Chesapeake Energy 1994 Annual Report Download

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Chesapeake
Energy
Corporation
Annual
Report

Table of contents

  • Page 1
    Chesapeake Energy Corporation Annual Report

  • Page 2
    SELECTED FINANCIAL DATA FISCAL YEAR ENDED JUNE 30, 1994 1993 1992 INCOME DATA ($ IN THOUSANDS, EXCEPT PER SHARE DATA) Oil and gas sales Service operations and other Total revenues Production expenses Oil and gas property depreciation, depletion and amortization Other depreciation and ...

  • Page 3
    ... drilling locations. The company focuses its efforts geographically in southern Texas and southern Oklahoma. IE)(AS WHAT WE HAVE ACCOMPLISHED Since incorporation in 1989, Chesapeake has increased earnings to $4 million increased operating cash flow to $15 million increased annual production...

  • Page 4
    ...93 94 CHESAPEAKE'S GOAL: INDUSTRY LEADERSHIP Our goal in fiscal 1995 is to lead the independent energy sector in: Technological advancement in deep horizontal drilling Growth iii proved reserves per share ASSET GROWTH: 100% THROUGH THE DRILLBIT 5 thoesends) Profit per unit-of-production Return...

  • Page 5
    ... by paying the highest price for a producing property. A review of Chesapeake's fiscal 1994 results evidences the success of our strategy. IN GIDDINGS PG N& weIS wIk During the year, Chesapeake drilled 92 wells with a 95% success rate. These new wells generated net production to the company of...

  • Page 6
    ...) its peer group in per-well productivity, an important contributor to meeting our profitability goals. Even more impressive are the 13 Giddings wells we have drilled in the Navasota River area, which was introduced in last year's annual report as one of Chesapeake's "New Areas". Our first well in...

  • Page 7
    ... operating areas for years to come. THE GIDD!NGS FIELD Chesapeake's most important assets are located in the Giddings Field, one of the most active and prolific fields in the nation. Since 1991, Chesapeake, Union Pacific Resources Company and others have drilled more than 1,000 horizontal wells...

  • Page 8
    ... stays within these narrowly defined pay zones. The DRILLING LONGER HORIZONTAL LATERALS Total horrzontal length 0 company's expertise in identifying and drilling within the most productive intervals of the Austin ChalL has helped Chesapeake enjoy higher per-well recoveries than any of its...

  • Page 9
    ... same vertical weilbore). To date, 11 wells have been drilled in this joint venture, generating cumulative gross production of 15 BCFE and estimated remaining reserves of 37 BCFE. For fiscal DISTRICT OFFICE COLLEGE STATION, TX FIELD OFFICE GIDDINGS, TX C- 1995, Chesapeake has budgeted $5 million...

  • Page 10
    .... Gross reserves per well have been estimated by our independent reservoir engineers to exceed an average of eight BCFE. For fiscal 1995, Chesapeake has budgeted $18 million to drill lime net (24 gross) NAVASOTA RIVER DRILLING RESULTS (2/7/94 THROUGH 10/10/94) We II Days Average On Line Daily...

  • Page 11
    ...lola, Texas. This well, located 15 miles north of Chesapeake's main Navasota River block, has produced approximately 2.8 BCFE in two years. As importantly, the well continues to produce in excess of its initial daily production rate of 3.4 MMCFD. In March 1994, Chesapeake drilled a vertical well 20...

  • Page 12
    ... CORPORATEHEADQUARTERS OKLAHOMA CITY, OK FIELD OFFICE LINDSAY, OK more than 150 undrilled Golden Trend locations. For fiscal 1995, Chesapeake has budgeted $11 million to drill 12 net (50 gross) wells in the Golden Trend. in August 1994, Chesapeake renewed for a second three-year GOLDEN TREND FIELD...

  • Page 13
    ... oil companies. LOCATING DEEPER RESERVES IN THE CONSISTENT STRATEGY GOLDEN TREND )Averge depth drilled ie Leer) Our decision to reproduce last year's cover and continue the conservative theme for Chesapeake's annual report is evidence of the consistency of our corporate strategy. Since Chesapeake...

