Chesapeake Energy Corporation Announces Acquisition of Barnett Shale Natural Gas Property From Hallwood Energy Corporation for $277 Million Company to Acquire 18,000 Acre North Block Property in Johnson County, Texas,

Located Just North of Chesapeake's Existing 44%-Owned 30,000 Acre South Block

Joint Venture With Hallwood



Transaction Includes Production of 25 Mmcfe Per Day and 280 Bcfe of Internally

Estimated Reserves, Consisting of 135 Bcfe of Proved Reserves and 145 Bcfe of

Probable and Possible Reserves



Acquisition Boosts Chesapeake's Production Forecast By 3.6% for 2005 and 5.8%

for 2006 as Estimated Production on Acquired Property Increases to 40 Mmcfe

per Day in 2005 and 70 Mmcfe per Day in 2006



    OKLAHOMA CITY, Nov. 30 /PRNewswire-FirstCall/ -- Chesapeake (NYSE:   CHK)
 today announced that it has entered into an agreement with Hallwood Energy
 Corporation to acquire Hallwood's 18,000 acre North Block property in Johnson
 County, Texas for $277 million in cash.  This property is located immediately
 north of Hallwood's 30,000 acre South Block property, in which Chesapeake
 acquired a 44% working interest through its June 2002 acquisition of Canaan
 Energy Corporation.
     In this transaction, Chesapeake anticipates acquiring an internally
 estimated 135 billion cubic feet of natural gas equivalent proved reserves
 (bcfe), 145 bcfe of probable and possible reserves and net production of
 approximately 25 million cubic feet of natural gas equivalent production
 (mmcfe) per day from 31 vertical wells and 11 horizontal wells.  Chesapeake
 has identified approximately 70 proved undeveloped and 90 probable and
 possible horizontal drilling locations on the 18,000 acre North Block that it
 believes can be drilled at an average cost of approximately $2.2 million per
 well to develop estimated ultimate reserves (EUR) of 2.5 bcfe per well.  Pro
 forma for this acquisition, Chesapeake's proved oil and natural gas reserves
 will increase to an internally estimated 4.6 trillion cubic feet of natural
 gas equivalent (tcfe) as of September 30, 2004.
     After allocating $98 million of the $277 million purchase price to
 undeveloped leasehold, Chesapeake's acquisition cost for the 135 bcfe of
 internally estimated proved reserves will be $1.33 per thousand cubic feet of
 natural gas equivalent (mcfe).  Including $303 million of anticipated future
 drilling costs to fully develop the proved, probable and possible (3P)
 reserves, the company estimates that its all-in acquisition cost for the
 280 bcfe of 3P reserves will be $2.07 per mcfe.  In addition, Chesapeake has
 agreed to purchase Hallwood's North Block gas gathering, compression and water
 disposal assets for $15 million.
     The North Block proved reserves have a reserves-to-production index of
 14.8 years, are 100% gas, are 15% proved developed, have current lease
 operating expenses of $0.22 per mcfe, have severance taxes of 1.3% of the
 wellhead revenue value and will be 100% Chesapeake-operated.  The property's
 very low lease operating expenses (approximately $0.53 per mcfe below the
 industry average) and unusually low severance taxes (approximately $0.37 below
 the standard 7.5% Texas severance tax rate at $6.00 per mcf because of
 severance tax reductions applicable to certain types of newly drilled wells in
 Texas) create an approximate $0.90 per mcfe economic advantage over typical
 Mid-Continent natural gas properties.
     Through the use of a three-rig drilling program, the company believes it
 can increase gas production on the acquired property from 25 mmcfe per day in
 December 2004 to at least 55 mmcfe per day by December 2005 and to at least
 85 mmcfe per day by December 2006.  If these production increases are
 achieved, Chesapeake estimates that its average daily production in 2005 and
 2006 will increase by 40 and 70 mmcfe per day, respectively (see Chesapeake's
 updated Outlook as of November 30, 2004 attached as Exhibit "A").  The company
 has hedged the current 25 mmcfe per day of acquired production at NYMEX gas
 prices of $7.15 per mmbtu and $6.63 per mmbtu for 2005 and 2006, respectively,
 well above the gas prices used to evaluate the property.
     The acquisition is expected to close on December 15, 2004 and is subject
 to customary closing conditions.  The company intends to finance the
 acquisition using a portion of the proceeds from a new $600 million private
 issue of senior notes.
     Hallwood is a private company and was advised in the sale by Albrecht &
 Associates, Inc. of Houston, Texas.
 
