This summary is based on the first quarter fiscal 2007 earnings call conducted by Chesapeake Energy Corp. (CHK: chart) on May 04, 2007.

Senior Vice President, Investor Relations and Research: Jeffrey L. Mobley
Chief Executive Officer and Director: Aubrey K. McClendon
Executive Vice President and Chief Financial Officer: Marcus C. Rowland

Key Investors Issues

- EPS were 50 cents per share compared to $1.44 per share last year.
- Net income available to common shareholders declined to $232 million from $603.9 million last year.
- Revenue fell to $1.58 billion from $1.94 billion a year ago.

First Quarter Highlights

Net income available to common shareholders was $232 million.

- EPS were 50 cents per fully common share.
- Operating cash flow was $1.124 billion (defined as cash flow from operating activities before changes in assets and liabilities).
- EBIDTA was $924 million (defined as net income before income taxes, interest expense, and depreciation, depletion and amortization expense) on revenue of $1.580 billion and production of 154 billion cubic feet of natural gas equivalent (bcfe).

Net income available to common shareholders and EBITDA include an unrealized after-tax mark-to-market loss of $193 million resulting from the company''s oil and natural gas and interest rate hedging programs.

This type of item is typically not included in published estimates of the company''s financial results.

Excluding this item, Chesapeake generated adjusted net income to common shareholders of $425 million (87 cents per fully common share) and adjusted EBITDA of $1.234 billion. The excluded item does not affect the calculation of operating cash flow.

Daily production averaged 1.707 bcfe, an increase of 188 million cubic feet of natural gas equivalent (mmcfe), or 12%, over the 1.519 bcfe of daily production in the 2006 first quarter and an increase of 54 mmcfe, or 3%, over the 1.653 bcfe produced per day in the 2006 fourth quarter.


Chesapeake''s production of 153.7 bcfe was comprised of 140.8 billion cubic feet of natural gas (bcf) (92% on a natural gas equivalent basis) and 2.14 million barrels of oil and natural gas liquids (mmbbls) (8% on a natural gas equivalent basis). Chesapeake''s average daily production of 1.707 bcfe consisted of 1.564 bcf of natural gas and 23,811 barrels (bbls) of oil. The 2007 first quarter was Chesapeake''s 23rd consecutive quarter of sequential U.S. production growth. Over these 23 quarters, Chesapeake''s U.S. production has increased 326%, for an average compound quarterly growth rate of 6.5% and an average compound annual growth rate of 29%.

Chesapeake began 2007 with estimated proved reserves of 8.956 trillion cubic feet of natural gas equivalent (tcfe) and ended the quarter with 9.431 tcfe, an increase of 475 bcfe, or 5.3%.

Chesapeake replaced its 154 bcfe of production with an estimated 629 bcfe of new proved reserves for a reserve replacement rate of 410%. Reserve replacement through the drillbit was 535 bcfe, or 349% of production (including 205 bcfe of positive performance revisions and 135 bcfe of positive revisions resulting from oil and natural gas price increases between December 31, 2006 and March 31, 2007) and 85% of the total increase. Reserve replacement through the acquisition of proved reserves was 94 bcfe, or 61% of production and 15% of the total increase.

On a per thousand cubic feet of natural gas equivalent (mcfe) basis, the company''s total drilling and acquisition costs were $2.58 per mcfe (excluding costs of $50 million for seismic, $405 million for unproved properties and leasehold acquired and $12 million relating to tax basis step-up and asset retirement obligations, as well as positive revisions of proved reserves from higher oil and natural gas prices).

Excluding these items described above, Chesapeake''s exploration and development costs through the drillbit were $2.66 per mcfe while reserve replacement costs through acquisitions of proved reserves were $2.21 per mcfe. Total costs incurred in oil and natural gas acquisition, exploration and development, including seismic, leasehold, unproved properties, capitalized internal costs, non-cash tax basis step-up from corporate acquisitions and asset retirement obligations, were $1.741 billion.

Chesapeake continued the industry''s most active drilling program and drilled 476 gross (404 net) operated wells and participated in another 394 gross (57 net) wells operated by other companies.

The company''s drilling success rate was 99% for company-operated wells and 98% for non-operated wells.

Chesapeake invested $906 million in operated wells (using an average of 129 operated rigs), $160 million in non-operated wells (using an average of 94 non-operated rigs), $148 million to acquire new leasehold (exclusive of $258 million in unproved leasehold obtained through corporate and asset acquisitions) and $50 million to acquire seismic data.