Summary
Chesapeake Energy Corporation (CHK) announced significant strategic moves on December 22, 2003, via Form 8-K filings. The company has entered into agreements to acquire oil and natural gas assets totaling $510 million, primarily through the acquisition of Concho Resources Inc. for $420 million, along with two smaller property deals. These acquisitions are expected to add approximately 320 billion cubic feet of equivalent (bcfe) proved reserves and boost current production. Additionally, Chesapeake has substantially increased its hedging positions for 2004 and 2005 to mitigate commodity price volatility. In conjunction with these acquisitions, Chesapeake announced a pending exchange offer for its 8.125% Senior Notes due 2011. Due to the new acquisition and financing plans, the company indicated it would not proceed with the exchange offer without extending its expiration date and withdrawal rights, allowing noteholders to review the updated information. These developments signal a period of aggressive growth and risk management for Chesapeake.
Key Highlights
- 1Chesapeake Energy is acquiring oil and natural gas assets worth $510 million, including privately-owned Concho Resources Inc. for $420 million.
- 2The acquisitions are expected to add approximately 320 billion cubic feet of equivalent (bcfe) proved reserves and 70 million cubic feet of natural gas equivalent (mmcfe) per day in production.
- 3The acquisition cost for proved reserves is estimated at $1.38 per thousand cubic feet of gas equivalent (mcfe).
- 4Chesapeake has significantly increased its hedging positions for 2004 and 2005, covering additional natural gas and oil volumes at favorable prices.
- 5The company's 2004 production forecast has been increased by 9% to a range of 323-329 bcfe (890 mmcfe per day midpoint).
- 6Chesapeake announced it will not consummate its pending exchange offer for 8.125% Senior Notes due 2011 without extending the offer's expiration date and withdrawal rights, allowing holders to review recent acquisition and financing plans.
- 7Pro forma for the acquisitions, Chesapeake estimates its year-end 2003 proved oil and natural gas reserves will exceed 3.4 trillion cubic feet of natural gas equivalent (tcfe).