                               Management Comment
     Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented, "We
 are pleased to announce today's acquisition of the Hallwood North Block
 acreage for several reasons.  First, we are building our Barnett Shale
 ownership and creating economies of scale by leveraging off our acquisition of
 Canaan Energy Corporation in June 2002.  In that $120 million transaction we
 inherited an initial Barnett Shale leasehold position in Johnson County,
 Texas, to which we initially gave no value.  Today it appears that
 Chesapeake's South Block Barnett Shale position may be worth more than what we
 paid for the entire Canaan transaction.
     "Second, Chesapeake is well positioned to continue Hallwood's successful
 production ramp-up currently underway, having worked closely with Hallwood for
 two years in the South Block and because of our extensive experience with
 horizontal drilling (more than 285 horizontal wells drilled in Texas since
 1990) and 3-D seismic (more than 9.0 million acres owned).  Hallwood's use of
 horizontal drilling, innovative completion techniques and 3-D seismic
 information during the past few years has been very effective on both the
 18,000 North Block property and the 30,000 acre South Block property.
     "Finally, we believe we have been conservative in our reserve estimates
 for the acquired property, both with regard to our estimated EUR's of 2.5 bcfe
 per horizontal well and to our planned PUD drilling pattern of 140 acres and
 2,000' standoffs for horizontal wellbores.  Over time, we are hopeful that our
 reserve estimates can increase and that our well spacing can decrease, leading
 to significantly higher recoverable proved reserves than currently projected.
 We look forward to adding further value to this prolific gas-producing area of
 the Mid-Continent region in the years to come."
 
                          Conference Call Information
     A conference call has been scheduled for Wednesday morning,
 December 1, 2004 at 9:00 a.m. EST to discuss this release.  The telephone
 number to access the conference call is 913.981.5592.  For those unable to
 participate in the conference call, a replay will be available from 12:00 p.m.
 EST, December 1, 2004 through midnight EST on December 14, 2004.  The number
 to access the conference call replay is 719.457.0820 and the passcode is
 915998.  The conference call will also be simulcast live on the Internet and
 can be accessed at http://www.chkenergy.com by selecting "Conference Calls"
 under the "Investor Relations" section.  The webcast of the conference call
 will be available on the website for one year.
 
     This press release and the accompanying Outlooks include "forward-looking
 statements" within the meaning of Section 27A of the Securities Act of 1933
 and Section 21E of the Securities Exchange Act of 1934.  Forward-looking
 statements give our current expectations or forecasts of future events.  They
 include estimates of oil and gas reserves, expected oil and gas production and
 future expenses, projections of future oil and gas prices, planned capital
 expenditures for drilling, leasehold acquisitions and seismic data, and
 statements concerning anticipated cash flow and liquidity, business strategy
 and other plans and objectives for future operations.  Disclosures concerning
 derivative contracts and their estimated contribution to our future results of
 operations are based upon market information as of a specific date.  These
 market prices are subject to significant volatility.
     Factors that could cause actual results to differ materially from expected
 results are described under "Risk Factors" in our prospectus dated
 September 10, 2004 filed with the Securities and Exchange Commission on
 September 10, 2004.  They include the volatility of oil and gas prices;
 adverse effects our substantial indebtedness and preferred stock obligations
 could have on our operations and future growth; our ability to compete
 effectively against strong independent oil and gas companies and majors;
 possible financial losses and significant collateral requirements as a result
 of our commodity price and interest rate risk management activities;
 uncertainties inherent in estimating quantities of oil and gas reserves,
 including reserves we acquire; projecting future rates of production and the
 timing of development expenditures; exposure to potential liabilities of
 acquired properties and companies; our ability to replace reserves; the
 availability of capital; writedowns of oil and gas carrying values if
 commodity prices decline; environmental and other claims in excess of insured
 amounts resulting from drilling and production operations; and the loss of key
 personnel.  We caution you not to place undue reliance on these forward-
 looking statements, which speak only as of the date of this press release, and
 we undertake no obligation to update this information.
     Our production forecasts are dependent upon many assumptions, including
 estimates of production decline rates from existing wells and the outcome of
 future drilling activity.  Also, our internal estimates of reserves,
 particularly those in the property proposed to be acquired where we may have
 limited review of data or experience with the reserves, may be subject to
 revision and may be different from estimates by our external reservoir
 engineers at year-end.  Although we believe the expectations, estimates and
 forecasts reflected in these and other forward-looking statements are
 reasonable, we can give no assurance they will prove to have been correct.
 They can be affected by inaccurate assumptions and data or by known or unknown
 risks and uncertainties.
     The SEC has generally permitted oil and gas companies, in filings made
 with the SEC, to disclose only proved reserves that a company has demonstrated
 by actual production or conclusive formation tests to be economically and
 legally producible under existing economic and operating conditions.  We use
 the terms "probable" and "possible" reserves or other descriptions of volumes
 of reserves potentially recoverable through additional drilling or recovery
 techniques that the SEC's guidelines may prohibit us from including in filings
 with the SEC.  These estimates are by their nature more speculative than
 estimates of proved reserves and accordingly are subject to substantially
 greater risk of being actually realized by the company.
     The announcement of a proposed debt financing in this press release shall
 not constitute an offer to sell or a solicitation of an offer to buy any
 securities.  The debt securities will likely not be registered under the
 Securities Act of 1933 or any state securities laws, and may not be offered or
 sold in the United States absent registration or an applicable exemption from
 the registration requirements of the Securities Act and state laws.
 
