• Company Reports 2007 Fourth Quarter Net Income Available to Common Shareholders of $158 Million, or $0.33 per Fully Diluted Common Share, on Revenue of $2.1 Billion; Adjusted Net Income Available to Common Shareholders Reaches $466 Million, or $0.93 per Fully Diluted Common
• Full Year 2007 Net Income Available to Common Shareholders Reaches $1.2 Billion, or $2.62 per Fully Diluted Common Share, on Revenue of $7.8 Billion; Adjusted Net Income Available to Common Shareholders Reaches $1.6 Billion, or $3.21 per Fully Diluted Common Share
• Fourth Quarter 2007 Production of 2.2 Bcfe per Day Increases 10% Sequentially and 34% Year-Over-Year; Full Year Production of 2.0 Bcfe per Day Increases 23% Year-Over-Year
• Proved Reserves Reach Record Level of 10.9 Tcfe and Increase 21% Year-Over-Year; Company Delivers Full Year Reserve Replacement Rate of 369% from 1.9 Tcfe of Additions at a Drilling and Acquisition Cost of $2.08 per Mcfe
Chesapeake Energy Corporation reported financial and operating results for the 2007 fourth quarter and full year. For the 2007 fourth quarter, Chesapeake generated net income available to common shareholders of $158 million ($0.33 per fully diluted common share), operating cash flow of $1.3 billion (defined as cash flow from operating activities before changes in assets and liabilities) and ebitda of $1.2 billion (defined as net income before income taxes, interest expense, and depreciation, depletion and amortization expense) on revenue of $2.1 billion and production of 204 billion cubic feet of natural gas equivalent (bcfe).
For the 2007 full year, Chesapeake generated net income available to common shareholders of $1.2 billion ($2.62 per fully diluted common share), operating cash flow of $4.6 billion and ebitda of $4.7 billion on revenue of $7.8 billion and production of 714 bcfe.
The company's 2007 fourth quarter and full year net income available to common shareholders and ebitda include various items that are typically not included in published estimates of the company's financial results by certain securities analysts. Excluding the items detailed below, Chesapeake generated adjusted net income to common shareholders in the 2007 fourth quarter of $466 million ($0.93 per fully diluted common share) and adjusted ebitda of $1.4 billion. For the 2007 full year, Chesapeake generated adjusted net income to common shareholders of $1.6 billion ($3.21 per fully diluted common share) and adjusted ebitda of $5.0 billion.
Production
• 2007 Fourth Quarter Average Daily Production Increases 34% over the 2006 Fourth Quarter and Full Year 2007 Production Increases 23% over Full Year 2006
Daily production for the 2007 fourth quarter averaged 2.219 bcfe, an increase of 193 mmcfe, or 10%, over the 2.026 bcfe produced per day in the 2007 third quarter and an increase of 566 mmcfe, or 34%, over the 1.653 bcfe of daily production in the 2006 fourth quarter.
Chesapeake's 2007 fourth quarter production of 204.2 bcfe was comprised of 187.8 bcf (92% on a natural gas equivalent basis) and 2.74 mmbbls (8% on a natural gas equivalent basis). Chesapeake's average daily production for the quarter of 2.219 bcfe consisted of 2.041 bcf and 29,728 bbls.
The company's sequential and year-over-year growth rates for its 2007 fourth quarter natural gas production were 10% and 35%, respectively, while the company's sequential and year-over-year growth rates for its oil production were 2% and 23%, respectively. The 2007 fourth quarter was Chesapeake's 26th consecutive quarter of sequential U.S. production growth. Over these 26 quarters, Chesapeake's U.S. production has increased 467%, for an average compound quarterly growth rate of 7% and an average compound annual growth rate of 30%. Chesapeake's daily production for the 2007 full year averaged 1.957 bcfe, an increase of 372 mmcfe, or 23%, over the 1.585 bcfe of daily production for the 2006 full year.
Chesapeake's 2007 full year production of 714.3 bcfe was comprised of 655.0 bcf (92% on a natural gas equivalent basis) and 9.882 mmbbls (8% on a natural gas equivalent basis). Chesapeake's average daily production for the 2007 full year of 1.957 bcfe consisted of 1.794 bcf and 27,074 bbls. The company's growth rate for its 2007 full year natural gas production was 24% and its growth rate for 2007 full year oil production was 14%. The 2007 full year was Chesapeake's 18th consecutive year of sequential production growth.
