-----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, MUP09BdnmznrP4L2ubzmpvHdwlb4UDsYuYteWBLrsoj7cGl78Khft3UXjPnfobQq 2uDvyZp+7UmRkbG3cq9d6Q== 0000950134-96-002223.txt : 19960517 0000950134-96-002223.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950134-96-002223 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHESAPEAKE ENERGY CORP CENTRAL INDEX KEY: 0000895126 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 731395733 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13726 FILM NUMBER: 96567705 BUSINESS ADDRESS: STREET 1: 6104 N WESTERN CITY: OKLAHOMA CITY STATE: OK ZIP: 73118 BUSINESS PHONE: 4058488000 MAIL ADDRESS: STREET 1: 6104 NORTH WESTERN AVE CITY: OKLAHOMA CITY STATE: OK ZIP: 73118 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 31, 1996 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1996 [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Act of 1934 For the transition period from __________ to __________ COMMISSION FILE NO. 1-13726 CHESAPEAKE ENERGY CORPORATION - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 73-1395733 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6104 NORTH WESTERN AVENUE OKLAHOMA CITY, OKLAHOMA 73118 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (405) 848-8000 - ------------------------------------------------------------------------------ Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- At April 30, 1996, there were 19,899,547 shares of the registrant's $.10 par value Common Stock outstanding. 2 PART I. FINANCIAL INFORMATION Index to Financial Statements and Management's Discussion and Analysis
Page ---- Chesapeake Energy Corporation: Item 1. Consolidated Financial Statements: Consolidated Balance Sheets at March 31, 1996 and June 30, 1995 . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 1996 and 1995 . . . . . 4 Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 1996 and 1995 . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . 13 Chesapeake Exploration Limited Partnership: Item 1. Financial Statements Balance Sheets at March 31, 1996 and June 30, 1995 . . . . . . . . . . . . . . . . . . . . . 19 Statements of Operations for the Three and Nine Months Ended March 31, 1996 and 1995 . . . . . . . 20 Statements of Cash Flows for the Nine Months Ended March 31, 1996 and 1995 . . . . . . . 21 Notes to Financial Statements . . . . . . . . . . . . . 22 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . 23
Page 2 3 CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS March 31, June 30, 1996 1995 --------- --------- ($ in thousands) CURRENT ASSETS: Cash and cash equivalents $ 25,948 $ 55,535 Accounts receivable: Oil and gas sales 12,242 10,644 Gas marketing sales 6,189 -- Joint interest and other, net of allowance for doubtful accounts of $237,000 and $452,000 27,138 26,317 Related parties 1,847 4,386 Inventory 7,066 8,926 Other 1,798 633 --------- --------- Total Current Assets 82,228 106,441 --------- --------- PROPERTY AND EQUIPMENT: Oil and gas properties, at cost based on full cost accounting: Evaluated oil and gas properties 279,668 165,302 Unevaluated properties 76,265 27,474 Less: accumulated depreciation, depletion and amortization (77,089) (41,821) --------- --------- 278,844 150,955 Service properties, equipment, and other 22,505 16,966 Less: accumulated depreciation and amortization (5,797) (4,120) --------- --------- Total Property and Equipment 295,552 163,801 --------- --------- OTHER ASSETS 6,939 6,451 --------- --------- TOTAL ASSETS $ 384,719 $ 276,693 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current maturities of long-term debt $ 8,496 $ 9,993 Accounts payable 62,491 33,438 Related party payables 6,000 -- Accrued liabilities and other 8,048 7,572 Revenues and royalties due others 31,977 23,786 Income taxes payable 116 116 --------- --------- Total Current Liabilities 117,128 74,905 --------- --------- LONG-TERM DEBT 184,084 145,754 --------- --------- REVENUES AND ROYALTIES DUE OTHERS 5,465 3,779 --------- --------- DEFERRED INCOME TAXES 13,285 7,280 --------- --------- CONTINGENCIES AND COMMITMENTS STOCKHOLDERS' EQUITY: Common Stock, $.10 par value, 45,000,000 shares authorized at March 31, 1996; $.0033 par value, 20,000,000 shares authorized at June 30, 1995; 17,843,149 and 17,540,832 shares issued and outstanding at March 31, 1996 and June 30, 1995, respectively 1,784 58 Paid-in capital 32,354 30,295 Accumulated earnings 30,619 14,622 --------- --------- Total Stockholders' Equity 64,757 44,975 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 384,719 $ 276,693 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. Page 3 4 CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, ------------------- ------------------- 1996 1995 1996 1995 ------- ------- ------- ------- ($ in thousands, ($ in thousands, except per share data) except per share data) REVENUES: Oil and gas sales $30,887 $14,025 $77,237 $36,501 Gas marketing sales 11,558 -- 15,345 -- Oil and gas service operations 1,700 1,763 5,317 6,514 Interest and other 250 68 2,041 976 ------- ------- ------- ------- Total Revenues 44,395 15,856 99,940 43,991 ------- ------- ------- ------- COSTS AND EXPENSES: Production expenses and taxes 2,136 1,357 5,839 2,648 Gas marketing expenses 10,788 -- 14,554 -- Oil and gas service operations 1,244 1,433 4,263 5,325 Oil and gas depreciation, depletion and amortization 13,035 6,653 35,268 15,725 Depreciation and amortization of other assets 766 626 2,151 1,590 General and administrative, net 1,435 722 3,347 2,367 Interest 3,173 1,518 9,717 4,455 ------- ------- ------- ------- Total Costs and Expenses 32,577 12,309 75,139 32,110 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 11,818 3,547 24,801 11,881 INCOME TAX EXPENSE 4,195 1,242 8,804 3,992 ------- ------- ------- ------- NET INCOME $ 7,623 $ 2,305 $15,997 $ 7,889 ======= ======= ======= ======= EARNINGS PER COMMON SHARE COMPUTATION: NET INCOME AVAILABLE TO COMMON $ 7,623 $ 2,305 $15,997 $ 7,889 ======= ======= ======= ======= NET INCOME PER COMMON SHARE $ .39 $ .12 $ .83 $ .43 ======= ======= ======= ======= WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 19,490 18,642 19,328 18,443 ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. Page 4 5 CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED March 31, ------------------------ 1996 1995 --------- --------- ($ in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME $ 15,997 $ 7,889 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation, depletion and amortization 36,550 16,942 Deferred taxes 8,804 3,992 Amortization of loan costs 869 373 Amortization of bond discount 421 427 Gain on sale of fixed assets and other (366) (164) Purchases and sales of trading securities, net (850) -- Other adjustments (129) 34 CHANGES IN CURRENT ASSETS AND LIABILITIES 38,819 7,737 --------- --------- Cash provided by operating activities 100,115 37,230 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Exploration development and acquisition of oil and gas properties (171,523) (81,323) Proceeds from sale of oil and gas equipment, leasehold and other 8,366 13,505 Proceeds from sale of property, equipment and other 783 835 Investment in gas marketing company, net of cash acquired (363) -- Additions to property, equipment and other (6,334) (5,859) --------- --------- Cash used in investing activities (169,071) (72,842) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings 41,650 35,082 Payments on long-term borrowings (3,267) (11,740) Cash received from exercise of stock options 986 737 --------- --------- Cash provided by financing activities 39,369 24,079 --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (29,587) (11,533) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 55,535 16,225 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 25,948 $ 4,692 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. Page 5 6 CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 (unaudited) 1. Accounting Principles The accompanying unaudited consolidated financial statements of Chesapeake Energy Corporation and Subsidiaries (the "Company") have been prepared in accordance with the instructions to Form 10-Q as prescribed by the Securities and Exchange Commission. All material adjustments (consisting solely of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods have been reflected. The results for the three and nine months ended March 31, 1996, are not necessarily indicative of the results for the full fiscal year. As used in this Form 10-Q, the terms "Restricted Subsidiaries" and "Subsidiary Guarantors" include Chesapeake Operating, Inc. ("COI"), Lindsay Oil Field Supply, Inc., Sander Trucking Company, Inc., Whitmire Dozer Service, Inc., and Chesapeake Exploration Limited Partnership ("CEX"), and the terms "Unrestricted Subsidiaries" and "Non-Guarantor Subsidiaries" include Chesapeake Gas Development Corporation ("CGDC") and Chesapeake Energy Marketing, Inc. ("CEM"), each of which is a direct or indirect wholly owned subsidiary of the Company. 2. Recent Transactions On April 9, 1996, the Company issued 1,650,000 shares of Common Stock in a public offering at a price of $53.00 per share, which resulted in net proceeds to the Company of approximately $82.6 million before certain expenses of the offering. On April 9, 1996, the Company also issued $120 million in 9 1/8% Senior Notes due 2006 (the "9 1/8% Notes"), which resulted in net proceeds to the Company of approximately $116.0 million before certain expenses of the offering. The 9 1/8% Notes were issued at 99.931% of par. On April 12, 1996, the underwriters of the Company's Common Stock Offering exercised an over-allotment option to purchase an additional 346,500 shares of Common Stock at a price of $53.00 per share, resulting in additional net proceeds to the Company of approximately $17.3 million, before certain expenses. On April 30, 1996, the Company purchased interests in certain producing and non-producing oil and gas properties from Amerada Hess Corporation for $35 million, subject to adjustment for activity after the effective date of January 1, 1996. The properties are located in the Knox and Golden Trend fields of southern Oklahoma, most of which are operated by the Company. The Company estimates that it acquired approximately 58 billion cubic feet equivalent ("Bcfe") of proved oil and gas reserves. Additionally, the Company acquired approximately 14,000 net acres of unevaluated leasehold. Page 6 7 CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 (unaudited) 3. Senior Notes 12% Notes The Company has outstanding $47.5 million in aggregate principal amount of 12% Notes which mature in March 2001. The 12% Notes bear interest at an annual rate of 12%, payable semiannually on each March 1 and September 1. The 12% Notes are senior obligations of the Company and are secured by a pledge of all of the issued and outstanding capital stock of, and partnership interests in, the Company's Restricted Subsidiaries. In addition, the 12% Notes are fully and unconditionally guaranteed, jointly and severally, by the Restricted Subsidiaries. The only subsidiary's securities which constitute a substantial portion of the collateral for the 12% Notes are the partnership interests in CEX, a limited partnership which is 10% owned by COI, as the sole general partner, and 90% owned directly by the Company, as the sole limited partner. Separate financial statements of CEX are presented elsewhere in this Form 10-Q. 10 1/2% Notes The Company has outstanding $90 million in aggregate principal amount of 10 1/2% Notes which mature June 2002. The 10 1/2% Notes bear interest at an annual rate of 10 1/2%, payable semiannually on each June 1 and December 1. The 10 1/2% Notes are senior, unsecured obligations of the Company, and are fully and unconditionally guaranteed, jointly and severally, by the Company's Restricted Subsidiaries. 