     Chesapeake Energy Corporation is the sixth largest independent producer of
 natural gas in the U.S.  Headquartered in Oklahoma City, the company's
 operations are focused on exploratory and developmental drilling and producing
 property acquisitions in the Mid-Continent, Permian Basin, South Texas, Texas
 Gulf Coast and Ark-La-Tex regions of the United States.  The company's
 Internet address is http://www.chkenergy.com .
 
 
                                  SCHEDULE "A"
 
                  CHESAPEAKE'S OUTLOOK AS OF NOVEMBER 30, 2004
 
     Quarter Ending December 31, 2004; Year Ending December 31, 2004; Year
 Ending December 31, 2005; Year Ending December 31, 2006.
 
     We have adopted a policy of periodically providing investors with guidance
 on certain factors that affect our future financial performance.  As of
 November 30, 2004, we are using the following key assumptions in our
 projections for the fourth quarter of 2004, the full-year 2004, the full-year
 2005 and the full-year 2006.
 
     The primary changes from our November 1, 2004 Outlook are explained as
 follows:
 
      1)  We have updated our previous production forecasts for 2005 and 2006
          to reflect increases in production of 40 mmcfe per day in 2005 and
          70 mmcfe per day in 2006 as a result of the announced acquisition of
          Hallwood Energy Corporation.  This increases our full-year 2005
          production forecast by 3.6% to a mid-point of 1,155 mmcfe per day and
          our 2006 production forecast by 5.8% to a mid-point of 1,270 mmcfe
          per day.
      2)  We have increased capital expenditures by $50 million in each of 2005
          and 2006 to reflect increased drilling activity planned on the
          Hallwood North Block property.
      3)  We have updated the projected effects from changes in our hedging
          positions since our November 1, 2004 Outlook.
      4)  We have included our expectations for future NYMEX oil and gas prices
          to illustrate hedging effects only.
      5)  We have adjusted equivalent shares outstanding to reflect i) the
          conversion of our 6.75% preferred stock into common shares on
          November 22, 2004, ii) a recent private exchange of 600,000 shares of
          our 6.0% preferred stock for 3.225 million of our common shares, and
          iii) our pending tender offer to exchange our remaining 6.0%
          preferred stock for an estimated 21.2 million common shares.
 
 
                       Quarter Ending  Year Ending   Year Ending   Year Ending
                         December 31,  December 31,  December 31,  December 31,
                              2004          2004          2005          2006
 
     Estimated
      Production:
 
       Oil - Mbo               1,588         6,560         6,600         6,600
       Gas - Bcf           88.5 - 89.5   317 - 319     379 - 387     418 - 428
       Gas Equivalent
        - Bcfe               98 - 99     356 - 358     418 - 426     458 - 468
 
       Daily gas
        equivalent
        midpoint - in
        Mmcfe                  1,069           975         1,155         1,270
 
     NYMEX Prices (for
      calculation of
      realized hedging
      effects only):
       Oil - $/Bo             $46.67        $41.00        $40.00        $36.00
       Gas - $/Mcf             $6.60         $6.01         $6.00         $6.00
 
