SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) April 30, 1996
CHESAPEAKE ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-13726 73-1395733
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification)
incorporation)
6104 North Western Avenue
Oklahoma City, Oklahoma 73118
(Address of Principal Executive Offices)
(405) 848-8000
Registrant's telephone number,
including area code
INFORMATION TO BE INCLUDED IN THE REPORT
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Audited Financial Statements
Report of Independent Accountants
Statement of Revenues and Direct Operating Expenses for the year ended
June 30, 1995 and the nine months ended March 31, 1996
Notes to Statement of Revenues and Direct Operating Expenses
(b) Pro Forma Financial Information (unaudited)
Pro Forma Financial Information
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1996
Pro Forma Condensed Consolidated Statement of Operations for the year
ended June 30, 1995
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended March 31, 1996
Notes to Pro Forma Condensed Consolidated Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Chesapeake Energy Corporation
We have audited the accompanying statement of revenues and direct operating
expenses of the Amerada Hess Properties, as defined in Note 1, for the
year ended June 30, 1995. This statement is the responsibility of
management. Our responsibility is to express an opinion on the statement
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement is free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the statement. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and direct operating expenses of the
Amerada Hess Properties was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for
inclusion in the Form 8-K of Chesapeake Energy Corporation dated April 30,
1996) as described in Note 2 and is not intended to be a complete presentation
of the revenues and expenses of the Amerada Hess Properties.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenues and direct operating expenses of the
Amerada Hess Properties (and was prepared as described in Note 2 of
the statement) for the year ended June 30, 1995, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Oklahoma City, Oklahoma
July 9, 1996
AMERADA HESS PROPERTIES
STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
(in thousands)
Nine months
Ended
Year Ended March 31, 1996
June 30, 1995 (unaudited)
------------- -------------
Revenues:
Oil and gas sales $ 7,882 $ 8,414
Direct operating expense:
Lease operating expenses 948 1,049
----------- -----------
Excess of revenues over direct
operating expenses $ 6,934 $ 7,365
=========== ===========
The accompanying notes are an integral part of this statement.
AMERADA HESS PROPERTIES
NOTES TO THE STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
NOTE 1 - THE PROPERTIES
- -----------------------
On April 30, 1996, Chesapeake Energy Corporation (the "Company") purchased
interests in certain producing and nonproducing oil and gas properties
(collectively, the "Amerada Hess Properties") from the Amerada Hess
Corporation ("Amerada Hess") for $35 million, subject to adjustment for
activity after the effective date of January 1, 1996. The Amerada Hess
Properties, most of which are operated by the Company, are located in
the Knox and Golden Trend fields of southern Oklahoma. The Company
estimates that it acquired approximately 58 billion cubic feet equivalent
("Bcfe") of proved oil and gas reserves. Additionally, the Company acquired
approximately 14,000 net acres of unevaluated leasehold.
NOTE 2 - BASIS OF PRESENTATION
- ------------------------------
During the periods presented, the Amerada Hess Properties were owned by
Amerada Hess and were not accounted for as a separate entity. Certain
costs, such as general and administrative expenses, interest expense
and corporate taxes were not allocated to the Amerada Hess Properties
by Amerada Hess. Accordingly, full separate financial statements prepared
in accordance with generally accepted accounting principles do not exist
and are not practicable to obtain in these circumstances.
The Statement of Revenues and Direct Operating Expenses (the "Statement")
was derived from the historical accounting records that the Company main-
tains as the Company is operator of substantially all of the Amerada
Hess Properties and represents only the net interests in the Amerada
Hess Properties acquired by the Company. Such information is presented on
the accrual basis of accounting. Depreciation, depletion and amortization,
general and administrative expenses, interest expense and income taxes are
not included. Accordingly, the Statement is not intended to present the
financial position and results of operations in accordance with generally
accepted accounting principles.
NOTE 3 - RELATED PARTY TRANSACTION
- ----------------------------------
The Company serves as operator for substantially all of the wells included
in the Amerada Hess Properties.
