Chesapeake Energy 2000 Annual Report Download - page 14

Gothic Acquisition
On January 16, 2001, we completed the acquisition of Gothic with the issuance of four million of our
common shares to Gothic shareholders. Prior to the completion of the acquisition, we purchased substantially
all of Gothic's 14.125% senior secured discount notes and $32 million of Gothic Production's 11.125% senior
secured notes for total consideration of $116 million in cash and our common stock. At the time of the
acquisition, Gothic Production had $235 million of 11.125% senior secured notes due in 2005, including the
$32 million of notes we purchased prior to closing.
As of December 31, 2000, Gothic had proved reserves of 291 bcf of natural gas and 1.8 mmbbls of oil (a
total of 302 bcfe) with a pre-tax present value (calculated as described in the glossary using weighted average
gas and oil prices of $10.19 per mcf and $26.54 per barrel) of approximately $1.3 billion. These reserves, of
which 85% were classified as proved developed, had an estimated average reserve life of approximately
11 years, and 96% of these reserves were natural gas. Gothic's natural gas reserves and acreage, most of which
were acquired from Amoco Production Company, are principally located in the Anadarko and Arkoma basins
of the Mid-Continent, have low operating costs per mcfe and are an excellent fit with our existing reserve base.
At December 31, 2000, Gothic held an interest in approximately 480,000 (229,000 net) acres and had an
interest in 903 (481 net) producing wells. For the year ended December 31, 2000, Gothic had revenues of
$86 million, EBITDA of $68 million, operating cash flow of $29 million and net income of $6 million. Gothic's
consolidated financial statements and the pro forma combined financial statements are included in Item 8 -
Financial Statements and Supplementary Data.
Improving Our Capitalization
We made significant progress in improving our balance sheet during 2000, increasing common sharehold-
ers' equity by over $725 million in a combination of preferred stock exchanges, equity issuances and earnings.
Total debt obligations and preferred stock outstanding were $1.2 billion, or $0.99 per mcfe of proved reserves,
at the beginning of 2000. These fixed obligations were reduced to $976 million, or $0.72 per mcfe of proved
reserves, by the end of 2000.
We have called for redemption on May 1, 2001 all the outstanding 624,037 shares of our 7% cumulative
convertible preferred stock, which are convertible into common stock at a conversion price of $6.95 per share.
Other than the redemption premium, which will be paid in cash, we intend to use our common stock to
redeem any shares of the outstanding preferred stock that are not converted into common stock prior to the
redemption date.
On March 29, 2001, we announced a proposed private offering to sell $800 million of senior notes due
2011 in order to lower the interest rate and extend the maturity of approximately 74% of our senior notes. If
the offering is successfully completed, the proceeds from the proposed offering, together with available cash
and bank borrowings, would be used to redeem Chesapeake's existing $120 million principal amount of
9.125% senior notes due 2006, $500 million principal amount of 9.625% senior notes due 2005 and
$202.5 million principal amount of 11.125% senior secured notes due 2005 of Gothic Production Corporation,
a Chesapeake subsidiary. Redemption of these notes will include payment of aggregate make-whole and
redemption premiums estimated at approximately $74 million. The notes to be offered by Chesapeake would
not be initially registered under the Securities Act of 1933, as amended, and will not be offered or sold in the
United States absent registration or an applicable exemption from registration requirements.
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