9 1/8% Notes On April 9, 1996 the Company issued $120 million in aggregate principal amount of 9 1/8% Senior Notes due 2006 which mature April 15, 2006. The 9 1/8% Notes bear interest at an annual rate of 9 1/8%, payable semiannually on each April 15 and October 15, commencing October 15, 1996. The 9 1/8% Notes are senior, unsecured obligations of the Company, and are fully and unconditionally guaranteed, jointly and severally, by the Company's Restricted Subsidiaries. Set forth below are condensed consolidating financial statements of CEX, the other Subsidiary Guarantors, all Subsidiary Guarantors combined, the Non-Guarantor Subsidiaries and the Company. The CEX limited partnership condensed financial statements were prepared on a separate entity basis as reflected in the Company's books and records and include all material costs of doing business as if the partnership were on a stand-alone basis except that interest is not charged or allocated on intercompany advances. No provision has been made for income taxes because the partnership is not a tax paying entity. Page 7 8 CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 (unaudited) CONDENSED CONSOLIDATING BALANCE SHEET AS OF MARCH 31, 1996 ($ IN THOUSANDS)
SUBSIDIARY GUARANTORS ----------------------------------- ALL NON-GUARANTOR COMPANY CEX OTHERS COMBINED SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED --------- --------- --------- ------------- --------- ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ -- $ 12,292 $ 12,292 $ 1,395 $ 12,261 $ -- $ 25,948 Accounts receivable, net 14,549 27,564 42,113 6,980 -- (1,677) 47,416 Inventory -- 7,032 7,032 34 -- -- 7,066 Other -- 569 569 12 1,217 -- 1,798 --------- --------- --------- --------- --------- --------- --------- Total Current Assets 14,549 47,457 62,006 8,421 13,478 (1,677) 82,228 --------- --------- --------- --------- --------- --------- --------- PROPERTY AND EQUIPMENT: Oil and gas properties 270,952 (15,901) 255,051 24,617 -- -- 279,668 Unevaluated leasehold 76,265 -- 76,265 -- -- -- 76,265 Other property and equipment -- 15,197 15,197 21 7,287 -- 22,505 Less: accumulated depreciation, depletion and amortization (69,752) (5,408) (75,160) (7,349) (377) -- (82,886) --------- --------- --------- --------- --------- --------- --------- Total Property & Equipment 277,465 (6,112) 271,353 17,289 6,910 -- 295,552 --------- --------- --------- --------- --------- --------- --------- INVESTMENTS IN SUBSIDIARIES AND INTERCOMPANY ADVANCES 55,344 297,707 353,051 7,325 198,179 (558,555) -- --------- --------- --------- --------- --------- --------- --------- OTHER ASSETS 675 12 687 946 5,306 -- 6,939 --------- --------- --------- --------- --------- --------- --------- TOTAL ASSETS $ 348,033 $ 339,064 $ 687,097 $ 33,981 $ 223,873 $(560,232) $ 384,719 ========= ========= ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current maturities of long-term debt $ -- $ 5,227 $ 5,227 $ 3,240 $ 29 $ -- $ 8,496 Accounts payable and other 378 101,405 101,783 4,947 3,604 (1,702) 108,632 --------- --------- --------- --------- --------- --------- --------- Total Current Liabilities 378 106,632 107,010 8,187 3,633 (1,702) 117,128 --------- --------- --------- --------- --------- --------- --------- LONG-TERM DEBT 35,000 2,277 37,277 10,560 136,247 -- 184,084 --------- --------- --------- --------- --------- --------- --------- REVENUES PAYABLE -- 5,465 5,465 -- -- -- 5,465 --------- --------- --------- --------- --------- --------- --------- DEFERRED INCOME TAXES -- 19,235 19,235 962 (6,912) -- 13,285 --------- --------- --------- --------- --------- --------- --------- INTERCOMPANY PAYABLES 238,606 235,269 473,875 8,284 72,601 (554,760) -- --------- --------- --------- --------- --------- --------- --------- STOCKHOLDERS' EQUITY: Common Stock -- 117 117 2 1,667 (2) 1,784 Other 74,049 (29,931) 44,118 5,986 16,637 (3,768) 62,973 --------- --------- --------- --------- --------- --------- --------- Total Stockholders' Equity 74,049 (29,814) 44,235 5,988 18,304 (3,770) 64,757 --------- --------- --------- --------- --------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 348,033 $ 339,064 $ 687,097 $ 33,981 $ 223,873 $(560,232) $ 384,719 ========= ========= ========= ========= ========= ========= =========
Page 8 9 CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 (unaudited) CONDENSED CONSOLIDATING BALANCE SHEET AS OF JUNE 30, 1995 ($ IN THOUSANDS)
SUBSIDIARY GUARANTORS ----------------------------------- ALL NON-GUARANTOR COMPANY CEX OTHERS COMBINED SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED --------- --------- --------- ------------- --------- ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ -- $ 53,227 $ 53,227 $ 5 $ 2,303 $ -- $ 55,535 Accounts receivable, net 9,867 30,693 40,560 777 10 -- 41,347 Inventory -- 8,895 8,895 31 -- -- 8,926 Other -- 633 633 -- -- -- 633 --------- --------- --------- --------- --------- --------- Total Current Assets 9,867 93,448 103,315 813 2,313 -- 106,441 --------- --------- --------- --------- --------- --------- --------- PROPERTY AND EQUIPMENT: Oil and gas properties 163,521 (16,723) 146,798 18,504 -- -- 165,302 Unevaluated leasehold 27,474 -- 27,474 -- -- -- 27,474 Other property and equipment -- 12,199 12,199 -- 4,767 -- 16,966 Less: accumulated depreciation, depletion and amortization (36,959) (3,847) (40,806) (4,861) (274) -- (45,941) --------- --------- --------- --------- --------- --------- --------- Total Property & Equipment 154,036 (8,371) 145,665 13,643 4,493 -- 163,801 --------- --------- --------- --------- --------- --------- --------- INVESTMENTS IN SUBSIDIARIES AND INTERCOMPANY ADVANCES 17,559 181,914 199,473 -- 176,795 (376,268) -- --------- --------- --------- --------- --------- --------- --------- OTHER ASSETS 776 41 817 123 5,511 -- 6,451 --------- --------- --------- --------- --------- --------- --------- TOTAL ASSETS $ 182,238 $ 267,032 $ 449,270 $ 14,579 $ 189,112 $(376,268) $ 276,693 ========= ========= ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current maturities of long-term debt $ -- $ 7,757 $ 7,757 $ 2,200 $ 36 $ -- $ 9,993 Accounts payable and other 516 61,777 62,293 -- 2,619 -- 64,912 --------- --------- --------- --------- --------- --------- --------- Total Current Liabilities 516 69,534 70,050 2,200 2,655 -- 74,905 --------- --------- --------- --------- --------- --------- --------- LONG-TERM DEBT 10 1,326 1,336 8,600 135,818 -- 145,754 --------- --------- --------- --------- --------- --------- --------- REVENUES PAYABLE -- 3,779 3,779 -- -- -- 3,779 --------- --------- --------- --------- --------- --------- --------- DEFERRED INCOME TAXES -- 9,621 9,621 164 (2,505) -- 7,280 --------- --------- --------- --------- --------- --------- --------- INTERCOMPANY PAYABLES 140,236 201,959 342,195 3,307 30,766 (376,268) -- --------- --------- --------- --------- --------- --------- --------- STOCKHOLDERS' EQUITY: Common Stock -- 31 31 1 58 (32) 58 Other 41,476 (19,218) 22,258 307 22,320 32 44,917 --------- --------- --------- --------- --------- --------- --------- Total Stockholders' Equity 41,476 (19,187) 22,289 308 22,378 -- 44,975 --------- --------- --------- --------- --------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 182,238 $ 267,032 $ 449,270 $ 14,579 $ 189,112 $(376,268) $ 276,693 ========= ========= ========= ========= ========= ========= =========
Page 9 10 CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 (unaudited) CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS ($ IN THOUSANDS)
SUBSIDIARY GUARANTORS ----------------------------------- ALL NON-GUARANTOR COMPANY CEX OTHERS COMBINED SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED -------- -------- -------- ------------- -------- ------------ ------------ FOR THE NINE MONTHS ENDED MARCH 31, 1996: REVENUES: Oil and gas sales $ 72,112 $ -- $ 72,112 $ 5,125 $ -- $ -- $ 77,237 Gas marketing sales -- -- -- 17,964 -- (2,619) 15,345 Oil and gas service operations -- 5,317 5,317 -- -- -- 5,317 Interest and other -- 1,379 1,379 105 557 -- 2,041 -------- -------- -------- -------- -------- -------- -------- Total Revenues 72,112 6,696 78,808 23,194 557 (2,619) 99,940 -------- -------- -------- -------- -------- -------- -------- COSTS AND EXPENSES: Production expenses and taxes 4,884 437 5,321 518 -- -- 5,839 Gas marketing expenses -- -- -- 17,173 -- (2,619) 14,554 Oil and gas service operations -- 4,263 4,263 -- -- -- 4,263 Oil and gas depreciation, depletion and amortization 33,359 -- 33,359 1,909 -- -- 35,268 Other depreciation and amortization 181 1,176 1,357 44 750 -- 2,151 General and administrative, net 807 1,735 2,542 291 514 -- 3,347 Interest and other 308 97 405 551 8,761 -- 9,717 -------- -------- -------- -------- -------- -------- -------- Total Costs & Expenses 39,539 7,708 47,247 20,486 10,025 (2,619) 75,139 -------- -------- -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES 32,573 (1,012) 31,561 2,708 (9,468) -- 24,801 INCOME TAX EXPENSE (BENEFIT) -- 11,275 11,275 962 (3,433) -- 8,804 -------- -------- -------- -------- -------- -------- -------- NET INCOME (LOSS) $ 32,573 $(12,287) $ 20,286 $ 1,746 $ (6,035) $ -- $ 15,997 ======== ======== ======== ======== ======== ======== ======== FOR THE NINE MONTHS ENDED MARCH 31, 1995: REVENUES: Oil and gas sales $ 35,764 $ -- $ 35,764 $ 737 $ -- $ -- $ 36,501 Oil and gas service operations -- 6,514 6,514 -- -- -- 6,514 Interest and other -- 902 902 -- 74 -- 976 -------- -------- -------- -------- -------- -------- -------- Total Revenues 35,764 7,416 43,180 737 74 -- 43,991 -------- -------- -------- -------- -------- -------- -------- COSTS AND EXPENSES: Production expenses and taxes 2,144 391 2,535 113 -- -- 2,648 Oil and gas service operations -- 5,325 5,325 -- -- -- 5,325 Oil and gas depreciation, depletion and amortization 15,353 -- 15,353 372 -- -- 15,725 Other depreciation and amortization 97 1,147 1,244 1 345 -- 1,590 General and administrative, net 687 1,055 1,742 33 592 -- 2,367 Interest and other 122 296 418 96 3,941 -- 4,455 -------- -------- -------- -------- -------- -------- -------- Total Costs & Expenses 18,403 8,214 26,617 615 4,878 -- 32,110 -------- -------- -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAX 17,361 (798) 16,563 122 (4,804) -- 11,881 INCOME TAX EXPENSE (BENEFIT) -- 3,992 3,992 -- -- -- 3,992 -------- -------- -------- -------- -------- -------- -------- NET INCOME (LOSS) $ 17,361 $ (4,790) $ 12,571 $ 122 $ (4,804) $ -- $ 7,889 ======== ======== ======== ======== ======== ======== ========