  • Page 14
    ... to continue to work hard and make Chesapeake the standard by which other independent energy companies are measured. Aubrey K. McClendon Chairman of the Board and Chief Executive Officer / Tom L. Ward President and chief Operating Officer October 10, 1994 12 CHESAPEAKE ENERGY CORPORATION

  • Page 15
    ... Executive Officer Oklahoma CAy, Oklahoma Aubrey K. McClendon Chairman of the Board and ChiefExecutive Officer Tom L. Ward Tom L. Ward President and Chief Operating OffIcer Oklahoma City, Oklahoma President and 6'hief Operating Officer Marcus C. Rowland Vice PresidentFinance and Chief Financial...

  • Page 16
    ... Service Company Supervisor Sherry Kesler Secretary Mark Baker Roustabout Steve Clark Treasurer Barbara Bale Regulatory Analyst Jerry Edwards Truck Driver William Kesler Welder Duane Heckelsberg Texas Staff Geologist Kimberly Coffman Accounting Supervisor Vicki Ervin Accounting Assistant...

  • Page 17
    ... Welder Ken Will Oklahoma Drilling Superintendent Shannon Thompson Production Clerk Cindi Williams Engineering Technician Connie Robles Division Order Manager Joey Tipton Truck Driver Jeff Williams Oklahoma Landman Dave Wittman Texas Production Engineer CHESAPEAKE ENERGY CORPORATION 15

  • Page 18
    ... Bank & Trust Company of Oklahoma City, N.A. 100 North Broadway Avenue Stockholders may obtain a copy of Chesapeake Energy Corporation's Form 10-K report as filed with the Securities and Exchange Commission by contacting Thomas S. Price, Jr. at the address of the corporate offices above or by...

  • Page 19
    ... and Analysis 19 Report of Independent Accountants 24 Consolidated Balance Sheets 25 Consolidated Statements of Operations 26 Consolidated Statements of Cash Flows 27 Consolidated Statements of Stockholders Equity 29 Notes to Consolidated Financial Statements 30 CHESAPEAKE ENERGY CORPORATON 17

  • Page 20
    ..." and the Consolidated Financial Statements and related notes included elsewhere in this report. YEARS ENDED JUNE 30, 1994 1993 1992 1991 1990 STATEMENT OF OPERATIONS DATA: ($ IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Oil and gas sales Oil and gas service operations Interest and other...

  • Page 21
    ...financing programs and to Union Bank. assembled over 75,000 gross acres of prospective, exploratory acreage, in Grimes, Brazos, Washington and Fayette Counties in Texas. The company believes that this acreage could provide as many as 100 drilling locations. Another development during fiscal 1994 of...

  • Page 22
    ..., depletion and amortization Net Wells Drilled: Horizontal wells Vertical wells $ $ $ .36 .31 $ $ $ $ $ $ .80 11.1 .60 .95 .83 11.3 7.9 57.9 3.7 Net Wells at End of Period 32.4 RESULTS OF OPERATIONS For the fiscal year ended June 30, 1994, the company realized net income of $3.9 million...

  • Page 23
    ... these operations were $5.2 million, $3.7 million and $4.1 million for the million. The average DD&A per Mcfe, which rate is a function of capitalized costs and related underlying reserves three years ended June 30, 1994, 1993 and 1992, respectively. The gross profit margin was 19% in fiscal 1994...

  • Page 24
    ... partnership ("CEX"), prior to the formation of the company which are included in financial income but for primarily from a combination of reduced utilization of independent consultants and non-capitalized expenses related to the company's public offering in fiscal 1993 and which no tax benefit...

  • Page 25
    ... by operating activities of $19.4 million in fiscal 1994. Additionally, the company has an unused line of credit available from Union Bank. Absent a significant increase in the company's Giddings field drilling schedule, the company's internally generated cash flow and existing cash resources...

