge accounting. During the third quarter, Chesapeake produced 71.0 billion cubic feet of natural gas equivalent (bcfe), which compares favorably to the 46.7 bcfe produced in the 2002 third quarter and the 67.3 produced in the 2003 second quarter. The 2003 third quarter's 71.0 bcfe of production was comprised of 63.7 billion cubic feet of natural gas (bcf) (90% on a natural gas equivalent basis) and 1.2 million barrels of oil and natural gas liquids (mmbo) (10% on a natural gas equivalent basis). Chesapeake's average daily production rate for the quarter was 772 million cubic feet of natural gas equivalent production (mmcfe), which consisted of 692 mmcf of gas and 13,220 barrels of oil and natural gas liquids. Oil and natural gas production in the 2003 third quarter increased 52% year-over-year from the 2002 third quarter and 5.4% sequentially from the 2003 second quarter. Of the 3.6 bcfe in sequential production growth during the third quarter, 34% was internally generated organic drillbit growth. This 1.2 bcfe of organic sequential production growth equals a sequential quarterly organic growth rate of just under 2% and an annualized organic growth rate of 8%. The 2003 third quarter was Chesapeake's ninth consecutive quarter of sequential production growth. During the past nine quarters, Chesapeake's production has increased 81%, for an average sequential quarterly growth rate of 7% and an annualized growth rate of 30%. Average prices realized during the 2003 third quarter (including realized gains or losses from oil and gas derivatives, but excluding unrealized gains or losses on such derivatives) were $26.20 per barrel of oil (bo) and $4.92 per thousand cubic feet of natural gas (mcf), for a realized gas equivalent price of $4.86 per thousand cubic feet of natural gas equivalent (mcfe). Chesapeake's realized pricing differentials to NYMEX during the quarter averaged a negative $2.07 per bo and a negative $0.44 per mcf. Realized gains or losses from hedging activities generated a $1.68 loss per bo and a $0.31 gain per mcf. KEY OPERATIONAL AND FINANCIAL STATISTICS FOR THE 2003 THIRD QUARTER The table below summarizes Chesapeake's key statistics during the 2003 third quarter and compares them to the 2003 second quarter and the 2002 third quarter: Three Months Ended: ------------------- 9/30/03 6/30/03 9/30/02 ------- ------- ------- Average daily production (in mmcfe) 772 740 507 Gas as % of total production 90 89 89 Natural gas production (in bcf) 63.7 60.0 41.4 Average realized gas price ($/mcf) (a) 4.92 4.73 3.39 Oil production (in mbbls) 1,216 1,224 872 Average realized oil price ($/bo) (a) 26.20 26.24 25.67 Natural gas equivalent production (in bcfe) 71.0 67.3 46.7 Gas equivalent realized price ($/mcfe) (a) 4.86 4.70 3.49 General and administrative costs ($/mcfe) 0.08 0.09 0.08 Production taxes ($/mcfe) 0.30 0.25 0.15 Lease operating expenses ($/mcfe) 0.51 0.51 0.53 Interest expense ($/mcfe) (a) 0.53 0.56 0.61 DD&A of oil and gas properties ($/mcfe) 1.38 1.36 1.25 Operating cash flow ($ in millions) (b) 247.7 226.1 101.8 Operating cash flow ($/mcfe) 3.49 3.36 2.18 Ebitda ($ in millions) (c) 285.3 266.4 116.3 Ebitda ($/mcfe) 4.02 3.96 2.49 Net income available to common shareholders 81.9 76.3 14.1 ($ millions) (a) includes the effects of realized gains or (losses) from hedging, but does not include the effects of unrealized gains or (losses) from hedging (b) defined as cash flow provided by operating activities before changes in assets and liabilities (c) defined as income before income taxes, interest expense, and depreciation, depletion and amortization expense CHESAPEAKE UPDATES PRODUCTION FORECASTS AND HEDGING INFORMATION Chesapeake's initial 2003 fourth quarter and updated full-year 2003 and 2004 forecasts are attached to this release in a new Outlook dated October 30, 2003 that is labeled Schedule "A". The company's previous Outlook of July 28, 2003 is provided as an attachment for comparative reference only and is labeled Schedule "B". The October 30 Outlook reflects a projected 2003 fourth quarter production level of 74.0-74.5 bcfe (807 mmcfe per day) and a projected 2003 full-year production volume of 269-270 bcfe (738 mmcfe per day), an increase of 3.7% from the 258-262 bcfe projected in the company's July 28 Outlook. The company has now increased its full-year 2003 production estimate by approximately 40% since the beginning of the year. Furthermore, the October 30 Outlook reflects a 7.5% increase in the company's projected 2004 production volumes to 297-303 bcfe (822 mmcfe per day) from the 277-281 bcfe projected in its July 28 Outlook. Chesapeake believes its 2004 production will exceed 2003's production by at least 11%. Chesapeake significantly increased its hedging positions during the run-up in gas prices that occurred earlier this month. During the first two weeks of October, the company hedged 86 bcf of natural gas at an average NYMEX price of $5.13 per mcf and 700 mbo at an average NYMEX price of $30.85 per bo. The following tables compare projected 2003-2007 oil and natural gas production that was hedged as of October 30, 2003 versus what was hedged as of July 28, 2003: HEDGED POSITIONS AS OF OCTOBER 30, 2003 Oil Natural Gas ---------------------- ---------------------- Quarter or Year % Hedged $ NYMEX % Hedged $ NYMEX - ---------------- --------- ------- --------- ------- 4Q 2003 100% $28.69 83% $5.64 2004 94% $28.61 51% $5.28 2005 - - 16% $4.82 2006 - - 9% $4.74 2007 - - 8% $4.76 2 HEDGED POSITIONS AS OF JULY 28, 2003 Oil Natural Gas ---------------------- --------------------- QUARTER OR YEAR % Hedged $ NYMEX % Hedged $ NYMEX - ---------------- ----_----- -------- --------- ------- 4Q 2003 79% $28.07 63% $5.72 2004 63% $27.85 26% $5.51 2005 - - 15% $4.79 2006 - - 9% $4.74 2007 - - 9% $4.76 Depending on changes in oil and natural gas futures markets and management's view of underlying oil and natural gas supply and demand trends, Chesapeake may either increase or decrease its hedging positions at any time in the future without notice. CHESAPEAKE PROVIDES OPERATIONAL UPDATE AND ANNOUNCES AGREEMENT TO ACQUIRE $200 MILLION OF NATURAL GAS PROPERTIES IN SOUTH TEXAS As evidenced by Chesapeake's strong organic production growth during the quarter, the company's drilling programs continue to generate exceptional results. During the quarter, Chesapeake drilled 100 gross operated (81 net) wells, completing 95% of these as successful producers. The company's operated rig count during the quarter averaged 43 rigs compared to 35 and 28 rigs in the 2003 second and first quarters, respectively. Today the company's operated rig count is 43. In addition to Chesapeake's primary focus area of the Mid-Continent, the company is also active in two secondary areas: the Permian Basin in west Texas and eastern New Mexico and the onshore Gulf Coast in Texas and Louisiana. These two areas are currently responsible for 11% of Chesapeake's production and 8% of the company's proved reserves. Although these areas are and will remain secondary in importance to the company, Chesapeake periodically finds acquisition candidates that are attractive in these areas. The company has recently entered into one such acquisition in south Texas. Chesapeake has agreed to acquire $200 million of south Texas natural gas assets from Houston-based privately-owned Laredo Energy, L.P. and its partners. In this transaction, Chesapeake will acquire an internally estimated 196 bcfe of reserves, of which 108 bcfe are proved and 88 bcfe are probable or possible. After allocating $48 million of the $200 million purchase price to unevaluated leasehold for the probable and possible reserves and exploratory acreage, Chesapeake's acquisition cost per mcfe of proved reserves will be $1.41. Including future leasehold and drilling costs for fully developing the proved, probable and possible reserves, Chesapeake estimates that its all-in acquisition cost for the 196 bcfe to be acquired will be $1.51 per mcfe. Current production from the acquired properties is approximately 30 mmcfe per day. The proved reserves have a reserves-to-production index of 10 years, are 100% natural gas and are 32% proved developed. Initial lease operating expenses on the acquired properties should average $0.09 per mcfe, compared to $0.52 per mcfe for Chesapeake during the first three quarters of 2003 and approximately $0.70 per mcfe for the company's peer group during the first three quarters of 2003. The company has hedged 100% of the projected Laredo production volumes at average NYMEX prices of $5.76 per mcf for November and December 2003 and $5.20 per mcf for the full-year 2004. The Laredo acquisition is scheduled to close on October 31, 2003. The company intends to finance the acquisition using cash on hand and borrowings from its bank credit facility. Chesapeake expects to repay these borrowings using its excess cash flow in the months ahead and has not yet made a decision on whether or how to permanently finance the Laredo acquisition. The Laredo properties are located in the Zapata County portion of the south Texas Lobo Trend. Over the past two years, Chesapeake has built a growing operational presence in south Texas where the company believes its deep drilling, 3-D seismic and tight sands expertise can provide competitive advantages and attractive returns on its invested capital. 3 MANAGEMENT COMMENTS Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented, "We are pleased to announce another strong quarter of operational and financial performance. The 2003 third quarter featured delivery of excellent results from the business strategy set forth below: o establishing strong organic production growth from our drilling programs, o completing focused and complementary acquisitions of high-margin, geographically concentrated natural gas properties, o opportunistically hedging high oil and natural gas prices, o continuing balance sheet improvement, o maintaining low operating costs, and o generating high returns on invested capital. Chesapeake's value-creating financial and operating strategies should enable the company to continue generating significant increases in shareholder value in the years ahead." CONFERENCE CALL INFORMATION A conference call has been scheduled for Friday morning, October 31, 2003 at 9:00 a.m. EST to discuss this earnings release. The telephone number to access the conference call is 913.981.5533. For those unable to participate in the conference call, a replay will be available from 12:00 p.m. EST on Friday, October 31, 2003 through midnight EST on Friday, November 14, 2003. The number to access the conference call replay is 