Page 10 11 CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 (unaudited) CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS ($ IN THOUSANDS)
SUBSIDIARY GUARANTORS ----------------------------------- ALL NON-GUARANTOR COMPANY CEX OTHERS COMBINED SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED -------- -------- -------- ------------- -------- ------------ ------------ FOR THE THREE MONTHS ENDED MARCH 31, 1996: REVENUES Oil and gas sales $ 28,579 $ -- $ 28,579 $ 2,308 $ -- $ -- $ 30,887 Gas marketing sales -- -- -- 13,594 -- (2,036) 11,558 Oil and gas service operations -- 1,700 1,700 -- -- -- 1,700 Interest and other -- 143 143 99 8 -- 250 -------- -------- -------- -------- -------- -------- -------- 28,579 1,843 30,422 16,001 8 (2,036) 44,395 -------- -------- -------- -------- -------- -------- -------- COSTS AND EXPENSES Production expenses and taxes 1,785 144 1,929 207 -- -- 2,136 Gas marketing expenses -- -- -- 12,824 -- (2,036) 10,788 Oil and gas service operations -- 1,244 1,244 -- -- -- 1,244 Oil and gas depreciation 12,300 -- 12,300 735 -- -- 13,035 Other depreciation & amortization 72 435 507 26 233 -- 766 General and administrative, net 280 763 1,043 190 202 -- 1,435 Interest and Other 280 44 324 201 2,648 -- 3,173 -------- -------- -------- -------- -------- -------- -------- 14,717 2,630 17,347 14,183 3,083 (2,036) 32,577 -------- -------- -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAX 13,862 (787) 13,075 1,818 (3,075) -- 11,818 -------- -------- -------- -------- -------- -------- -------- INCOME TAX EXPENSE (BENEFIT) -- 4,713 4,713 646 (1,164) -- 4,195 -------- -------- -------- -------- -------- -------- -------- NET INCOME (LOSS) $ 13,862 $ (5,500) $ 8,362 $ 1,172 $ (1,911) $ -- $ 7,623 ======== ======== ======== ======== ======== ======== ======== FOR THE THREE MONTHS ENDED MARCH 31, 1995: REVENUES Oil and gas sales $ 13,494 $ -- $ 13,494 $ 531 $ -- $ -- $ 14,025 Oil and gas service operations -- 1,763 1,763 -- -- -- 1,763 Interest and other -- 30 30 -- 38 -- 68 -------- -------- -------- -------- -------- -------- -------- 13,494 1,793 15,287 531 38 -- 15,856 -------- -------- -------- -------- -------- -------- -------- COSTS AND EXPENSES Production expenses and taxes 1,111 163 1,274 83 -- -- 1,357 Oil and gas service operations -- 1,433 1,433 -- -- -- 1,433 Oil and gas depreciation 6,360 -- 6,360 293 -- -- 6,653 Other depreciation & amortization (120) 621 501 1 124 -- 626 General and administrative, net 252 283 535 27 160 -- 722 Interest and Other 89 595 684 96 738 -- 1,518 -------- -------- -------- -------- -------- -------- -------- 7,692 3,095 10,787 500 1,022 -- 12,309 -------- -------- -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAX 5,802 (1,302) 4,500 31 (984) -- 3,547 -------- -------- -------- -------- -------- -------- -------- INCOME TAX EXPENSE (BENEFIT) -- 1,242 1,242 -- -- -- 1,242 -------- -------- -------- -------- -------- -------- -------- NET INCOME (LOSS) $ 5,802 $ (2,544) $ 3,258 $ 31 $ (984) $ -- $ 2,305 ======== ======== ======== ======== ======== ======== ========
Page 11 12 CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 (unaudited) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS ($ IN THOUSANDS)
SUBSIDIARY GUARANTORS ----------------------------------- ALL NON-GUARANTOR COMPANY CEX OTHERS COMBINED SUBSIDIARIES (PARENT) ELIMINATIONS CONSOLIDATED -------- -------- -------- ------------- -------- ------------ ------------ FOR THE NINE MONTHS ENDED MARCH 31, 1996: CASH FLOWS FROM OPERATING ACTIVITIES $ 50,767 $ 53,200 $ 103,967 $ 2,877 $ (6,729) $ -- $ 100,115 --------- --------- --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Oil and gas properties (159,478) (5,365) (164,843) (11,980) -- 5,300 (171,523) Proceeds from sales 5,300 9,149 14,449 -- -- (5,300) 9,149 Investment in gas marketing company -- -- -- 266 (629) -- (363) Other additions (182) (3,218) (3,400) (40) (2,894) -- (6,334) --------- --------- --------- --------- --------- --------- --------- (154,360) 566 (153,794) (11,754) (3,523) -- (169,071) --------- --------- --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings 30,000 1,350 31,350 10,300 -- -- 41,650 Payments on borrowings -- (753) (753) (2,494) (20) -- (3,267) Cash received from exercise of stock options -- -- -- -- 986 -- 986 Intercompany advances, net 73,593 (95,298) (21,705) 2,461 19,244 -- -- --------- --------- --------- --------- --------- --------- --------- 103,593 (94,701) 8,892 10,267 20,210 -- 39,369 --------- --------- --------- --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents -- (40,935) (40,935) 1,390 9,958 -- (29,587) Cash, beginning of period -- 53,227 53,227 5 2,303 -- 55,535 --------- --------- --------- --------- --------- --------- --------- Cash, end of period $ -- $ 12,292 $ 12,292 $ 1,395 $ 12,261 $ -- $ 25,948 ========= ========= ========= ========= ========= ========= ========= FOR THE NINE MONTHS ENDED MARCH 31, 1995: CASH FLOWS FROM OPERATING ACTIVITIES $ 36,643 $ 5,573 $ 42,216 $ 10 $ (4,996) $ -- $ 37,230 --------- --------- --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Oil and gas properties (81,323) -- (81,323) (5,500) -- 5,500 (81,323) Proceeds from sales 8,881 10,959 19,840 -- -- (5,500) 14,340 Other additions 11 (3,640) (3,629) (57) (2,173) -- (5,859) --------- --------- --------- --------- --------- --------- --------- (72,431) 7,319 (65,112) (5,557) (2,173) -- (72,842) --------- --------- --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings 28,433 1,149 29,582 5,500 -- -- 35,082 Payments on borrowings (9,933) (1,881) (11,814) (300) 374 -- (11,740) Cash received from exercise of stock options -- -- -- -- 737 -- 737 Intercompany advances, net 17,288 (31,133) (13,845) 383 13,462 -- -- --------- --------- --------- --------- --------- --------- --------- 35,788 (31,865) 3,923 5,583 14,573 -- 24,079 --------- --------- --------- --------- --------- --------- --------- Net increase (decrease)in cash and cash equivalents -- (18,973) (18,973) 36 7,404 -- (11,533) Cash, beginning of period -- 13,946 13,946 -- 2,279 -- 16,225 --------- --------- --------- --------- --------- --------- --------- Cash, end of period $ -- $ (5,027) $ (5,027) $ 36 $ 9,683 $ -- $ 4,692 ========= ========= ========= ========= ========= ========= =========
Page 12 13 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENT EVENTS On April 9, 1996 the Company completed a public offering of 1,650,000 shares of Common Stock (the "Common Stock Offering") at a price of $53.00 per share, resulting in net proceeds to the Company of approximately $82.6 million before certain expenses of the offering. On April 12, 1996, the underwriters of the Company's Common Stock Offering exercised an over-allotment option to purchase an additional 346,500 shares of Common Stock at a price of $53.00 per share, resulting in additional net proceeds to the Company of approximately $17.3 million. On April 9, 1996 the Company also concluded the sale of $120 million in 9 1/8% Senior Notes due 2006 (the "9 1/8% Notes"), which offering (the "9 1/8% Notes Offering") resulted in net proceeds to the Company of approximately $116.0 million before certain expenses of the offering. The 9 1/8% Notes were issued at 99.931% of par. On April 30, 1996, the Company purchased interests in certain producing and non-producing oil and gas properties from Amerada Hess Corporation for $35 million, subject to adjustment for activity after the effective date of January 1, 1996. The properties are located in the Knox and Golden Trend fields of southern Oklahoma, most of which are operated by the Company. The Company estimates that it acquired approximately 58 billion cubic feet equivalent ("Bcfe") of proved oil and gas reserves. Additionally, the Company acquired approximately 14,000 net acres of unevaluated leasehold. THREE MONTHS ENDED MARCH 31, 1996 VS. MARCH 31, 1995 Net income for the three months ended March 31, 1996 (the "Current Quarter") was $7.6 million, a $5.3 million increase from net income of $2.3 million for the quarter ended March 31, 1995 (the "Prior Quarter"). This increase was caused primarily by the Company's significantly higher oil and gas production. Revenues from oil and gas sales for the Current Quarter were $30.9 million, an increase of $16.9 million, or 121%, from the Prior Quarter. Gas production increased to 13.5 billion cubic feet ("Bcf"), an increase of 6.7 Bcf, or 100%, compared to the Prior Quarter. Additionally, oil production increased 67 thousand barrels ("MBbls"), or 24%, from 275 MBbls to 342 MBbls. The increase in oil and gas production was accompanied by increases in the average oil and gas prices realized. In the Current Quarter, the Company received an average oil price of $18.44 per barrel, an increase of $0.93 per barrel, or 5%, from the $17.51 per barrel realized in the Prior Quarter. Gas price realizations increased to $1.83 per thousand cubic feet ("Mcf") in the Current Quarter, an increase of 34% from the $1.37 per Mcf realized in the Prior Quarter. The following table sets forth oil and gas production for the Company's major producing areas during the Current Quarter.
