Chesapeake Energy 1995 Annual Report Download
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Table of contents
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Page 1
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Page 2
...
Oil and gas property depreciation,
depletion and amortization
10
13 16 17
18
Other depreciation and amortization
Service operations
General and administrative
7,747 3,578
5,199 3,135
3,653 3,620
4,113 3,314
606 2,119 317
5,738
705
DIRECTORS AND OFFICERS
EMPLOYEES CORPORATE INFORMATION...
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Page 3
... and natural gas exploration companies in the U. S. We are headquartered in Oklahoma City and our common stock is traded on the New York Stock Exchange under the symbol CHK.
WHAT WE Do
Chesapeake is one of the energy industry's leaders in
enhanced seismic and advanced-technology drilling and well...
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Page 4
LETTER TO SHAREHOLDERS
Through your investment in Chesapeake Energy Corporation, you have expressed confidence in Chesapeake's management and our strategy for
continuing the growth of the company's reserves, production, cash flow, and earnings. More importantly, we understand that you expect your ...
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Page 5
... operating cash flow 198% to $45.1 million.
Reduced operating costs (DD&A, lease operating expenses,
Chesapeake's earnings have increased by a compound growth rate of 90%...
production taxes, and G&A) 30% to $1.04 per Mcfe.
Increased capital resources through a $90 million senior note offering...
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Page 6
... 5,000
ranking behind two much larger companies, Amoco and Union Pacific
Resources.
0-uI
4
91 92 93
94
95
Also at the end of fiscal 1995, Chesapeake ranked first in average depth drilled per well (almost 15,000 feet). By drilling deeper into less extensively explored reservoirs, Chesapeake has...
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Page 7
...energy company's potential for future success is the size and quality of its inventory of future drilling projects. Chesapeake's threeyear inventory of undrilled locations is our second competitive advantage and
525
450
375 300
provides a strong foundation for our continued reserve and production...
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Page 8
... higher operating margins.
HORIZONTAL WELLS DRILLED
(cumulative wells)
250
200
150
The talent of Chesapeake's landmen, geologists, and engineers, the
company's strong relationships with the vendors who design and manufacture horizontal equipment, and our willingness to experiment with new ideas...
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Page 9
... in a profitable search for new reserves. Chesapeake maximizes its cash flow per unit of production by increasing its top-line revenues through production growth while carefully managing bottomline costs. We have developed this industry-leading cost structure by:
IMPROVING
OPERATING EFFICIENCY...
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Page 10
... is management's ownership of approximately 50% of Chesapeake's equity, the highest in our peer group and among the highest of all NYSE-listed companies. This large ownership has created a culture of entrepreneurship in the company that results in more creative and productive employees. Furthermore...
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Page 11
... 200 employees and an enterprise value
Large reserves remaining in unconventional resevoirs
+
of $500 million. This success underscores the strengths of the company's strategy,
its people, its assets, and its ability to utilize new technologies to discover and
develop oil and natural gas reserves...
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Page 12
... horizontal drilling, deep vertical drilling, high-pressure fracture stimulation, and enhanced 2-D and 3-D seismic to explore for and develop oil and natural
gas reserves.
Corporate Headquarters Oklahoma City
ANADARKO BASIN
ARKOMA
Knox
BASIN
Jackfork
Sholem Alechem
Lovington _.
3D
PERMIAN BASIN...
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Page 13
..., Texas. As of September 30, 1995,
the company had drilled and completed 48 consecutive successful Navasota River wells with five wells drilling, in fiscal 1996, Chesapeake has budgeted $22 million
NAVASOTA RIVER
45,000 Acre Inventory
75 Undrilled Locations )34 Proven)
48 Producing Wells
Horizontal...
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Page 14
...Undrilled Locations (32 Proven)
14 Producing Wells
Vertical Sycamore, Woodford,
Hunton and Viola
million in fiscal 1996 to drill 22 gross (eight net) wells in the Knox area.
Amerada Hess is Chesapeake's 50% non-operating partner in Knox.
Amerada Hess 50% partner
12
CHESAPEAKE ENERGY CORPORATION
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Page 15
...supports Chesapeake's geological and
engineering premise that production from deep horizontal wells in the Austin Chalk are likely at other locations along a trend extending across southeastern
Texas into central Louisiana. Oxy's well is 200 miles east of Chesapeake's activity
in the Giddings Field...
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Page 16
....
