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Chesapeake Shows 2Q Improvement

Chesapeake Shows 2Q Improvement

For the first time in the last eight quarters, Chesapeake Energy Corp. of Oklahoma City, OK, turned a profit. The improvement was in spite of decreased production.

In the second quarter, Chesapeake Energy Corp. of Oklahoma City, OK, generated net income of $8.1 million on 33.6 Bcfe of production. The average gas price realized during the quarter was $1.88/Mcf. Factoring in oil sales, the gas equivalent commodity price was $2.03/Mcfe. By comparison, during the second quarter of 1998 Chesapeake generated a net loss before extraordinary items of $234.7 million on production of 37.2 Bcfe and a realized gas equivalent price of $2.03/Mcfe.

"Chesapeake's gas production increased despite production losses from asset sales," said CEO Aubrey K. McClendon. "Lease operating expenses declined by 15%. Our depreciation rate remains among the lowest in the industry. Our drilling operations and asset rationalization program are adding value, and most importantly, we were profitable for the first time in the past eight quarters.

"We are optimistic about the continued attractiveness of the natural gas industry. Because of Chesapeake's 87% natural gas reserve concentration, the company's asset value, cash flow and earnings have significant leverage to improving natural gas prices. In fact, for each $0.10 increase in natural gas prices, Chesapeake's annual earnings and cash flow increased by approximately $0.10 per share and net asset value increased by approximately $0.50 per share."

Chesapeake increased its 1999 drilling budget to $120 million from $90 million. The company anticipates funding its 1999 drilling cap-ex from cash on hand and cash flow from operations. Chesapeake's current 1999 budget forecast assumes a realized gas equivalent price of $2.06/Mcfe. This is based on average 1999 Nymex prices of $16.75/barrel and $2.23/Mcf and average differentials to Nymex prices of $1.75/barrel and $0.30/Mcf, production of 125 Bcfe (80% gas), lease operating expenses (including production taxes) of $0.47/Mcfe, interest costs of $0.65/Mcfe, and general and administrative costs of $0.12/Mcfe. Using current Nymex strip prices, Chesapeake's estimated second half 1999 average revenue realization would be $2.50/Mcfe, including differentials to Nymex prices that are currently being realized of $1.25/barrel and $0.25/Mcf. At these prices, the company's earnings, cash flow, and EBITDDA during the second quarter would have increased by about $15 million.

During the first half of 1999, Chesapeake produced 66.9 Bcfe and replaced this production through the drillbit by about 140% at an estimated finding cost of $0.75/Mcfe. The company is beginning to hedge a portion of its gas production for April - October 2000.

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