PRODUCING OIL GAS TOTAL PERCENT FIELD WELLS (MBLS) (MMCF) (MMCFE) % ----- --------- ------ ------ ------- ------- Giddings 160 215 11,365 12,657 81% Southern Oklahoma 215 77 1,334 1,794 12 All Other 88 50 764 1,066 7 ------ ------ ------ ------ ------ TOTAL 463 342 13,463 15,517 100% ====== ====== ====== ====== ======
Revenues from the Company's gas marketing operations, which commenced in December 1995 with the purchase of Chesapeake Energy Marketing, Inc. ("CEM"), were $11.6 million. Gas marketing expenses were $10.8 million, resulting in a gross profit margin during the Current Quarter of $0.8 million. Page 13 14 Revenues from oil and gas service operations for the Current Quarter were $1.7 million, essentially unchanged from the Prior Quarter. The gross profit margin on service operations in the Current Quarter increased to 27% from 19% in the Prior Quarter as the result of a different mix of operations. Margins vary, depending upon the mix of trucking, construction and roustabout services provided. The Company continues to de-emphasize the use of Company-owned service equipment as a component of its exploration and production strategy. In many of its exploration projects, the Company relies exclusively on third party service contractors. The Company continues to pursue disposition of its service operations by merger or sale. Production expenses and taxes increased to $2.1 million in the Current Quarter from $1.4 million in the Prior Quarter. This increase was the result of a significant increase in oil and gas production volumes during the Current Quarter. On a gas equivalent production unit ("Mcfe") basis, production expenses and taxes were $0.14 per Mcfe in the Current Quarter compared to $0.16 per Mcfe in the Prior Quarter. Much of the Company's gas production from wells drilled before September 1996 in the downdip Giddings Field, qualifies for exemption from Texas state production taxes for production through August 31, 2001. Additionally, certain oil and gas production from the Company's wells in the Knox and Sholem Alechem fields in Oklahoma qualifies for exemption until well costs are recovered. These exemptions, combined with the fact that many of the Company's wells are high volume gas wells that tend to have lower operating costs per Mcfe than lower volume wells, result in the Company's low production costs per Mcfe. Depreciation, depletion and amortization ("DD&A") of oil and gas properties for the Current Quarter was $13.0 million, an increase of $6.4 million from the Prior Quarter. The increase in DD&A expense for oil and gas properties between quarters is the result of a 7.1 Bcfe increase in production volumes and an increase in the DD&A rate per Mcfe. The average DD&A rate per Mcfe, a function of capitalized and estimated future development costs and the related proved reserves, was $0.84 for the Current Quarter and $0.79 for the Prior Quarter. General and administrative expenses increased to $1.4 million during the Current Quarter, a $0.7 million, or 100%, increase from the Prior Quarter. This increase is the result of the continued growth of the Company, including the recent acquisition of the gas marketing operation. During the Current Quarter, the Company capitalized $0.5 million of payroll and other internal costs directly related to oil and gas exploration and developmental activities, net of partner reimbursements. In the Prior Quarter, partner reimbursements exceeded capitalized payroll and other internal costs by $0.1 million. Interest expense increased significantly to $3.2 million during the Current Quarter, a $1.7 million increase from the Prior Quarter, as a result of substantially higher levels of debt outstanding during the Current Quarter. During the Current Quarter, the Company capitalized $1.6 million of interest costs representing the estimated costs to carry its unevaluated leasehold inventory, compared to $0.4 million in the Prior Quarter. This increase in capitalized interest costs is the result of significantly higher investments made during the Current Quarter in leasehold that has yet to be evaluated. Income tax expense increased to $4.2 million in the Current Quarter from $1.2 million in the Prior Quarter. The Company's estimated effective income tax rate was 35.5% for the Current Quarter, compared to 35% for the Prior Quarter. The Company estimates its effective rate based on anticipated levels of income for the year and estimated production in excess of that allowed in computing statutory depletion for tax purposes. The provision for income tax expense is deferred because the Company is not currently a cash income taxpayer. The Company has significant tax net operating loss carryovers generated from the intangible drilling cost deduction for income tax purposes associated with the Company's drilling activities which are available to offset regular taxable income in the future. NINE MONTHS ENDED MARCH 31, 1996 VS. MARCH 31, 1995 Net income for the nine months ended March 31, 1996 (the "Current Period") increased to $16.0 million from $7.9 million for the nine months ended March 31, Page 14 15 1995 (the "Prior Period"). This increase of $8.1 million, or 103%, was caused primarily by the Company's significantly higher oil and gas production and lower costs per production unit. Revenues from oil and gas sales for the Current Period were $77.2 million, an increase of $40.7 million, or 112%, over the $36.5 million of oil and gas sales revenues in the Prior Period. This increase was caused primarily by a 113% increase in gas equivalent production volumes, from 20.0 Bcfe in the Prior Period to 42.6 Bcfe in the Current Period. The production increase was accompanied by increases in the average prices realized during the Current Period. In the Current Period, the Company realized an average price of $1.62 per Mcf as compared to $1.51 in the Prior Period and average realized oil prices of $17.46 in the Current Period as compared to $17.05 in the Prior Period. Revenues from CEM, the Company's gas marketing operation, were $15.3 million for the Current Period. Gas marketing expenses were approximately $14.5 million, resulting in a gross profit margin of approximately $0.8 million. Revenues from oil and gas service operations were $5.3 million in the Current Period as compared to $6.5 million in the Prior Period. The gross profit margin on service operations in the Current Period increased slightly to 20% from 18% in the Prior Period as a result of a different mix of operations. Margins vary, depending upon the mix of trucking, construction and roustabout services provided. The Company's equipment was substantially fully utilized in both the Current Period and Prior Period. The Company continues to de-emphasize the use of Company-owned service equipment as a component of the Company's exploration and production strategy. In many of its exploration projects, the Company relies exclusively on third party service contractors. The Company continues to pursue disposition of its service operations by merger or sale. Interest and other revenues were $2.0 million in the Current Period compared to $0.9 million in the Prior Period. This increase was due primarily to significantly higher interest and investment income earned as a result of working capital available to the Company for short-term investment during the Current Period. Production expenses and taxes increased to $5.8 million in the Current Period from $2.6 million in the Prior Period. This increase was the result of significant increases in oil and gas production volumes during the Current Period and a $594,000 severance tax credit recorded in the Prior Period attributable to production from earlier periods. Without regard to the prior period tax credit, on a gas equivalent basis, production expenses and taxes decreased from $0.16 per Mcfe in the Prior Period to $0.14 per Mcfe in the Current Period. Much of the Company's gas production from wells drilled before September 1996 in the downdip Giddings Field qualifies for exemption from Texas state production taxes for production through August 31, 2001. Additionally, certain oil and gas production from the Company's wells in the Knox and Sholem Alechem fields in Oklahoma qualifies for exemption until well costs are recovered. These exemptions, combined with the fact that many of the Company's wells are high volume gas wells that tend to have lower operating costs per Mcfe than lower volume wells, result in the Company's low production costs per Mcfe. DD&A of oil and gas properties for the Current Period was $35.3 million, compared to $15.7 million in the Prior Period. This $19.6 million increase, or 124%, was caused primarily by the 113% increase in oil and gas production. The DD&A rate per Mcfe increased from $0.79 in the Prior Period to $0.83 in the Current Period. Depreciation and amortization of other assets increased from $1.6 million in the Prior Period to $2.2 million in the Current Period. This increase is primarily the result of an increase in non-oil and gas property and equipment from approximately $15.2 million at the end of the Prior Period to $22.5 million at the end of the Current Period. General and administrative expenses increased to $3.3 million in the Current Period, an increase of $0.9 million, or 41%, over the $2.4 million in the Prior Period. During the Current Period, the Company capitalized $0.9 million of payroll and other internal costs directly related to oil and gas exploration and Page 15 16 development activities, net of partner reimbursements, compared to $0.1 million in the Prior Period. Interest expense increased to $9.7 million in the Current Period from $4.5 million in the Prior Period. This increase was the result of significantly higher average levels of debt outstanding in the Current Period compared to the Prior Period. During the Current Period, the Company capitalized $3.5 million of interest costs attributable to the carrying costs of the Company's unevaluated leasehold inventory positions, compared to $0.9 million of capitalized interest costs in the Prior Period. This increase in capitalized interest costs is the result of significantly higher investments made during the Current Period in leasehold that has yet to be evaluated. Income tax expense increased to $8.8 million in the Current Period from $4.0 million in the Prior Period. This increase was the result of higher income before income taxes in the Current Period and an increase to 35.5% in the estimated tax rate in the Current Period compared to 33.6% in the Prior Period. The provision for income tax expense is deferred because the Company is not currently a cash income taxpayer. The Company has significant tax net operating loss carryovers generated from the intangible drilling cost deduction for income tax purposes associated with the Company's drilling activities which are available to offset regular taxable income in the future. 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 swap and floor arrangements. The swap arrangements establish an index-related price above which the Company pays the hedging counterparty and below which the Company is paid by the counterparty. The floor arrangements establish an index-related strike price for a put purchased by the Company for a cash premium. If the index price closes below the strike price, the put seller pays the Company the difference between the strike price and the closing index price. The Company has the following oil swap arrangements for periods after the Current Period:
NYMEX-Index Month (1996) Volume(1) Strike Price ------------ --------- ------------ April 60,000 $18.17/Bbl May 62,000 $18.04/Bbl June 60,000 $17.95/Bbl July 62,000 $17.88/Bbl August 62,000 $17.82/bbl
(1) Volume in barrels. Volume to be reduced by one-half if index price closes below strike price. The Company has the following gas swap arrangements for periods after the Current Period:
NYMEX-Index Months (1996) Volume (1) Strike Price ------------- ----------- ------------ April-October 1,200,000 $1.830/Mmbtu April-October 1,500,000 $1.805/Mmbtu April-October 600,000 $1.780/Mmbtu
(1) Million btu's per month ("Mmbtu"). (2) Volume is reduced by one-half if index price closes below strike price. The Company has the following gas floor arrangements for periods after the Current Period: Page 16 17
Houston Ship Channel Months Volume(1) Index Strike Price ------ --------- -------------------- August 1996- February 1997 620,000 $2.230/Mmbtu July-October 1996 620,000 $2.125/Mmbtu July-October 1996 620,000 $2.132/Mmbtu