  • Page 26
    ...financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Chesapeake Energy Corporation and its subsidiaries (the "company") at June 30, 1994 and 1993, and the results of their operations and their cash flows for each of the three years...

  • Page 27
    ...Accumulated earnings (deficit) Total stockholders' equity Total liabilities and stockholders' equity The accompanying notes are an integral part of these consolidated financial statements. 6 51 51 5 28,243 2,961 32,704 (1,329) 31,432 31,260 $ 125,690 $ 78,707 CHESAPEAKE ENERGY CORPORATION 25

  • Page 28
    CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 1994 1993 1992 ($ IN THOUSANDS, EXCEPT PER SHARE DATA) REVENUES: Oil and gas sales Oil and gas service operations Interest and other Total revenues COSTS AND EXPENSES: $22,404 6,439 981 $11,602 5,526 880 18,008 $ 10,520 7,656 542 18...

  • Page 29
    ...end of period SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION CASH PAYMENTS FOR: $16,225 $ 4,851 690 Interest expense Income taxes The accompanying notes are an integral part of these consolidated financial statements. $ 1,467 $ $ 2,520 $ $ 2,166 $ 109 56 CHESAPEAKE ENERGY CORPORATION 27

  • Page 30
    ... payment terms on approximately $3,700,000 of accounts payable. During the year ended June 30, 1993, notes payable in including its rights to dividends ($725,000 accrued but unpaid at December 31, 1993). In February 1994, pending litigation against the company's subsidiary, Chesapeake Operating...

  • Page 31
    ...stock warrants Balance, end of period Paid-in capital Balance, beginning of period Exchange of preferred stock Issuance of common stock warrants Issuance of preferred stock Issuance of common stock Offering... consolidated financial statements. $31,260 $31,432 132 CHESAPEAKE ENERGY CORPORATION 29

  • Page 32
    ... and other lease and well equipment which the company certain of the oil and gas exploration, oil and gas production and oii field service operations previously conducted by Chesapeake Operating, Inc. ("COI"), Chesapeake Exploration Company ("CEX"), a general partnership, Lindsay Oil Field Supply...

  • Page 33
    ... tax return. service properties, equipment and other in the consolidated balance sheets is computer equipment, software, and certain other office equipment held under capital leases. The company has adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes...

  • Page 34
    ...presentation used for the June 30, 1994 consolidated fInancial statements. ACCOUNTING FOR FUTURES CONTRACTS Periodically, the company enters into futures contracts to hedge a portion of its future oil and gas production. The market value changes the company's obligations under the Notes on a joint...

  • Page 35
    CON DEN S ED C O'N SOLID AT AS OF JUNE 30, 1994 SUBSIDIARY GUARANTORS N G BALANCE SHEET COMPANY CEX ALL OTHERS COMBINED (PARENT) ELIMINATIONS CONSOLIDATED ASSETS ($ IN THOUSANDS) Current assets Cash and cash equivalents Accounts receivable Inventory $ $13,946 8,686 10,432 7,162 1,274 $...

  • Page 36
    CONDENSED CONSOLIDATING BALANCE SHEET AS OF JUNE 30, 1993 SUBSIDIARY GUARANTORS COMPANY CEX ALL OTHERS COMBINED (PARENT) ELIMINATIONS CONSOLIDATED ASSETS ($ IN THOUSANDS) Current assets Cash and cash equivalents Accounts receivable Inventory $ 177 83 $ 4,136 11,484 3,404 548 $ Other ...

  • Page 37
    CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1994 SUBSIDIARY GUARANTORS COMPANY CEX ALL OTHERS COMBINED (PARENT) ELIMINATIONS CONSOLIDATED $ IN THOUSANDS) REVENUES Oil and gas sales Oil and gas service operations Interest and other $ 22,404 $ 6,439 622 22,...

