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TheStreet Open House

Chesapeake Energy Corporation Reports Financial And Operational Results For The 2012 Third Quarter

As of November 1, 2012, the company has the following open natural gas swaps in place and gains (losses) related to closed natural gas trades and premiums for call options for future production periods.

 

  Open Swaps(bcf)   Avg. NYMEX

Price of

Open Swaps

  Forecasted

Natural Gas

Production

(bcf)

  Open Swap

Positions

as a % of

Forecasted

Natural Gas

Production

 

Total Gains

(Losses) from

Closed Trades

and Premiums

for Call Options

($ in millions)

 

Total Gains from

Closed Trades

and Premiums

for Call Options

per mcf of

Forecasted

Natural Gas

Production

Q4 2012   215     $ 3.06     281     76 %   $ 15     $ 0.05
           
Q1 2013 0 $ (11 )
Q2 2013 0 8
Q3 2013 0 6
Q4 2013   0                           (3 )      
Total 2013   0     $ 0.00     1,050     0 %   $ 0     $ 0.00
Total 2014   0                         $ (74 )      
Total 2015   0                         $ (131 )      
Total 2016 – 2022   0                         $ (161 )      
 

The company currently has the following natural gas written call options in place:

    Call Options(bcf)   Avg. NYMEX

Strike Price

  Forecasted

Natural Gas

Production

(bcf)

  Call Options

as a % of

Forecasted

Natural Gas

Production

Q4 2012   40     $ 3.25     281     14 %
       
Total 2013   0     $ 0.00     1,050     0 %
Total 2014   0     $ 0.00              
Total 2015   0     $ 0.00              
Total 2016 – 2020   260     $ 8.90              
 

The company currently has the following purchased natural gas put swaptions in place:

    Put Swaptions(bcf)   Avg. NYMEX

Price of Swap

  Forecasted

Natural Gas

Production

(bcf)

  Put Swaption

as a % of

Forecasted

Natural Gas

Production

Q1 2013   8   $ 3.66    
Q2 2013 10 $ 3.64
Q3 2013 2 $ 3.50
Q4 2013   0     $ 0.00              
Total 2013   20     $ 3.64     1,050     2 %
 

The company has the following natural gas basis protection swaps in place:

   
Volume (Bcf)   Avg. NYMEX less
Q4 2012   8     $ 0.74
 

2013

  44     $ 0.21

2014

  28     $ 0.32

2015 - 2022

  40     $ 0.48
 

As of November 1, 2012, the company has the following open crude oil swaps in place and gains (losses) related to closed crude oil contracts and premiums for call options for future production periods (note: the company also has 5,000 bbls per day of propane call options in Q4 2012):

    Open

Swaps

(mbbls)

  Avg. NYMEX

Price of

Open Swaps

  Forecasted

Oil

Production

(mbbls)

  Open Swap

Positions as

a % of

Forecasted

Oil

Production

 

Total Gains

(Losses) from

Closed Trades

and Premiums

for Call Options

($millions)

 

Total Gains

(Losses) from

Closed Trades

and Premiums for

Call Options per

bbl of Forecasted

Oil Production

Q4 2012   6,197     $ 99.14     8,171     76 %   $ (31 )   $ (3.83 )
           
Q1 2013 5,647 95.95 $ 1
Q2 2013 6,672 96.10 $ 1
Q3 2013 6,687 96.02 $ 2
Q4 2013   6,662       95.97                 $ 2          
Total 2013   25,668     $ 96.01     37,000     69 %   $ 6     $ 0.17  
Total 2014   918     $ 90.85                 $ (151 )        
Total 2015   500     $ 88.75                 $ 265          
Total 2016 – 2021   0                         $ 117          
 

The company currently has the following crude oil written call options in place:

    Call Options(mbbls)   Avg. NYMEX

Strike Price

  Forecasted

Oil

Production

(mbbls)

  Call Options

as a % of

Forecasted Oil

Production

Q4 2012   0     $ --     8,171     0 %
       
Q1 2013 3,390 $ 99.56
Q2 2013 3,428 $ 99.56
Q3 2013 3,006 $ 98.62
Q4 2013   3,006     $ 98.62              
Total 2013   12,830     $ 99.12     37,000     35 %
Total 2014   17,612     $ 98.79              
Total 2015   27,048     $ 100.99              
Total 2016 – 2017   24,220     $ 100.07              
 

The company has the following oil basis protection swaps in place:

   
Volume (mbbls)   Avg. NYMEX plus
Q4 2012   951     $ 17.70
 
Q1 2013 2,070 $ 14.99
Q2 2013   1,365     $ 12.55
Total 2013   3,435     $ 14.02
 

SCHEDULE “B” MANAGEMENT’S OUTLOOK AS OF AUGUST 6, 2012 (PROVIDED FOR REFERENCE ONLY) NOW SUPERSEDED BY OUTLOOK AS OF NOVEMBER 1, 2012

Below is the company’s previous Outlook, as provided on August 6, 2012, which reflected projected voluntary natural gas curtailments of approximately 60 bcf in the 2012 first half and also include estimated future production decreases of approximately 45 bcfe in 2012 and 140 bcfe in 2013 associated with the company’s planned Permian Basin, Mississippi Lime and other asset sales.