     Estimated
      Differentials to
      NYMEX Prices:
       Oil - $/Bo             -$2.75        -$2.65        -$2.75        -$2.75
       Gas - $/Mcf            -$0.75        -$0.70        -$0.70        -$0.70
 
 
     Estimated
      Realized Hedging
      Effects (based
      on expected NYMEX
      prices above):
 
       Oil - $/Bo            -$15.85       -$10.19         $0.06         $0.00
 
       Gas - $/Mcf            -$0.53        -$0.23         $0.05        -$0.01
 
     Operating Costs
      per Mcfe of
      Projected
      Production:
       Production
        expense         $0.57 - 0.62  $0.57 - 0.62  $0.62 - 0.67  $0.68 - 0.72
       Production taxes
        (generally
         7% of O&G
         revenues)      $0.40 - 0.44  $0.28 - 0.33  $0.38 - 0.40  $0.38 - 0.40
       General and
        administrative  $0.10 - 0.11  $0.10 - 0.11  $0.10 - 0.11  $0.11 - 0.12
       Stock based
        compensation
        (non-cash)      $0.02 - 0.04  $0.02 - 0.04  $0.04 - 0.06  $0.09 - 0.10
       DD&A - oil
        and gas         $1.65 - 1.70  $1.60 - 1.65  $1.65 - 1.75  $1.75 - 1.85
       Depreciation of
        other assets    $0.08 - 0.10  $0.08 - 0.10  $0.09 - 0.11  $0.10 - 0.12
       Interest
        expense(a)      $0.45 - 0.49  $0.45 - 0.49  $0.43 - 0.47  $0.43 - 0.47
     Other Income and
      Expense per Mcfe:
       Marketing and
        other income    $0.02 - 0.04  $0.02 - 0.04  $0.02 - 0.04  $0.02 - 0.04
 
     Book Tax Rate           36%           36%           36%           36%
 
     Equivalent Shares
      Outstanding:
 
       Basic               279 mm        254 mm        313 mm        316 mm
       Diluted             347 mm        327 mm        351 mm        354 mm
 
     Capital
      Expenditures:
       Drilling,
        leasehold and
        seismic          $300 - $325    $1,100 -      $1,250 -      $1,350 -
                             mm        $1,150 mm     $1,350 mm     $1,450 mm
 
      (a)  Does not include gains or losses on interest rate derivatives
           (SFAS 133).
 
 
     Commodity Hedging Activities
 
     The company utilizes hedging strategies to hedge the price of a portion of
 its future oil and gas production.  These strategies include:
 
      (i)    For swap instruments, we receive a fixed price for the hedged
             commodity and pay a floating market price, as defined in each
             instrument, to the counterparty.  The fixed-price payment and the
             floating-price payment are netted, resulting in a net amount due
             to or from the counterparty.
      (ii)   For cap-swaps, Chesapeake receives a fixed price and pays a
             floating market price.  The fixed price received by Chesapeake
             includes a premium in exchange for a "cap" limiting the
             counterparty's exposure.  In other words, there is no limit to
             Chesapeake's exposure but there is a limit to the downside
             exposure of the counterparty.
      (iii)  Basis protection swaps are arrangements that guarantee a price
             differential of oil or gas from a specified delivery point.
             Chesapeake receives a payment from the counterparty if the price
             differential is greater than the stated terms of the contract and
             pays the counterparty if the price differential is less than the
             stated terms of the contract.
 
     Commodity markets are volatile, and as a result, Chesapeake's hedging
 activity is dynamic.  As market conditions warrant, the company may elect to
 settle a hedging transaction prior to its scheduled maturity date and, as a
 result, lock in the gain or loss on the transaction.
     Chesapeake enters into oil and natural gas derivative transactions in
 order to mitigate a portion of its exposure to adverse market changes in oil
 and natural gas prices.  Accordingly, associated gains or loses from the
 derivative transactions are reflected as adjustments to oil and gas sales.
 All realized gains and losses from oil and natural gas derivatives are
 included in oil and gas sales in the month of related production.  Pursuant to
 SFAS 133, certain derivatives do not qualify for designation as cash flow
 hedges.  Changes in the fair value of these non-qualifying derivatives that
 occur prior to their maturity (i.e. because of temporary fluctuations in
 value) are reported currently in the consolidated statement of operations as
 unrealized gains (losses) within oil and gas sales.
     Following provisions of SFAS 133, changes in the fair value of derivative
 instruments designated as cash flow hedges, to the extent effective in
 offsetting cash flows attributable to hedged risk, are recorded in other
 comprehensive income until the hedged item is recognized in earnings.  Any
 change in fair value resulting from ineffectiveness is recognized currently in
 oil and natural gas sales.
 
