-----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, UzIQes+LhzVq0loVczRi/R4tsaLB3y2TgFCoH3u9texgwScz6dppemHaosbgEbAa MYFEk0/asCAL2Le/uS8Vxg== 0000895126-05-000266.txt : 20051206 0000895126-05-000266.hdr.sgml : 20051206 20051206170651 ACCESSION NUMBER: 0000895126-05-000266 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20051206 ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20051206 DATE AS OF CHANGE: 20051206 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHESAPEAKE ENERGY CORP CENTRAL INDEX KEY: 0000895126 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 731395733 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13726 FILM NUMBER: 051247658 BUSINESS ADDRESS: STREET 1: 6100 N WESTERN AVE CITY: OKLAHOMA CITY STATE: OK ZIP: 73118 BUSINESS PHONE: 4058488000 MAIL ADDRESS: STREET 1: 6100 NORTH WESTERN AVE CITY: OKLAHOMA CITY STATE: OK ZIP: 73118 8-K 1 chk12062005_outlook8k.htm CHESAPEAKE'S OUTLOOK AS OF DECEMBER 6, 2005

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

 

Pursuant to Section 13 or 15(d)

of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

December 6, 2005 (December 6, 2005)

CHESAPEAKE ENERGY CORPORATION

(Exact name of Registrant as specified in its Charter)

 

Oklahoma

 

1-13726

 

73-1395733

(State or other jurisdiction of incorporation)

 

(Commission File No.)

 

(IRS Employer Identification No.)

 

 

6100 North Western Avenue, Oklahoma City, Oklahoma

 

73118

(Address of principal executive offices)

 

(Zip Code)

 

(405) 848-8000

(Registrant’s telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

[_]

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

[_]

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[_]

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

(17 CFR 240.14d-2(b))

[_]

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

(17 CFR 240.13e-4(c))

 

 

 

 

Section 7 – Regulation FD

 

Item 7.01 Regulation FD Disclosure.

 

Chesapeake Energy Corporation has updated its Outlook, attached hereto as Exhibit 99.1, as of December 6, 2005 to reflect recent changes in its hedging positions, updated expectations of future NYMEX oil and gas prices to illustrate hedging effects, updated costs reflecting current market conditions, effects of the financing completed in November 2005 as well as conversion of preferred stock to common stock since September 30, 2005. In conjunction with the filing of this current report on Form 8-K, Chesapeake has also updated the Outlook on its website at www.chkenergy.com.

 

 

Section 9 – Financial Statements and Exhibits

 

Item 9.01 Final Statements and Exhibits.

 

 

 

 

(c)

Exhibits

 

 

 

Exhibit No.

 

Document Description

 

 

 

99.1

 

Outlook dated December 6, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

CHESAPEAKE ENERGY CORPORATION

 

By:


/s/ Aubrey K. McClendon

 

 

 

Aubrey K. McClendon

Chairman of the Board and

Chief Executive Officer

 

 

Date:

December 6, 2005

 

 

3

 

 

 

EXHIBIT INDEX

Exhibit No.

 

Document Description

 

 

 

 

 

 

 

99.1

 

Outlook dated December 6, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 EX-99 2 chk12062005_outlook.htm OUTLOOK AS OF DECEMBER 6, 2005

EXHIBIT 99.1

 

CHESAPEAKE’S OUTLOOK AS OF DECEMBER 6, 2005

 

Quarter Ending December 31, 2005; Year Ending December 31, 2005; Year Ending December 31, 2006; Year Ending December 31, 2007.

 

We have adopted a policy of periodically providing investors with guidance on certain factors that affect our future financial performance. As of December 6, 2005, we are using the following key assumptions in our projections for the fourth quarter of 2005, the full-year 2005, the full-year 2006 and the full-year 2007.

 

The primary changes from our October 31, 2005 Outlook are in italicized bold in the table and are explained as follows:

 

 

1)

We have updated the projected effect of changes in our hedging positions since our October 31, 2005 Outlook.

 

2)

We have updated our expectations for future NYMEX oil and gas prices based on current market conditions in order to illustrate hedging effects only.

 

3)

We have included the effects of the financings completed in November 2005 as well as conversions of preferred stock to common stock since September 30, 2005.

