SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
--------------------------------------------------------------------------------
MAY 12, 2004 (MAY 11, 2004)
CHESAPEAKE ENERGY CORPORATION
--------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
OKLAHOMA 1-13726 73-1395733
--------------------------------------------------------------------------------
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
6100 NORTH WESTERN AVENUE, OKLAHOMA CITY, OKLAHOMA 73118
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(405) 848-8000
-------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER MATTERS
Chesapeake Energy Corporation ("Chesapeake") issued two press releases on May
11, 2004 that disclosed the following matters:
1. Chesapeake Announces Notice of Release of Agreement to Acquire $425 Million
of Natural Gas Properties and Subsequent Conference Call.
Chesapeake Energy Corporation has scheduled the release of an announcement to
acquire $425 million of natural gas properties after the close of trading on the
New York Stock Exchange today, Tuesday, May 11, 2004.
A conference call is scheduled for this afternoon at 5:00 pm EDT, Tuesday, May
11, 2004 to discuss the release. The telephone number to access the conference
call is 913.981.5523. We encourage those who would like to participate in the
call to place your calls between 4:50 and 5:00 pm EDT.
For those unable to participate in the conference call, a replay will be
available for audio playback at 9:00 pm EDT on Tuesday, May 11, 2004 and will
run through midnight EDT Wednesday, May 26, 2004. The number to access the
conference call replay is 719.457.0820; passcode for the replay is 437427.
The conference call will also be simulcast live on the Internet and can be
accessed by going directly to the Chesapeake website at WWW.CHKENERGY.COM and
selecting "Conference Calls" under the "Investor Relations" section. The webcast
of the conference call will be available on our website indefinitely.
The Company's Press Release dated May 11, 2004 relating to the announcement
concerning the agreement to acquire $425 million of natural gas properties and
conference call is filed as EXHIBIT 99.1 to this current report on Form 8-K and
is incorporated in its entirety into Item 5 of this report.
2. Chesapeake Announces Agreement to Acquire $425 Million of Natural Gas
Properties
Chesapeake Energy Corporation today announced that it has entered into an
agreement to acquire natural gas assets in the Ark-La-Tex region of northern
Louisiana through the $425 million acquisition of the equity interests of
Houston-based, privately-held Greystone Petroleum LLC. Greystone's major asset
is its 16,100 gross acre contiguous leasehold position over the crest of the
giant Sligo Field located in Bossier Parish, Louisiana. Discovered in 1938,
Sligo has produced 1.6 tcfe of natural gas from the Rodessa, Pettit, Hosston and
Cotton Valley formations at depths of 4,100 feet to 9,600 feet.
Through this transaction, Chesapeake anticipates acquiring an internally
estimated 214 billion cubic feet of gas equivalent proved reserves (bcfe) and
production of 45 million cubic feet of natural gas equivalent production (mmcfe)
per day.
After allocating approximately $65 million of the purchase price to unevaluated
leasehold and mid-stream gas assets, Chesapeake's acquisition cost per thousand
cubic feet of gas equivalent (mcfe) of proved reserves will be $1.68. The proved
reserves have a reserves-to-production index of 13.0 years, are 98% gas, are 93%
operated, are 55% proved developed and have current lease operating expenses of
$0.39 per mcfe. Greystone's very low lease operating expenses (approximately
$0.35 per mcfe below the industry average) create unusually high economic value
per mcfe of proved reserves.
The acquisition is expected to close on June 2, 2004 and is subject to customary
closing conditions. The company intends to finance the acquisition using a
combination of proceeds from a new private issue of senior notes, borrowings
from the company's newly expanded $500 million bank credit facility and cash on
hand.
Greystone was formed in 1995 by Joe M. Bridges and Michael A. Geffert who later
were joined as equity holders by the private equity firm First Reserve
Corporation to help fund Greystone's acquisition of interests in the Sligo Field
in 2002. Greystone was advised in the sale to Chesapeake by Simmons & Company
International and Griffis & Associates, LLC. Chesapeake was advised by Randall &
Dewey.
2
3. Chesapeake Updates Hedging Positions
Chesapeake has recently hedged the current daily natural gas production of 45
mmcf from the new acquisition at the attractive price of $6.25 per mcf for June
2004 through June 2005.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits. The following exhibits are filed herewith:
99.1 Press Release issued by the Registrant on May 11, 2004 concerning
the release of agreement to acquire $425 million of natural gas properties
and subsequent conference call.
99.2 Press Release issued by the Registrant on May 11, 2004 concerning
an agreement to acquire $425 million of natural gas properties, additions
to hedging positions and increases in 2004 production forecasts. (This
Exhibit 99.2 is being filed solely for the purposes of Item 9 of this
report and shall not be deemed incorporated in any other item of this
report.)
ITEM 9. REGULATION FD DISCLOSURE
Chesapeake issued a press release on May 11, 2004 concerning a $425 million
acquisition of natural gas properties, increases in its hedging positions and
increases in 2004 production forecasts. This press release is filed as EXHIBIT
99.2 to this current report on Form 8-K solely for the purposes of Item 9 of
this report. This press release disclosed the following matters:
1. Additional Information Concerning Proposed Acquisition
In connection with announcing a $425 million pending acquisition, Chesapeake
estimated that the acquisition also includes 51 bcfe of probable and possible
reserves. Pro forma for this acquisition, Chesapeake's proved oil and natural
gas reserves will be approximately 3.8 trillion cubic feet of natural gas
equivalent (tcfe) and its projected June 2004 production will exceed 950 million
cubic feet of natural gas equivalent per day. The company plans to increase
production from the Greystone properties by approximately 50% to 65-70 mmcfe per
day through a 2-4 rig drilling program during the next 12-18 months. Chesapeake
has identified approximately 70 proved undeveloped and 75 probable and possible
locations on the acreage. Including anticipated future drilling costs for fully
developing the proved, probable and possible reserves, the company estimates
that its all-in acquisition cost for the 265 bcfe if estimated reserves will be
$1.94 per mcfe.