719.457.0820 and the passcode is 670672. The conference call will also be simulcast live on the Internet and can be accessed at WWW.CHKENERGY.COM by selecting "Conference Calls" under the "Investor Relations" section. The webcast of the conference call will be available on the website for one year. This press release and the accompanying Outlooks include "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 estimates of oil and gas reserves, expected oil and gas production and future expenses, projections of future oil and gas prices, planned capital expenditures for drilling, leasehold acquisitions and seismic data, and statements concerning anticipated cash flow and liquidity, business strategy and other plans and objectives for future operations. Disclosures concerning 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. 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. Factors that could cause actual results to differ materially from expected results are described under "Risk Factors" in Item 1 of our 2002 Form 10-K/A and subsequent filings with the Securities and Exchange Commission. They include the volatility of oil and gas prices; adverse effects our substantial indebtedness could have on our operations and future growth; our ability to compete effectively against strong independent oil and gas companies and majors; the cost and availability of drilling and production services; possible financial losses as a result of our commodity price and interest rate risk management activities; uncertainties inherent in estimating quantities of oil and gas reserves, including reserves we acquire, projecting future rates of production and the timing of development expenditures; exposure to potential liabilities of acquired properties; our ability to replace reserves; the availability of capital; changes in interest rates; and drilling and operating risks. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release, and we undertake no obligation to update this information. The Securities and Exchange Commission has generally permitted oil and gas companies, in their filings 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. We use the terms "probable" and "possible" reserves or other descriptions of volumes of reserves potentially recoverable through additional drilling or recovery techniques that the SEC's guidelines may prohibit us from including 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 being actually realized by the company. Chesapeake Energy Corporation is one of the six largest independent U.S. natural gas producers. 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. 4
CHESAPEAKE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS ($ IN 000'S, EXCEPT PER SHARE DATA) (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED: SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 $ $/mcfe $ $/mcfe ------------ ------------ ----------- ------------ REVENUES: REVENUES: OIL AND GAS SALES $ 345,587 $ 4.87 $ 154,249 $ 3.30 OIL AND GAS MARKETING SALES 108,962 1.53 42,216 0.90 ---------- --------- --------- --------- TOTAL REVENUES 454,549 6.40 196,465 4.20 ---------- --------- --------- --------- OPERATING COSTS: PRODUCTION EXPENSES 35,944 0.51 24,950 0.53 PRODUCTION TAXES 21,638 0.30 6,807 0.15 GENERAL AND ADMINISTRATIVE 5,589 0.08 3,777 0.08 OIL AND GAS MARKETING EXPENSES 105,849 1.49 41,148 0.88 OIL AND GAS DEPRECIATION, DEPLETION, AND AMORTIZATION 97,947 1.38 58,334 1.25 DEPRECIATION AND AMORTIZATION OF OTHER ASSETS 4,841 0.07 3,727 0.08 ---------- --------- --------- --------- TOTAL OPERATING COSTS 271,808 3.83 138,743 2.97 ---------- --------- --------- --------- INCOME FROM OPERATIONS 182,741 2.57 57,722 1.23 ---------- --------- --------- --------- OTHER INCOME (EXPENSE): INTEREST AND OTHER INCOME (188) -- 1,806 0.04 INTEREST EXPENSE (40,851) (0.57) (26,599) (0.57) LOSS ON INVESTMENT IN SEVEN SEAS -- -- (4,770) (0.10) LOSS ON REPURCHASES OF CHESAPEAKE DEBT -- -- (489) (0.01) ---------- --------- --------- --------- TOTAL OTHER INCOME (EXPENSE) (41,039) (0.57) (30,052) (0.64) ---------- --------- --------- --------- INCOME BEFORE INCOME TAXES 141,702 2.00 27,670 0.59 INCOME TAX EXPENSE: CURRENT 330 0.00 -- 0.00 DEFERRED 53,513 0.76 11,070 0.24 ---------- --------- --------- --------- TOTAL INCOME TAX EXPENSE 53,843 0.76 11,070 0.24 ---------- --------- --------- --------- NET INCOME 87,859 1.24 16,600 0.35 ---------- --------- --------- --------- PREFERRED STOCK DIVIDENDS (5,979) (0.09) (2,526) (0.05) ---------- --------- --------- --------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 81,880 $ 1.15 $ 14,074 $ 0.30 ========== ========= ========== ========= - ----------------------------------------------------------------------------------------------------------------- EARNINGS PER COMMON SHARE: BASIC $ 0.38 $ 0.08 ========== ========= ASSUMING DILUTION $ 0.33 $ 0.08 ========== ========= WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (IN 000'S) BASIC 216,080 166,144 ========== ========= ASSUMING DILUTION 265,545 171,182 ========== =========
