Chesapeake Energy Corp. of Oklahoma City generated third-quarternet income of $18.1 million and cash flow from operations of $43.4million on 32.7 Bcfe of production. Average commodity pricesrealized during the quarter were $18.90/barrel of oil and $2.26/Mcfof gas for a gas equivalent price of $2.40/Mcfe.

By comparison, during the third quarter of 1998, Chesapeakegenerated a net loss of $4.1 million and cash flow from operationsof $32.4 million on production of 36.3 Bcfe and a realized gasequivalent price of $1.93/Mcfe.

Adjusted for property sales, Chesapeake’s third quarter 1999total oil and gas production was unchanged from the second quarterof 1999 and 5% lower than the 1998 third quarter. However, alsoadjusted for property sales, the company’s third quarter 1999 gasproduction increased 3% over the 1999 second quarter and 5% overthe 1998 third quarter.

Chesapeake’s present budget for 2000 assumes a realized gasequivalent price of $2.51/Mcfe, which is based on current averageNYMEX oil and gas prices of $21.55/barrel and $2.74/Mcf. The budgetalso assumes differentials to NYMEX prices of $1.42/barrel and$0.32/Mcf, or $0.35/Mcfe. The company is projecting production of135 Bcfe and per Mcfe lease operating expenses of $0.51(including22% greater production taxes due to higher anticipated wellheadprices), interest costs of $0.62, general and administrative costsof $0.10 and depletion of oil and gas properties of $0.78.

If the underlying assumptions listed above are achieved,Chesapeake should generate cash flow from operations in 2000 ofapproximately $185 million and net income of $70 million. Inaccordance with Chesapeake’s plan to maintain a budget consistentwith internally generated cash flows, Chesapeake’s preliminarycapital expenditure budget for 2000 has been set at $185 million,with $135 million dedicated to drilling and $50 million foracquisitions.

Chesapeake CEO Aubrey K. McClendon said Chesapeake to date hasreplaced by over 200% of its production of 100 Bcfe at a cost ofonly $0.68/Mcfe.

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