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Chesapeake Says '06 Reserves Up 20%; Rig Count Rising

Chesapeake Energy Corp. reported Monday its year-end 2006 proved reserves grew 20% to 9 Tcfe, up from 7.5 Tcfe in 2005. The Oklahoma City-based independent, which will release its results on Feb. 22, said it replaced 348% of production last year, which included 237% organically through drilling and 111% through acquisitions.

CEO Aubrey K. McClendon noted Chesapeake's operated rig count now stands at 132 rigs, compared with 76 rigs at the beginning of 2006. Chesapeake operated about 98 rigs on average last year.

Like its peers, 2006 drillbit exploration and development (E&D) and reserve replacement costs were up. Chesapeake estimated 2006 drillbit E&D was $2.00/Mcfe; proved reserve replacement costs were an estimated $1.85/Mcfe. By comparison, 2005 drillbit E&D was $1.77/Mcfe; proved reserve acquisition costs were $1.74. The estimated E&D and reserve replacement costs excluded the costs to purchase undeveloped leasehold, acquire unproved properties, obligations for tax and asset retirement, and downward revisions to proved reserves from lower commodity prices.

In the last three months of 2006, Chesapeake said its output jumped 17% from the same period a year earlier to 152.1 Bcfe from 130.4 Bcfe. Sequentially, output in the final quarter of 2006 was 4% higher than 3Q2006's 146.9 Bcfe. The uptick came even though Chesapeake last October temporarily shut-in 100 MMcf/d net in response to lower gas prices (see Daily GPI, Sept. 26, 2006).

Chesapeake's full-year 2006 output reached an estimated 578.4 Bcfe, 23% higher than 2005's 468.6 Bcfe.

Realized hedging gains totaled $1.3 billion in 2006, or $2.17/Mcfe of production, according to Chesapeake. The company said it also reestablished some hedges through 2008. Open swap positions include knockout provisions at prices ranging from $5.25-6.50, which covers 125 Bcf in 2007, and $5.75-6.50, which covers 135 Bcf in 2008. Open collar positions include knockout provisions at prices ranging from $5.00-6.00, which covers 52 Bcf in 2007 and 11 Bcf in 2008.

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