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Chesapeake Energy Corporation 2006 Annual Report

Table of contents

  • Page 1
    Chesapeake Energy Corporation 2006 Annual Report

  • Page 2
    ...-largest overall. Headquartered in Oklahoma City, the company's operations are focused on exploratory and developmental drilling and corporate and property acquisitions in the Mid-Continent, Fort Worth Barnett Shale, Appalachian Basin, Fayetteville Shale, South Texas, Permian Basin, Delaware Basin...

  • Page 3
    ... Natural Resources Company, Pogo Producing Co., Quicksilver Resources, Inc., Range Resources Corporation, Southwestern Energy Company and St. Mary Land & Exploration Company. Burlington Resources, Inc. and Kerr McGee Corporation are not included in the peer group in 2006 due to their acquisitions...

  • Page 4
    ...(losses) on oil and natural gas hedging. CHK 2006 Fact 4 We replaced 348% of our production with a drillbit finding and development cost of only $1.93 per mcfe CHK 2006 Fact 5 We were the most active driller of new wells in the U.S., drilling 1,488 gross operated wells and participating in another...

  • Page 5
    ...18 CHK 2006 Fact 6 We were one of the most active consolidators in the industry, acquiring $4.0 billion of oil and natural gas properties and $14.3 billion since 1998 CHK 2006 Fact 7 We increased the company's inventories of U.S. onshore leasehold and 3-D seismic data to 10.7 million net acres and...

  • Page 6
    ... concern about climate change will create many opportunities for Chesapeake and our industry to promote the substantial environmental benefits of clean-burning natural gas, thereby enhancing the future value of the company's substantial natural gas reserves. 2006 In Review Certainly 2006 was another...

  • Page 7
    Chesapeake Energy Corporation 2006 Annual Report 5 Leading-edge drilling techniques are being put to new uses as Chesapeake ramps up activities in the Fort Worth Barnett Shale of north-central Texas. In what may become the largest urban drilling program ever undertaken, Chesapeake's efforts in the ...

  • Page 8
    6 Chesapeake Energy Corporation 2006 Annual Report Growing concern about climate change will create many opportunities for Chesapeake to promote the substantial environmental benefits of clean-burning natural gas, thereby enhancing the future value of the company's vast natural gas reserves. ...

  • Page 9
    Chesapeake Energy Corporation 2006 Annual Report 7 every day from approximately 35,000 producing wells. These attributes enable us to create substantial shareholder value from a business managed to mitigate risk and capture value from increasing volatility in oil and natural gas markets, which are ...

  • Page 10
    8 Chesapeake Energy Corporation 2006 Annual Report Chesapeake's Business Strategy and Natural Gas Focus Chesapeake's business strategy is one of the easiest to understand among all E&P companies. We grow onshore in the U.S. through a balance of drilling and acquisitions, we regionally consolidate ...

  • Page 11
    ... Energy Corporation 2006 Annual Report 9 Chesapeake's inventory of leasehold has now reached 11 million net acres, on which we believe 26,000 additional net wells can be drilled. This represents more than a 10-year backlog of drilling opportunities and a vast storehouse of unrecognized value...

  • Page 12
    ...the company begins on page 28 of this report. Land Now I would like to turn to my favorite of the three building blocks of value creation - land (in full disclosure of my bias on this point, I am a history major by education but a petroleum landman by vocational training). Land is the foundation of...

  • Page 13
    ... in our emerging gas resource plays reserves. (i.e., Fayetteville Shale, Delaware Barnett and Woodford The company continues to actively acquire more acreage throughout our operating areas. In 2006, we acquired 1.9 million net acres through an aggressive land acquisition program currently utilizing...

  • Page 14
    ... plays is the Fort Worth Barnett Shale. Centered around Fort Worth, Texas, the Fort Worth Barnett Shale has emerged as one of America's largest natural gas fields and is the best example of what can happen at today's three-way intersection of improved horizontal drilling and completion technology...

