Chesapeake Energy Corp. has upped its asset strength in the Midcontinent region through several closed and pending acquisitions that added an estimated 135 Bcfe of proved reserves to its coffers. Current production from the properties is approximately 35 MMcfe/d, the reserves-to-production index is 10.6 years, 99% are natural gas and 75% are proved developed.

With its latest announcement, Chesapeake increased its 2003 production forecast by 6% to a range of 255-260 Bcfe from a previous estimate of 240-245 Bcfe. Chesapeake also improved its second quarter production estimate to 710 MMcfe/d from an earlier forecast of 675 MMcfe/d.

CEO Aubrey K. McClendon said the acquisitions “fit perfectly with our existing Midcontinent assets.” He noted that drilling results to date should increase estimated proved reserves as of June 30, 2003 to approximately 3.0 Tcfe.

The Oklahoma City-based independent spent about $220 million for the gas-rich properties through a transaction with privately owned Oxley Petroleum Corp. and several other undisclosed parties. After allocating $40 million of the total purchase price to its natural gas plants, gas gathering systems and unevaluated leasehold, Chesapeake’s acquisition cost for the proved reserves was estimated at $1.33/Mcfe.

Of the 35 MMcfe/d estimated production increase, Chesapeake attributed 20% to the Oxley transaction (which contributed 20 MMcfe/d to the last month of the quarter, or an average of 7 MMcfe/d), and 80% to better-than-forecasted drilling results. Chesapeake’s initial production forecast for 2004 is 275-280 Bcfe, or 760 MMcfe/d at the midpoint of this range.

The company estimated that initial lease operating expenses on the acquired properties are expected to average $0.45/Mcfe, compared with $0.54/Mcfe for Chesapeake during 2002 and approximately $0.70/Mcfe for the company’s peer group during 2002.

The Oxley acquisition closed on May 30, and the other transactions have closed in recent months or will close before July 31, Chesapeake said. Financing will be completed using cash on hand as well as short-term borrowings from a $350 million bank credit facility. Oxley, a 40-year-old Oklahoma independent, is focused on the Arkoma Basin, where Chesapeake already owns approximately 250 Bcfe of estimated proved reserves and produces approximately 50 MMcfe/d. Of the Oxley properties being acquired, 82% are located in townships in which Chesapeake owns existing interests.

Most of the other acquired assets are located in the Greater Mayfield area of western Oklahoma, where Chesapeake already is active. In Greater Mayfield, Chesapeake is currently drilling seven deep Springer wells to an average depth of 20,000 feet. According to Chesapeake, Greater Mayfield is the company’s most important exploratory area, and this year it expects to spend approximately 10% of its projected $600 million capital expenditure budget further exploring and developing this area.

This year, Chesapeake’s gas production market share in the Midcontinent will be 16%. In addition, the company is the operator of or a participant in approximately 50% of the 125 wells currently being drilled in Oklahoma.

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