|
|
 | | | |
- close
- close
- close
- close
| |||||||||
CHK » Topics » Natural gas and oil prices are volatile. A decline in prices could adversely affect our financial position, financial results, cash flows, access to capital and ability to grow.These excerpts taken from the CHK 10-K filed Mar 2, 2009. Natural gas and oil prices are volatile. A decline in prices could adversely affect our financial position, financial results, cash flows, access to capital and ability to grow. Our revenues, operating results, profitability and future rate of growth depend primarily upon the prices we receive for the natural gas and oil we sell. Prices also affect the amount of cash flow available for capital expenditures and our ability to borrow money or raise additional capital. The amount we can borrow from banks is subject to periodic redeterminations based on prices specified by our bank group at the time of redetermination. In addition, falling prices may result in ceiling test write-downs of our natural gas and oil properties, as described below in the risk factor “Price declines during 2008 resulted in a write-down of our asset carrying values and future price declines could result in additional write-downs in the future”. Historically, the markets for natural gas and oil have been volatile and they are likely to continue to be volatile. Wide fluctuations in natural gas and oil prices may result from relatively minor changes in the supply of and demand for natural gas and oil, market uncertainty and other factors that are beyond our control, including:
22
Table of Contents
These factors and the volatility of the energy markets make it extremely difficult to predict future natural gas and oil price movements with any certainty. Declines in natural gas and oil prices not only reduce revenue, but also reduce the amount of natural gas and oil that we can produce economically and, as a result, could have a material adverse effect on our financial condition, results of operations and reserves. Further, natural gas and oil prices do not necessarily move in tandem. Because approximately 94% of our reserves at December 31, 2008 were natural gas reserves, we are more affected by movements in natural gas prices. Natural Prices also affect the amount of cash flow available for capital expenditures and our ability to borrow money or raise additional capital. The amount we can borrow from banks is subject to periodic redeterminations based on prices specified by our bank group at the time of redetermination. In addition, falling prices may result in ceiling test write-downs of our natural gas and oil properties, as described below in the risk factor “Price declines during 2008 resulted in a write-down of our asset carrying values and future price declines could result in additional write-downs in the future”. Historically, the markets
22 Table of Contents
our revolving bank credit facility and $460 million of outstanding borrowings drawn under our midstream revolving bank credit facility. Our net indebtedness represented 43% of our total book capitalization at December 31, 2008. Following the February 2009 issuance of $1.425 billion of 9.5% Senior Notes due 2015, we had as of February 26, 2009 $1.630 billion outstanding under our revolving bank credit facility and $424 million outstanding under our midstream revolving bank credit facility. Our level of indebtedness and preferred stock affects our operations in several ways, including the following:
We may incur additional debt, including
23 Table of ContentsChesapeake Midstream Operating’s midstream revolving bank credit facility contains a covenant In addition, our bank borrowing base is and we may face challenges if conditions in the economy and financial markets do not improve. Although we believe we have developed an operating and capital budget for 2009 and 2010 that will allow us to fund our business with internally generated cash flow, our cash flow from operations, our revolving bank credit facility and cash on hand historically have not been sufficient to fund all of our expenditures, and we have relied on the capital markets and asset monetization transactions to provide us with additional capital. Our ability to access the capital markets has been restricted from time to time as a result of this crisis and may be restricted at a time when we would like, or need, to raise capital. The financial crisis may also limit the number of participants in our proposed asset monetization transactions or reduce the values we are able to realize in those transactions, making them uneconomic or harder or impossible to consummate. The economic situation could also adversely affect the collectability of our trade receivables and cause our commodity hedging arrangements to be ineffective if our counterparties are unable to perform their obligations or seek bankruptcy protection. If our joint venture partners do not meet their obligations to fund a portion of our drilling costs in the Haynesville, Fayetteville or Marcellus Shale plays as agreed under our joint venture arrangements, or if our Haynesville joint venture partner, Plains Exploration & Production Company, exercises its option in June 2010 to reduce its drilling cost carry obligation by $800 million as described in Item 1 of this report under “Operating Areas”, we may be required to fund these expenditures from other sources or reduce our drilling activities. Additionally, the current economic situation could lead to reduced demand for natural gas and oil or lower prices for natural gas and oil or both, over the long term, which would have a negative impact on our revenues. | EXCERPTS ON THIS PAGE:
|
| |||||||