  • Page 15
    ... Energy Corporation 2006 Annual Report 13 In the foreground, 3-D seismic trucks are in action at the DFW International Airport between Dallas and Fort Worth. In 2006, Chesapeake was selected as the airport's exclusive partner to develop the potentially vast reserves of Barnett Shale natural gas...

  • Page 16
    14 Chesapeake Energy Corporation 2006 Annual Report Climate Change Probably no public policy debate has evolved so dramatically in the past year as the debate about global climate change. A year ago, it would have been difficult to anticipate the broad consensus that has emerged among the world's ...

  • Page 17
    ...operating activities before changes in assets and liabilities. Listing in Forbes' Platinum 400 list of America's Best Big Companies and recognized as the best managed company in the Oil & Gas Operations category in the magazine's 1/8/07 issue. Ranking is according to Zack's Investment Research (Zack...

  • Page 18
    ... Energy Corporation 2006 Annual Report CHK's Operating Area Map Chesapeake embarked on an aggressive "land grab" in 2000 as we recognized earlier than most of our competitors that vast new areas of the U.S. would open up for natural gas exploration and development when new horizontal drilling...

  • Page 19
    Chesapeake Energy Corporation 2006 Annual Report 17 CHK: The Biggest Gas Resource Player in the U.S. One of Chesapeake's most important natural gas resource plays is the Sahara area of northwest Oklahoma. To date, we have drilled more than 1,000 wells in the Sahara and we anticipate drilling ...

  • Page 20
    .... In addition to multiple acquisitions of high-quality assets during 2006, Chesapeake also notably leased the right to drill the 18,000 net acres underlying the Dallas/Fort Worth International Airport. In the Barnett, Chesapeake is the fourth-largest producer of natural gas, the most active driller...

  • Page 21
    ... land acquisition activities during 2006 took place in the Delaware Basin in far West Texas where we have built the largest leasehold position in the emerging Barnett and Woodford Shale plays. We believe that substantial natural gas reserves exist in this stacked shale play and are working...

  • Page 22
    18 Chesapeake Energy Corporation 2006 Annual Report Social Responsibility and Community Service The first responsibility of every publicly held company is to build value for its shareholders while providing a product or service vital to economic and social development. A second important ...

  • Page 23
    ... of Chesapeake's business model is rooted in rural areas where the majority of our drilling rigs operate, the company places great emphasis on improving life outside of major metropolitan areas. Hundreds of Chesapeake employees are actively involved in local governments, schools, volunteer fire...

  • Page 24
    20 Chesapeake Energy Corporation 2006 Annual Report The $3 million Chesapeake Boathouse is the initial development along the long-ignored Oklahoma River and has served as a catalyst for economic development along the riverfront and downtown Oklahoma City.

  • Page 25
    Chesapeake Energy Corporation 2006 Annual Report 21 Our company's community service strategy includes identifying needs, determining the opportunities for building sustainable alliances to meet those needs, and then establishing productive partnerships with groups that have the expertise and ...

  • Page 26
    ... Helping our employees become and stay healthy is a key strategy to help boost productivity and make Chesapeake an employer of choice. In our ongoing effort to promote good health, we have initiated a number of wellness programs in our operating units and at our Oklahoma City corporate headquarters...

  • Page 27
    Chesapeake Energy Corporation 2006 Annual Report 23 At Chesapeake, we place a great deal of importance on providing safe work environments for our employees, both in office and field locations. Equally important is our commitment to ensuring the safety of those around us by continually reviewing ...

  • Page 28
    ... put to new uses as Chesapeake ramps up activities in the Fort Worth Barnett Shale of north-central Texas, in what may become the largest urban drilling program ever undertaken. Continually improving horizontal drilling and multiple well pad drilling technologies enable the company to drill more...

  • Page 29
    ... friendly operations. A Chesapeake manager has chaired the Bureau of Indian Affairs/Bureau of Land Management Working Group, an industry/governmental organization whose goal is to improve understanding and communications between the natural gas industry and government land management and...