 

 

Quarter Ending 12/31/2005

Year Ending 12/31/2005

Year Ending 12/31/2006

Year Ending 12/31/2007

Estimated Production:

 

 

 

 

Oil – Mbo

1,950

7,650

7,700

7,750

Gas – Bcf

112-114

416 – 419

512 – 522

553-563

Gas Equivalent – Bcfe

124 – 126

462 – 465

558 – 568

599-609

Daily gas equivalent midpoint –in Mmcfe

1,359

1,270

1,543

1,655

NYMEX Prices (for calculation of realized hedging effects only):

 

 

 

 

Oil - $/Bo

$60.20

$56.60

$50.00

$50.00

Gas - $/Mcf

$13.00

$8.64

$7.00

$7.00

Estimated Differentials to NYMEX Prices:

 

 

 

 

Oil - $/Bo

6-8%

6-8%

6-8%

6-8%

Gas - $/Mcf

10-15%

8-12%

8-12%

8-12%

Estimated Realized Hedging Effects (based on expected NYMEX prices above):

 

 

 

 

Oil - $/Bo

- $2.85

-$4.31

$4.94

$0.35

Gas - $/Mcf

- $2.59

- $0.66

$1.53

$0.57

Operating Costs per Mcfe of Projected Production:

 

 

 

 

Production expense

$0.70 – 0.74

$0.68 – 0.72

$0.77 – 0.82

$0.80-0.85

Production taxes (generally 6.5% of O&G revenues) (a)

$0.60 – 0.64

$0.45 – 0.50

$0.40 – 0.45

$0.40-0.45

General and administrative

$0.10 – 0.12

$0.10 – 0.12

$0.11 – 0.13

$0.11-0.13

Stock-based compensation (non-cash)

$0.03 – 0.05

$0.03 – 0.05

$0.08 – 0.10

$0.10-0.12

DD&A – oil and gas

$2.05 – 2.10

$1.85 – 1.95

$2.15 – 2.20

$2.25-2.30

Depreciation of other assets

$0.10 – 0.12

$0.09 – 0.11

$0.10 – 0.12

$0.11-0.13

Interest expense(b)

$0.48 – 0.52

$0.45 – 0.49

$0.48 – 0.53

$0.50-0.55

Other Income and Expense per Mcfe:

 

 

 

 

Marketing and other income

$0.02 – 0.04

$0.02 – 0.04

$0.02 – 0.04

$0.02-0.04

 

 

 

 

 

 

 

 

 

 

 

Book Tax Rate (≈ 95% deferred)

36.5%

36.5%

36.5%

36.5%

 

Equivalent Shares Outstanding:

 

 

 

 

Basic

346 mm

322 mm

361 mm

365 mm

Diluted

406 mm

375 mm

427 mm

431 mm

Capital Expenditures:

 

 

 

 

Drilling, leasehold and seismic

$575 - 625 mm

$2,000 - 2,200 mm

$2,700 – 2,900 mm

$3,100-3,300 mm

 

(a)

Severance tax per mcfe is based on NYMEX prices of $60.00 per bo and natural gas prices ranging from $9.00 to $11.30 per mcf during Q4 2005, $60.00 per bo and natural gas prices ranging from $7.25 to $12.50 per mcf during calendar 2005, $50.00 per bo and $6.75 to $7.60 per mcf during calendar 2006 and 2007.

(b)

Does not include gains or losses on interest rate derivatives (SFAS 133).

 

Commodity Hedging Activities

 

The company utilizes hedging strategies to hedge the price of a portion of its future oil and gas production. These strategies include:

 

 

(i)

For swap instruments, we receive a fixed price for the hedged commodity and pay a floating market price, as defined in each instrument, to the counterparty. The fixed-price payment and the floating-price payment are netted, resulting in a net amount due to or from the counterparty.

 

(ii)

For cap-swaps, Chesapeake receives a fixed price and pays a floating market price. The fixed price received by Chesapeake includes a premium in exchange for a "cap" limiting the counterparty's exposure. In other words, there is no limit to Chesapeake's exposure but there is a limit to the downside exposure of the counterparty.

 

(iii)

Basis protection swaps are arrangements that guarantee a price differential of oil or gas from a specified delivery point. Chesapeake receives a payment from the counterparty if the price differential is greater than the stated terms of the contract and pays the counterparty if the price differential is less than the stated terms of the contract.

 

Commodity markets are volatile, and as a result, Chesapeake’s hedging activity is dynamic. As market conditions warrant, the company may elect to settle a hedging transaction prior to its scheduled maturity date and lock in the gain or loss on the transaction.

 

Chesapeake enters into oil and natural gas derivative transactions in order to mitigate a portion of its exposure to adverse market changes in oil and natural gas prices. Accordingly, associated gains or loses from the derivative transactions are reflected as adjustments to oil and gas sales. All realized gains and losses from oil and natural gas derivatives are included in oil and gas sales in the month of related production. Pursuant to SFAS 133, certain derivatives do not qualify for designation as cash flow hedges. Changes in the fair value of these non-qualifying derivatives that occur prior to their maturity (i.e. because of temporary fluctuations in value) are reported currently in the consolidated statement of operations as unrealized gains (losses) within oil and gas sales.

 

Following provisions of SFAS 133, changes in the fair value of derivative instruments designated as cash flow hedges, to the extent effective in offsetting cash flows attributable to hedged risk, are recorded in other comprehensive income until the hedged item is recognized in earnings. Any change in fair value resulting from ineffectiveness is recognized currently in oil and natural gas sales.

