Chesapeake Energy Corporation has reported its financial and operating results for the 2004 first quarter. For the quarter, Chesapeake generated net income available to common shareholders of $104.4 million ($0.38 per fully diluted common share), operating cash flow of $327.5 million (defined as cash flow from operating activities before changes in assets and liabilities) and ebitda of $348.1 million (defined as income before income taxes, interest expense, and depreciation, depletion and amortization expense) on revenue of $563.1 million.
The company's 2004 first quarter net income available to common shareholders and ebitda include an unrealized after-tax mark-to-market loss of $14.6 million resulting from the company's oil and natural gas and interest rate hedging programs and an after-tax $4.4 million loss from the exchange or repurchase of certain Chesapeake debt securities. These are items typically excluded from analysts' estimates.
Excluding these items, Chesapeake's net income to common shareholders in the 2004 first quarter would have been $123.4 million ($0.44 per fully diluted common share) and ebitda would have been $369.0 million. These items did not affect the calculation of operating cash flow.
Oil and Natural Gas Production and Proved Reserves
Production for the 2004 first quarter was 78.9 billion cubic feet of natural gas equivalent (bcfe), an increase of 22.1 bcfe, or 39%, over the 56.8 bcfe produced in the 2003 first quarter and an increase of 5.6 bcfe, or 7.6%, over the 73.3 bcfe produced in the 2003 fourth quarter. The 22.1 bcfe increase in this year's first quarter production over the first quarter of 2003's production consisted of 11.1 bcfe from organic drillbit growth and 11.0 bcfe generated from acquisitions. The company's organic growth rate during the past 12 months was 20%, well above the company's forecasted organic growth rate of 5% and among the very best organic growth performances reported by public mid- and large-cap E&P companies for the past 12 months. In addition, the 50/50 split between the company's growth through the drillbit and growth through acquisitions reflects the company's balanced growth strategy.
The 2004 first quarter's 78.9 bcfe of production was comprised of 70.1 billion cubic feet of natural gas (bcf) (89% on a natural gas equivalent basis) and 1.47 million barrels of oil and natural gas liquids (mmbo) (11% on a natural gas equivalent basis). Chesapeake's average daily production rate for the quarter was 867 million cubic feet of natural gas equivalent production (mmcfe), consisting of 770 mmcf of gas and 16,099 barrels of oil and natural gas liquids. The 2004 first quarter was Chesapeake's eleventh consecutive quarter of sequential production growth. During these eleven quarters, Chesapeake's production has increased 102%, for an average sequential quarterly growth rate of 6.6% and an average annualized growth rate of 29%.
Average prices realized during the 2004 first quarter (including realized gains or losses from oil and gas derivatives, but excluding unrealized gains or losses on such derivatives) were $27.10 per barrel of oil (bo) and $5.62 per thousand cubic feet of natural gas (mcf), for a realized gas equivalent price of $5.50 per thousand cubic feet of natural gas equivalent (mcfe). Chesapeake's average realized pricing differentials to NYMEX during the quarter were a negative $2.56 per bo and a negative $0.73 per mcf. Realized gains or losses from hedging activities generated a $5.69 loss per bo and a $0.48 gain per mcf, for a 2004 first quarter realized hedging gain of $25.7 million, or $0.33 per mcfe.
The company drilled 118 gross (88 net) operated wells and participated in another 137 gross wells (21 net) operated by other companies during the 2004 first quarter. Chesapeake invested $129 million in the operated wells and $47 million in the non-operated wells. The company's drilling success rate was 92% for operated wells and 99% for non-operated wells.
During the 2004 first quarter, the company replaced its 78.9 bcfe of production by 473%, or 372.8 bcfe at a drilling and acquisition cost of $1.66 per mcfe. Drillbit replacement was 146% and acquisition replacement was 327%. At the end of the first quarter, Chesapeake's estimated proved reserves were 3.5 tcfe.