PERMIAN BASIN
In fiscal 1995, Chesapeake initiated two new projects in the Permian Basin. The
first is the Lovington Project in Lea County; New Mexico. In this area, the
company is utilizing 3-D seismic technology to search for algal mound buildups
Perinian Basin
Lovington (3D)
that management...
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Page 17
...formations, found less than 1,000 feet below the Austin Chalk, underlie most of the company's acreage in the Giddings Field and could provide significant future reserve additions. Chesapeake has budgeted $24 million to drill 28 gross (13 net) horizontal wells in these and other areas of Texas during...
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Page 18
..., discounted using an annual discount rate of 10%. Productive Well. A well that is producing oil or natural gas or
that is capable of production. Proved Developed Reserves. Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Proved...
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Page 19
... City, Oklahoma
Frederick B. Whittemore
Advisory Director
Martha A. Burger
Treasurer
Morgan Stanley & Co.
New York, New York
Thomas S. Price, Jr.
Vice President - Corporate Development
Walter C. Wilson
General Agent
Massachusetts Mutual Lfi' Insurance Company Houston, Texas
CHESAPEAKE ENERGY...
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Page 20
...Butler Accounting Assistant
Ted Davis Pumper Kevin Decker
Service Company Coordinator
Pat Goode Oklahoma Land Manager Brian Guire Programmer
Eduardo AlvarezSalazar Roustabout
Kim lines
Lease Records Assistant
Colley Andrews Drilling Manager Eric Ashmore Drilling Supervisor Jack Austin
Geologist...
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Page 21
...Assistant
Charles Scholz Pumper
Jimmy Randol
Roustabout
Frank McGee Roustabout
Janeile McNeely
Title Supervisor
Bonnie Schomp Landman Stephanie Shedden
Lease Records Assistant
Stephanie Winn
Accounting Coordinator
Lori Ray Land Technician
Ronnie Ward
Texas Land Manager
Brian Winter
Geologist...
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Page 22
...
21.00
COMMON STOCK
CORPORATE HEADQUARTERS
Chesapeake Energy Corporation's common stock is
6104 North Western Avenue
listed on the New York Stock Exchange under the
Oklahoma City, Oklahoma 73118 (405)848-8000
INDEPENDENT PUBLIC ACCOUNTANTS
symbol CHK. As of September 30, 1995, there
were...
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Page 23
...
22
23 28
Report of Independent Accountants
Consolidated Balance Sheets
29
30
31
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders' Equity Notes to Consolidated Financial Statements
33
34
CHESAPEAKE ENERGY CORPORATION
21
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Page 24
... the Consolidated Financial Statements and related
notes included elsewhere in this report.
YEARS ENDED JUNE 30,
1995
1994
1993
1992
1991
STATEMENT OF OPERATIONS DATA:
($ IN THOUSANDS, EXCEPT PER SHARE DATA(
Revenues:
Oil and gas sales Oil and gas service operations Interest and other
Total...
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Page 25
... central Louisiana, the
flow from operations, combined with the issuance of $90 million in 10.5% Senior Notes in May 1995, enabled the company to fund its capital expenditure program of $106 million. During fiscal 1995, Chesapeake drilled 150 gross wells (51.4 net) and increased proved reserves by...
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Page 26
... $11.6 million. The increase in oil and gas
OIL AND GAS SALES
The increases in production volumes during the year reflect Chesapeake's successful
OIL AND GAS PRODUCTION
exploration and development program. The following table
shows the company's production by major field area for
fiscal 1995 and...
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Page 27
... of the company's drilling in deeper, more gas prone areas of the Giddings and Knox Fields. The change in production
between lower margin trucking operations versus higher margin labor-oriented service operations. During fiscal 1995, activity increased due to a higher number of wells
drilled, but...
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Page 28
... RESOURCES
30, 1994, and a working capital deficit of $9.9 million at
June 30, 1993. The increase in working capital during
fiscal 1995 is primarily attributable to the issuance of the
10.5% Senior Notes in May 1995. Additionally, the
Company has an unused line of credit available from Union...
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Page 29
...
Chesapeake's proved reserves in its primary operating areas (net of the interests of other working and royalty interest owners and others entitled to share in production), estimated
capital expenditures and the number of potential drilling
locations required to develop the company's proved
Cash...
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Page 30
... consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Chesapeake Energy Corporation and its subsidiaries (the "Company") at June 30, 1995 and 1994, and the results of their operations and their cash flows for each of...