NOTE 4 - SUPPLEMENTAL OIL AND GAS INFORMATION (Unaudited)
- ---------------------------------------------------------
Information with respect to historical oil and gas producing activities of
the Amerada Hess Properties acquired by the Company is presented in the
following tables in compliance with FASB Statement No. 69 "Disclosures
About Oil and Gas Producing Activities". Reserve information with regard
to the Amerada Hess Properties is based on the June 30, 1995 reserve report
prepared internally by the Company in accordance with regulations prescribed
by the Securities and Exchange Commission (the "SEC").
Estimated Proved Reserves
- -------------------------
Proved reserves are estimated quantities of crude oil and natural gas which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic
and operating conditions. Proved developed reserves are those which
are expected to be recovered through existing wells with existing equipment
and operating methods. The following table sets forth proved and proved
developed reserves for the Amerada Hess Properties as of June 30, 1995 and
the related changes in such reserves for the year ended June 30, 1995
(unaudited):
As of or for the year ended
June 30, 1995
---------------------------
Oil Gas
(Mbls) (MMcf)
Proved reserves:
Beginning Balance 1,152 57,178
Production (146) (2,839)
----- ------
Ending Balance 1,006 54,339
===== ======
Proved developed reserves:
Beginning Balance 770 25,638
Ending Balance 624 22,799
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves
Estimated future net cash flows from proved reserves of the Amerada Hess
Properties as of June 30, 1995 are presented in the following table
(in thousands), (unaudited):
As of June 30, 1995
-------------------
Future cash inflows $ 107,443
Future production costs (26,041)
Future development costs (21,701)
Future income tax provision (10,107)
-----------
Future net cash flows 49,594
Discounted at 10% per year (23,309)
-----------
Standardized measure of discounted future
net cash flows $ 26,285
==========
Future cash inflows were estimated by applying June 30, 1995 prices to
the estimated future production of proved reserves. Such prices were
$17.67 per Bbl and $1.65 per Mcf. The future revenue streams were
reduced by estimated future operating costs (including production taxes)
and future development and abandonment costs, all of which were based on
current costs to determine the pretax net cash inflows. Future net
cash inflows were discounted using a 10% annual discount rate to arrive
at the standardized measure of future net cash flows.
Change in Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Reserves
The following table sets forth the changes in the standardized measure of
discounted future net cash flows from proved reserves for the year ended
June 30, 1995 (in thousands) (unaudited):
As of or for the year ended
June 30, 1995
-------------
Balance, beginning of year $ 36,039
Sales, net of production expenses (6,934)
Net changes in sales and transfer prices,
net of production expenses (5,250)
Net change in income taxes (1,174)
Accretion of discount 3,604
------------
Balance, end of year $ 26,285
============
The information presented with respect to estimated future net revenues
and cash flows and the present value thereof is not intended to
represent the fair value of oil and gas reserves. Actual future prices and
production and development costs may vary significantly from those in effect
at June 30, 1995, and actual future production may not occur in the periods
or amounts projected. This information is presented to allow a reasonable
comparison of reserve values prepared using standardized measurement
criteria and should be used only for that purpose.
CHESAPEAKE ENERGY CORPORATION
PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited pro forma financial statements are presented to
reflect the acquisition by Chesapeake Energy Corporation (the "Company")
of certain producing and non-producing oil and gas properties (collectively
the "Amerada Hess Properties") of Amerada Hess Corporation ("Amerada Hess")
in Oklahoma. The acquisition closed on April 30, 1996, and was effective
January 1, 1996. Historical information presented for the Amerada Hess
Properties consists of the unaudited Statement of Revenues and Direct
Operating Expenses. During the periods presented, the Amerada Hess Properties
were owned by Amerada Hess and were not accounted for as a separate entity.
Certain costs, such as general and administrative expenses, interest expense
and corporate taxes were not allocated to the Amerada Hess Properties by
Amerada Hess. Accordingly, full separate financial statements prepared in
accordance with generally accepted accounting principles do not exist and are
not practicable to obtain in these circumstances.
