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CHK » Topics » Results of Operations, page 42

This excerpt taken from the CHK 8-K filed Jul 9, 2008.

Results of Operations, page 42

 

10. We note the impact of realized gains on oil and natural gas derivatives in your total sales for Fiscal Year 2007, 2006 and 2005 and your reported derivative positions as of December 31, 2007. We further note on page 3 of this filing you have hedged 87% of your expected 2008 natural gas production and 94% of your expected 2008 oil production. Include a discussion [of] any known trends or uncertainties related to your derivative positions that you reasonably expect will have a material favorable or unfavorable impact on net sales or tell us why you are unable to provide this discussion. Refer to Regulation S-K Item 303(a)(3)(ii).

Response: The company provided a comprehensive listing of its derivative positions as of December 31, 2007 on pages 55-57 in Item 7A, and we further provided an updated hedged percentage as of a current date on page 34 under “Liquidity and Capital Resources.” Our natural gas and oil derivatives allow us to predict with greater certainty the revenue we will receive for our hedged production, but we cannot predict the gains or losses we will realize from the derivatives. Gains or losses on open derivatives will be determined by future natural gas and oil prices at the time of settlement. Historically, the markets for natural gas and oil have been volatile and they are likely to continue to be volatile. We employ hedges primarily to mitigate the downside of price volatility but cannot reasonably predict what prices will be in future periods.

Securities and Exchange Commission

June 13, 2008

Page 10 of 14

 

We have disclosed on page 56 the aggregate amount of gains ($215 million as of December 31, 2007) we will realize in future periods, from 2008 through 2022, as a result of natural gas and oil hedges we have settled prior to maturity. Those gains are locked in and are not subject to future price changes.

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