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Chesapeake's 3Q Gas-Heavy Output Jumps 28%

Chesapeake Energy Corp. said Monday its quarterly oil and natural gas production jumped 28% from the same period a year ago, to 1.308 Bcfe/d, with output up 5% sequentially from the second quarter. The producer, which focuses its exploration in the MidContinent, now estimates production will climb more than 25% this year, with organic growth through 2006 exceeding 10%.

In the third quarter, the Oklahoma City-based independent reported 3Q2005 net income up about 42%, to $149.1 million or $0.43/share, compared with $85.6 million or $0.29 in 3Q2004. Operating cash flow was $635.2 million on revenue of $1.08 billion.

Special items in the quarter included an unrealized mark-to-market loss of $66.8 million resulting from oil, natural gas and interest rate hedging programs; a $0.5 million loss resulting from the early retirement of some debt securities; and a reduction of $17.7 million in net income resulting from a loss on the exchange of $134 million of Chesapeake's stock. Adjusted for the special items, Chesapeake's net income would have been $234.1 million or $0.65/share.

Daily production in the third quarter averaged 1.308 Bcfe/d, an increase of 284 MMcfe, or 27.7% over the 1.024 Bcfe/d in 3Q2004, and an increase of 64 MMcfe/d, or 5.1%, over the 1.244 Bcfe/d in 2Q2005. Of the 64 MMcfe/d sequential increase, 53% came from organic growth and 47% from acquisition growth, making the company's quarterly organic growth rate 2.9%, its year-to-date organic growth rate 8.0% and its annualized 2005 organic growth rate 10.7%. The effects of Hurricane Rita reduced Chesapeake's 3Q output by 0.3 Bcfe as a result of onshore facility shut ins.

Third quarter production consisted of 108.8 Bcf of natural gas (90% on a natural gas equivalent basis) and 1.93 million bbl of oil and natural gas liquids (10% on a natural gas equivalent basis). Chesapeake's average daily production rate of 1.308 Bcfe consisted of 1.183 Bcf/d of gas and 20,935 bbl/d of oil and natural gas liquids.

Chesapeake began 2005 with estimated proved reserves of 4.902 Tcfe and ended the third quarter with an internally estimated 6.213 Tcfe, an increase of about 27%. The reserves do not include the impact of the company's $2.2 billion acquisition of Columbia Natural Resources LLC, which is expected to close by Dec. 1 (see Daily GPI, Oct. 4). With the acquisition, Chesapeake estimates its proved reserves will increase about 1.1 Tcfe.

A conference call has been scheduled for 9 a.m. EST on Tuesday to discuss quarterly earnings. The call may be accessed via the telephone at (719) 457-2630, or via the Internet at http://www.chkenergy.com.

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