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Page 31
CONSOLIDATED BALANCE SHEETS
JUNE 30,
1995
1994
ASSETS
($ IN THOUSANDS)
Current assets: Cash and cash equivalents Accounts receivable: Oil and gas sales Joint interest and other, net of allowance for doubtful accounts of $452,000 and $350,000 Related parties Inventory
$
55,535 10,644
$
16,...
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Page 32
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
1995
1994
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
1993
REVENUES:
Oil and gas sales Oil and gas service operations
Interest and other ...$ 3,905
$
$
385
$
$
(750) (.10)
.94
.36
12,416
10,720
7,456
30
CHESAPEAKE ENERGY CORPORATION
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Page 33
...Cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
19,423
Exploration development and acquisition of oil and gas properties Proceeds from sale of oil and gas equipment, leasehold and other Other proceeds from sales Other property and equipment additions Cash used...
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Page 34
.... Proceeds from the issuance of the $90 million 10.5% Senior Note offering in May 1995 are net of a $2.7 bond placement fee which was deducted from the actual cash
received.
The accompanying notes are an integral part of these consolidated financial statements.
32
CHESAPEAKE ENERGY CORPORATION
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Page 35
...end of period Paid-in capital: Balance, beginning of period Exchange of preferred stock Issuance of common stock warrants Issuance of preferred stock Exercise of stock options and warrants Issuance of common stock Offering expenses and other Tax benefit from exercise of stock options Balance, end of...
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Page 36
... statements of Chesapeake Energy Corporation (the "Company") include the accounts of Chesapeake Operating, Inc. ("COl"), Chesapeake Exploration Limited Partnership ("CEX"), a limited partnership, Chesapeake Gas
Other property and
equipment primarily consists of vehicles, oil and gas servicing...
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Page 37
... been computed based upon the weighted average number of shares of Common Stock outstanding after giving
the Company, using available market information and
appropriate valuation methodologies. These estimates are subjective in nature and involve uncertainties and matters of significant judgment...
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Page 38
... indebtedness and the issuance of preferred stock; liens; sale and leaseback transactions; lines of business; dividend and other payment
On March 31, 1994, the Company completed a private offering of 47,500 Units consisting of an aggregate of $47.5 million principal amount of 12% Senior Notes...
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Page 39
...OF JUNE 30, 1995
SUBSIDIARY GUARANTORS
CEX
COMPANY
CGDC
(PARENT)
OTHERS
COMBINED
ELIMINATIONS CONSOLIDATED
ASSETS
$ IN THOUSANDS)
Current assets:
Cash and cash equivalents Accounts receivable Inventory
$
$ 53...$449,270
$14,579
$189,112 $(376,268) $276,693
CHESAPEAKE ENERGY CORPORATION
37
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Page 40
...
CEX
COMPANY
CGDC
(PARENT)
OTHERS
COMBINED
ELIMINATIONS CONSOLIDATED
ASSETS
($ IN THOUSANDS)
Current assets: Cash and cash equivalents
Accounts receivable
$
$13,946 $ 13,946
8,686
$
$
2,279
$
$
16,225 19,118
Inventory Other Total current assets Property and equipment: Oil and gas...
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Page 41
... STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995
SUBSIDIARY GUARANTORS
CEX
COMPANY
CGDC
OTHERS
COMBINED
)PARENT)
ELIMINATIONS CONSOLIDATED
REVENUES
)$ IN THOUSANDS)
Oil and gas sales
$55,417
$
$55,417
8,836
1,394
$
1,566
$
$
$56,983
8,836 1,524 67,343
Oil and gas service...
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Page 42
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1993
SUBSIDIARY GUARANTORS
CEX
COMPANY CGDC
(PARENT)
OTHE9S
COMBINED
ELIMINATIONS CONSOLIDATED
REVENUES
($ IN THOUSANDS)
Oil and gas sales Oil and gas service operations
$11,602
5
$
$11,602
5,526 843
5,526 848
17,...
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Page 43
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDEO JUNE 30. 1995
SUSSIDIARY GUARANTORS
CEX
COMPANY
CGOC (PARENT)
OTHERS
COMBINEO
ELIMINATIONS CONSOLIDATED
CASH FLOWS FROM OPERATING ACTIVITIES
($ IN THOUSANDS) $
50,906
$
9,143
(743) 11,132
$ 60,049
(116,876) 27,711
(7,929) ...