     The company currently has in place the following natural gas swaps:
 
                                                               % Hedged
                               Avg.           Avg. NYMEX             Open Swap
                              NYMEX    Gain      Price    Assuming   Positions
                             Strike   (Loss)  Including     Gas      as a % of
                              Price    from      Open    Production  Estimated
                 Open Swaps  Of Open  Locked   & Locked      in      Total Gas
                  in Bcf's    Swaps    Swaps   Positions  Bcf's of:  Production
 
     2004:
     1st Qtr          69.5    $5.94    $0.03     $5.97       70.1        99%
     2nd Qtr          62.2    $5.15    $0.00     $5.15       76.5        81%
     3rd Qtr(1)       70.7    $5.49   -$0.09     $5.40       83.2        85%
     4th Qtr(1)       76.5    $5.88   -$0.11     $5.77       89.0        86%
     Total 2004      278.9    $5.63   -$0.05     $5.58      318.8        88%
 
     2005:
     1st Qtr          60.6    $6.89   -$0.11     $6.78       91.5        66%
     2nd Qtr          34.9    $5.97   -$0.30     $5.67       94.5        37%
     3rd Qtr          30.8    $5.96   -$0.35     $5.61       97.5        32%
     4th Qtr          21.6    $6.10   -$0.50     $5.60       99.5        22%
     Total 2005(1)   147.9    $6.36   -$0.26     $6.10      383.0        39%
 
     Total 2006(1)(2) 32.0    $6.62   -$0.76     $5.86      423.0         8%
 
     Total 2007(2)     ---      ---      ---       ---      450.0        ---
 
     TOTALS
     2005-2007       179.9    $6.41   -$0.35     $6.06    1,256.0        14%
 
      (1)  Certain hedging arrangements include swaps with knockout prices
           ranging from $3.50 to $5.25 covering 25.4 bcf in 2004, $3.75 to
           $5.00 covering 52.9 bcf in 2005 and $3.75 to $5.25 covering 21.1 bcf
           in 2006.
 
      (2)  Swaps covering 25.6 bcf have been locked for 2007.  This will result
           in the recognition of $11.6 million of losses in 2007 when the
           hedging arrangements settle.
 
      (3)  Not shown above are collars covering 1.1 bcf and 4.4 bcf of
           production in Q4 2004 and in 2005, respectively, at a weighted
           average floor and ceiling of $3.10 and $4.44.  In addition, call
           options covering 10.2 bcf and 7.3 bcf of production in Q4 2004 and
           in 2005 at a weighted average price of $6.31 and $6.00 are not
           included in the table above.
 
     The company has also entered into the following natural gas basis
 protection swaps:
 
                                                    Assuming Gas
                             Volume                  Production
                            in Bcf's   NYMEX less:  in Bcf's of:    % Hedged
 
     2004                     157.4         0.17        318.8          49%
     2005                     186.1         0.26        383.0          49%
     2006                     124.1         0.31        423.0          29%
     2007                     118.7         0.27        450.0          26%
     2008                     108.0         0.25        475.0          23%
     2009                      80.3         0.28        500.0          16%
 
     Totals                   774.6        $0.25      2,549.8          30%
 
      * weighted average
 
     The company has entered into the following crude oil hedging arrangements:
 
                                                           % Hedged
                                                                   Open Swap
                                                                 Positions as %
                                                    Assuming Oil    of Total
                       Open Swaps      Avg. NYMEX    Production    Estimated
                        in mbo's      Strike Price  in mbo's of:  Production
 
     Q1 - 2004            1,270           $28.58        1,465          87%
     Q2 - 2004            1,540           $30.00        1,673          92%
     Q3 - 2004(1)         1,519           $30.32        1,834          83%
     Q4 - 2004(1)         1,518           $30.10        1,588          96%
     Total 2004(1)        5,847           $29.80        6,560          89%
     Q1 - 2005              855           $41.76        1,650          52%
     Q2 - 2005              865           $41.63        1,650          52%
     Q3 - 2005              138           $31.16        1,650           8%
     Q4 - 2005              138           $30.62        1,650           8%
     Total 2005(1)        1,996           $40.20        6,600          30%
 
      (1)  Certain hedging arrangements include swaps with knockout prices
           ranging from $21.00 to $26.00 covering 2,240 mbo in 2004 and
           knockout prices ranging from $26.00 to $34.00 covering 1,996 mbo in
           2005.
 