(1) Mmbtu's per month Additionally, the Company has entered into additional basis swaps which convert a portion of the NYMEX-based natural gas swap prices from a Henry Hub Index delivery basis into a Houston Ship Channel Index delivery basis, less an average of $0.085/Mmbtu for May through October 1996, and certain other exchanges designed to minimize basis risk and provide for upside in the event natural gas prices rise. The Company experienced a short-term basis differential of approximately $0.50/mmbtu between the NYMEX-based Henry Hub index prices used to determine the swap settlement and the Houston Ship Channel prices realized on hedged natural gas volumes during April 1996 that will result in reduced natural gas price realizations for April. The Company estimates that as a result it will realize an average gas sales price of $1.45 per Mcf for April. The Company does not anticipate significant basis differentials for hedged volumes from May 1996 forward, based on actual May index settlements and basis swaps established by the Company. Gains or losses on the crude oil and natural gas swaps are recognized as price adjustments in the month of related production. The Company estimates that had all of the crude oil and natural gas swap agreements in effect for production periods beginning May 1, 1996 terminated on May 10, 1996, based on the closing prices for NYMEX futures contracts as of that date, the Company would have paid the counterparty approximately $9.1 million, which would have represented the "fair value" at that date. These agreements were not terminated. CAPITAL RESOURCES AND LIQUIDITY The Company had a working capital deficit of approximately $34.9 million as of March 31, 1996, compared to working capital of $31.5 million at June 30, 1995. This decrease in working capital was the result of significant capital expenditures for exploration and development of the Company's oil and gas properties, acquisition of undeveloped leasehold inventory, and to a lesser extent acquisition of other assets. To a large extent these expenditures were financed with working capital, cash flow from operations, and supplementally with borrowings under the Company's Revolving and Term Credit Facilities. The Company's $35 million Revolving Credit Facility with Union Bank matures in November 2000, and provides for interest at the option of the Company equal to (i) Union Bank's reference rate (8.25% at March 31, 1996) or (ii) the Eurodollar Rate plus from 1.375% to 1.875%, depending on the ratio of the amount outstanding to the commitment amount. The borrowing base and the amount outstanding at March 31, 1996 was $35.0 million. The borrowing base will reduce to zero thirty days prior to any scheduled principal payment under the Company's 12% Notes, 10 1/2% Notes and 9 1/8% Notes (collectively, the "Senior Notes"). The respective indentures governing the Company's Senior Notes limit the incurrence of indebtedness. Without regard to the incurrence limitations, the Company may incur secured bank indebtedness up to the greater of $15 million or 15% of the Company's adjusted consolidated net tangible assets ("ACNTA"). The Company paid all amounts outstanding under the Revolving Credit Facility on April 9, 1996, upon the closing of the 9 1/8% Note Offering. As a result of the 9 1/8% Notes Offering and Common Stock Offering, the Company estimates that the ACNTA limitation described above would currently allow the Company to incur, as permitted indebtedness, approximately $75 million in secured bank indebtedness. At March 31, 1996, on a pro forma basis, after giving effect to the completion of the Common Stock Offering and the 9 1/8% Notes Offering, and the application of the net proceeds therefrom, the Company had $277 million of Page 17 18 indebtedness, including current maturities of long-term indebtedness, stockholders' equity of $164 million, and working capital of $146 million. The Company's wholly-owned subsidiary, Chesapeake Gas Development Corporation ("CGDC"), has a Term Credit Facility with Union Bank with an outstanding balance of $13.8 million at March 31, 1996. Collateral for the Term Credit Facility is limited to CGDC's producing oil and gas properties, all of which are located in the Knox and Golden Trend areas of southern Oklahoma. The Term Credit Facility has not been guaranteed by the Company or any of its other subsidiaries and has recourse only to the assets of CGDC. CGDC acquired producing oil and gas properties from CEX in December 1994, June 1995, and December 1995 in exchange for $5.5 million, $6.0 million and $5.3 million in cash, respectively, using proceeds borrowed under the Term Facility. CGDC has not guaranteed the payment of the Company's Senior Notes. The Term Credit Facility prohibits the payment of dividends by CGDC. The Company anticipates additional amounts of credit will be available under the Term Credit Facility as properties are developed in southern Oklahoma. The Company's cash provided by operating activities increased to $100.1 million during the Current Period, compared to $37.2 million during the Prior Period. The increase of $62.9 million is the result of increases in net income, adjusted for non-cash charges (such as DD&A and deferred income taxes), and cash provided by changes in current assets and current liabilities between the two periods. Net cash used in investing activities increased to $169.1 million in the Current Period, up from $72.8 million in the Prior Period. The $96.3 million increase is a result of the Company's increased drilling activity and increased investment in leasehold during the Current Period. The Company anticipates capital expenditures for fiscal 1996 of approximately $240 million, of which $70 million will be for leasehold, primarily in Louisiana. Through March 31, 1996, approximately $163.2 million had been expended for exploration and development of the Company's oil and gas properties net of proceeds from sale of equipment and leasehold, including approximately $48.8 million for unevaluated leasehold, primarily in the Austin Chalk Trend of Louisiana. Based on internal estimates as of March 31, 1996, the Company believes that as a result of its successful exploration and development efforts, proved oil and gas reserves have increased to approximately 355 Bcfe, of which approximately 151 Bcfe (43%) are proved developed. Production in the Current Period was 42.6 Bcfe, resulting in a reserve to production replacement ratio of approximately 3.5:1. The Company's expected cash flow from operations is subject to a number of factors, many of which are beyond the Company's control, including the level of production and oil and gas prices. In the event the Company experiences unforeseen changes in its working capital position or capital resources, management will revise its capital expenditure program accordingly. Consolidated cash provided by financing activities was $39.4 million during the Current Period, as compared to consolidated cash provided by financing activities of $24.1 million during the Prior Period. The increase resulted primarily from additional borrowings under the Revolving and Term Credit Facilities during the Current Period. FORWARD LOOKING STATEMENTS When used in this document, the words "anticipate", "estimate", "believe" and similar expressions are intended to identify forward looking statements. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Among the key factors that have a direct bearing on the Company's ability to attain its goals are oil and gas prices, the ability to develop reserves and replace production at levels and costs estimated by the Company, the ability to fund the significant capital expenditures anticipated, environmental risks, drilling and operating risks, competition, government regulation, and the ability of the Company to manage significant anticipated growth and implement its overall business strategy. Page 18 19 CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP (A WHOLLY-OWNED PARTNERSHIP OF CHESAPEAKE ENERGY CORPORATION) BALANCE SHEETS (UNAUDITED)
ASSETS March 31, June 30, 1996 1995 --------- --------- ($ in thousands) CURRENT ASSETS: Accounts receivable $ 14,549 $ 9,867 --------- --------- Total Current Assets 14,549 9,867 --------- --------- PROPERTY AND EQUIPMENT: Oil and gas properties, at cost based on full cost accounting: Evaluated oil and gas properties 270,952 163,521 Unevaluated properties 76,265 27,474 Less: accumulated depreciation, depletion and amortization (69,752) (36,959) --------- --------- Total Property and Equipment 277,465 154,036 --------- --------- INTERCOMPANY RECEIVABLES: Chesapeake Energy Corporation 46,373 14,682 Chesapeake Gas Development Corporation 8,590 2,877 Other 381 -- --------- --------- 55,344 17,559 --------- --------- OTHER ASSETS 675 776 --------- --------- TOTAL ASSETS $ 348,033 $ 182,238 ========= ========= LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Accrued Expenses $ 378 $ 516 --------- --------- Total Current Liabilities 378 516 --------- --------- LONG-TERM DEBT 35,000 10 --------- --------- INTERCOMPANY PAYABLES: Chesapeake Operating, Inc. 236,416 138,046 Lindsay Oil Field Supply, Inc. 2,190 2,190 --------- --------- 238,606 140,236 --------- --------- CONTINGENCIES AND COMMITMENTS PARTNERS' CAPITAL: Contributions 424 424 Accumulated Earnings 73,625 41,052 --------- --------- Total Partners' Capital 74,049 41,476 --------- --------- TOTAL LIABILITIES & PARTNERS' CAPITAL $ 348,033 $ 182,238 ========= =========
The accompanying notes are an integral part of these financial statements. Page 19 20 CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP (A WHOLLY-OWNED PARTNERSHIP OF CHESAPEAKE ENERGY CORPORATION) STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, ------------------- ------------------- 1996 1995 1996 1995 -------- -------- -------- -------- ($ in thousands) ($ in thousands) REVENUES: Oil and gas sales $ 28,579 $ 13,494 $ 72,112 $ 35,764 -------- -------- -------- -------- Total revenues 28,579 13,494 72,112 35,764 -------- -------- -------- -------- COSTS AND EXPENSES: Production expenses and taxes 1,785 1,111 4,884 2,144 Oil and gas depreciation, depletion and amortization 12,300 6,360 33,359 15,353 Amortization 72 (120) 181 97 General and administrative 280 252 807 687 Interest 280 89 308 122 -------- -------- -------- -------- Total costs and expenses 14,717 7,692 39,539 18,403 -------- -------- -------- -------- NET INCOME $ 13,862 $ 5,802 $ 32,573 $ 17,361 ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. Page 20 21 CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP (A WHOLLY-OWNED PARTNERSHIP OF CHESAPEAKE ENERGY CORPORATION) STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED MARCH 31, ----------------------- 1996 1995 --------- --------- ($ in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME $ 32,573 $ 17,361 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Oil and gas depreciation 33,359 15,353 Amortization 181 97 CHANGES IN CURRENT ASSETS AND LIABILITIES (15,346) 3,832 --------- --------- Cash provided by operating activities 50,767 36,643 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Development and acquisition of oil and gas properties (159,478) (81,323) Proceeds from sales of fixed assets and other -- 3,381 Sale of properties to CGDC 5,300 5,500 Other additions (182) 11 --------- --------- Cash used in investing activities (154,360) (72,431) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long term borrowings 30,000 28,433 Payments on long-term borrowings - -- (9,933) Financial resources and proceeds on intercompany transactions 220,513 128,064 Financial resources and payments applied to intercompany transactions (146,920) (110,776) --------- --------- Cash provided by financing activities 103,593 35,788 --------- --------- NET INCREASE (DECREASE) IN CASH -- -- CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD -- -- --------- --------- CASH & CASH EQUIVALENTS, END OF PERIOD $ -- $ -- ========= =========
The accompanying notes are an integral part of these consolidated financial statements. Page 21 22 CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996 (UNAUDITED) 1. Accounting Principles The accompanying unaudited financial statements of Chesapeake Exploration Limited Partnership ("CEX") have been prepared in accordance with the instructions to Form 10-Q as prescribed by the Securities and Exchange Commission. All material adjustments (consisting solely of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods have been reflected. The results for the nine months ended March 31, 1996, are not necessarily indicative of the results to be expected for the full fiscal year. The CEX financial statements were prepared on a separate entity basis as reflected in the Company's books and records and include all material costs of doing business as if the partnership were on a stand-alone basis, except that interest is not charged on intercompany accounts, or allocated. These financial statements should be read in conjunction with the March 31, 1996 consolidated financial statements and related notes of Chesapeake Energy Corporation and Subsidiaries (the "Company") included in this Form 10-Q and the Company's annual report on Form 10-K for the year ended June 30, 1995. Page 22 23 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1996 VS. MARCH 31, 1995 CEX represents substantially all of the Company's oil and gas operations. Therefore, the discussion in Management's Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this report, for the Company relate primarily to CEX. CEX is a member of the consolidated group of companies of which Chesapeake Energy Corporation is the parent company. Although CEX has separate financing capabilities, CEX is largely dependent on the Company and the Company is dependent on the operations of CEX. Accordingly, capital resources and liquidity issues for CEX are not typical of an entity that operates on a stand alone basis and therefore should be considered only in conjunction with the discussion of the Company's capital resources and liquidity included elsewhere in this report. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - - Not applicable. ITEM 2. CHANGES IN SECURITIES - - Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES - - Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - - Not applicable ITEM 5. OTHER INFORMATION - - Not applicable Page 23 24 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are filed as a part of this report: Exhibit No. 4.1 Agreement dated as of March 7, 1996, Agreement dated as of March 8, 1996, Agreement dated as of March 27, 1996 and Fourth Amendment to Amended and Restated Credit Agreement dated as of April 2, 1996, among Chesapeake Energy Corporation, Chesapeake Exploration Limited Partnership, an Oklahoma Limited Partnership and Union Bank. 11 Statement regarding computation of earnings per common share 27 Financial Data Schedule (b) Form 8-K No reports on Form 8-K were filed during the three months ended March 31, 1996. Page 24 25 SIGNATURES 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 ----------------------------- (Registrant) May 15, 1996 /s/ Aubrey K. McClendon - ------------- ----------------------------- Date Aubrey K. McClendon Chairman and Chief Executive Officer May 15, 1996 /s/ Marcus C. Rowland - ------------- ----------------------------- Date Marcus C. Rowland Vice President and Chief Financial Officer Page 25 26 Index to Exhibits Exhibit No. Description Page - ----------- ----------- ---- 4.1 Agreement dated as of March 7, 1996, Agreement dated as of March 8, 1996, Agreement dated as of March 27, 1996 and Fourth Amendment to Amended and Restated Credit Agreement dated as of April 2, 1996, among Chesapeake Energy Corporation, Chesapeake Exploration Limited Partnership, an Oklahoma Limited Partnership and Union Bank. 11 Statement regarding computation of earnings per common share 27 Financial Data Schedule EX-4.1 2 AGREEMENTS 1 AGREEMENT March 7, 1996 Chesapeake Exploration Limited Partnership, an Oklahoma limited partnership Chesapeake Energy Corporation 6104 N. Western Oklahoma City, OK 73118 Re: Amended and Restated Credit Agreement dated as of March 22, 1994, as amended by the First Amendment to Amended and Restated Credit Agreement dated as of December 27, 1994, the Second Amendment to Amended and Restated Credit Agreement dated as of May 25, 1995 and the Third Amendment to Amended and Restated Credit Agreement dated as of February 5, 1996 (as so amended, the "Credit Agreement") among Chesapeake Exploration Limited Partnership, an Oklahoma limited partnership ("Borrower"), Chesapeake Energy Corporation ("CEC") and Union Bank ("Lender") Gentlemen: You have requested, and Lender has agreed, to amend the definition of "Companies" in the Credit Agreement to exclude Chesapeake Energy Marketing, Inc. In consideration of the mutual covenants and agreements contained herein and in the Credit Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender, Borrower and CEC agree as follows: 1. The definition of "Companies" in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows: "'Companies' means any of Borrower, CEC and any subsidiary of CEC (except, however, Chesapeake Gas Development Corporation and Chesapeake Energy Marketing, Inc.)." 2. The Credit Agreement as hereby amended is hereby ratified and confirmed in all respects. Any reference to the Credit Agreement in any Loan Document shall be deemed to refer to this Agreement also. The execution, delivery and effectiveness of this Agreement shall not, except as expressly provided herein operate as a waiver of any right, power or remedy of Lender under the Credit Agreement or any other Loan Document nor constitute a waiver of any provision of the Credit Agreement or any other Loan Documents. 2 3. This Agreement is a Loan Document and all provisions in the Credit Agreement pertaining to Loan Documents apply hereto. Any capitalized terms used herein have the meanings given them in the Credit Agreement. 4. This Agreement may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. Please indicate your agreement to the foregoing by signing where indicated below. Yours very truly, UNION BANK By: /s/ RANDALL L. OSTERBERG ------------------------------------- Randall L. Osterberg Vice President AGREED TO AS OF THE DATE FIRST WRITTEN ABOVE CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP By: CHESAPEAKE OPERATING, INC., its general partner By: /s/ AUBREY K. MCCLENDON ------------------------------- Aubrey K. McClendon, President CHESAPEAKE ENERGY CORPORATION By: /s/ AUBREY K. MCCLENDON ------------------------------------ Aubrey K. McClendon Chief Executive Officer 3 CONSENT AND AGREEMENT Chesapeake Energy Corporation ("CEC") hereby consents to the provisions of this Agreement and the transactions contemplated herein, and hereby ratifies and confirms its Amended and Restated Guaranty Agreement dated as of December 27, 1994 made by CEC for the benefit of Lender, and agrees that CEC's obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. CHESAPEAKE ENERGY CORPORATION By: /s/ AUBREY K. MCCLENDON ------------------------------------- Aubrey K. McClendon, Chief Executive Officer 4 CONSENT AND AGREEMENT The undersigned hereby consent to the provisions of this Agreement and the transactions contemplated herein, and hereby ratify and confirm the Intercompany Subordination Agreement dated as of March 22, 1994 made for the benefit of Lender, and agree that the undersigned's obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP, as successor of Chesapeake Exploration Company By: CHESAPEAKE OPERATING, INC., its general partner By: /s/ AUBREY K. MCCLENDON ----------------------------------- Aubrey K. McClendon, President CHESAPEAKE ENERGY CORPORATION By: /s/ AUBREY K. MCCLENDON ------------------------------------- Name: Title: CHESAPEAKE OPERATING, INC. By: /s/ AUBREY K. MCCLENDON ------------------------------------- Name: Title: SANDER TRUCKING COMPANY, INC. By: /s/ AUBREY K. MCCLENDON ------------------------------------- Name: Title: 5 WHITMIRE DOZER SERVICE, INC. By: /s/ AUBREY K. MCCLENDON ------------------------------------- Name: Title: LINDSAY OIL FIELD SUPPLY, INC. By: /s/ AUBREY K. MCCLENDON ------------------------------------- Name: Title: 6 CONSENT AND AGREEMENT The undersigned hereby consents to the provisions of this Agreement and the transactions contemplated herein, and hereby ratifies and confirms the Intercompany Subordination Agreement dated as of December 27, 1994 made for the benefit of Lender, and agrees that the undersigned's obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. CHESAPEAKE GAS DEVELOPMENT CORPORATION By: /s/ AUBREY K. MCCLENDON ------------------------------------- Name: Title: 7 AGREEMENT March 8, 1996 Chesapeake Exploration Limited Partnership, an Oklahoma limited partnership Chesapeake Energy Corporation 6104 N. Western Oklahoma City, OK 73118 Re: Amended and Restated Credit Agreement dated as of March 22, 1994, as amended by the First Amendment to Amended and Restated Credit Agreement dated as of December 27, 1994, the Second Amendment to Amended and Restated Credit Agreement dated as of May 25, 1995, the Third Amendment to Amended and Restated Credit Agreement dated as of February 5, 1996, and the Agreement dated as of March 7, 1996 (as so amended, the "Credit Agreement") among Chesapeake Exploration Limited Partnership, an Oklahoma limited partnership ("Borrower"), Chesapeake Energy Corporation ("CEC") and Union Bank ("Lender") Gentlemen: You have requested, and Lender has agreed, to increase the Borrowing Base. In consideration of the mutual covenants and agreements contained herein and in the Credit Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender, Borrower and CEC agree as follows: 1. The first sentence of Section 3.06(a) of the Credit Agreement is hereby amended in its entirety to read as follows: "At any time during the period from March 1, 1996 until the first Redetermination Date occurring thereafter, the amount of the Borrowing Base shall be an amount equal to $35,000,000 minus the sum of all Reductions to such date." 2. The Credit Agreement as hereby amended is hereby ratified and confirmed in all respects. Any reference to the Credit Agreement in any Loan Document shall be deemed to refer to this Agreement also. The execution, delivery and effectiveness of this Agreement shall not, except as expressly provided herein operate as a waiver of any right, power or remedy of Lender under the Credit Agreement or any other Loan Document nor constitute a waiver of any provision of the Credit Agreement or any other Loan Documents. 8 3. This Agreement is a Loan Document and all provisions in the Credit Agreement pertaining to Loan Documents apply hereto. Any capitalized terms used herein have the meanings given them in the Credit Agreement. 4. This Agreement may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. 5. This Agreement shall become effective when (i) Lender shall have received a counterpart of this Agreement executed by Borrower and CEC and (ii) Borrower has paid to Lender a facility fee of $37,500 (.375% of the increase in the Borrowing Base). Please indicate your agreement to the foregoing by signing where indicated below. Yours very truly, UNION BANK By: /s/ RANDALL L. OSTERBERG ------------------------------------- Randall L. Osterberg Vice President AGREED TO AS OF THE DATE FIRST WRITTEN ABOVE CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP By: CHESAPEAKE OPERATING, INC., its general partner By: /s/ AUBREY K. McCLENDON -------------------------------- Aubrey K. McClendon, President CHESAPEAKE ENERGY CORPORATION By: /s/ AUBREY K. McCLENDON ------------------------------------ Aubrey K. McClendon Chief Executive Officer 9 CONSENT AND AGREEMENT Chesapeake Energy Corporation ("CEC") hereby consents to the provisions of this Agreement and the transactions contemplated herein, and hereby ratifies and confirms its Amended and Restated Guaranty Agreement dated as of December 27, 1994 made by CEC for the benefit of Lender, and agrees that CEC's obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. CHESAPEAKE ENERGY CORPORATION By: /s/ AUBREY K. McCLENDON ------------------------------------- Aubrey K. McClendon, Chief Executive Officer 10 CONSENT AND AGREEMENT The undersigned hereby consent to the provisions of this Agreement and the transactions contemplated herein, and hereby ratify and confirm the Intercompany Subordination Agreement dated as of March 22, 1994 made for the benefit of Lender, and agree that the undersigned's obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP, as successor of Chesapeake Exploration Company By: CHESAPEAKE OPERATING, INC., its general partner By: /s/ Aubrey K. McClendon ---------------------------------- Aubrey K. McClendon, President CHESAPEAKE ENERGY CORPORATION By: /s/ Aubrey K. McClendon ------------------------------------- Name: Title: CHESAPEAKE OPERATING, INC. By: /s/ Aubrey K. McClendon ------------------------------------- Name: Title: SANDER TRUCKING COMPANY, INC. By: /s/ Aubrey K. McClendon ------------------------------------- Name: Title: 11 WHITMIRE DOZER SERVICE, INC. By: /s/ Aubrey K. McClendon ------------------------------------- Name: Title: LINDSAY OIL FIELD SUPPLY, INC. By: /s/ Aubrey K. McClendon ------------------------------------- Name: Title: 12 CONSENT AND AGREEMENT The undersigned hereby consents to the provisions of this Agreement and the transactions contemplated herein, and hereby ratifies and confirms the Intercompany Subordination Agreement dated as of December 27, 1994 made for the benefit of Lender, and agrees that the undersigned's obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. CHESAPEAKE GAS DEVELOPMENT CORPORATION By: /s/ Aubrey K. McClendon ------------------------------------- Name: Title: 13 AGREEMENT March 27, 1996 Chesapeake Exploration Limited Partnership, an Oklahoma limited partnership Chesapeake Energy Corporation 6104 N. Western Oklahoma City, OK 73118 Re: Amended and Restated Credit Agreement dated as of March 22, 1994, as amended by the First Amendment to Amended and Restated Credit Agreement dated as of December 27, 1994, the Second Amendment to Amended and Restated Credit Agreement dated as of May 25, 1995, the Third Amendment to Amended and Restated Credit Agreement dated as of February 5, 1996, and the Agreement dated as of March 7, 1996 (as so amended, the "Credit Agreement") among Chesapeake Exploration Limited Partnership, an Oklahoma limited partnership ("Borrower"), Chesapeake Energy Corporation ("CEC") and Union Bank ("Lender") Gentlemen: You have requested, and Lender has agreed, to provide a $10,000,000 line of credit. In consideration of the mutual covenants and agreements contained herein and in the Credit Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender, Borrower and CEC agree as follows: 1. Definitions. The definition of "Loans" in Section 1.01 of the Original Agreement is hereby amended in its entirety to read as follows: "'Loans' means the Revolving Loans, the Term Loan and the Line of Credit, and each, individually, a Loan." The definition of "Notes" in Section 1.01 of the Original Agreement is hereby amended in its entirety to read as follows: "'Notes' means the Revolving Note, the Term Note, the Line of Credit Note and all renewals and extensions thereof and/or replacements or substitutions therefor." The first sentence of the definition of "Revolving Commitment" in Section 1.01 of the Original Agreement is hereby amended in its entirety to read as follows: "'Revolving Commitment', at any time, means $35,000,000, less the sum of all reductions pursuant to Section 2.04." 