- Net Income Available to Common Shareholders Reaches $232 Million on Revenue of $1.6 Billion and Production of 154 Bcfe; - Adjusted Net Income Available to Common Shareholders Reaches $425 Million Proved Reserves Reach Record Level of 9.4 Tcfe;
- Company Delivers First Quarter Reserve Replacement Rate of 410% from 475 Bcfe of Additions Company Provides Updated and Detailed Review of its 18.3 Tcfe of Risked Unproved Reserves Located on its 11.2 Million Net Acres of U.S. Onshore Leasehold
Chesapeake Energy Corporation has reported strong financial and operating results for the first quarter of 2007. For the quarter, Chesapeake generated net income available to common shareholders of $232 million ($0.50 per fully diluted common share), operating cash flow of $1.124 billion (defined as cash flow from operating activities before changes in assets and liabilities) and ebitda of $924 million (defined as net income before income taxes, interest expense, and depreciation, depletion and amortization expense) on revenue of $1.580 billion and production of 154 billion cubic feet of natural gas equivalent (bcfe).
The company's 2007 first quarter net income available to common shareholders and ebitda include an unrealized after-tax mark-to-market loss of $193 million resulting from the company's oil and natural gas and interest rate hedging programs. This type of item is typically not included in published estimates of the company's financial results by certain securities analysts.
Excluding this item, Chesapeake generated adjusted net income to common shareholders in the 2007 first quarter of $425 million ($0.87 per fully diluted common share) and adjusted ebitda of $1.234 billion. The excluded item does not affect the calculation of operating cash flow.
Oil and Natural Gas Production Sets Record for 23rd Consecutive Quarter; 2007 First Quarter Average Daily Production Increases 12% and 3% Over Production in the 2006 First Quarter and the 2006 Fourth Quarter
Daily production for the 2007 first quarter averaged 1.707 bcfe, an increase of 188 million cubic feet of natural gas equivalent (mmcfe), or 12%, over the 1.519 bcfe of daily production in the 2006 first quarter and an increase of 54 mmcfe, or 3%, over the 1.653 bcfe produced per day in the 2006 fourth quarter.
Chesapeake's 2007 first quarter production of 153.7 bcfe was comprised of 140.8 billion cubic feet of natural gas (bcf) (92% on a natural gas equivalent basis) and 2.14 million barrels of oil and natural gas liquids (mmbbls) (8% on a natural gas equivalent basis). Chesapeake's average daily production for the quarter of 1.707 bcfe consisted of 1.564 bcf of natural gas and 23,811 barrels (bbls) of oil. The 2007 first quarter was Chesapeake's 23rd consecutive quarter of sequential U.S. production growth. Over these 23 quarters, Chesapeake's U.S. production has increased 326%, for an average compound quarterly growth rate of 6.5% and an average compound annual growth rate of 29%.
The company's rate of production has recently exceeded 1.8 bcfe per day and based on projected drilling levels and anticipated results, Chesapeake is affirming its previous forecasts for total production growth of 14-18% for 2007 and 10-14% for 2008.
Oil and Natural Gas Proved Reserves Reach Record Level of 9.4 Tcfe; Drilling and Acquisition Costs Average $2.58 per Mcfe as Company Added 475 Bcfe for a Reserve Replacement Rate of 410%
Chesapeake began 2007 with estimated proved reserves of 8.956 trillion cubic feet of natural gas equivalent (tcfe) and ended the quarter with 9.431 tcfe, an increase of 475 bcfe, or 5.3%. During the quarter, Chesapeake replaced its 154 bcfe of production with an estimated 629 bcfe of new proved reserves for a reserve replacement rate of 410%. Reserve replacement through the drillbit was 535 bcfe, or 349% of production (including 205 bcfe of positive performance revisions and 135 bcfe of positive revisions resulting from oil and natural gas price increases between December 31, 2006 and March 31, 2007) and 85% of the total increase. Reserve replacement through the acquisition of proved reserves was 94 bcfe, or 61% of production and 15% of the total increase.
On a per thousand cubic feet of natural gas equivalent (mcfe) basis, the company's total drilling and acquisition costs were $2.58 per mcfe (excluding costs of $50 million for seismic, $405 million for unproved properties and leasehold acquired during the quarter and $12 million relating to tax basis step-up and asset retirement obligations, as well as positive revisions of proved reserves from higher oil and natural gas prices). Excluding these items described above, Chesapeake's exploration and development costs through the drillbit were $2.66 per mcfe during the 2007 first quarter while reserve replacement costs through acquisitions of proved reserves were $2.21 per mcfe. Total costs incurred in oil and natural gas acquisition, exploration and development during the quarter, including seismic, leasehold, unproved properties, capitalized internal costs, non-cash tax basis step-up from corporate acquisitions and asset retirement obligations, were $1.741 billion. A complete reconciliation of finding and acquisition costs and a roll-forward of proved reserves are presented on page 17 of this release.
During the 2007 first quarter, Chesapeake continued the industry's most active drilling program and drilled 476 gross (404 net) operated wells and participated in another 394 gross (57 net) wells operated by other companies. The company's drilling success rate was 99% for company-operated wells and 98% for non-operated wells. Also during the quarter, Chesapeake invested $906 million in operated wells (using an average of 129 operated rigs), $160 million in non-operated wells (using an average of 94 non-operated rigs), $148 million to acquire new leasehold (exclusive of $258 million in unproved leasehold obtained through corporate and asset acquisitions) and $50 million to acquire seismic data.
As of March 31, 2007, Chesapeake's estimated future net cash flows, discounted at an annual rate of 10% before income taxes (PV-10) were $20.2 billion using field differential adjusted prices of $60.75 per bbl (based on a NYMEX quarter-end price of $65.85 per bbl) and $7.01 per thousand cubic feet of natural gas (mcf) (based on a NYMEX quarter-end price of $7.34 per mcf).
By comparison, the December 31, 2006 PV-10 of the company's proved reserves was $13.6 billion using field differential adjusted prices of $56.25 per bbl (based on a NYMEX year-end price of $61.15 per bbl) and $5.41 per mcf (based on a NYMEX year-end price of $5.64 per mcf). Additionally, the March 31, 2006 PV-10 of the company's proved reserves was $17.6 billion using field differential adjusted prices of $62.06 per bbl (based on a NYMEX year-end price of $66.33 per bbl) and $6.69 per mcf (based on a NYMEX year-end price of $7.18 per mcf).
Chesapeake's current PV-10 changes by approximately $360 million for every $0.10 per mcf change in natural gas prices and approximately $50 million for every $1.00 per bbl change in oil prices. The company calculates the standardized measure of future net cash flows in accordance with SFAS 69 only at year-end because applicable income tax information on properties, including recently acquired oil and natural gas interests, is not readily available at other times during the year. As a result, the company is not able to reconcile the interim period-end values to the standardized measure at such dates. The only difference between the two measures is that PV-10 is calculated before considering the impact of future income tax expenses, while the standardized measure includes such effects.
In addition to the PV-10 value of its proved reserves, the net book value of the company's other assets (including drilling rigs, land and buildings, investments in companies, securities, long-term derivative instruments and other non-current assets) was $2.7 billion as of March 31, 2007, $2.8 billion as of December 31, 2006 and $1.6 billion as of March 31, 2006.
