01—Abstract
Summary
Summary of the 10-K/A filed August 3, 2010. Cited figures are marked; the original filing is the authoritative source.
This is Amendment No. 1 (Form 10-K/A) to the fiscal 2009 annual report of Chesapeake Energy Corporation (NYSE: CHK), signed August 2, 2010.
Note that the filing is from Chesapeake, not Expand Energy, which was Chesapeake's later name. The amendment does not change any disclosure in the original 10-K filed March 1, 2010. It was filed only to replace two third-party reserve reports (Schlumberger's Data & Consulting Services and Ryder Scott) that had limited their use to Chesapeake.
The revised reports remove that restriction, so the reports can be relied on by others. The filing contains no financial statements, so this analysis is limited to the reserve exhibits and the cover page. The cover page shows 651,861,064 common shares outstanding as of February 24, 2010, and an aggregate non-affiliate market value of about $12.5 billiona as of June 30, 2009.
Chesapeake is a large accelerated filer with a substantial senior notes and convertible debt stack listed on the NYSE. The reserve exhibits cover two regions. The Eastern Division (Appalachian properties in KY, NY, PA, TN, VA and WV) holds about 1,035 Bcfe of proved reserves, roughly 7.3% of company totals, with a 10% discounted present value (PV-10) of about $804 millionb.
A Ryder Scott report covers leasehold and royalty interests in Kansas, Oklahoma and Texas, roughly 7% of total proved reserves, with 937 Bcf of gas and 18.1 MMbbl of oil and condensate and a discounted future net income of about $933 millionc at 10%. For investors, the key takeaway is that these exhibits add reserve-report transparency and independent third-party support for the company's year-end 2009 reserves, using SEC pricing of $3.87/MMBtu Henry Hub gas and $61.14/Bbl WTI oil (12-month average, held flat). The amendment is administrative rather than a change in reported results, and the exhibits cover only about 14% of the company's proved reserves combined, so they should not be read as a full valuation of the company.
02—Key points
Key Highlights
- Filing type and purpose: Amendment No. 1 to the FY2009 10-K, filed solely to replace two third-party reserve reports so they no longer carry a restriction limiting their use to Chesapeake. No other disclosures were changed.
- Entity clarification: The document is for Chesapeake Energy Corporation (NYSE: CHK), not Expand Energy, which was the company's later name.
- Scale of shares and market value: 651.9 million common shares outstanding (Feb 24, 2010) and about $12.5 billion of non-affiliate market value at June 30, 2009.
- Eastern Division reserves (Schlumberger DCS): about 1,035 Bcfe of proved reserves (910.5 Bcfe proved developed), roughly 7.3% of company totals, with future net cash flow of $2.13 billion and PV-10 of $803.7 million.
- Mid-continent and Texas leasehold reserves (Ryder Scott): 937 Bcf of gas and 18.1 MMbbl of oil and condensate, about 7% of total proved reserves, with discounted future net income of $932.9 million at 10%.
- Pricing basis: SEC 12-month average prices of $3.866/MMBtu (Henry Hub gas) and $61.14/Bbl (WTI oil), held constant over project lives with no escalation, which governs the reported PV values.
- Limited scope: The filing contains no financial statements or income data for the consolidated company, and the reviewed reserves represent only about 14% of total proved reserves combined.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2009filed August 3, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $7.70B$11.63B | −33.8% |
| Operating Expenses | $16.65B$10.17B | +63.7% |
| Operating Income | -$8.95B$1.46B | −713.9% |
| Interest Expense | $765.00M$271.00M | +182.3% |
| Net Income | -$5.83B$604.00M | −1065.2% |
| EPS (Basic) | $-9.57$0.94 | −1118.1% |
| EPS (Diluted) | $-9.57$0.93 | −1129.0% |
| Shares Outstanding (Basic) | 612.00M536.00M | +14.2% |
| Shares Outstanding (Diluted) | 612.00M545.00M | +12.3% |
05—Questions
Frequently Asked Questions
Why was this 10-K/A filed?
To file revised reserve reports from Schlumberger's Data & Consulting Services and Ryder Scott. The original reports carried language limiting their use to Chesapeake, and the revised versions remove that restriction. The amendment also adds updated consents (Exhibits 23.3 and 23.5) and new SOX certifications. The company states that no other items or disclosures in the original 2009 10-K changed.
Does this amendment change Chesapeake's 2009 reported results or reserves?
No. The filing states that no items or disclosures in the original 2009 Form 10-K are affected other than the exhibits. It is presented as of the original March 1, 2010 filing date and does not update or modify disclosures.
How much of Chesapeake's reserves do these third-party reports cover?
The Schlumberger DCS report covers properties that the firm says represent about 7.3% of total proved reserves. The Ryder Scott report covers interests it estimates at about 7% of total proved reserves. Together they represent roughly 14% of the company's total, so most reserves are not covered in these exhibits.
What price assumptions drive the reported present values?
Both reports use SEC-required prices, which are the unweighted 12-month average of first-day-of-month prices for 2009: about $3.87 per MMBtu for Henry Hub gas and $61.14 per barrel for WTI oil. Prices and costs are held constant for each project's life, with no escalation. The resulting values are before income taxes and do not reflect hedges, and they are not an estimate of fair market value.
What should investors take away from this filing?
The filing mainly provides independent, third-party reserve support for year-end 2009 reserves, with no new financial results. Investors should rely on the original 2009 10-K for financial statements and full reserve and operating disclosures, and should note that the reserve reports cover only about 14% of total proved reserves and use 2009 average prices rather than current market prices.
06—Continue