2. Updated 2004 Production Forecasts
Chesapeake is today increasing its 2004 production forecast by 11.0 bcfe (3.3%)
to a range of 341-347 bcfe (940 mmcfe per day at the mid-point) from a range of
330-336 (910 mmcfe per day at the mid-point). Approximately 9.7 bcfe of this
11.0 bcfe increase is attributable to the anticipated production from the
Greystone transaction while 1.3 bcfe is attributable to anticipated higher
production from better than expected recent drilling results.
3. Additional Hedging Information
The press release dated May 11, 2004, filed as EXHIBIT 99.2 to this report, also
includes tables that compare Chesapeake's projected 2004-2007 oil and natural
gas production volumes that have been hedged as of May 11, 2004 to what had been
previously hedged as of April 26, 2004. Depending on changes in oil and natural
gas futures markets and management's view of underlying oil and natural gas
supply and demand tends, Chesapeake may either increase or decrease its hedging
positions at any time in the future without notice.
Chesapeake's updated 2004 forecast is included in EXHIBIT 99.2 in an Outlook
dated May 11, 2004 labeled Schedule "A". This Outlook has been changed from the
Outlook dated April 26, 2004 (attached as Schedule "B" for investors'
convenience) to reflect the increased production forecast announced today and
the projected effects from changes in our hedging positions.
With the filing of this report on Form 8-K, we are posting the same information
on our web site at WWW.CHKENERGY.COM. We caution you that our outlook is given
as of May 11, 2004 based on currently available information, and that we are not
undertaking any obligation to update our estimates as conditions change or other
information become available
3
FORWARD LOOKING STATEMENTS AND RELATED MATTERS
This press release and the accompanying exhibits include "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
give our current expectations or forecasts of future events. They include
expectations regarding closing of the announced acquisitions, estimates of oil
and gas reserves, expected oil and gas production and future expenses,
projections of future oil and gas prices, planned capital expenditures and
estimated costs for drilling, leasehold acquisitions and seismic data, and
statements concerning anticipated cash flow and liquidity, business strategy and
other plans and objectives for future operations. Disclosures concerning
derivative contracts and their estimated contribution to our future results of
operations are based upon market information as of a specific date. These market
prices are subject to significant volatility. Although we believe the
expectations and forecasts reflected in these and other forward-looking
statements are reasonable, we can give no assurance they will prove to have been
correct. They can be affected by inaccurate assumptions or by known or unknown
risks and uncertainties. Factors that could cause actual results to differ
materially from expected results are described under "Risk Factors" in Item 1 of
our 2003 Annual Report on Form 10-K and subsequent filings with the Securities
and Exchange Commission (SEC). They include the volatility of oil and gas
prices; adverse effects our substantial indebtedness could have on our
operations and future growth; our ability to compete effectively against strong
independent oil and gas companies and majors; the cost and availability of
drilling and production services; possible financial losses as a result of our
commodity price and interest rate risk management activities; uncertainties
inherent in estimating quantities of oil and gas reserves, including reserves we
acquire, projecting future rates of production and the timing of development
expenditures; exposure to potential liabilities of acquired properties; our
ability to replace reserves; the availability of capital; changes in interest
rates; and drilling and operating risks. We caution you not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this press release, and we undertake no obligation to update this information.
The SEC has generally permitted oil and gas companies, in filings made with the
SEC, to disclose only proved reserves that a company has demonstrated by actual
production or conclusive formation tests to be economically and legally
producible under existing economic and operating conditions. We use the terms
"probable" and "possible" reserves or other descriptions of volumes of reserves
potentially recoverable through additional drilling or recovery techniques that
the SEC's guidelines may prohibit us from including in filings with the SEC.
These estimates are by their nature more speculative than estimates of proved
reserves and accordingly are subject to substantially greater risk of being
actually realized by the company. We cannot assure you that we can recover our
estimated volumes of oil and natural gas reserves.
The announcement of a proposed offering of senior notes in this press release
shall not constitute an offer to sell or a solicitation of an offer to buy the
senior notes. The terms of any such offering and the senior notes offered
thereby have not been decided. The senior notes will not be registered under the
Securities Act of 1933 or any state securities laws, and may not be offered or
sold in the United States absent registration or an applicable exemption from
the registration requirements of the Securities Act and state laws.
Chesapeake Energy Corporation is one of the six largest independent U.S. natural
gas producers. Headquartered in Oklahoma City, the company's operations are
focused on exploratory and developmental drilling and producing property
acquisitions in the Mid-Continent, Permian Basin, South Texas, Texas Gulf Coast
and Ark-La-Tex regions of the United States. The company's Internet address is
WWW.CHKENERGY.COM.
4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHESAPEAKE ENERGY CORPORATION
By: /S/ AUBREY K. MCCLENDON
-----------------------------------
Aubrey K. McClendon
Chairman of the Board and
Chief Executive Officer
Dated: May 12, 2004
5