  • Page 30
    ... and Research Martha A. Burger 6 Senior Vice President Human and Corporate Resources 15 Thomas S. Price, Jr . 14 Senior Vice President Corporate Development Jeffrey A. Fisher 7 Senior Vice President Production Cathy L. Tompkins 15 Senior Vice President Information Technology Jennifer M. Grigsby...

  • Page 31
    Chesapeake Energy Corporation 2006 Annual Report 27 CHK's Directors A B C D E F G H Aubrey K. McClendon Chairman of the Board and Chief Executive Officer Oklahoma City, OK A Breene M. Kerr Private Investor Easton, MD (1) D Don Nickles G Former U.S. Senator, Oklahoma Founder and ...

  • Page 32
    28 Chesapeake Energy Corporation 2006 Annual Report Our People 1989 (4) Mark Lester Kinney Louthan Aubrey McClendon Patsy Watters 1990 (5) Kevin Decker David Higgins Linda Peterburs Cindi Williams Jeff Williams 1991 (11) Steve Dixon Wes Kruckenberg Joe McClendon Marilyn Pollard Patti Schlegel ...

  • Page 33
    Chesapeake Energy Corporation 2006 Annual Report 29 Jody Dunn Gary Durkee Jack Elliott Jimmy Embery Charlene Ernest Keith Ervin Jim Fansher Ursula Faus Carol Fehrenbacher Mark Ferbrache Jeff Fisher David Flies Mitch Floresca Tommy Foust T. R. Fox Justin Froehlich Edd Gabbart Fred Gagliardi Tim ...

  • Page 34
    30 Chesapeake Energy Corporation 2006 Annual Report Rebecca Avant Brian Bailey Leigh Ann Bailey Donald Bain Kyle Baker Melvin Baldridge Mills Bale Jason Ball Scott Banks Michael Baranski Gary Barnard Rick Barnes Mark Barringer Shawn Barron Karen Bartley Cody Barton Bob Bary Diana Bast Beverly ...

  • Page 35
    Chesapeake Energy Corporation 2006 Annual Report 31 John Prichard Jennifer Prince Martin Province Bobby Putman Randy Queen Terry Quentrill Jack Quisenberry II Ann Radcliff Jeff Raines Weldon Rainey Larry Raleigh Luis Ramirez Kyle Range Keith Rasmussen Billy Ratliff Jennifer Ratliff Tory Ratliff ...

  • Page 36
    32 Chesapeake Energy Corporation 2006 Annual Report Katie Collins Deanna Combs Joshua Combs Vernon Combs Jason Conaway Greg Condray Ronald Confer Jeff Conley Chrissy Conner Jeremy Conner Dusty Conway Andy Conyers Blayne Cook Jim Cook Justin Cook Melissa Cook Jacob Cooper Larry Cooper Linda Cooper ...

  • Page 37
    Chesapeake Energy Corporation 2006 Annual Report 33 Sammy Kendall Kris Kendrick Burke Kennedy James Kennedy Josh Kennedy Stephanie Kennedy Joe Ketzner Moin Khan Gil Kiaha George Kidd Russell Kidd John Kieschnick Paul Kiespert Jr. Jeff Kiker James Killen Kevin Killingsworth Wayne Kimberling Debbie ...

  • Page 38
    ... Vernon Williams Zachary Williams Calvin Williamson Jr. Jeff Willis Dee Willoughby Tyler Willyard Andrew Wilson Brent Wilson Chad Wilson Charles Wilson Chuck Wilson Julie Wilson Robin Wilson Steve Wilson Warren Wilson Jim Wimmler Franklin Windham Carl Winslow Robbie Wisdom Amos Wise Jennifer Wismer...

  • Page 39
    ... mailings or change of address notifications should be directed to our Internet Address transfer agent: Company financial information, public disclosures UMB Bank, N.A. and other information are available through P. O. Box 419064 Chesapeake's web site at www.chkenergy.com. Kansas City, Missouri...

  • Page 40
    Chesapeake Energy Corporation 6100 North Western Avenue Oklahoma City, Oklahoma 73118 www.chkenergy.com