 
                                  SCHEDULE "B"
 
              CHESAPEAKE'S PREVIOUS OUTLOOK AS OF NOVEMBER 1, 2004
                         (PROVIDED FOR REFERENCE ONLY)
 
               NOW SUPERSEDED BY OUTLOOK AS OF NOVEMBER 30, 2004
 
     Quarter Ending December 31, 2004; Year Ending December 31, 2004; Year
 Ending December 31, 2005; Year Ending December 31, 2006.
 
     We have adopted a policy of periodically providing investors with guidance
 on certain factors that affect our future financial performance.  As of
 November 1, 2004, we are using the following key assumptions in our
 projections for the fourth quarter of 2004, the full-year 2004, the full-year
 2005 and the full-year 2006.
 
     The primary changes from our July 26, 2004 Outlook are explained as
 follows:
 
      1)  We have deleted our 2004 third quarter forecast and have updated our
          forecasts for the 2004 fourth quarter, the full-year 2004 and full-
          year 2005 forecasts and have provided our initial 2006 forecast.
      2)  We have updated our previous production forecast for the full-year
          2004 to reflect actual third quarter 2004 production, which exceeded
          the mid-point of our guidance by 24 mmcfe per day, or 2.4%.  In
          addition, we have revised upward our fourth quarter 2004 production
          forecast by 20 mmcfe per day, or 2.0%, from the mid-point of our
          previous guidance, ii) our full-year 2004 production forecast by
          8 mmcfe per day, or 0.8%, from the mid-point of our previous
          guidance, iii) our full-year 2005 forecast by 33 mmcfe per day, or
          3.0%, from the mid-point of our previous guidance, all to account for
          better than expected 2004 drilling results.  The mid-point of our
          initial 2006 production forecast is 438 bcfe, or 1,200 mmcfe per day,
          a projected increase of 7.6% over the midpoint of our revised 2005
          forecast and 23.1% above the mid-point of our revised 2004 production
          forecast.
      3)  We have updated the projected effects from changes in our hedging
          positions since our July 26, 2004 Outlook.
      4)  We have included our expectations for future NYMEX oil and gas prices
          to illustrate hedging effects only.
      5)  For ease of reconciliation, please note that our first quarter 2004
          production was 78.9 bcfe, our second quarter 2004 production was
          86.5 bcfe, our third quarter production was 94.2 bcfe and our first
          nine months 2004 production was 259.7 bcfe.  Our July 26, 2004
          Outlook forecasted a third quarter 2004 production range of 91.5 to
          92.5 bcfe and a full-year 2004 production range of 353 to 355 bcfe.
          The differences are attributable to better than expected 2004
          drilling results.
 
 
                       Quarter Ending  Year Ending   Year Ending   Year Ending
                         December 31,  December 31,  December 31,  December 31,
                              2004          2004          2005          2006
 
     Estimated
      Production:
       Oil - Mbo             1,588          6,560         6,600         6,600
       Gas - Bcf          88.5 - 89.5     317 - 319     364 - 372     393 - 403
       Gas Equivalent
        - Bcfe              98 - 99       356 - 358     403 - 411     433 - 443
 
       Daily gas
        equivalent
        midpoint -
        in Mmcfe               1,069           975         1,115         1,200
 
     NYMEX Prices
      (for calculation
       of realized
       hedging effects
       only):
       Oil - $/Bo             $46.67        $41.00        $40.00        $36.00
       Gas - $/Mcf             $6.60         $6.01         $6.00         $6.00
 
     Estimated
      Differentials to
      NYMEX Prices:
       Oil - $/Bo             -$2.75        -$2.65        -$2.75        -$2.75
 
       Gas - $/Mcf            -$0.75        -$0.70        -$0.70        -$0.70
 
     Estimated Realized
      Hedging Effects
      (based on expected
      NYMEX prices
      above):
 