  • Page 38
    CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (continued) SUBSIDIARY GUARANTORS CEX ALL OTHERS FOR THE YEAR ENDED JUNE 30, 1992 COMPANY COMBINED 1$ (PARENTI ELIMINATIONS CONSOLIDATED IN THOUSANDS) REVENUES Oil and gas sales Oil and gas service operations Other $10,520 5 $ 7,656 537 8,...

  • Page 39
    CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1994 SUBSIDIARY GUARANTORS COMPANY CEX ALL OTHERS COMBINED (PARENT) ELIMINATIONS CONSOLIDATED ($ IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES $ 9,637 $11,201 $20,838 (34,654) 8,363 (1,941) $(1,415) $ $ ...

  • Page 40
    CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (continued) FOR THE YEAR ENDED JUNE 30, 1992 SUBSIDIARY GUARANTORS CEX ALL OTHERS COMPANY COMBINED PARENT) ELIMINATIONS CONSOLIDATED )$ IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES $ 6,657 $ 4,893 (2,682) 5,500 (1,240) 1,578 $11,550 (...

  • Page 41
    ... at 7.75% per annum, collateralized by office buildings, payments due in monthly installments through May 1998 (2,900) 1,216 10,21 10 2,407 5,952 751 2,498 777 Notes payable to vendors participating in the vendor financing programs, interest at 7% per annum, collateralized by producing...

  • Page 42
    ... based on the market value of the company's common stock at the date of issue ($6.25 per common share) and are recorded as common stock warrants and paid-in capital on the consolidated balance sheets. A bond prohibits the payment of dividends on the company's common stock. discount was created as...

  • Page 43
    .... The company has employment contracts with its two principal shareholders and its chief financial officer which provide for annual base salaries, bonus compensation and various benefits. The contracts provide for the require a $485,000 payment by the company and CHESAPEAKE ENERGY CORPORATION 41

  • Page 44
    ... of such working interests are required to pay their proportionate share of all costs. As of June 30, 1994, 1993 and 1992 the company had accounts receivable from these directors, shareholders and employees of $1,671,000, $1,580,000, $1,250 $(99) $1,337 and $0, respectively. The aggregate average...

  • Page 45
    ... as well as the assumption of two notes payable to a bank, which were collateralized by the buildings. During the year ended June 30, 1993, the notes were paid in full. NOTE 7. EMPLOYEE BENEFIT PLANS 1994 Wickford Energy Marketing, L.C. GPM Gas Corporation Plains Marketing and Transportation, Inc...

  • Page 46
    ... in the consolidated statement of cash flows. issued and sold may not exceed 290,000 shares. The maximum period for exercise of an option may not be more than ten years from the date of grant, and the exercise The Transfer was consummated as a series of contributions to the company and its...

  • Page 47
    ... include lease operating expenses and production taxes. The imputed income tax provision is hypothetical and determined without regard to the company's deduction for general and administrative expenses, interest costs and other income tax credits and deductions. CHESAPEAKE ENERGY CORPORATION 45

  • Page 48
    ... those used in the June 30, 1993 reserve report. The impact of the reduced ownership percentages is reflected as sales of reserves in place in the preceding table. Future cash inflows and future production and development costs are determined by applying year-end 46 CHESAPEAKE ENERGY CORPORATION

  • Page 49
    ...10% annual discount factor. The following summary sets forth the company's future net cash flows relating to proved oil and gas reserves based on the standardized measure prescribed in SFAS No. 69: YEARS ENDED JUNE 30, 1994 1993 1992 ($ IN THOUSANDS) Future cash inflows Future production costs...

  • Page 50
    ... DATA Summarized unaudited quarterly financial data for fiscal 1994 and 1993 are as follows: JUNE 30, 1994 QUARTERS ENDED MARCH 31, DECEMBER 31, 1994 1993 SEPTEMBER 30, 1993 ($ IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales Gross profit Net income Income per share $10,621 4,816 2,900 $ $6,606...

  • Page 51
    Chesapeake Energy Corporation 6104 North Western Avenue Post Office Box 18496 Oklahoma City, Oklahoma 731 54-0496 405/848-8000 FAX 405/843-0573