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Chesapeake Completes Concho Purchase, Adds 320 Bcfe of Proved Reserves

Chesapeake Completes Concho Purchase, Adds 320 Bcfe of Proved Reserves

Acquisitions are pushing Chesapeake Energy Corp. up near the top of the charts in terms of domestic gas production and reserves. The company recently completed three major property acquisitions totaling about $510 million and bringing its gas reserves to more than 3.4 Tcf and its production to an expected 875 MMcf/d in the first quarter and 890 MMcf/d for the year, making it one of the top 15 largest gas producers in North America in terms of daily production.

The company always been an aggressive buyer, but its purchases this year and last are among its largest ever. It paid $420 million for properties in the Midcontinent region, the Permian Basin, South Texas and onshore Gulf Coast region, from privately-owned Concho Resources Inc. In addition, it has bought two smaller producing property packages totaling $90 million.

Chesapeake believes the acquisitions bring in 320 Bcfe of proved gas reserves, 195 Bcfe of probable and possible gas reserves and current production of 70 MMcfe/d. The acquisitions were funded 60% with common equity issued in January 2004 and 40% from cash on hand and borrowings from the company's revolving bank credit facility.

"These acquisitions further strengthen our Midcontinent stronghold and accelerate our growth in the Permian Basin, South Texas and onshore Gulf Coast areas," said CEO Aubrey K. McClendon.

"In addition, we have hedged 100% of the projected 2004 and 2005 gas production volumes from these assets at prices well above today's levels, further ensuring that these transactions will create significant value for our shareholders. We believe our focus on acquiring high-quality properties, hedging the acquired production at opportunistically high prices and then applying a value-added drilling program to increase production and proved reserves will continue to be a winning strategy for our shareholders in the years ahead."

Oklahoma City-based Chesapeake said it is the sixth largest independent gas producer in the United States. Last year, it paid El Paso Corp. $500 million for 328 Bcfe of proved gas reserves. It also paid Vintage petroleum $30 million for 22 Bcfe of reserves. In June 2003, it purchased Oxley Petroleum and several other smaller properties for $220 million, adding another 135 Bcfe of reserves. By the end of 2004, its natural gas production is expected to be up about 65% from 2002 levels (890 MMcf/d compared to 538 MMcf/d).

Chesapeake has come long way from its years in the stock market basement in the late 1990s. Its shares traded at $12.32 Monday at noon, up from about 75 cents/share in February 1999.

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