Chesapeake Energy 2003 Annual Report Download - page 8

Performance Through a Successful Business Strategy We have not forgotten, however, that Chesapeake’s stock
price did decline in three of the past ten years. It was the disappointments of two of those years,1997 and 1998, a period of
declining oil and gas prices and uneconomic Louisiana drilling results from a much smaller Chesapeake, that persuaded us
to alter our strategy and concentrate on natural gas while pursuing greater scale, longer lived reserves, and a balance
between drillbit growth and acquisition growth. This strategy, implemented in 1998 and executed consistently during the past
six years, has served our shareholders well and we believe still provides the best game plan for continuing to deliver strong
shareholder value
performance in the years ahead.
Through consistent execution of our focused and clearly articulated business strategy, we have built a regionally dominant
U.S. E&P company by successfully integrating an aggressive and technologically advanced drilling effort with an active
acquisition program. This program has been focused on small- to medium-sized corporate and producing property acqui-
sitions that we believe are under-valued, under-exploited or under-explored.
In addition to constantly strengthening Chesapeake’s Mid-Continent position (where approximately 80% of our reserves and
production are located), we are continuing to build secondary footholds in other areas of opportunity, particularly focusing
on the Permian Basin, South Texas and Texas Gulf Coast regions. All of these areas share similar characteristics with the Mid-
Continent region. We believe the company’s successful regional consolidation strategy and advanced technology drilling
expertise can be readily applied to these new areas as well.
Performance Through High Quality Acquisitions The successful execution of our regional consolidation program
has been one of the primary drivers of the company’s strong performance during the past six years. Our acquisition
program is focused on acquiring high-quality producing properties, primarily natural gas and primarily in the Mid-Continent,
that have long lives, exhibit predictable decline curves and offer significant development and high-potential deep drilling
opportunities. Since January 1, 1998, we have acquired $3.6 billion of proved reserves at an attractive average cost of $1.20
per mcfe. The vast majority of these acquisitions either increased our ownership in existing wells and fields, or added addi-
tional drilling locations to our primary or secondary operating areas.
In addition, because both our primary and secondary operating areas are home to many small companies seeking liquidity
opportunities and large companies divesting non-core assets, we expect to continue creating value-enhancing
performance
through successfully harvesting future acquisition opportunities in these areas in the years ahead.
Performance Through Organic Drillbit Growth One of Chesapeake’s most distinctive characteristics has been the
company’s ability to create shareholder value through consistent drillbit performance . In an industry that has been unable to
deliver increases in natural gas production for three consecutive years, Chesapeake’s ability to increase its production
through the drillbit is an increasingly rare attribute. Founded on a “growth through the drillbit” philosophy, our strength in this
area highlights the company’s performance as a pacesetter in the industry. Based on our review of 2003 results from other
mid- and large-cap E&P companies, Chesapeake’s 20% organic production growth was the best performance with the
drillbit in our industry.
With an inventory of more than 2,500 prospective drillsites (many of which have been identified using advanced 3-D
seismic information) on the company’s three million net acre leasehold inventory, we have built a solid foundation to deliver
further drillbit
performance in 2004 and beyond. From this prospect-rich platform, Chesapeake is conducting
the second most active U.S. drilling program. During 2004, we expect to employ an average of 45-50 rigs that will drill
approximately 500 company-operated wells and 40-50 rigs that will drill approximately 500 outside-operated wells.
Chesapeake Energy Corporation Annual Report 2003
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