       Oil - $/Bo            -$15.85       -$10.19         $0.06         $0.00
 
       Gas - $/Mcf            -$0.53        -$0.23         $0.00        -$0.04
 
     Operating Costs
      per Mcfe of
      Projected
      Production:
       Production
        expense          $0.57 - 0.62  $0.57 - 0.62  $0.62 - 0.67  $0.68 - 0.72
       Production
        taxes
        (generally
         7% of O&G
         revenues)       $0.40 - 0.44  $0.28 - 0.33  $0.38 - 0.40  $0.38 - 0.40
       General and
        administrative   $0.10 - 0.11  $0.10 - 0.11  $0.10 - 0.11  $0.11 - 0.12
       Stock based
        compensation
        (non-cash)       $0.02 - 0.04  $0.02 - 0.04  $0.04 - 0.0   $0.09 - 0.10
       DD&A - oil
        and gas          $1.65 - 1.70  $1.60 - 1.65  $1.65 - 1.75  $1.75 - 1.85
       Depreciation of
        other assets     $0.08 - 0.10  $0.08 - 0.10  $0.09 - 0.11  $0.10 - 0.12
       Interest
        expense(a)       $0.45 - 0.49  $0.45 - 0.49  $0.43 - 0.47  $0.43 - 0.47
     Other Income and
      Expense per Mcfe:
       Marketing and
        other income     $0.02 - 0.04  $0.02 - 0.04  $0.02 - 0.04  $0.02 - 0.04
 
     Book Tax Rate            36%           36%           36%           36%
 
     Equivalent Shares
      Outstanding:
       Basic                279 mm        254 mm        288 mm        290 mm
       Diluted              347 mm        317 mm        349 mm        352 mm
 
     Capital Expenditures:
       Drilling,
        leasehold and
        seismic           $300 - $325    $1,100 -      $1,200 -     $1,300 -
                              mm         $1,150 mm     $1,300 mm    $1,400 mm
 
      (a)  Does not include gains or losses on interest rate derivatives
           (SFAS 133).
 
 
     Commodity Hedging Activities
 
     The company utilizes hedging strategies to hedge the price of a portion of
 its future oil and gas production.  These strategies include:
 
      (i)    For swap instruments, we receive a fixed price for the hedged
             commodity and pay a floating market price, as defined in each
             instrument, to the counterparty.  The fixed-price payment and the
             floating-price payment are netted, resulting in a net amount due
             to or from the counterparty.
      (ii)   For cap-swaps, Chesapeake receives a fixed price and pays a
             floating market price.  The fixed price received by Chesapeake
             includes a premium in exchange for a "cap" limiting the
             counterparty's exposure.  In other words, there is no limit to
             Chesapeake's exposure but there is a limit to the downside
             exposure of the counterparty.
      (iii)  Basis protection swaps are arrangements that guarantee a price
             differential of oil or gas from a specified delivery point.
             Chesapeake receives a payment from the counterparty if the price
             differential is greater than the stated terms of the contract and
             pays the counterparty if the price differential is less than the
             stated terms of the contract.
 
     Commodity markets are volatile, and as a result, Chesapeake's hedging
 activity is dynamic.  As market conditions warrant, the company may elect to
 settle a hedging transaction prior to its scheduled maturity date and, as a
 result, lock in the gain or loss on the transaction.
     Chesapeake enters into oil and natural gas derivative transactions in
 order to mitigate a portion of its exposure to adverse market changes in oil
 and natural gas prices.  Accordingly, associated gains or loses from the
 derivative transactions are reflected as adjustments to oil and gas sales.
 All realized gains and losses from oil and natural gas derivatives are
 included in oil and gas sales in the month of related production.  Pursuant to
 SFAS 133, certain derivatives do not qualify for designation as cash flow
 hedges.  Changes in the fair value of these non-qualifying derivatives that
 occur prior to their maturity (i.e. because of temporary fluctuations in
 value) are reported currently in the consolidated statement of operations as
 unrealized gains (losses) within oil and gas sales.
     Following provisions of SFAS 133, changes in the fair value of derivative
 instruments designated as cash flow hedges, to the extent effective in
 offsetting cash flows attributable to hedged risk, are recorded in other
 comprehensive income until the hedged item is recognized in earnings.  Any
 change in fair value resulting from ineffectiveness is recognized currently in
 oil and natural gas sales.
 
