8-KOther Events

EXPAND ENERGY Corp 8-K Report (Dec 23, 2003)

Filed December 23, 2003For Securities:EXEEXEELEXEEWEXEEZ

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).

Frequently Asked Questions

Chesapeake is spending $510 million on acquisitions, primarily for Concho Resources. The company plans to finance these with roughly 50% equity and 50% debt. The acquisition cost for proved reserves is estimated at a competitive $1.38 per mcfe, with an additional 195 bcfe of probable and possible reserves also acquired, bringing the all-in cost to $1.59 per mcfe. The company's overall reserve base is projected to exceed 3.4 tcfe.

The acquisitions are expected to add approximately 320 bcfe of proved reserves and 70 mmcfe per day of production. Pro forma for these deals, Chesapeake's year-end 2003 estimated proved reserves are expected to surpass 3.4 tcfe. The company also anticipates operational efficiencies and increased drilling opportunities.

Chesapeake has significantly increased its hedging positions for 2004 and 2005 to mitigate the impact of volatile oil and natural gas prices. This includes covering substantial additional volumes of natural gas and oil at specific prices, providing a layer of financial certainty for future revenue.

Chesapeake has stated it will not proceed with the exchange offer without extending its expiration date and withdrawal rights. This extension is intended to allow noteholders sufficient time to review the details of the recently announced $510 million in acquisitions and their associated financing plans. Approximately $380 million of the notes have been tendered so far.