Transcript Slide 1

Gas Well Deliquification Workshop
Denver, CO
February 27, 2006
1
Gas Well Deliquification Workshop – 2-27-2006
Conversation Outline
• CHK: Past and Present
• Current Gas Market Thoughts
• Where to From Here?
• Q&A
2
Gas Well Deliquification Workshop – 2-27-2006
CHK Overview

2nd largest independent producer of U.S. natural gas: (trail only DVN), #6 overall (including majors,
utilities and pipelines)

#1 driller in U.S.: 76 operated rigs, 84 non-operated rigs, collector of ≈10% of all daily
drilling info generated in the U.S.

Active consolidator in focused areas: $11.0 billion since ’98, $2.1 billion in ’04, $4.9 billion in ’05 and
$0.7 billion YTD in ‘06

Increasing production profile: 1,284 mmcfe/day ’05 production - 29% YOY increase;
1,593 mmcfe/day projected ’06 production - 24% YOY increase; 1,709 mmcfe/day projected ’07
production – 7% YOY increase

Large proved reserve base: 7.8 tcfe of proved reserves at 12/31/05, 92% natural gas, 65% proved
developed, 13.9 year R/P

#1 gas resource play: 8.8 tcfe of non-proved reserve potential in: i) conventional gas resource,
ii) unconventional gas resource, iii) emerging gas resource and iv) Appalachian gas resource plays;
>10-year drilling inventory of nearly 28,000 drillsites

Industry leading leasehold and seismic position: 8.4 mm net acres of U.S. onshore leasehold plus
11.6 mm acres of 3-D seismic

$19.8 billion EV: $13.6 billion equity value, $6.2 billion long-term debt

2006 estimates: ebitda $4.1 billion; operating cash flow $3.7 billion; net income to common $1.5 billion

CHK offers great value to investors: 3.6x operating cash flow, 4.9x ebitda, 9.1x P/E ratio

Top stock price performance: CHK up 23x in 12 years as a public company, #2 performer among
large-cap E&P companies during that period; #1 since 1/1/1999
Data above incorporates:
• CHK’s Outlook as of 2/23/06;
• Pro forma adjustments for acquisitions announced on 1/17/06
• An assumed common stock price of $31.00, NYMEX prices of $8.00/mcf and $50.00/bbl for 2006 and excludes effects of
FAS 133 (unrealized hedging gain or loss) and charges incurred in connection with stock based compensation; and
• Reconciliations of ebita and operating cash flow (before changes in assets and liabilities) to GAAP measures appear in slide 31
• Pro forma adjustments for the debt financing of the acquisitions announced on 1/17/06 and the sale of PDC shares on 2/7/06
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Gas Well Deliquification Workshop – 2-27-2006
CHK: Strategically Built
for Today’s Environment
 Over the last 7 years, CHK has been among the earliest to correctly recognize and quickly respond to
opportunities and challenges in the E&P industry
 Our proactive approach and strategic choices have enabled us to rapidly and profitably build one of the
largest and lowest-risk U.S. gas resource bases
Industry Opportunity/Challenge
CHK’s Response(1)
Tightening gas supply/demand fundamentals
and permanent upward shift in gas prices
• Expanded our gas-focused proved reserve base over seven-fold to
7.8 tcfe through acquisitions and the drillbit
Declining industry prospectivity
• Built the industry’s largest inventories of U.S. leasehold (8.4 net
million acres) and 3-D seismic data (11.6 million acres)
• Amassed > 10-year inventory of nearly 28,000 drillsites
• Entered every major U.S. gas resource play outside of the Rockies
Rising risk/cost of offshore and international
assets
• Selectively built a very large and focused U.S. onshore
asset base
Limited availability of experienced industry
personnel
• Expanded employee base seven-fold to over 3,300 today
• Early to hire young people from colleges/other industries
Rising service costs and limited rig availability
• Invested in three rig companies for financial hedge; made ≈$200 mm
• Created wholly-owned subsidiary, NOMAC Drilling; now have 32 rigs on
the way to 57 rigs by year-end 2006
Increasing oil & gas price volatility
• Consistently locked in near-term acquisition margins and captured high
operating margins through opportunistic hedging
• Designed multiple hedging facilities that accommodate hedging ~1.5
tcfe of gas with minimal capital commitments
Since 1/1/99, CHK’s stock price performance is #1 in the industry
(up 33-fold) and we are differentially positioned for strong,
sustainable growth for years to come
(1) Pro forma for the acquisitions announced on 1/17/06
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Gas Well Deliquification Workshop – 2-27-2006
CHK: Biggest Gas Resource Play in the U.S.
Scale: 1 inch = 200 miles
Arkoma
Basin
Anadarko
Basin
Appalachian
Basin
New York
Pennsylvania
Ohio
Maryland
Barnett
Shale
West Virginia
Ark-La-Tex
Permian
Basin
Kentucky
Tennessee
Virginia
Scale: 1 inch = 115 miles
South
Texas
Counties with CHK leasehold
Counties with CHK leasehold through CNR acquisition
Black Shale
Pro forma for the acquisition of CNR
5
CHK OKC headquarters
CNR Charleston headquarters
CHK operated rigs (76)
CHK non-operated rigs (84)
CHK/CNR field offices
Gas Well Deliquification Workshop – 2-27-2006
CHK’s Successful Business Strategy
 Following operational failures and oil/gas price collapse in the late 1990s, CHK
revamped its business strategy and for the past 7 years has executed a simple and
highly effective business strategy:
– Balanced growth through acquisitions and the drillbit
• Focus on long-lived, low-decline, onshore US gas reserves that have
become much more valuable over time
• Rediscover the lost art of deep gas exploration through new investments in
people, land and seismic in the right areas
– Regional consolidation to generate operating scale, maintain low operating
and administrative costs and deliver high returns
• CHK’s scale in its core areas is a real competitive advantage and has
created negotiating power, informational advantages and attracted top
industry talent
– Concentration on gas
• One of the first companies to recognize and capitalize on tightening
supply/demand fundamentals and permanent upward shift in gas prices
that began in ’99
• Today the #1 gas resource play in America: 8.4 mm net acres, nearly
28,000 drillsites, most active drilling program in the U.S.
CHK has benefited from substantial first mover advantages and has built
the #1 U.S. natural gas resource base
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Gas Well Deliquification Workshop – 2-27-2006
CHK’s Business Strategy
 Growth through acquisitions
• Acquire, exploit, extend and explore
 Growth through the drillbit
• Onshore domestic U.S.
 Regional consolidation
• Prefer “PIMBY” areas to “NIMBY” areas
 Gas, gas, gas
• Onshore, in the U.S.A., lots of it
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Gas Well Deliquification Workshop – 2-27-2006
Keys To Being A Successful Acquirer