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CHESAPEAKE ENERGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN 000'S, EXCEPT PER SHARE DATA) (UNAUDITED) - ---------------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED: SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 $ $/mcfe $ $/mcfe ------------------------- ----------------------- REVENUES: OIL AND GAS SALES $ 951,125 $ 4.87 $ 367,810 $ 2.79 OIL AND GAS MARKETING SALES 309,566 1.59 112,334 0.85 ---------- --------- --------- --------- TOTAL REVENUES 1,260,691 6.46 480,144 3.64 ---------- --------- --------- --------- OPERATING COSTS: PRODUCTION EXPENSES 101,664 0.52 71,252 0.54 PRODUCTION TAXES 57,336 0.29 19,934 0.15 GENERAL AND ADMINISTRATIVE 17,254 0.09 11,930 0.09 OIL AND GAS MARKETING EXPENSES 302,064 1.55 108,836 0.82 OIL AND GAS DEPRECIATION, DEPLETION, AND AMORTIZATION 266,131 1.36 157,731 1.20 DEPRECIATION AND AMORTIZATION OF OTHER ASSETS 12,647 0.07 10,489 0.08 ---------- --------- --------- --------- TOTAL OPERATING COSTS 757,096 3.88 380,172 2.88 ---------- --------- --------- --------- INCOME FROM OPERATIONS 503,595 2.58 99,972 0.76 ---------- --------- --------- --------- OTHER INCOME (EXPENSE): INTEREST AND OTHER INCOME 1,356 0.01 7,343 0.06 INTEREST EXPENSE (115,891) (0.59) (77,779) (0.59) LOSS ON INVESTMENT IN SEVEN SEAS -- -- (4,770) (0.04) LOSS ON REPURCHASES OF CHESAPEAKE DEBT -- -- (1,353) (0.01) ---------- --------- --------- --------- TOTAL OTHER INCOME (EXPENSE) (114,535) (0.58) (76,559) (0.58) ---------- --------- --------- --------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 389,060 2.00 23,413 0.18 INCOME TAX EXPENSE: CURRENT 330 -- -- -- DEFERRED 147,511 0.76 9,366 0.07 ---------- --------- --------- --------- TOTAL INCOME TAX EXPENSE 147,841 0.76 9,366 0.07 ---------- --------- --------- --------- NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 241,219 1.24 14,047 0.11 CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX 2,389 0.01 -- -- ---------- --------- --------- --------- NET INCOME 243,608 1.25 14,047 0.11 PREFERRED STOCK DIVIDENDS (15,484) (0.08) (7,588) (0.06) ---------- --------- --------- --------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 228,124 $ 1.17 $ 6,459 $ 0.05 ========== ========= ========= ========= - ----------------------------------------------------------------------------------------------------------------- EARNINGS PER COMMON SHARE: BASIC INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 1.08 $ 0.04 CUMULATIVE EFFECT OF ACCOUNTING CHANGE 0.01 -- ---------- --------- NET INCOME $ 1.09 $ 0.04 ========== ========= ASSUMING DILUTION INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 0.95 $ 0.04 CUMULATIVE EFFECT OF ACCOUNTING CHANGE 0.01 -- ---------- --------- NET INCOME $ 0.96 $ 0.04 ========== ========= WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (IN 000'S): BASIC 209,394 165,829 ========== ========= ASSUMING DILUTION 253,567 171,540 ========== =========
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CHESAPEAKE ENERGY CORPORATION SUPPLEMENTAL DATA - OIL AND GAS SALES AND INTEREST EXPENSE (IN 000'S) (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 2003 2002 2003 2002 ------------ ----------- ----------- ----------- OIL AND GAS SALES: Oil sales $ 33,908 $ 24,302 $ 101,811 $ 63,017 Oil derivatives - realized gains (losses) (2,045) (1,918) (8,924) 1,176 Oil derivatives - unrealized gains (losses) 185 (1,364) (993) (8,180) ---------- --------- -------- --------- Total oil sales 32,048 21,020 91,894 56,013 ---------- --------- -------- --------- Gas sales 293,309 116,551 889,598 309,827 Gas derivatives - realized gains (losses) 19,781 24,078 (65,028) 82,973 Gas derivatives - unrealized gains (losses) 449 (7,400) 34,661 (81,003) ---------- --------- -------- --------- Total gas sales 313,539 133,229 859,231 311,797 ---------- --------- -------- --------- Total oil and gas sales $ 345,587 $ 154,249 $ 951,125 $ 367,810 =========== =========== ========= ========= AVERAGE SALES PRICE (EXCLUDING GAINS (LOSSES) ON DERIVATIVES): Oil ($ per bbl) $ 27.88 $ 27.87 $ 29.09 $ 24.96 Gas ($ per mcf) $ 4.61 $ 2.81 $ 5.11 $ 2.65 Gas equivalent ($ per mcfe) $ 4.61 $ 3.02 $ 5.08 $ 2.83 AVERAGE SALES PRICE (EXCLUDING UNREALIZED GAINS (LOSSES) ON DERIVATIVES): Oil ($ per bbl) $ 26.20 $ 25.67 $ 26.54 $ 25.42 Gas ($ per mcf) $ 4.92 $ 3.39 $ 4.74 $ 3.36 Gas equivalent ($ per mcfe) $ 4.86 $ 3.49 $ 4.70 $ 3.46 INTEREST EXPENSE: Interest $ (38,855) $ (29,381) $(113,011) $ (82,616) Derivatives - realized gains (losses) 1,097 1,065 2,453 2,650 Derivatives - unrealized gains (losses) (3,093) 1,717 (5,333) 2,187 ---------- --------- -------- --------- Total Interest Expense $ (40,851) $ (26,599) $(115,891) $ (77,779) ========== =========== ========= =========
7 CHESAPEAKE ENERGY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN 000'S) (UNAUDITED) =============================================================================== September 30, December 31, 2003 2002 - ------------------------------------------------------------------------------- CASH $ 38,478 $ 247,637 OTHER CURRENT ASSETS 338,252 187,680 ------------- ------------ TOTAL CURRENT ASSETS 376,730 435,317 ------------- ------------ OIL AND GAS PROPERTIES, NET 3,623,657 2,283,566 OTHER FIXED ASSETS, NET 151,620 106,318 DEFERRED TAX ASSET - 2,071 OTHER ASSETS 105,482 48,336 ------------- ------------ TOTAL ASSETS $ 4,257,489 $ 2,875,608 ============= ============= CURRENT LIABILITIES 426,177 $ 265,552 LONG TERM DEBT 2,024,336 1,651,198 LONG TERM LIABILITIES 71,282 50,983 DEFERRED TAX LIABILITY 151,324 - ------------- ------------ TOTAL LIABILITIES 2,673,119 1,967,733 SHAREHOLDERS' EQUITY 1,584,370 907,875 ------------- ------------ TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 4,257,489 $ 2,875,608 ============= ============ COMMON SHARES OUTSTANDING 216,403 190,144 ============= ============ CHESAPEAKE ENERGY CORPORATION CONDENSED CONSOLIDATED CASH FLOW DATA (IN 000'S) (UNAUDITED) ====================================================================== THREE MONTHS ENDED: September 30, September 30, 2003 2002 ---------------------------------------------------------------------- ---------------------------------------------------------------------- CASH PROVIDED BY OPERATING ACTIVITIES $ 276,884 $ 138,833 CASH (USED IN) INVESTING ACTIVITIES $ (284,994) $ (292,611) CASH PROVIDED BY FINANCING ACTIVITIES $ 10,679 $ 172,860 ====================================================================== 8 CHESAPEAKE ENERGY CORPORATION RECONCILIATION OF CERTAIN FINANCIAL MEASURES (IN 000'S) (UNAUDITED) =============================================================================== THREE MONTHS ENDED: September 30, September 30, 2003 2002 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CASH PROVIDED BY OPERATING ACTIVITIES $ 276,884 $ 138,833 ADJUSTMENTS: CHANGES IN ASSETS AND LIABILITIES (29,175) (37,064) ---------- ---------- OPERATING CASH FLOW* $ 247,709 $ 101,769 ========== =========== * Operating cash flow represents net cash provided by operating activities before changes in assets and liabilities. Operating cash flow is presented because management believes it is a useful adjunct to net cash provided by operating activities under accounting principles generally accepted in the United States (GAAP). Operating cash flow is widely accepted as a financial indicator of an oil and gas company's ability to generate cash which is used to internally fund exploration and development activities and to service debt. This measure is widely used by investors and rating agencies in the valuation, comparison, rating and investment recommendations of companies within the oil and gas exploration and production industry. Operating cash flow is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing, or financing activities as an indicator of cash flows, or as a measure of liquidity. =============================================================================== THREE MONTHS ENDED: Setpember 30, September 30, 2003 2002 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NET INCOME $ 87,859 $ 16,600 INCOME TAX EXPENSE 53,843 11,070 INTEREST EXPENSE 40,851 26,599 DEPRECIATION AND AMORTIZATIONOF OTHER ASSETS 4,841 3,727 OIL AND GAS DEPRECIATION, DEPLETION 97,947 58,334 AND AMORTIZATION ---------- ---------- EBITDA** $ 285,341 $ 116,330 ========== ========== **Ebitda represents net income (loss) before income tax expense (benefit), interest expense, and depreciation, depletion and amortization expense. Ebitda is presented as a supplemental financial measurement in the evaluation of our business. We believe that it provides additional information regarding our ability to meet our future debt service, capital expenditures and working capital requirements. This measure is widely used by investors and rating agencies in the valuation, comparison, rating and investment recommendations of companies. Ebitda is also a financial measurement that, with certain negotiated adjustments, is reported to our banks under our bank credit facilities and is used in our financial covenants under our bank credit facilities and the indentures governing our senior notes. Ebitda is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income, income from operations, or cash flow provided by operating activities prepared in accordance with GAAP. Ebitda is reconciled to cash provided by operating activities as follows: =============================================================================== THREE MONTHS ENDED: September 30, September 30, 2003 2002 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CASH PROVIDED BY OPERATING ACTIVITIES $ 276,884 $ 138,833 CHANGES IN ASSETS AND LIABILITIES (29,175) (37,064) INTEREST EXPENSE 40,851 26,599 UNREALIZED GAINS (LOSSES) ON OIL AND GAS DERIVATIVES 634 (8,764) OTHER NON-CASH ITEMS (3,853) (3,274) ---------- ---------- EBITDA $ 285,341 $ 116,330 ========== ========== 9 SCHEDULE "A" CHESAPEAKE'S OUTLOOK AS OF OCTOBER 30, 2003 QUARTER ENDING DECEMBER 31, 2003; YEAR ENDING DECEMBER 31, 2003; YEAR ENDING DECEMBER 31, 2004. We have adopted a policy of periodically providing investors with guidance on certain factors that affect our future financial performance. As of October 30, 2003, we are using the following key operating assumptions in our projections for the fourth quarter of 2003, full year 2003, and full year 2004. The primary changes from our July 28, 2003 guidance are in italicized bold and are explained as follows: 1) We have updated the projected effects from changes in our hedging positions. 2) We have included our expectations for future NYMEX oil and gas prices to illustrate hedging effects only. They are not a forecast of our expectations for 2003 or 2004 oil and natural gas prices. 3) We have increased our projected natural gas production for the full year 2003 and 2004. 4) We have included fourth quarter 2003 projections for the first time.
