Chesapeake Energy 1994 Annual Report Download - page 25

which atJune 30, 1993, was $10.2 million and atJune 30,
1994, was $8.0 niillion, reduces monthly by an amount
determined at each redetermination of the borrowing base.
The company had requested the current borrowing base of
$8 million to reduce commitment fees, but believes a
higher borrowing base of as much as $15 million is
available. The company is required to make principal
payments equal to the amount by which the principal
balance exceeds the borrowing base. The principal balance
at June 30, 1994, was $10,000, as compared with $10.2
million at June 30, 1993.
SENIOR NOTES On March 31, 1994, the company issued
$47,500,000 of 12% Senior Notes due 2001, and 486,875
warrants convertible into 486,875 shares of the company's
common stock at $01 each. The Indenture governing the
Senior Notes provides for semi-annual interest payments
commencing September 1, 1994, and mandatory
redemption on each of March 1, 1998, March 1, 1999 and
March 1, 2000 of $11,875,000 of Notes. The Notes are
redeemable at the option of the company at any rime on or
after March 1, 1998. The Indenture limits borrowings
under the Union Bank facility to the greater of $1 5 million
or 15% of the company's adjusted consolidated net
tangible assets as defined in the Indenture. The company
calculates that as of June 30, 1994, the adjusted
consolidated net tangible assets of the company were
approximately $156 million.
WORKING CAPITAL The company had working capital of
approximately $2.4 million at June 30, 1994, as compared
to a working capital deficit of $10 million at June 30,
1993. The increase in working capital is attributable to the
Senior Note offering on March 31, 1994 and cash provided
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 should be sufficient to
meet its operating activities, fund existing capital
commitments, and service its outstanding debt in fiscal
1995. The company's capital spending is largely
discretionary. The company has budgeted approximately
$33 million to fund drilling and completion activities for
proved undeveloped reserves, and expects to spend up to
$15 million on exploration drilling and leasehold
acquisition net of partner reimbursement for fiscal 1995.
The discretionary nature of a significant portion of the
company's capital spending permits the company to make
adjustments to its budget based upon factors such as oil
and gas pricing, exploration and development drilling
results, and the availability of internally generated capital
resources.
The company is in negotiations with several financial
institutions to provide, initially, a $5 million non-recourse
production fInancing secured by the company's production
in the Golden Trend Field. The company would expand its
development drilling program in the Golden Trend Field
with these funds and might seek to acquire strategically
located producing assets in the field with additional
advances, if available.
CASH FLOW ANALYSIS
Cash provided by operating activities was approximately
$19 million in fiscal 1994, as compared to cash used in
operating activities of $1 million in fiscal 1993, and cash
provided of $9 million in 1992. The $21 million difference
comparing 1994 to 1993 was primarily attributable to the
$11 million increase in net income and non-cash charges
and to changes in current assets and liabilities from fiscal
1993 to 1994.
Significantly higher cash was used in fiscal 1994 for
development, exploration and acquisition of oil and gas
properties as compared to fiscal 1993. Approximately $35
million was expended by the company in 1994, as
compared to $17 million in 1993, an increase of $18
million, or approximately 106%. In fiscal 1992 the
company expended $31 million for development and
exploration activities, which decreased in fiscal 1993 due to
capital constraints. Net cash proceeds received by the
company for sales of oil and gas equipment, leasehold and
other increased to over $7 million, as compared to about
$4 million in 1993. This increase reflects the increase in
company drilling activity, and increased sales of leasehold
to non-operating partners, primarily Belco.
Cash flows from financing activities reflect
approximately $25 million received by the company in
fiscal 1993 from issuance of common stock in its initial
public offering. In fiscal 1994, the company received
proceeds from long-term borrowings of $49 million,
primarily from the issuance of $47.5 million in Senior
Notes. This compares to approximately $20 million and
$17 million borrowed in fiscal 1993 and 1992, respectively.
Payments on long-term borrowings of $26 million in fiscal
1994 primarily after the issuance of the Senior Notes and
$24 million after the initial public offering reflect the use
of proceeds from these offerings to pay in full TCW, Union
Bank and certain vendors, among others.
CHESAPEAKE ENERGY CORPORA1HON 23