This excerpt taken from the CHK 8-K filed Nov 1, 2005.
12. Future Operations
As shown in the accompanying consolidated balance sheets, the Company has a deficiency in members equity of approximately $209 million at December 31, 2004. This deficit was the result of a $350 million distribution to members declared in December 2004 and paid in January 2005.
As more fully described in Note 2 and in connection with the acquisition of CER in August 2003, the Company assumed an obligation under forward gas sales agreements with Mahonia II Limited to deliver 72.1 Bcf of natural gas to Mahonia through 2006, for which no future compensation was forthcoming. The Company was required to utilize additional borrowings totaling $125 million during 2004 under the Companys then existing $500 million credit facility financed through a syndicated borrowing instrument managed by Fleet Bank (Fleet). As expected prior to the acquisition, this forward gas sales commitment significantly impacts the Companys cash flows from operations during the life of the delivery commitment. During 2004 and 2003, the Company used approximately $50.0 million and $20.2 million, respectively, of cash for operations.
The daily natural gas deliveries required under the forward gas sales agreements declined in October 2004, and will continue to decline throughout 2005 until final deliveries scheduled for the first quarter 2006, improving the Companys overall cash flow position. Due largely to the reduction in 2005 of the Companys contractual delivery obligations associated with the forward gas sales contract, the Companys financial plan has forecasted improved cash flows from operations for 2005. The level of the Companys future cash flow will depend on a number of factors including the price received for oil and natural gas, the scope and success of drilling activities, ability to acquire additional producing properties, and fluctuations in interest rates.
Columbia Energy Resources, LLC (a wholly owned
subsidiary of Triana Energy Holdings, LLC)
Notes to Consolidated Financial Statements (continued)
12. Future Operations (continued)
In January 2005, the Company entered into a new syndicated loan managed by Bank of America and refinanced the debt previously held with Fleet Bank. Under the terms of the new debt instrument, the Company obtained a credit facility of $1.25 billion with an initial borrowing base of $850 million for a period of five years. As of March 15, 2005, $715 million had been borrowed against this line.