14 2. Line of Credit. The following Article Three-A is hereby added to the Credit Agreement immediately following Article Three: ARTICLE THREE-A LINE OF CREDIT 3A.01. Line of Credit. Subject to the terms and conditions of this Agreement, the Lender agrees to lend to the Borrower, on a revolving basis in one or more Advances (the "Line of Credit") during the period beginning on March 27, 1996 and ending on April 29, 1996, the amounts requested by Borrower in writing to Lender, so long as the aggregate principal amount of Advances outstanding at any time under the Line of Credit does not exceed $10,000,000 (the "Line of Credit Commitment"). The Borrower must give at least one Business Day's prior written notice of any requested Advance under the Line of Credit. Upon fulfillment of all applicable conditions with respect to an Advance under the Line of Credit, the Lender shall pay or deliver federal or other immediately available funds to the order of the Borrower at the Borrower's operating account at the principal office of the Lender in the amount of the requested Advance. 3A.02. Line of Credit Commitment Fee. The Borrower agrees to pay to the Lender in arrears on April 30, 1996 (the "Line of Credit Maturity Date") a commitment fee computed at a rate per annum (calculated and computed on the basis of the actual days elapsed) equal to three-eighths of one percent (0.375%) on the average daily unborrowed amount of the Line of Credit Commitment. 3A.03. Use of Proceeds. The proceeds of the Line of Credit shall be used to support CEC's cash collateral obligations under that certain Commodity Hedge Agreement between Banque Paribas and CEC, as in effect on March 26, 1996. 3A.04. Line of Credit Note. The Advances made under Section 3A.01 shall be evidenced by a promissory note of the Borrower (the "Line of Credit Note") in the form of Exhibit "3A-1", which note shall (i) be dated March 27, 1996, (ii) be in the principal amount of the Line of Credit Commitment, (iii) bear interest in accordance with Section 3A.05 and (iv) be payable to the order of Lender at its principal office or at such other place as the Lender shall designate. 3A.05. Interest Rate. Borrower may from time to time designate all or any portion of the outstanding Line of Credit as a Fixed Rate Portion; provided that without the consent of Lender Borrower may make no such election during the continuance of a Default. Each election by Borrower of a Fixed Rate Portion shall be made in accordance with and 15 subject to the provisions of Section 3.03 hereof. The Base Rate Portion of the Line of Credit outstanding from day to day shall bear interest at the rate per annum from day to day equal to the lesser of (i) the Adjusted Base Rate, or (ii) the Maximum Rate. Each Fixed Rate Portion of the Line of Credit outstanding from day to day shall bear interest on each day during the related Interest Period at the related Line of Credit Fixed Rate (as defined below) in effect as of such day for such Fixed Rate Portion. After maturity, which shall include, without limitation, the maturity stated or by acceleration, the principal of and overdue interest on the Line of Credit Note and all other obligations shall bear interest, to the extent permitted by law, from such maturity until the date paid at a rate per annum from day to day equal to the Default Rate. For purposes of this Section 3A.05 the term "Line of Credit Fixed Rate" means, with respect to each particular Fixed Rate Portion and the associated Eurodollar Rate and Reserve Percentage, the rate per annum calculated by Lender (rounded upwards, if necessary, to the next higher 0.01%) determined on a daily basis pursuant to the following formula: Fixed Rate = Eurodollar Rate --------------------------- + A 100.0% - Reserve Percentage where A shall mean 1.875%. 3A.06. Principal Payments. The unpaid principal balance, together with accrued and unpaid interest thereon, of the Line of Credit Note shall be due and payable on the Line of Credit Maturity Date. If at any time Banque Paribas releases cash collateral under the Commodity Hedge Agreement, Borrower shall promptly thereafter make a prepayment of the Line of Credit Note in an amount equal to such released cash collateral. 3. Conditions Precedent. This Agreement shall become effective as of the date first above written when, and only when, Borrower shall have paid to Lender a facility fee of $37,500, and Lender shall have received, at Lender's office: (i) a counterpart of this Agreement executed and delivered by Borrower and CEC, along with the Line of Credit Note, (ii) Lender shall received a certificate of the general partner of Borrower dated the date of this Agreement certifying that attached thereto is a true and complete copy of a certificate of authority adopted by the general partner of Borrower authorizing the execution, delivery and performance of this Agreement and the Line of Credit Note and certifying the true signatures of the officer of 16 Borrower authorized to sign this Agreement and the Line of Credit Note, and (iii) an opinion of legal counsel for the Borrower, addressed to Lender, to the effect that this Agreement and the Line of Credit Note have been duly authorized, executed and delivered by Borrower and that the Credit Agreement and the Line of Credit Note constitute the legal, valid and binding obligations of Borrower, enforceable in accordance with their terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency and similar laws and to moratorium laws and other laws affecting creditors, rights generally from time to time in effect). 4. Ratification. The Credit Agreement as hereby amended is hereby ratified and confirmed in all respects. Any reference to the Credit Agreement in any Loan Document shall be deemed to refer to this Agreement also. The execution, delivery and effectiveness of this Agreement shall not, except as expressly provided herein operate as a waiver of any right, power or remedy of Lender under the Credit Agreement or any other Loan Document nor constitute a waiver of any provision of the Credit Agreement or any other Loan Documents. 5. Loan Document. This Agreement and the Line of Credit Note are each a Loan Document and all provisions in the Credit Agreement pertaining to Loan Documents apply hereto and thereto. Any capitalized terms used herein have the meanings given them in the Credit Agreement. 6. Counterparts. This Agreement may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. Please indicate your agreement to the foregoing by signing where indicated below. Yours very truly, UNION BANK By: /s/ RANDALL L. OSTERBERG ------------------------------------- Randall L. Osterberg Vice President By: /s/ AUBREY K. McCLENDON ------------------------------------- Name: Aubrey K. McClendon Title: 17 AGREED TO AS OF THE DATE FIRST WRITTEN ABOVE CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP By: CHESAPEAKE OPERATING, INC., its general partner By: /s/ AUBREY K. McCLENDON ------------------------------ Aubrey K. McClendon, President CHESAPEAKE ENERGY CORPORATION By: /s/ AUBREY K. McCLENDON ----------------------------------- Aubrey K. McClendon Chief Executive Officer 18 CONSENT AND AGREEMENT Chesapeake Energy Corporation ("CEC") hereby consents to the provisions of this Agreement and the transactions contemplated herein, and hereby ratifies and confirms its Amended and Restated Guaranty Agreement dated as of December 27, 1994 ("Guaranty Agreement") made by CEC for the benefit of Lender, and agrees that CEC's obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. CEC hereby further acknowledges and agrees that the Line of Credit Note is a "Note" for purposes of the definition of "Guaranteed Debt" in the Guaranty Agreement. CHESAPEAKE ENERGY CORPORATION By: /s/ AUBREY K. McCLENDON ------------------------------------- Aubrey K. McClendon, Chief Executive Officer 19 CONSENT AND AGREEMENT The undersigned hereby consent to the provisions of this Agreement and the transactions contemplated herein, and hereby ratify and confirm the Intercompany Subordination Agreement dated as of March 22, 1994 made for the benefit of Lender, and agree that the undersigned's obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP, as successor of Chesapeake Exploration Company By: CHESAPEAKE OPERATING, INC., its general partner By: /s/ AUBREY K. McCLENDON ---------------------------------- Aubrey K. McClendon, President CHESAPEAKE ENERGY CORPORATION By: /s/ AUBREY K. McCLENDON ------------------------------------- Name: Title: CHESAPEAKE OPERATING, INC. By: /s/ AUBREY K. McCLENDON ------------------------------------- Name: Title: SANDER TRUCKING COMPANY, INC. By: /s/ AUBREY K. McCLENDON ------------------------------------- Name: Title: 20 WHITMIRE DOZER SERVICE, INC. By: /s/ AUBREY K. McCLENDON ------------------------------------- Name: Title: LINDSAY OIL FIELD SUPPLY, INC. By: /s/ AUBREY K. McCLENDON ------------------------------------- Name: Title: 21 CONSENT AND AGREEMENT The undersigned hereby consents to the provisions of this Agreement and the transactions contemplated herein, and hereby ratifies and confirms the Intercompany Subordination Agreement dated as of December 27, 1994 made for the benefit of Lender, and agrees that the undersigned's obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. CHESAPEAKE GAS DEVELOPMENT CORPORATION By: /s/ AUBREY K. McCLENDON ------------------------------------- Name: Aubrey K. McClendon Title: 22 CONSENT AND AGREEMENT The undersigned hereby consents to the provisions of this Agreement and the transactions contemplated herein, and hereby ratifies and confirms the Intercompany Subordination Agreement dated as of February 5, 1996 made for the benefit of Lender, and agrees that the undersigned's obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. CHESAPEAKE ENERGY MARKETING, INC. By: /s/ AUBREY K. McCLENDON ------------------------------------- Name: Aubrey K. McClendon Title: 23 FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (herein called this "Amendment") is made as of the 2nd day of April, 1996 by and among Chesapeake Exploration Limited Partnership, an Oklahoma limited partnership, ("Borrower"), Chesapeake Energy Corporation, a Delaware corporation ("CEC") and Union Bank ("Lender"). W I T N E S S E T H: WHEREAS, Borrower (as successor of Chesapeake Exploration Company, an Oklahoma general partnership), CEC as guarantor and Lender entered into that certain Amended and Restated Credit Agreement dated as of March 22, 1994, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated as of December 27, 1994, that certain Second Amendment to Amended and Restated Credit Agreement dated as of May 25, 1995, that certain Third Amendment to Amended and Restated Credit Agreement dated as of February 5, 1996 that certain Agreement dated as of March 7, 1996, that certain Agreement dated as of March 8, 1996, and that certain Agreement dated as of March 27, 1996 (as so amended, the "Original Agreement") for the purposes and consideration therein expressed, pursuant to which Lender became obligated to make loans to Borrower as therein provided; and WHEREAS, Borrower, CEC and Lender desire to amend the Original Agreement as expressly set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein and in the Original Agreement, in consideration of the loans which may hereafter be made by Lender to Borrower, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE I. DEFINITIONS AND REFERENCES Section 1.1 Terms Defined in the Original Agreement. Unless the context otherwise requires or unless otherwise expressly defined herein, the terms defined in the Original Agreement shall have the same meanings whenever used in this Amendment. Section 1.2. Other Defined Terms. Unless the context otherwise requires, the following terms when used in this Amendment shall have the meanings assigned to them in this Section 1.2. "Amendment" means this Fourth Amendment to Amended and Restated Credit Agreement. "Credit Agreement" means the Original Agreement as amended hereby. 