 

We have not reflected any of the derivative positions acquired from CNR in the following tables. We have recorded such positions at fair value in the purchase price allocation as a liability on the date of acquisition. Changes in fair value subsequent to the acquisition date for the derivative positions assumed will result in adjustments to our oil and gas revenues only upon cash settlement and only to the extent the cash settlement differs from the original liability recorded.

 

 

 

The company currently has in place the following natural gas swaps:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Hedged

 

 

 

 

 

Open Swaps in Bcf’s

 

 

 

Avg. NYMEX Strike Price Of Open Swaps

 

 

 

Gain (Loss) from Locked Swaps

 

 

 

Avg. NYMEX Price Including Open & Locked Positions

 

 

 

Assuming Gas Production in Bcf’s of:

 

 

 

Open Swap Positions as a % of Estimated Total Gas Production

 

2005:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q4 2005(1)

 

 

 

86.9

 

 

 

$

8.46

 

 

 

-$0.13

 

 

 

$

8.33

 

 

 

113.0

 

 

 

77

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2006:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q1

 

 

 

84.0

 

 

 

$

10.45

 

 

 

-$0.10

 

 

 

$

10.35

 

 

 

122.0

 

 

 

69

%

Q2

 

 

 

65.5

 

 

 

$

8.55

 

 

 

-$0.09

 

 

 

$

8.46

 

 

 

127.0

 

 

 

52

%

Q3

 

 

 

66.6

 

 

 

$

8.54

 

 

 

-$0.08

 

 

 

$

8.46

 

 

 

132.0

 

 

 

50

%

Q4

 

 

 

55.9

 

 

 

$

8.77

 

 

 

-$0.09

 

 

 

$

8.68

 

 

 

136.0

 

 

 

41

%

Total 2006(1)

 

 

 

271.6

 

 

 

$

9.18

 

 

 

-$0.09

 

 

 

$

9.09

 

 

 

517.0

 

 

 

53

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total 2007

 

 

 

71.0

 

 

 

$

9.61

 

 

 

-$0.17

 

 

 

$

9.44

 

 

 

558.0

 

 

 

13

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total 2008

 

 

 

37.5

 

 

 

$

8.56

 

 

 

-

 

 

 

$

8.56

 

 

 

585.0

 

 

 

6

%

 

(1)

Certain hedging arrangements include swaps with knockout prices ranging from $3.75 to $5.50 covering 20.1 bcf in 2005 and $3.75 to $5.50 covering 43.0 bcf in 2006.

Note: Not shown above are collars covering 1.4 bcf of production in 2005 at a weighted average floor and ceiling of $3.49 and $5.27 and 0.2 bcf of production in 2006 at a weighted average floor and ceiling of $6.00 and $9.70 and call options covering 1.8 bcf of production in 2005 at a weighted average price of $5.86, 7.3 bcf of production in 2006 at a weighted average price of $12.50, 7.3 bcf of production in 2007 at a weighted average price of $12.50 and 7.3 bcf of production in 2008 at a weighed average price of $12.50.

 

The company has also entered into the following natural gas basis protection swaps:

 

 

 

 

Volume in Bcf’s

 

NYMEX less*:

 

Assuming Gas Production in Bcf’s

of:

 

% Hedged

 

4th Quarter 2005

 

49.4

 

$

0.27

 

113

 

44

%

2006

 

130.1

 

 

0.32

 

517

 

25

%

2007

 

137.2

 

 

0.33

 

558

 

25

%

2008

 

118.6

 

 

0.27

 

585

 

20

%

2009

 

86.6

 

 

0.29

 

615

 

14

%

 

 

521.9

 

$

0.30

 

2,388

 

22

%

* weighted average

 

The company has entered into the following crude oil hedging arrangements:

 

 

 

 

 

 

 

 

 

 

 

 

% Hedged

 

 

 

Open Swaps
in mbo’s

 

Avg. NYMEX
Strike Price

 

Assuming Oil
Production in mbo’s of:

 

Open Swap Positions as %
of Total Estimated Production

 

 

 

 

 

 

 

 

 

 

 

 

2005:

 

 

 

 

 

 

 

 

 

 

Q4 2005(1)

 

1,073.5

 

 

$54.97

 

1,950.0

 

55%

 

2006:

 

 

 

 

 

 

 

 

 

 

Q1

 

1,035.0

 

 

$59.71

 

1,900.0

 

54%

 

Q2

 

1,016.5

 

 

$59.60

 

1,920.0

 

53%

 

Q3

 

966.0

 

 

$59.83

 

1,940.0

 

50%

 

Q4

 

920.0

 

 

$59.45

 

1,940.0

 

47%

 

Total 2006(1)

 

3,937.5

 

 

$59.65

 

7,700.0

 

51%

 

Total 2007

 

635.0

 

 

$54.29

 

7,750.0

 

8%

 

 

(1)

Certain hedging arrangements include swaps with knockout prices ranging from $26.00 to $42.00 covering 276 mbo in 2005 and $40.00 to $42.00 covering 501.5 mbo in 2006.

 

 

 

 

 

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