The unaudited Pro Forma Balance Sheet is presented as if the acquisition of
the Amerada Hess Properties occurred on March 31, 1996. The unaudited Pro
Forma Statements of Operations for the year ended June 30, 1995, and the
nine months ended March 31, 1996, are presented as if the acquisition
occurred on July 1, 1994. The pro forma financial statements are presented
based on adjustments to the historical financial statements of the Company,
and the audited Statement of Revenues and Direct Operating Expenses of
the Amerada Hess Properties, and are not necessarily indicative of future
operations of the Company. The unaudited pro forma financial statements
should be read in conjunction with the notes thereto and the Audited
Statement of Revenues and Direct Operating Expenses of the Amerada
Hess Properties included in item 7(a) of the Form 8-K. In addition,
reference should be made to the financial statements of the Company
included in the Form 10-K for the year ended June 30, 1995, and included
in the Form 10-Q for the nine months ended March 31, 1996, filed with the
Securities and Exchange Commission.
CHESAPEAKE ENERGY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)
MARCH 31, 1996
Historical Pro Forma
Chesapeake Adjustments Combined
---------- ----------- --------
(in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 25,948 $ --- $ 25,948
Accounts receivable 47,416 160 (a) 47,576
Inventory 7,066 --- 7,066
Other 1,798 --- 1,798
-------- -------- --------
82,228 160 82,388
-------- -------- --------
PROPERTY AND EQUIPMENT
Oil and gas properties, full cost method
Evaluated oil and gas properties 279,668 24,560 (a) 304,228
Unevaluated properties 76,265 14,024 (a) 90,289
Less: accumulated depreciation, depletion
and amortization (77,089) --- (77,089)
-------- -------- --------
278,844 38,584 317,428
Service properties, equipment,
and other 22,505 --- 22,505
Less: accumulated depreciation,
depletion and amortization (5,797) --- (5,797)
-------- -------- --------
295,552 38,584 334,136
-------- -------- --------
OTHER ASSETS 6,939 --- 6,939
-------- -------- --------
TOTAL ASSETS $384,719 $ 38,744 $423,463
======== ======== ========
CURRENT LIABILITIES
Notes payable and current
maturities of long-term debt $ 8,496 $ --- $ 8,496
Accounts payable 62,491 --- 62,491
Related party payables 6,000 --- 6,000
Accrued liabilities and other 8,048 --- 8,048
Revenues and royalties due others 31,977 --- 31,977
Income taxes payable 116 --- 116
-------- -------- --------
117,128 --- 117,128
-------- -------- --------
LONG-TERM DEBT 184,084 38,744 (a) 222,828
-------- -------- --------
OTHER LONG-TERM LIABILITIES 18,750 --- 18,750
-------- -------- --------
STOCKHOLDERS' EQUITY
Common stock 1,784 --- 1,784
Paid-in capital 32,354 --- 32,354
Accumulated earnings 30,619 --- 30,619
-------- -------- --------
64,757 --- 64,757
-------- -------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $384,719 $ 38,744 $423,463
======== ======== ========
The accompanying notes are an integral part of this statement.
CHESAPEAKE ENERGY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
FOR THE YEAR ENDED JUNE 30, 1995
Historical
Amerada Hess Pro Forma
Chesapeake Properties Adjustments Combined
---------- ------------ ----------- --------
(in thousands, except per share amounts)
REVENUES
Oil an gas sales $ 56,983 $ 7,882 $ --- $ 64,865
Oil and gas service
operations 8,836 --- --- 8,836
Interest and other 1,524 --- --- 1,524
-------- -------- -------- --------
Total revenues 67,343 7,882 --- 75,225
-------- -------- -------- --------
COST AND EXPENSES
Production expenses
and taxes 4,256 948 --- 5,204
Oil and gas service
operations 7,747 --- --- 7,747
Oil and gas depreciation,
depletion and amortiza-
tion 25,410 --- 2,972 (b) 28,382
Depreciation and amorti-
zation of other assets 1,765 --- --- 1,765
General and administrative,
net 3,578 --- --- (c) 3,578
Interest and other 6,627 --- 2,236 (d) 8,863
-------- -------- -------- -------
Total costs and expenses 49,383 948 5,208 55,539
-------- -------- -------- -------
INCOME BEFORE INCOME TAXES 17,960 6,934 (5,208) 19,686
INCOME TAX EXPENSE 6,299 2,461 (1,849) 6,911
-------- -------- -------- --------
NET INCOME $ 11,661 $ 4,473 $ (3,359) $ 12,775
======== ======== ======== ========
EARNINGS PER COMMON SHARE
COMPUTATION
Net income available to
common $ 11,661 $ 12,775
======== ========
Net income per common
share $ 0.63 $ 0.69
======== ========
Weighted average common
and common equivalent
shares outstanding 18,624 18,624
======== ========
The accompanying notes are an integral part of this statement.