Reserves
Oil and Natural Gas Proved Reserves Reach Record Level of 10.9 Tcfe; 2007 Full Year Drilling and Acquisition Costs Average $2.08 per Mcfe; Company Adds 1.9 Tcfe for a Reserve Replacement Rate of 369%
Chesapeake began 2007 with estimated proved reserves of 8.956 trillion cubic feet of natural gas equivalent (tcfe) and ended the year with 10.879 tcfe, an increase of 1.923 tcfe, or 21%. During the year, Chesapeake replaced its 714 bcfe of production with an estimated 2.637 tcfe of new proved reserves for a reserve replacement rate of 369%. Reserve replacement through the drillbit was 2.468 tcfe, or 346% of production and 94% of the total increase (including 1.248 tcfe of positive performance revisions, of which 1.207 tcfe relate to infill drilling and increased density locations, and 97 bcfe of positive revisions resulting from oil and natural gas price increases between December 31, 2006 and December 31, 2007). Reserve replacement through the acquisition of proved reserves completed during the year was 377 bcfe, or 53% of production and 14% of the total increase. Divestments of proved reserves during the year totaled 208 bcfe for proceeds of $1.1 billion at a sales price of $5.49 per mcfe.
Drilling
Chesapeake's total drilling and acquisition costs for the year were $2.08 per mcfe (excluding costs of $343 million for seismic, $1.1 billion for acquisition of unproved properties, $1.1 billion to acquire new leasehold, $254 million for capitalized interest on leasehold and unproved property and $159 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 same items, Chesapeake's exploration and development costs through the drillbit were $2.13 per mcfe during the year while reserve replacement costs through acquisitions of proved reserves were $1.78 per mcfe. A complete reconciliation of finding and acquisition costs and a roll-forward of proved reserves are presented on page 16 of this release.
During 2007, Chesapeake continued the industry's most active drilling program and drilled 1,992 gross (1,695 net) operated wells and participated in another 1,679 gross (224 net) wells operated by other companies. The company's drilling success rate was 99% for company-operated wells and 97% for non-operated wells. Also during the year, Chesapeake invested $4.3 billion in operated wells (using an average of 140 operated rigs) and $0.7 billion in non-operated wells (using an average of 105 non-operated rigs).
Investment
Since 2000, Chesapeake has invested $9.4 billion in new leasehold and 3-D seismic acquisitions and now owns the largest combined inventories of onshore leasehold (13.2 million net acres) and 3-D seismic (19.2 million acres) in the U.S. On this leasehold, Chesapeake has an estimated 3.9 tcfe of proved undeveloped reserves and approximately 33 tcfe of risked unproved reserves (100 tcfe of unrisked unproved reserves). The company is currently using 145 operated drilling rigs to further develop its inventory of approximately 36,300 net drillsites, representing more than a 10-year inventory of drilling projects.
Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented;
"We are pleased to report outstanding financial and operational results for the 2007 fourth quarter and full year. We are particularly proud of our success through the drillbit that enabled the company to deliver reserve and production growth well above our expectations at very attractive finding costs. In addition, our unrivalled inventory of leasehold, 3-D seismic and undrilled locations combined with our talented, motivated, hard-working and growing employee workforce should provide many more years of increases in reserves, production and net asset value per share. Finally, we are also pleased with our progress in implementing the various elements of our enhanced financial plan that should enable Chesapeake to deliver superior growth and financial returns without accessing the public capital markets for the foreseeable future."
Key facts at February 2008
• No.1 independent producer of U.S. natural gas: No.3 overall including majors, and moving up fast
• No.1 driller in U.S.: 145 operated rigs, 92 non-operated rigs, 17 info only rigs, collector of ~15% of all daily drilling information generated in the U.S. (~20% in our areas of interest)
• No.1 hedger in industry: 2006 and 2007 realized gains of $2.5 billion
• No.1 large-cap production growth: 2,219 mmcfe/day 4Q '07 production: up 34% YOY and 10% sequentially;
production increased 23% in '07, projecting increases of 19-21% in ’08 and 12-14% in ’09
• No.1 large-cap proved reserve growth: 10.9 tcfe estimated proved reserves at 12/31/07, increased 21% YOY, 93% natural gas, 64% proved developed, 15 year R/P; expect ~13 tcfe in proved reserves by 12/08 and ~15 tcfe by 12/09
• No.1 gas resource play: 33 tcfe of risked unproved reserve potential in: i) conventional gas resource, ii) unconventional gas resource, iii) emerging gas resource and iv) Appalachian gas resource plays; >10-year drilling inventory of 36,300 net drilling locations
• No.1 inventory of U.S. onshore leasehold and 3-D seismic: 13.2 mm net acres of U.S. onshore leasehold and 19.2 mm acres of 3-D seismic
• 2008 estimates: ebitda $5.7 billion, operating cash flow $5.3 billion, net income to common $1.8 billion
• Great value to investors: 4.4x operating cash flow, 6.2x ebitda, 12.9x P/E ratio
• $35.5 billion EV: $23.1 billion equity value, $11.0 billion long-term debt and $1.4 billion net working capital
• Top stock price performance: CHK up more than 32x in 15 years as a public company, No.2 performer among large-cap E&P companies during that period