24 ARTICLE II. AMENDMENTS TO ORIGINAL AGREEMENT Section 2.1. Amendments to Definitions. (a) The definitions of "Indenture" and "Indenture Documents" in Section 1.01 of the Original Agreement are hereby amended in their entirety to read as follows: "'Indenture' means any of (i) that certain Indenture entered into among CEC, the Subsidiary Guarantors (as defined therein) and the Trustee, setting forth the terms and conditions of the FORTY-SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($47,500,000.00) of First Indenture Notes issued by CEC and the guaranties thereof by the Subsidiary Guarantors; (ii) that certain Indenture entered into among CEC, the Subsidiary Guarantors (as defined therein) and the Trustee, setting forth the terms and conditions of the NINETY MILLION DOLLARS ($90,000,000.00) of Second Indenture Notes issued by CEC and the guaranties thereof by the Subsidiary Guarantors; or (iii) that certain Indenture entered into among CEC, the Subsidiary Guarantors (as defined therein) and the Trustee, setting forth the terms and conditions of Third Indenture Notes in an amount of up to ONE HUNDRED TWENTY FIVE MILLION DOLLARS ($125,000,000.00) issued by CEC and the guaranties thereof by the Subsidiary Guarantors." "'Indenture Documents' means one or more of the Indenture, the Indenture Notes, the Offering Memoranda, the warrant agreements and the purchase agreement or agreements with the purchasers pursuant to the Offering Memoranda, each of the foregoing in the form of the drafts attached hereto with such changes thereto as the Lender, the Trustee and CEC reasonably agree, and any and all other agreements or documents (and any amendments or supplements thereto or modifications or restatements thereof) executed or delivered pursuant to the terms of any Indenture or in connection therewith." (b) The definitions of "Indenture Notes" and "Offering Memorandum" in the Original Agreement are deleted and the following definitions of "Indenture Notes", "Offering Memoranda", and "Third Indenture Notes" are hereby added to Section 1.01 of the Original Agreement: "'Indenture Notes' means the First Indenture Notes, the Second Indenture Notes and the Third Indenture Notes." "'Offering Memoranda' means (i) the final offering memorandum dated March 31, 1994 with respect to the First Indenture Notes and warrants to be issued in connection with the First Indenture Notes; (ii) the final offering memorandum dated May 18, 1995 with respect to the Second 2 25 Indenture Notes; and (iii) the prospectus dated April 3, 1996 with respect to the Third Indenture Notes." "'Third Indenture Notes' means all of the Senior Notes due 2006 in the aggregate principal amount of up to ONE HUNDRED TWENTY FIVE MILLION DOLLARS ($125,000,000.00) to be issued by CEC pursuant to the April 1, 1996 Indenture. Section 2.2. Amendment to Negative Covenants. Section 7.11 of the Original Agreement is hereby amended to read as follows: "7.11. Indenture Notes. No Company will directly or indirectly, (i) amend or modify any terms of any of the Indenture Documents (other than amendments or modifications of the type permitted under Article Nine of any Indenture which would not otherwise be a Default or Event of Default hereunder), (ii) repurchase, redeem, prepay, whether optional or, subject to clause (iii) hereof, mandatory, or defease any of the Indenture Notes (other than scheduled payments of accrued interest) or (iii) take any action or fail to take any action which would obligate CEC or any Company to repurchase, redeem or prepay any of the Indenture Notes other than scheduled payments of accrued interest and the scheduled mandatory redemption of 25% of the original principal amount of the First Indenture Notes on March 1 of 1998, 1999, 2000 and 2001." Section 2.3. Amendments to Events of Default. Section 8.01 (k) of the Original Agreement is hereby amended in its entirety to read as follows: "(k) Either (i) any principal amount of any of the Indenture Notes shall be subject to a required repurchase, redemption or prepayment (including without limitation under or pursuant to Article Three, Article Four or Article Eight of any Indenture) other than the scheduled mandatory redemption of 25% of the original payment amount of the First Indenture Notes on March 1 of 1998, 1999, 2000 and 2001 or (ii) an Event of Default (as defined in any Indenture) shall occur under any Indenture." ARTICLE III. CONDITIONS OF EFFECTIVENESS Section 3.1 Effective Date. This Amendment shall become effective as of the date first above written when, and only when, (i) Lender shall have received, at Lender's office, a counterpart of this Amendment executed and delivered by Borrower and (ii) Lender shall have received a certificate of the general partner of Borrower dated the date of this Amendment certifying that 3 26 attached thereto is a true and complete copy of a certificate of authority adopted by the general partner of Borrower authorizing the execution, delivery and performance of this Amendment and certifying the names and true signatures of the officers of Borrower authorized to sign this Amendment, along with such supporting documents as Lender may reasonably request. ARTICLE IV. REPRESENTATIONS AND WARRANTIES 4.1. Representations and Warranties of Borrower and CEC. In order to induce Lender to enter into this Amendment, Borrower and CEC represent and warrant to Lender that: (a) The representations and warranties contained in Article V, subsections 5.01 to 5.21, inclusive, of the Original Agreement are true and correct at and as of the time of the effectiveness hereof. (b) Borrower and CEC are duly authorized to execute and deliver this Amendment and are and will continue to be duly authorized to borrow monies and to perform their obligations under the Credit Agreement. Borrower and CEC have duly taken all partnership and corporate action necessary to authorize the execution and delivery of this Amendment and to authorize the performance of the obligations of Borrower and CEC hereunder. (c) The execution and delivery by Borrower and CEC of this Amendment, the performance by Borrower and CEC of their obligations hereunder and the consummation of the transactions contemplated hereby do not and will not conflict with any provision of law, statute, rule or regulation or of the partnership agreement of Borrower or the articles of incorporation and bylaws of CEC, or of any material agreement, judgment, license, order or permit applicable to or binding upon Borrower and CEC, or result in the creation of any lien, charge or encumbrance upon any assets or properties of Borrower and CEC. Except for those which have been obtained, no consent, approval, authorization or order of any court or governmental authority or third party is required in connection with the execution and delivery by Borrower and CEC of this Amendment or to consummate the transactions contemplated hereby. (d) When duly executed and delivered, this Amendment and the Credit Agreement will each be a legal and binding obligation of Borrower and CEC, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors, rights and by equitable principles of general application. 4 27 (e) The audited annual Consolidated financial statements of CEC dated as of June 30, 1995, and the unaudited quarterly Consolidated financial statements of CEC dated as of December 31, 1995 fairly present CEC's Consolidated financial position at such dates and the Consolidated results of CEC's operations and changes in CEC's Consolidated cash flow for the respective periods thereof. Copies of such financial statements have heretofore been delivered to Lender. Since December 31, 1995, no material adverse change has occurred in the financial condition or businesses of Borrower or in the Consolidated financial condition or businesses of CEC. ARTICLE V. MISCELLANEOUS Section 5.1. Ratification of Agreements. The Original Agreement as hereby amended and each other Loan Document affected hereby are ratified and confirmed in all respects. Any reference to the Credit Agreement in any Loan Document shall be deemed to be a reference to the Original Agreement as hereby amended. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein or therein, operate as a waiver of any right, power or remedy of Lender under the Credit Agreement or any other Loan Document nor constitute a waiver of any provision of the Credit Agreement or any other Loan Document. Section 5.2. Survival of Agreements. All representations, warranties, covenants and agreements of Borrower and CEC herein shall survive the execution and delivery of this Amendment and the performance hereof, including without limitation the making or granting of the Loan, and shall further survive until all of the Obligations are paid in full. All statements and agreements contained in any certificate or instrument delivered by Borrower or CEC or any Company hereunder or under the Credit Agreement to Lender shall be deemed to constitute representations and warranties by, and/or agreements and covenants of, Borrower and CEC under this Amendment and under the Credit Agreement. Section 5.3. Loan Documents. This Amendment is a Loan Document, and all provisions in the Credit Agreement pertaining to Loan Documents apply hereto. Section 5.4. Governing Law. This Amendment shall be governed by and construed in accordance the laws of the State of Texas and any applicable laws of the United States of America in all respects, including construction, validity and performance. Section 5.5. Counterparts. This Amendment may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Amendment. 5 28 THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above by their duly authorized officers. BORROWER: CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP By: CHESAPEAKE OPERATING, INC., its general partner By: /s/ AUBREY K. McCLENDON ---------------------------------- Aubrey K. McClendon, President LENDER: UNION BANK By: /s/ RANDALL L. OSTERBERG -------------------------------------- Randall L. Osterberg, Vice President By: /s/ AUBREY K. McCLENDON -------------------------------------- By: Aubrey K. Mcclendon Title: 6 29 CONSENT AND AGREEMENT Chesapeake Energy Corporation ("CEC") hereby consents to the provisions of this Amendment and the transactions contemplated herein, and hereby ratifies and confirms its Amended and Restated Guaranty Agreement dated as of December 27, 1994 made by CEC for the benefit of Lender, and agrees that CEC's obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. IN WITNESS WHEREOF, this Consent and Agreement is executed this 2nd day of April, 1996. CHESAPEAKE ENERGY CORPORATION By: /s/ AUBREY K. McCLENDON -------------------------------------- Aubrey K. McClendon, Chief Executive Officer 30 CONSENT AND AGREEMENT The undersigned hereby consent to the provisions of this Amendment and the transactions contemplated herein, and hereby ratify and confirm the Intercompany Subordination Agreement dated as of March 22, 1994 made for the benefit of Lender, and agree that the undersigned's obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. IN WITNESS WHEREOF, this Consent and Agreement is executed this 2nd day of April, 1996. CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP, as successor of Chesapeake Exploration Company By: CHESAPEAKE OPERATING, INC., its general partner By: /s/ AUBREY K. McCLENDON ----------------------------------- Aubrey K. McClendon, President CHESAPEAKE ENERGY CORPORATION By: /s/ AUBREY K. McCLENDON --------------------------------------- Name: Aubrey K. McClendon Title: CHESAPEAKE OPERATING, INC. By: /s/ AUBREY K. McCLENDON -------------------------------------- Name: Aubrey K. McClendon Title: SANDER TRUCKING COMPANY, INC. By: /s/ AUBREY K. McCLENDON -------------------------------------- Name: Aubrey K. McClendon Title: 31 WHITMIRE DOZER SERVICE, INC. By: /s/ AUBREY K. McCLENDON -------------------------------------- Name: Title: LINDSAY OIL FIELD SUPPLY, INC. By: /s/ AUBREY K. McCLENDON -------------------------------------- Name: Title: 2 32 CONSENT AND AGREEMENT The undersigned hereby consents to the provisions of this Amendment and the transactions contemplated herein, and hereby ratifies and confirms the Intercompany Subordination Agreement dated as of December 27, 1994 made for the benefit of Lender, and agrees that the undersigned's obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. IN WITNESS WHEREOF, this Consent and Agreement is executed this 2nd day of April, 1996. CHESAPEAKE GAS DEVELOPMENT CORPORATION By: /s/ AUBREY K. McCLENDON -------------------------------------- Name: Title: EX-11 3 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES STATEMENT OF NET INCOME PER SHARE ($ in thousands, except per share) (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, ------------------ ----------------- 1996 1995 1996 1995 -------- ------- ------- ------- PRIMARY INCOME PER SHARE Computation for statement of operations Net income per statement of operations $ 7,623 $ 2,305 $15,997 $ 7,889 ======= ======= ======= ======= Common shares outstanding 17,843 17,493 17,843 17,493 Adjustment to weighted average common shares outstanding: Add dilutive effect of: Employee Options 1,647 1,149 1,485 950 ------- ------- ------- ------- Weighted average common shares and common equivalent shares outstanding, as adjusted 19,490 18,642 19,328 18,443 ======= ======= ======= ======= Net income per common share, as adjusted $ .39 $ .12 $ .83 $ .43 ======= ======= ======= ======= FULLY DILUTED INCOME PER SHARE Net income applicable to common stock as shown in primary computation above $ 7,623 $ 2,305 $15,997 $ 7,889 ======= ======= ======= ======= Common shares outstanding 17,843 17,493 17,843 17,493 Adjustment to weighted average common shares outstanding: Add fully dilutive effect of: Employee Options 1,704 1,353 1,721 1,236 ------- ------- ------- ------- Weighted average common shares and common equivalent shares outstanding, as adjusted 19,547 18,846 19,564 18,729 ======= ======= ======= ======= Fully diluted net income per common share $ .39 $ .12 $ .82 $ .42 ======= ======= ======= =======
_________ (A) The calculations for the Nine Months Ended March 31, 1996 and 1995, are submitted in accordance with Regulation S-K Item 601(b)(11). EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEET AS OF MARCH 31, 1996 AND STATEMENT OF OPERATIONS FOR NINE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q, MARCH 31, 1996. 1,000 9-MOS JUN-30-1996 JUL-01-1995 MAR-31-1996 25,948 0 47,653 237 7,066 82,228 378,438 82,886 384,719 117,128 184,084 1,784 0 0 62,973 384,719 97,899 99,940 24,656 65,422 0 0 9,717 24,801 8,804 15,997 0 0 0 15,997 .83 .82
-----END PRIVACY-ENHANCED MESSAGE-----