CHESAPEAKE ENERGY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
FOR THE NINE MONTHS ENDED MARCH 31, 1996
Historical
Amerada Hess Pro Forma
Chesapeake Properties Adjustments Combined
---------- ----------- ----------- --------
(in thousands, except per share amounts)
REVENUES
Oil and gas sales $ 77,237 $ 8,414 $ --- $ 85,651
Gas marketing sales 15,345 --- --- 15,345
Oil and gas service
operations 5,317 --- --- 5,317
Interest and other 2,041 --- --- 2,041
-------- -------- -------- --------
Total revenues 99,940 8,414 --- 108,354
-------- -------- -------- --------
COST AND EXPENSES
Production expenses
and taxes 5,839 1,049 --- 6,888
Gas marketing expenses 14,554 --- --- 14,554
Oil and gas service
operations 4,263 --- --- 4,263
Oil and gas depreciation,
depletion and amortization 35,268 --- 3,280 (b) 38,548
Depreciation and
amortization of other
assets 2,151 --- --- 2,151
General and administrative,
net 3,347 --- --- (c) 3,347
Interest and other 9,717 --- 1,677 (d) 11,394
-------- -------- -------- --------
Total costs and expenses 75,139 1,049 4,957 81,145
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 24,801 7,365 (4,957) 27,209
INCOME TAX EXPENSE 8,804 2,615 (1,760) 9,659
-------- -------- -------- --------
NET INCOME $ 15,997 $ 4,750 $ (3,197) $ 17,550
======== ======== ======== ========
EARNINGS PER COMMON SHARE
COMPUTATION
Net income available to
common $ 15,997 $ 17,550
======== ========
Net income per common
share $ 0.83 $ 0.91
======== ========
Weighted average common
and common equivalent
shares outstanding 19,328 19,328
======== ========
The accompanying notes are an integral part of this statement.
CHESAPEAKE ENERGY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Summary of Transaction and Basis of Presentation
- ---------------------------------------------------------
On April 30, 1996, Chesapeake Energy Corporation (the "Company") purchased
interests in certain producing and nonproducing oil and gas properties
(collectively, the "Amerada Hess Properties") from the Amerada Hess
Corporation ("Amerada Hess") for $35 million, subject to adjustment for
activity after the effective date of January 1, 1996. The properties, most
of which are operated by the Company, are located in the Knox and
Golden Trend fields of southern Oklahoma. The Company estimates that it ac-
quired approximately 58 billion cubic feet equivalent ("Bcfe") of proved oil
and gas reserves. Additionally, the Company acquired approximately 14,000
net acres of unevaluated leasehold.
The accompanying unaudited pro forma financial statements are presented to
reflect the acquisition of the Amerada Hess Properties. The unaudited Pro
Forma Balance Sheet is presented as if the acquisition of the Amerada Hess
Properties occurred on March 31, 1996. The unaudited Pro Forma Statements
of Operations for the year ended June 30, 1995, and the nine months ended
March 31, 1996, are presented as if the acquisition occurred on July 1,
1994. The pro forma financial statements are presented based on adjustments
to the historical financial statements of the Company, and the audited
Statement of Revenues and Direct Operating Expenses of the Amerada Hess
Properties, and are not necessarily indicative of future operations
for the Company. During the periods presented, the Amerada Hess Properties
were owned by Amerada Hess and were not accounted for as a separate entity.
