10-KPeriod: FY2007

EXPAND ENERGY Corp Annual Report, Year Ended Dec 31, 2007

Filed February 29, 2008For Securities:EXEEXEELEXEEWEXEEZ

Summary

Chesapeake Energy Corporation's (CHK) 2007 10-K filing highlights a strong year of growth and operational expansion. The company solidified its position as the third-largest independent natural gas producer in the U.S., demonstrating consistent production increases for 18 consecutive years. A significant factor in this growth was an aggressive drilling program, with Chesapeake drilling nearly 2,000 wells and achieving a 99% success rate on company-operated wells. The company also successfully grew its proved reserves by 21% year-over-year, achieving a reserve replacement rate of 369% through a combination of drilling and strategic acquisitions. Financially, Chesapeake continued to focus on improving its balance sheet, reducing its debt-to-capitalization ratio. The company also implemented a financial plan aimed at monetizing assets, including sale-leaseback transactions for its drilling rig fleet and the sale of a volumetric production payment, generating substantial proceeds to fund its capital expenditures. Looking ahead, Chesapeake expressed confidence in continued demand for natural gas, driven by its environmental advantages, and planned significant capital investment for 2008 to further develop its extensive leasehold and drilling inventory.

Financial Highlights

30 data points
Beta

Revenue

$7.80B

Net Income

$1.46B

18.7% Net Margin

EPS (Diluted)

$2.63

Cash & Equivalents

$1.00M

Free Cash Flow

$4.97B

Financial Statements
Beta
Revenue$7.80B
Operating Expenses$5.15B
Operating Income$2.65B
Interest Expense$401.00M
Net Income$1.46B
EPS (Basic)$2.70
EPS (Diluted)$2.63
Shares Outstanding (Basic)456.00M
Shares Outstanding (Diluted)487.00M

Key Highlights

  • 1Third-largest independent natural gas producer in the U.S., with consistent production growth for 18 consecutive years.
  • 2Successfully grew proved reserves by 21% to 10.9 trillion cubic feet equivalent (tcfe) by year-end 2007.
  • 3Achieved a strong reserve replacement rate of 369% through a robust drilling program and acquisitions.
  • 4Invested $7.6 billion in acquisition, exploration, and development activities in 2007, with a focus on converting drilling inventory to proved developed producing reserves.
  • 5Maintained a leading position in key unconventional natural gas plays east of the Rockies.
  • 6Improved balance sheet with a debt-to-capitalization ratio of 47% at year-end 2007.
  • 7Executed strategic asset monetizations, including sale-leaseback transactions and a volumetric production payment, to fund capital expenditures and improve liquidity.

Frequently Asked Questions

Chesapeake's primary strategy was to grow production and reserves through an aggressive drilling program, leveraging its extensive leasehold and seismic data inventories. The company focused on converting its substantial backlog of drilling opportunities into proved developed producing reserves, while de-emphasizing acquisitions of already proved properties.

Chesapeake utilized hedging programs to mitigate the risks associated with volatile oil and natural gas prices. As of February 21, 2008, the company had hedges in place covering a substantial portion of its expected production for 2008 and 2009, providing price certainty for future cash flows.

At December 31, 2007, Chesapeake had approximately $10.95 billion in long-term debt, representing 47% of its total capitalization. The company was actively working to improve its balance sheet and had a revolving bank credit facility of $3.5 billion, with $1.95 billion drawn at year-end.

Chesapeake's oil and natural gas production increased by 23% in 2007 to 714.3 bcfe. Proved reserves also grew by 21% to 10.9 tcfe, driven by a strong reserve replacement rate of 369%, indicating successful efforts in adding new reserves through drilling and acquisitions.