Quarter Ending Year Ending Year Ending December 31, 2003 December 31, 2003 December 31, 2004 ------------------- ------------------- ------------------- Estimated Production: Oil - Mbo 1,200 4,700 4,700 Gas - Bcf 66.8-67.3 241 - 242 269 - 275 Gas Equivalent - Bcfe 74.0-74.5 269 - 270 297 - 303 Daily gas equivalent midpoint - in Mmcfe 807 738 822 NYMEX Prices (for calculation of realized hedging effects only): Oil - $/Bo $26.00 $29.74 $24.00 Gas - $/Mcf $4.50 $5.36 $4.25 Estimated Differentials to NYMEX Prices: Oil - $/Bo -$2.50 -$2.23 -$2.50 Gas - $/Mcf -$0.60 -$0.55 -$0.60 Estimated Realized Hedging Effects (based on expected NYMEX prices above): Oil - $/Bo +$2.73 -$1.20 +$4.22 Gas - $/Mcf +$1.00 +$0.01 +$0.63 Operating Costs per Mcfe of Projected Production: Production expense $0.53 - 0.57 $0.53 - 0.57 $0.57 - $0.60 Production taxes (generally 7% of O&G revenues) $0.31 - 0.33 $0.31 - 0.33 $0.27 - $0.30 General and administrative $0.09 - 0.10 $0.09 - 0.10 $0.09 - $0.10 DD&A - oil and gas $1.38 - 1.40 $1.38 - 1.40 $1.40 - $1.45 Depreciation of other assets $0.08 - 0.10 $0.08 - 0.10 $0.08 - $0.10 Interest expense(a) $0.55 - 0.60 $0.55 - 0.60 $0.50 - $0.55 Other Income and Expense per Mcfe: (b) Marketing and other income $0.02 - 0.04 $0.02 - 0.04 $0.02 - $0.04 Book Tax Rate 38% 38% 38% Equivalent Shares Outstanding: Basic 217,000 m 212,000 m 220,000 m Diluted 267,000 m 257,000 m 270,000 m Capital Expenditures: Drilling, Land and Seismic $175 - $200mm $675 - $725 mm $675 - $725 mm
(a) Does not include gains or losses on interest rate derivatives (SFAS133). (b) Does not include the cumulative effect of the adoption of SFAS 143 as of January 1, 2003. 10 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) For swap instruments, we receive a fixed price for the hedged commodity and pay a floating market price, as defined in each instrument, to the counterparty. The fixed-price payment and the floating-price payment are netted, resulting in a net amount due to or from the counterparty. (ii) For cap-swaps, Chesapeake receives a fixed price and pays a floating market price. The fixed price received by Chesapeake includes a premium in exchange for a "cap" limiting the counterparty's exposure. In other words, there is no limit to Chesapeake's exposure but there is a limit to the downside exposure of the counterparty. (iii)Basis protection swaps are arrangements that guarantee a price differential of oil or gas from a specified delivery point. Chesapeake receives a payment from the counterparty if the price differential is greater than the stated terms of the contract and pays the counterparty if the price differential is less than the stated terms of the 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, as a result, look in the gain or loss on the transaction. Chesapeake enters into oil and natural gas derivative transactions in order to mitigate a portion of its exposure to adverse market changes in oil and natural gas prices. Accordingly, associated gains or loses from the derivative transactions are reflected as adjustments to oil and gas sales. All realized gains and losses from oil and natural gas derivatives are included in oil and gas 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 non-qualifying 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 oil and gas 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 oil and natural gas sales. The Company currently has in place the following natural gas swaps:
% Hedged ----------------------------- Avg. Avg. NYMEX Open Swap NYMEX Price Positions as Strike Including Assuming a % of Open Price Gain from Open and Gas Estimated Swaps of Open Locked Locked Production Total Gas in Bcf's Swaps Swaps Positions in Bcf's of: Production -------- -------- --------- ---------- ------------ ------------ 2003: - ------ 4th Qtr 55.4 $5.59 $0.05 $5.64 67.0 83% 2004: - ----- 1st Qtr 45.5 $5.92 $0.05 $5.97 67.6 67% 2nd Qtr 37.3 $4.96 $0.00 $4.96 67.6 55% 3rd Qtr 30.4 $4.84 $0.00 $4.84 68.4 44% 4th Qtr 23.3 $5.01 $0.00 $5.01 68.4 34% - --------------------------------------------------------------------------------------------- Total 2004 136.5 $5.26 $0.02 $5.28 272.0 51% ============================================================================================= ============================================================================================= Total 2005 45.6 $4.82 $0.00 $4.82 282.0 16% ============================================================================================= ============================================================================================= Total 2006 25.6 $4.74 $0.00 $4.74 292.0 9% ============================================================================================= ============================================================================================= Total 2007 25.6 $4.76 $0.00 $4.76 302.0 8% - --------------------------------------------------------------------------------------------- ============================================================================================= TOTALS - --------------------------------------------------------------------------------------------- 2003-2007 288.7 $5.16 $0.02 $5.18 1,215 24% =============================================================================================
11 Chesapeake has also entered into the following natural gas basis protection swaps:
Assuming Gas Annual Production in Bcf's Volume in Bcf's NYMEX less: of: % Hedged --------------- ----------- ------------------- --------- 2003 Remaining 41.4 $ 0.190 67.0 62% 2004 157.4 0.173 272.0 58% 2005 109.5 0.156 282.0 39% 2006 47.5 0.155 292.0 16% 2007 63.9 0.166 302.0 21% 2008 64.0 0.166 312.0 21% 2009 37.0 0.160 322.0 11% --------------- ----------- ------------------- --------- Totals 520.7 $ 0.167* 1,849.0 28% =============== =========== =================== ========= * weighted average
The Company has entered into the following crude oil hedging arrangements: % Hedged ----------------------------- Assuming Open Swap Avg. Oil Positions as Open NYMEX Production % of Total Swaps in Strike in Mmbo's Estimated Mmbo's Price of: Production -------- ------ ---------- ------------ Q4 - 2003* 1,223 $28.69 1,225 100% ----------------------------------------------------- Q1 - 2004* 1,270 $28.58 1,275 100% Q2 - 2004* 1,161 $28.62 1,175 99% Q3 - 2004* 1,044 $28.75 1,150 91% Q4 - 2004* 920 $28.46 1,100 84% ----------------------------------------------------- Total 2004 4,395 $28.61 4,700 94% ===================================================== *Swaps with a knockout price of $21.00, with the exception of 2,000 bopd in 2004 with a knockout price of $24.00, 1,000 bopd in Q3 and Q4 2004 with aknockout price of $23.00, 1,000 bopd in Q4 2003 with a knockout price of $26.00,3,000 bopd for 11/03 and 12/03 at a knockout price of $22.00, 2,000 bopd for 1/04 and 3-8/04 at a knockout price of $22.00, and 3,000 bopd in 2/04 at a knockout price of $22.00. 12 SCHEDULE "B" CHESAPEAKE'S PREVIOUS OUTLOOK AS OF JULY 28, 2003 (PROVIDED FOR REFERENCE ONLY) NOW SUPERSEDED BY OUTLOOK AS OF OCTOBER 30, 2003 QUARTER ENDING SEPTEMBER 30, 2003; YEAR ENDING DECEMBER 31, 2003; YEAR ENDING DECEMBER 31, 2004. We have adopted a policy of periodically providing investors with guidance on certain factors that affect our future financial performance. As of July 28, 2003, we are using the following key operating assumptions in our projections for the third quarter of 2003, full year 2003, and full year 2004. The primary changes from our June 24, 2003 guidance are in italicized bold and are explained as follows: 1) We have updated the projected effects from changes in our hedging positions. 2) We have included our expectations for future NYMEX oil and gas prices to illustrate hedging effects only, they are not a forecast of our expectations for 2003 oil and natural gas prices. 3) We have increased our projected oil and natural gas production for the full year 2003 and 2004. 4) We have included third quarter 2003 projections for the first time.
