For the full-year 2003, Chesapeake generated net income available to common shareholders of $290.5 million ($1.21 per fully diluted common share), operating cash flow of $903.9 million (defined as cash flow from operating activities before changes in assets and liabilities) and ebitda of $1,041.6 million (defined as income before income taxes and cumulative effect of accounting change, interest expense, and depreciation, depletion and amortization expense) on revenue of $1,717.4 million.
Oil and natural gas production for the full-year 2003 was 268 bcfe, an increase of 87 bcfe, or 48%, over the 181 bcfe produced in 2002. Of this 87 bcfe in year-over-year production growth, 36 bcfe was generated from internally generated organic drillbit growth while 51 bcfe was generated from acquisitions. This makes the company's organic growth rate during 2003 20%, well above the company's forecasted organic growth rate of 5% and among the top 3 organic growth performances reported by public mid- and large-cap E&P companies.
Chesapeake has increased its production for 14 consecutive years, one of the best track records in the industry. In addition, the 2003 fourth quarter was Chesapeake's tenth consecutive quarter of sequential production growth. During the past ten quarters, Chesapeake's production has increased 87%, for an average sequential quarterly growth rate of 6.5% and an annualized growth rate of 28.1%.
Chesapeake began 2003 with estimated proved reserves of 2,205 bcfe and ended the year with 3,169 bcfe, an increase of 964 bcfe, or 44%. Taking into account production of 268 bcfe, reserve replacement during the year was 1,232 bcfe, or 459%, at a finding and acquisition cost of $1.36 per mcfe.
Reserves
Of the 1,232 bcfe of proved reserve additions, acquisitions added 805 bcfe at a cost of $1.38 per mcfe and drilling, including positive revisions to previous estimates, added 438 bcfe for a reserve replacement rate from drilling of 167% at a cost of $1.32 per mcfe. Proved reserves sold during the year totaled 11 bcfe at a price of $2.07 per mcfe. A complete reconciliation of finding and acquisition cost information and a roll forward of proved reserves is presented in the tables following this release.
During 2003, the company drilled 442 gross operated wells (352 net) and participated in another 641 gross wells (104 net) operated by other companies. Chesapeake's drilling costs were $438 million for operated wells and $140 million for non-operated wells. The company's success rate was 96% for operated wells and 95% for non-operated wells.
Of the company's estimated proved reserves at year-end 2003, 74% were proved developed compared to 74% in 2002 and 71% in 2001. In addition, 74% of this year's estimated proved reserves were prepared by independent third-party reservoir engineers (primarily Ryder Scott Company Petroleum Consultants and Netherland, Sewell & Associates, Inc.) compared to 73% in 2002 and 71% in 2001.
Chesapeake's average daily production in 2004 is expected to exceed 2003's production by approximately 155 mmcfe, or 21%.
Financial
As of December 31, 2003, the company's estimated future net cash flows discounted at 10% before taxes (PV-10) were $7.3 billion using field differential adjusted prices of $30.22 per bo (based on a NYMEX year-end price of $32.47 per bo) and $5.68 per mcf (based on a NYMEX year-end price of $5.97 per mcf). Last year's PV-10 was $3.72 billion using field differential adjusted prices of $30.18 per bo (based on a NYMEX year-end price of $31.25 per bo) and $4.28 per mcf (based on a NYMEX year-end price of $4.60 per mcf).
During the year, Chesapeake continued its consistent focus on improving the strength of its balance sheet. At the beginning of the year, the company's debt as a percentage of total capitalization was 65% and debt per proved mcfe was $0.75 per mcfe. By year-end 2003 (pro forma for the reserves acquired in January 2004 and the related financings and debt exchanges completed in January 2004), the company's debt as a percentage of total capitalization had decreased to 53% and debt per proved mcfe had decreased to $0.65 per mcfe, reductions of 18% and 13%, respectively. Key goals of management are to reduce debt to below 50% of total capitalization and debt per mcfe of proved reserves to below $0.60.