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Page 44
...
CEX
COMPANY
CGDC (PARENT)
OTHERS
COMBINED
ELIMINATIONS CONSOLIDATED
CASH FLOWS FROM OPERATING ACTIVITIES
($ IN THOUSANDS)
$
4,675
$ (6,187)
1,279 2,569
$ (1,512)
(16,806)
$
$
13
$
$ (1,499)
(16,806)
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas properties
Proceeds from sales...
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Page 45
...payable to Union Bank, interest at Union Bank's base rate + an incremental rate (9% per annum at June 30, 1995), collateralized by CEX's producing oil and gas properties and guaranteed by the Company Note payable to a vendor, interest at 1% per annum, collateralized by oil and gas tubulars, payments...
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Page 46
...
June 1995 in exchange for $11.5 million in cash, using proceeds borrowed under this facility. CGDC has not guaranteed the payment of the Company's 12% or 10.5% Senior Notes, nor has the capital stock of CGDC been pledged to secure payment of such indebtedness. The
terms of the Term Credit Facility...
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Page 47
... provision. The Company has employment contracts with its two
1995
1994
($ IN THOUSANDS)
1993
principal shareholders and its chief financial officer and various other senior management personnel which provide for annual base salaries, bonus compensation and various benefits. The contracts...
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Page 48
... million at June 30, 1995, and are reflected as oil and gas receivables on the accompanying consolidated balance sheet. The Company's former investment in Wickford was accounted for using the equity method.
7. EMPLOYEE BENEFIT PLANS
Effective October 1, 1989, the Company established a 401(K) profit...
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Page 49
... indebtedness, and the
balance was used to fund operations and as working capital.
AMOUNT
OIL AND
GAS SALES
On December 4, 1992, the Company issued to TCW
($ IN THOUSANDS)
576,923 shares of its convertible preferred stock in
exchange for a $7.5 million reduction in the Company's debt to TCW. Pro...
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Page 50
... in state and federal income tax benefits to the Company related to the difference between the market price of the Common Stock at the date of disposition (or sale) and the option price. During fiscal 1995, $1,229,000 was credited to additional
paid-in capital with respect to such tax beneflts...
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Page 51
...estimates are inherently imprecise.
Proved oil and gas reserves represent the estimated
quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from
CHESAPEAKE ENERGY CORPORATION
49
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Page 52
... wells with
existing equipment and operating methods.
Presented below is a summary of changes in estimated reserves of the Company based upon the reports prepared by Williamson for 1995, 1994 and 1993, along with those prepared by the Company's petroleum engineers for 1995:
JUNE 30, 1995
OIL
GAS...
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Page 53
related carryforwards, giving effect to permanent differences
YEARS ENDED JUNE 30,
1995
1994
($ IN THOUSANDS)
and tax credits. The resulting future net cash flows are reduced to present value amounts by applying a 10% annual
discount factor.
1993
The assumptions used to compute the ...
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Page 54
...
DECEMBER 31,
MARCH 31,
JUNE 3D,
1994
1994
1995
1995
Net sales Gross profit
Net income Income per share
$13,042 4,559 2,...sales Gross profit
$5,366
650 285
.01
$ 6,250
841
Net income Income per share
517 .03
$ 6,606 716 340
.03
$10,621 4,643 2,763 .24
52
CHESAPEAKE ENERGY CORPORATION
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Page 55
... Chesapeake's 1995 Annual Report helpful in allowing you to better understand:
1) Chesapeake's strategy for growth
3)
2) Chesapeake's competitive advantages
Chesapeake's operational expertise
4) Chesapeake's track record
1 1 1 1
2
2 2
2
3
3 3 3
5) I'd like to see
Please Jill out the address...
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Page 56
NO POSTAGE
NECESSARY IF MAILED
IN THE UNIlEl) STATES
BUSINESS REPLY MAIL
ITIRSi-CIASS MAIL PERMIl N(): 1049 OKLA!IOMA CITY OK POSTAGE Will BE PAll) BY THE ADDRESSEE
CHESAPEAKE ENERGY CORPORATION P0 BOX 18496 OKLAHOMA CITY OK 73 154-9956
11111111111.111111I1,uI
II
11111111
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Chesapeake Energy
Corporation
6104 North Western Avenue Post Office Box 18496 Oklahoma City, Oklahoma 73154-0496
405/848-8000 FAX 405/843-0573