Focus
Know what you want to buy, where you want
to buy it and how you want to buy it

Experience
Inexperienced or occasional buyers generally
do not succeed. CHK has a consistent
approach to acquiring and assimilating
acquisitions. CHK is always in the market and
has ≈ 50 people working full-time on
acquisition integration

Operational Skill
Must be able to operate acquired properties
more efficiently than sellers. Significant
operating scale and attention to detail are the
keys to achieving efficiencies

Drillbit Expertise
Must be able to accurately assess, accelerate
and deliver upside from PUDs, probables,
possibles and exploration opportunities
CHK has executed more acquisition transactions in the past
seven years than any other E&P company – experience helps
prevent mistakes!
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Gas Well Deliquification Workshop – 2-27-2006
Acquisition Margins Best Ever
$10.00
7-year
CAGR
Average yearly gas price
$9.00
Acquisition cost – per mcfe
$8.00
Net margin between cost and gas price
$8.64
$7.00
$6.13
$6.00
$3.88
$4.00
$2.00
$1.00
$0.00
$6.16
$5.38
$5.00
$3.00
$8.78
$2.30
$1.12
$2.27
$3.05
$3.22
$3.78
$3.00
$1.56
$0.71
1998
1999
$0.83
2000
$1.26
2001
27.5%
$4.37
$4.26
12.2%
$1.79
$1.18
$6.14
21.1%
$1.43
$1.60
$1.76
2002
2003
2004
$2.48
$2.64
2005
2006
 Oil and gas price increases have far outpaced acquisition cost increases
 Margins matter, not per mcfe sticker price
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Gas Well Deliquification Workshop – 2-27-2006
Why is CHK the #1 Driller in the U.S.?
 Most active driller in U.S. by a wide margin
̶
̶
76 operated rigs currently drilling (plus 84 non-operated rigs drilling)
CHK gathers ≈10% of all the daily drilling information generated in America
 This is a distinct competitive advantage
 1/4 of rigs drilling to targets > 15,000’; 1/2 between 10-15,000’; 1/4 < than 10,000’
̶
̶
Drill more deep onshore wells than anyone in the industry
Also one of the leading horizontal drillers in the industry
 If properly executed, good drilling easily generates the highest returns on capital:
100%+ vs. 20-25% acquisitions
 However, creating value through the drillbit today is difficult
̶ You had to start getting ready 5 years ago
̶ Quality land, people and seismic are scarce resources
 Over the past 7 years, CHK has invested over $3 billion to build the industry’s largest
inventories of U.S. leasehold (8.4 mm net acres) and 3-D seismic (11.6 mm acres)(1)
̶
̶
̶
First mover in acquiring the land, people and seismic to support future growth
Amassed > 10-year inventory of nearly 28,000 drill sites
Only company in the Barnett, Woodford, Caney, Fayetteville and Devonian Shale plays in
the U.S.
CHK is uniquely positioned to transfer and apply technology, information
and geoscience knowledge base across all operating regions
(1) Includes acquisitions announced on 1/17/06
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Gas Well Deliquification Workshop – 2-27-2006
Balanced Production Growth
1,500
1,418 mmcfe/day
1,400
2005 Q4 Average
Production
1,300
529 mmcfe/day acquisition
production growth
(48% of growth)
1,200
1,100
1,000
900
800
700
570 mmcfe/day drillbit
production growth
(52% of growth)
600
500
319 mmcfe/day
400
300
152 mmcfe/day drillbit
production maintenance
200
100
167 mmcfe/day base
production
10% current base decline rate
Base as of 4Q'00
Drillbit Production Maintenance
Drillbit Production Growth
Acquisition Growth 1Q'01 to 4Q'05
 We believe CHK’s operating performance since January 2001 has been the best among the 20
largest E&P companies
 During this time, our production has more than quadrupled, with over half of this growth coming
from the drillbit
 Through the drillbit only, CHK has created a top 20 U.S. gas producer from scratch in past 5 years
4Q'05
3Q'05
2Q'05
1Q'05
4Q'04
3Q'04
2Q'04
1Q'04
4Q'03
3Q'03
2Q'03
1Q'03
4Q'02
3Q'02
2Q'02
1Q'02
4Q'01
3Q'01
2Q'01
1Q'01
4Q'00
0