     The company currently has in place the following natural gas swaps:
 
                                                               % Hedged
                               Avg.           Avg. NYMEX             Open Swap
                              NYMEX    Gain      Price    Assuming   Positions
                             Strike   (Loss)  Including     Gas      as a % of
                              Price    from      Open    Production  Estimated
                 Open Swaps  Of Open  Locked   & Locked      in      Total Gas
                  in Bcf's    Swaps    Swaps   Positions  Bcf's of:  Production
 
     2004:
     1st Qtr          69.5      $5.94    $0.03     $5.97      70.1        99%
     2nd Qtr          62.2      $5.15    $0.00     $5.15      76.5        81%
     3rd Qtr(1)       70.7      $5.49   -$0.09     $5.40      83.2        85%
     4th Qtr(1)       76.5      $5.88   -$0.11     $5.77      89.0        86%
     Total 2004      278.9      $5.63   -$0.05     $5.58     318.8        88%
 
     2005:
     1st Qtr          56.1      $6.82   -$0.17     $6.65      92.0        61%
     2nd Qtr          30.4      $5.86   -$0.35     $5.51      92.0        33%
     3rd Qtr          26.2      $5.77   -$0.41     $5.36      92.0        28%
     4th Qtr          17.0      $5.85   -$0.63     $5.22      92.0        18%
     Total 2005(1)   129.7      $6.26   -$0.30     $5.96     368.0        35%
 
     Total 2006(1)(2) 13.8      $6.64   -$1.77     $4.87     398.0         3%
 
     Total 2007(2)     ---        ---      ---       ---     430.0        ---
 
     TOTALS
     2005-2007       143.5      $6.30   -$0.44     $5.86   1,196.0        12%
 
      (1)  Certain hedging arrangements include swaps with knockout prices
           ranging from $3.50 to $5.25 covering 25.4 bcf in 2004, $3.75 to
           $5.00 covering 52.9 bcf in 2005 and $3.75 to $5.25 covering 21.1 bcf
           in 2006.
 
      (2)  Swaps covering 25.6 bcf have been locked for 2007.  This will result
           in the recognition of $11.6 million of losses in 2007 when the
           hedging arrangements settle.
 
      (3)  Not shown above are collars covering 1.1 bcf and 4.4 bcf of
           production in Q4 2004 and in 2005, respectively, at a weighted
           average floor and ceiling of $3.10 and $4.44.  In addition, call
           options covering 10.2 bcf and 7.3 bcf of production in Q4 2004 and
           in 2005 at a weighted average price of $6.31 and $6.00 are not
           included in the table above.
 
     The company has also entered into the following natural gas basis
 protection swaps:
 
                                                    Assuming Gas
                             Volume                  Production
                            in Bcf's   NYMEX less:  in Bcf's of:    % Hedged
 
     2004                     157.4         0.17        318.8          49%
     2005                     175.2         0.25        368.0          48%
     2006                     113.1         0.30        398.0          28%
     2007                     107.7         0.26        430.0          25%
     2008                     108.0         0.25        460.0          23%
     2009                      80.3         0.28        490.0          16%
 
     Totals                   741.7        $0.26      2,464.8          30%
 
      * weighted average
 
     The company has entered into the following crude oil hedging arrangements:
 
                                                           % Hedged
                                                                   Open Swap
                                                                 Positions as %
                                                    Assuming Oil    of Total
                       Open Swaps      Avg. NYMEX    Production    Estimated
                        in mbo's      Strike Price  in mbo's of:  Production
 
     Q1 - 2004            1,270           $28.58        1,465          87%
     Q2 - 2004            1,540           $30.00        1,673          92%
     Q3 - 2004(1)         1,519           $30.32        1,834          83%
     Q4 - 2004(1)         1,518           $30.10        1,588          96%
 
     Total 2004(1)        5,847           $29.80        6,560          89%
 
     Q1 - 2005              855           $41.76        1,650          52%
     Q2 - 2005              865           $41.63        1,650          52%
     Q3 - 2005              138           $31.16        1,650           8%
     Q4 - 2005              138           $30.62        1,650           8%
 
     Total 2005(1)        1,996           $40.20        6,600          30%
 
      (1)  Certain hedging arrangements include swaps with knockout prices
           ranging from $21.00 to $26.00 covering 2,240 mbo in 2004 and
           knockout prices ranging from $26.00 to $34.00 covering 1,996 mbo in
           2005.
 
 

SOURCE Chesapeake Energy Corporation

Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

 

PR Newswire Membership

Fill out a PR Newswire membership form or contact us at (888) 776-0942.

Learn about PR Newswire services

Request more information about PR Newswire products and services or call us at (888) 776-0942.