Chesapeake Energy 2011 Annual Report Download - page 11

wells to develop 8.7 tcfe of proved undeveloped
reserves and 350 tcfe of unrisked unproved re-
sources that underlie our leasehold. In other words,
Chesapeake has produced only 2% of the resource
base we own. This bodes extremely well for the
predictability of our growth and the ultimate value
of the company’s assets and stock price. In addi-
tion, much of our shale gas leasehold has been
initially drilled upon and is now considered “held
by production” or “HBP’ed,” which turns it from a
temporary asset into a permanent asset. This HBP
process is also underway on our liquids-rich lease-
hold and should be largely brought to a conclusion
within the next three years.
Chesapeake’s total es-
timated unrisked unproved
resource base of 350 tcfe
is by far the largest such
resource base in the U.S. Chesapeake’s market
valuation today very clearly does not give this un-
rivaled resource upside any value. We presume this
is because of investors’ overwhelmingly negative
view about the near-term future of U.S. natural gas
prices. We believe this is a shortsighted approach
to determining the value of our company and our
unproved resource base. We are determined to
unlock this value for our shareholders.
BIG OPPORTUNITY FOR U.S. NATURAL GAS —
THE WORLD’S MOST UNDERVALUED ASSET
We believe U.S. natural gas is the most under-
valued asset in the world, and it represents a
once-in-a-generation investment opportunity.
To supplement funding of Chesapeake’s rapid
growth, we developed a number of value-creating
financing strategies specifically tailored to the risk
profile of dierent assets and designed to secure
low-cost financing, limit financial leverage and
minimize shareholder dilution. We have executed
these strategies very successfully, enabling us to
secure a much larger and more valuable resource
base than we otherwise would have been able to
secure using only our cash flow from operations.
BOLD 25/25 PLAN
In early 2011, we outlined our bold 25/25 Plan
that was designed to achieve balance sheet met-
rics worthy of an investment grade rating and
thereby improve the value of our common stock.
The plan calls for reducing our long-term debt
by 25% and increasing our production by 25%
over the two-year period ending De-
cember 2012. Concurrently, we plan
to complete a transformational shift
to more liquids production, build one
of the largest U.S. onshore oilfield
services companies and further ex-
pand our industry-leading gathering
and processing operations.
This is clearly a bold plan that
few energy companies of any size
would have the ability to accomplish,
especially during this challenging period of low
natural gas prices. I look forward to writing next
year’s letter with this achievement in hand.
BIG FUTURE — CHESAPEAKE HAS CAPTURED
THE LARGEST U.S. RESOURCE BASE
I am quite confident that when the history of this
era of the oil and gas industry is written, the compa-
nies that will have performed the best will be those
few bold companies that first recognized how un-
conventional resource development in the U.S.
would end the first 150 years of industry history and
set the course for the next era. I believe this new era
will dominate our industry’s future for at least the
next 50 years. I further believe Chesapeake is the
best-positioned E&P company to benefit from
what lies ahead because our assets and human
resources are second to none in quality and size.
On Chesapeake’s 15.3 million net acres of lease-
hold (by comparison, about the size of West Vir-
ginia), we have produced 6.6 trillion cubic feet of
natural gas equivalent (tcfe) to date from 22,000
net wells and have another 10.1 tcfe left of proved
reserves to produce from these existing wells. We
could potentially drill up to another 125,000 net
2011 Annual Report | 9
U.S. natural gas
is the most under-
valued asset in
the world, and it
represents a once-
in-a-generation
investment
opportunity.