Chesapeake Energy Corporation Consolidated Projections
For Years Ending December 31, 2012 and 2013
     

Year Ending

12/31/12

Year Ending

12/31/13

Estimated Production:
Natural gas – bcf 1,120 – 1,140 1,030 – 1,070
Oil – mbbls 29,000 – 30,000 36,000 – 38,000
NGL – mbbls 17,000 – 18,000 24,000 – 26,000
Natural gas equivalent – bcfe 1,396 – 1,428 1,390 – 1,454
 
Daily natural gas equivalent midpoint – mmcfe 3,855 3,895
 
YOY estimated production increase including asset sales 18% 1%
 
NYMEX Price (a) (for calculation of realized hedging effects only):
Natural gas - $/mcf $2.79 $3.75
Oil - $/bbl $93.93 $90.00
 
Estimated Realized Hedging Effects (based on assumed NYMEX prices above):
Natural gas - $/mcf $0.29 $0.01
Oil - $/bbl $0.81 $0.48
 
Estimated Gathering/Marketing/Transportation Differentials to NYMEX Prices:
Natural gas - $/mcf $1.00 –1.10 $1.15 – 1.25
Oil - $/bbl $4.50 – 6.50 $4.50 – 6.50
NGL - $/bbl $67.00 – 70.00 $63.00 – 67.00
 
Operating Costs per Mcfe of Projected Production:
Production expense $0.95 – 1.05 $0.95 – 1.05
Production taxes (~5% of O&G revenues) $0.15 – 0.20 $0.25 – 0.30
General and administrative (b) $0.39 – 0.44 $0.39 – 0.44
Stock-based compensation (noncash) $0.04 – 0.06 $0.04 – 0.06
DD&A of natural gas and liquids assets $1.40 – 1.60 $1.50 – 1.70
Depreciation of other assets $0.22 – 0.27 $0.25 – 0.30
Interest expense (c) $0.05 – 0.10 $0.05 – 0.10
 
Other ($ millions):
Marketing, gathering and compression net margin (d) $70 – 80 $50 – 75
Oilfield services net margin (d) $175 – 200 $200 – 250
Other income (including certain equity investments) $25
Net income attributable to noncontrolling interest (e) ($180) – (200) ($200) – (240)
 
Book Tax Rate 39% 39%

 

Weighted average shares outstanding (in millions):
Basic 640 – 645 645 – 650
Diluted 753 – 758 758 – 763
 

 

Year Ending

12/31/12

Year Ending

12/31/13

 
($ millions)
Operating cash flow before changes in assets and liabilities (f)(g) $3,200 – 3,250 $3,750 – 4,750
 
Well costs on proved and unproved properties ($8,000 – 8,500) ($5,750 – 6,250)
Acquisition of unproved properties, net ($2,000) ($400)
Investment in oilfield services, midstream and other ($2,800 – 3,100) ($850 – 1,100)
Subtotal of net investment ($12,800 – 13,600) ($7,000 – 7,750)
 
Asset sales and other transactions $13,000 – 14,000 $4,250 – 5,000
 
Interest, dividends and cash taxes ($1,100 –1,350) ($1,000 – 1,250)
   
Total budgeted cash flow surplus $2,300 $0 – 750

a) NYMEX natural gas prices and NYMEX oil prices have been updated for actual contract prices through August and July, respectively.b) Excludes expenses associated with noncash stock-based compensation.c) Does not include gains or losses on interest rate derivatives.d) Includes revenue and operating costs and excludes depreciation and amortization of other assets.e) Net income attributable to noncontrolling interests of Chesapeake Granite Wash Trust, CHK Utica, L.L.C., CHK Cleveland Tonkawa, L.L.C. and Cardinal Gas Services, L.L.C.f) A non-GAAP financial measure. We are unable to provide a reconciliation to projected cash provided by operating activities, the most comparable GAAP measure, because of uncertainties associated with projecting future changes in assets and liabilities.g) Assumes NYMEX prices on open contracts of $3.00 to $3.25 per mcf and $90.00 per bbl in 2012 and $3.25 to $4.25 per mcf and $90.00 per bbl in 2013 .

Oil, NGL and Natural Gas Hedging Activities

Chesapeake enters into oil, NGL and natural gas derivative transactions in order to mitigate a portion of its exposure to adverse changes in market prices. Please see the quarterly reports on Form 10-Q and annual reports on Form 10-K filed by Chesapeake with the Securities and Exchange Commission for detailed information about derivative instruments the company uses, its quarter-end derivative positions and the accounting for oil, NGL and natural gas derivatives.

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