Quarter Ending Year Ending Year Ending September 30, December 31, 2003 December 31, 2004 ------------- ----------------- ----------------- 2003 ---- Estimated Production: Oil - Mbo 1,200 4,700 4,700 Gas - Bcf 60.5 - 61.0 230 - 234 249 - 253 Gas Equivalent - Bcfe 67.5 - 68.0 258 - 262 277 - 281 Daily gas equivalent midpoint - in Mmcfe 735 710 765 NYMEX Prices (for calculation of hedging effects only): Oil - $/Bo $25.00 $28.19 $24.00 Gas - $/Mcf $5.43 $5.79 $4.50 Estimated Differentials to NYMEX Prices: Oil - $/Bo -$2.50 -$2.23 -$2.00 Gas - $/Mcf -$0.50 -$0.50 -$0.50 Estimated Hedging Effects (based on expected NYMEX prices above): Oil - $/Bo +$2.64 -$0.24 +$2.43 Gas - $/Mcf +$0.24 -$0.25 +$0.29 Operating Costs per Mcfe of Projected Production: Production expense $0.53 - 0.57 $0.53 - 0.57 $0.57 - $0.60 Production taxes (generally 6% of O&G revenues) $0.31 - 0.33 $0.31 - 0.33 $0.27 - $0.30 General and administrative $0.09 - 0.10 $0.09 - 0.10 $0.09 - $0.10 DD&A - oil and gas $1.35 - 1.40 $1.35 - 1.40 $1.37 - $1.42 Depreciation of other assets $0.08 - 0.10 $0.08 - 0.10 $0.08 - $0.10 Interest expense $0.60 - 0.65 $0.60 - 0.65 $0.55 - $0.60 Other Income and Expense per Mcfe: (a) Marketing and Other income $0.02 - 0.04 $0.02 - 0.04 $0.02 - $0.04 Book Tax Rate - All Deferred 38% 38% 38% Equivalent Shares Outstanding: Basic 216,000 m 214,000 m 218,000 Diluted 266,000 m 258,000 m 268,000 Capital Expenditures: Drilling, Land and Seismic $150 - $155 mm $600 - $650 mm $600 - $650 mm (a) Does not include the cumulative effect of the adoption of SFAS 143.
13 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 (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 Chesapeake Energy Marketing, Inc.'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. The Company currently has in place the following natural gas hedging arrangements:
% Hedged ----------------------------- Avg. Avg. NYMEX Open Swap NYMEX Price Positions as Strike Including Assuming a % of Open Price Gain from Open and Gas Estimated Swaps of Open Locked Locked Production Total Gas in Bcf's Swaps Swaps Positions in Bcf's of: Production -------- ------- ---------- ---------- ------------- ------------ 2003: - ----- 3rd Qtr 37.7 $5.45 $0.05 $5.50 60.8 62% 4th Qtr 38.3 $5.65 $0.07 $5.72 60.9 63% - --------------------------------------------------------------------------------------------- Remaining 2003 76.0 $5.55 $0.06 $5.61 121.7 62% =============================================================================================
NOW SUPERSEDED BY OUTLOOK AS OF OCTOBER 30, 2003 14
% Hedged ----------------------------- Avg. Avg. NYMEX Open Swap NYMEX Price Positions as Strike Including Assuming a % of Open Price Gain from Open and Gas Estimated Swaps of Open Locked Locked Production Total Gas in Bcf's Swaps Swaps Positions in Bcf's of: Production -------- ------- ---------- ---------- ------------- ------------ 2004: - ----- 1st Qtr 26.4 $6.12 $0.08 $6.20 61.4 43% 2nd Qtr 17.0 $5.06 $0.00 $5.06 62.3 27% 3rd Qtr 11.0 $4.92 $0.00 $4.92 63.5 17% 4th Qtr 11.0 $5.13 $0.00 $5.13 63.8 17% - --------------------------------------------------------------------------------------------- Total 2004 65.4 $5.48 $0.03 $5.51 251.0 26% ============================================================================================= ============================================================================================= Total 2005 40.2 $4.79 $0.00 $4.79 260.0 15% ============================================================================================= ============================================================================================= Total 2006 25.6 $4.74 $0.00 $4.74 270.0 9% ============================================================================================= ============================================================================================= Total 2007 25.6 $4.76 $0.00 $4.76 280.0 9% =============================================================================================
Chesapeake has also entered into the following natural gas basis protection swaps:
Assuming Gas Annual Production in Bcf's Volume in Bcf's NYMEX less: of: %Hedged ---------------- ---------------- ------------------- ------- 2003 Remaining 82.8 $ 0.188 121.7 68% 2004 157.4 0.173 251.0 63% 2005 109.5 0.156 260.0 42% 2006 47.5 0.155 270.0 18% 2007 63.9 0.166 280.0 23% 2008 64.0 0.166 290.0 22% 2009 37.0 0.160 300.0 12% ---------------- ---------------- ------------------- ------- 562.1 $ 0.169* 1,772.7 32% ================ ================ =================== =======
* weighted average NOW SUPERSEDED BY OUTLOOK AS OF OCTOBER 30, 2003 15 The Company has entered into the following crude oil hedging arrangements: % Hedged ----------------------------- Assuming Open Swap Avg. Oil Positions as Open NYMEX ProdutionN % of Total Swaps in Strike in Mmbo's Estimated Mmbo's Price of: Production -------- ------ ---------- ------------ Q3 - 2003* 948 $28.07 1,200 79% Q4 - 2003* 948 $28.07 1,200 79% ----------------------------------------------------- Remaining 2003 1,896 $28.07 2,400 79% ===================================================== Q1 - 2004* 877 $27.76 1,175 75% Q2 - 2004* 797 $27.81 1,175 68% Q3 - 2004* 644 $27.94 1,175 55% Q4 - 2004* 644 $27.94 1,175 55% ----------------------------------------------------- TOTAL 2004 2,962 $27.85 4,700 63% ===================================================== *Swaps with a knockout provision for days in which NYMEX closes below $21.00. NOW SUPERSEDED BY OUTLOOK AS OF OCTOBER 30, 2003 16 -----END PRIVACY-ENHANCED MESSAGE-----