Chesapeake Energy 1999 Annual Report Download - page 6

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increase Chesapeake's reserves, production, cash
flow, ebitda and net income by 50% from 1999's
record results. This will require average growth of
8% per year, a level that we hope proves conserva-
tive during the next five years.
4
By 2004 we
can increase C
reserves, production, ca
flow, ebitda and net
ffie1) 50% om
Second, we are pleased with the accelerating posi-
tive trends in natural gas supply and demand. Most
importantly, the rapidly increasing demand for
electricity generated from burning natural gas is
overwhelming the negative impact of yet another
record-breaking warm winter.
Why the strength in natural gas prices in the face of
four warm winters in a row? The answer is in the
country's increasingly fragile natural gas supply
base. It now appears that in years where the indus-
try is forced to live within its internally generated
cash flows (such as 1998 and 1999), supply actu-
ally decreases 1-4%. By contrast, in years where
inflows of outside capital are available to the indus-
try (although there's not much to be had these days
after technology companies have grabbed their
share), drilling efficiency and prospect quality
decline to levels where the industry's production
remains flat or increases only a little. In addition,
the increasingly tight supply/demand situation in
the U.S. will likely be exacerbated in the years
ahead as our country reduces its consumption of
environmentally unfriendly fuels such as oil, coal
and uranium in favor of clean-burning natural gas.
So in our view, something will have to give in the
next few years. Either the nation's insatiable
appetite for energy will have to stop growing or nat-
ural gas prices will have to increase further, there-
by providing enough capital for the gas industry to
increase production to meet surging demand.
21st Century - the age of natural gas
As this decade unfolds, we believe investors will
increasingly envision this century as the age of
natural gas. Just as great wealth was created dur-
ing the 20th century in the age of oil and in the 19th
century iii the age of coal, we believe investors will
profit from embracing the tremendous potential of
the natural gas industry.
We are proud of the company's accomplishments in
1999 and look forward to many rewarding years for
our shareholders in the decade ahead.
Best regards,
Aubrey K. McClendon
Tom L. Ward
March 15, 2000
4 1c