Certain costs, such as general and administrative expenses, interest
expense and corporate taxes were not allocated to the Amerada Hess Properties
by Amerada Hess. Accordingly, full separate financial statements prepared in
accordance with generally accepted accounting principles do not exist and
are not practicable to obtain in these circumstances.
Note 2 - Pro Forma Adjustments (unaudited)
- ------------------------------------------
The unaudited Pro Forma Condensed Consolidated Balance Sheet and Statements
of Operations reflect the following adjustments:
(a) - To reflect the use of debt proceeds for the acquisition of the Amerada
Hess Properties. The purchase price of the assets acquired was allocated as
follows (in thousands):
Proved oil & gas properties $ 24,560
Unevaluated oil & gas properties 14,024
Joint interest billing accounts receivable 160
--------
$ 38,744
========
(b) - To adjust depreciation, depletion and amortization ("DD&A") calculated
on the pro forma balance of oil and natural gas properties subject to
amortization. DD&A for oil and natural gas properties is computed using
the unit of production method at a rate of $0.80 per Mcfe for the year ended
June 30, 1995 and $0.83 per Mcfe for the nine months ended March 31, 1996.
(c) - No additional general and administrative expenses are expected to be
incurred with the acquisition of the Amerada Hess Properties, as the Company
already held an interest in, and is the operator of, substantially all of
the properties.
(d) - To reflect interest expense, net of amounts capitalized, on borrowings
made to fund the purchase of the Amerada Hess Properties.
Note 3 - Other Pro Forma Information (unaudited)
- ------------------------------------------------
Changes in Pro Forma Estimated Proved Reserves
The following table sets forth the changes in estimated proved reserves for
the year ended June 30, 1995, for the Company on a pro forma basis assuming
acquisition of the Amerada Hess Properties on July 1, 1994 (unaudited).
Oil Gas
(MBbls) (MMcf)
------- ------
Estimated proved reserves:
Beginning of year 4,154 117,066
Extensions, discoveries, improved recovery 2,345 129,444
Revisions of previous estimates (244) (9,588)
Production (1,285) (27,953)
Purchase of reserves in place 1,152 57,178
------ -------
End of year 6,122 266,147
====== =======
Proved developed reserves, end of year 2,597 100,563
====== =======
Standardized Measure of Discounted Future Net Cash Flows
The following table reflects the pro forma standardized measure of discounted
future net cash flows of proved oil and gas reserves as of June 30, 1995,
assuming the acquisition of the Amerada Hess Properties occurred on July 1,
1994. The information is based on prices in effect as of June 30, 1995, and
current costs, discounted at a rate of 10% per year. Future income tax expense
is computed by applying the statutory federal income tax rate to the future
pre-tax net cash flows relating to estimated proved oil and gas reserves, net
of the tax basis of the properties involved and tax credits (unaudited).
Future cash inflows $ 534,820
Future production expenses (101,968)
Future development costs (98,244)
Future income tax provision (56,644)
----------
Future net cash flows 277,964
Less effect for a 10% discount factor (92,668)
----------
Standardized measure of discounted future net
cash flows $ 185,296
==========
Changes Relating to the Standardized Measure of Discounted Future Net Cash Flows
Principal changes in the pro forma standardized measure of discounted future
net cash flows attributable to proved oil and gas reserves for the year ended
June 30, 1995 are as follows, assuming the acquisition of the Amerada
Hess Properties occurred on July 1, 1994 (unaudited):
Standardized measure, beginning of year $ 118,608
Sales of gas and gas produced, net production costs (59,661)
Net changes in prices and production costs (30,824)
Extensions and discoveries, net of production
and development costs 93,969
Changes in future development costs 3,406
Development costs incurred during the period that
reduced future development costs 23,678
Revisions of previous quantity estimates (11,204)
Purchase of developed reserves in place 36,039
Accretion of discount 17,730
Net change in income taxes (7,660)
Changes in production rates and other 1,215
----------
Standardized measure, end of year $ 185,296
==========
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
July 15, 1996
CHESAPEAKE ENERGY CORPORATION
MARCUS C. ROWLAND
Marcus C. Rowland
Vice President - Finance