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Gas Well Deliquification Workshop – 2-27-2006
Large and Growing Gas Reserve Base
18,000
16,558
# Total proved and non-proved reserves (3P)(1)
16,000
Bcfe
14,000
Non-proved reserve potential
Proved undeveloped (PUD’s)
8,800
Proved developed (PD’s)
8,800
unproved
12,000
10,000
8,902
8,000
4,000
2,762
6,000
4,000
2,000
0
3,169
1,206
336
870
1999
1,355
1,780
2,205
578
404
951
511
1,269
1,627
2000
2001
2002
1,684
817
2,352
2003
4,996
7,758
proved
3,218
2004
2005
CHK’s deep inventory of projects helps assure repeatable, low risk value creation
12
(1) As of 12/31/05 and pro forma for acquisitions announced on 1/17/06
Gas Well Deliquification Workshop – 2-27-2006
CHK: The #1 U.S. Gas Resource Play
 Positioned for strong sustainable growth
 Over ten-year inventory of nearly 28,000
drillsites to develop 2.8 tcfe of proved
undeveloped reserves and 8.8 tcfe of
non-proved reserves
Net Acreage
(8.4 million acres)
2,700
 Most recently, CNR acquisition
opens up multiple unconventional
shale, tight sand and CBM plays in
Appalachia
2.8
3.3
Conventional gas resource
Unconventional gas resource
Emerging gas resource
Appalachian gas resource
 Continue to actively expand all
play types with ≈ 500,000 acres
acquired in 4Q05 through
aggressive land acquisition
program utilizing >900 contract
land brokers in the field
Drillsites
(27,900 gross wells)
9,200
14,000
1.2
1.1
2,000
Proved Undeveloped
Reserves
(2.8 tcfe)
Non-Proved
Reserves
(8.8 tcfe)
0.4
0.1
1.0
1.7
1.0
1.9
1.3
During the past 7 years, CHK has amassed the #1 U.S. gas
resource play in the industry. We are in every important gas
resource play in the U.S. east of the Rockies
4.2
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Gas Well Deliquification Workshop – 2-27-2006
Why Regionally Consolidate?
 Most E&P companies asset bases are too diversified, too spread out
 Result is often operational mediocrity – sometimes incoherent corporate
strategy and resulting investor unease about the future
 CHK believes top-tier business success can only be achieved by being better at
one thing than everyone else – for CHK, that’s onshore in the southwest U.S.
and in the Appalachian Basin
 Scale brings many benefits:
– Negotiating power: CHK demands and receives best prices and best
services from service industry
– Information advantages: CHK receives > 50% of all drilling information
generated in the Mid-Continent. There is tremendous value in this
unique and sustainable competitive advantage
– Attracting talent: The best geologists, engineers, and landmen want to
work where the action is
 Our strategy is clear, concise and consistent. What we do has worked, is
working and should keep working for the foreseeable future
14
CHK’s operating areas are still very fragmented and in the years
ahead likely to produce further consolidation opportunities
Gas Well Deliquification Workshop – 2-27-2006
Why Has CHK Focused on Gas Since 1998?
 Our operating strategy failure in the mid-90’s taught us that:
–
–
–
–
Significant new reserves of U.S. natural gas would be more difficult to find
Finding costs would accelerate over time
Depletion rates would accelerate over time
Boom in gas fired power plants would cause a train wreck over time
 We thought that supply/demand fundamentals would steadily improve
– Demand trendline would be up 1-3% per year, supply trendline would be down 0-2%
per year
– In pricing: higher highs, higher lows – the trend would be our friend
 Volatility is high and likely to increase. We love gas price volatility – why?
– Weather has played a key role in remarkable recent volatility
– Volatility creates opportunity to hedge unusually high prices that generate unusually
high returns
– Volatility reduces investment in the industry, which dampens supply
– Volatility helps unlock the option value embedded in long-life reserves
– This option value is a key “x” factor enhancing the value of long-lived assets and it
comes free with acquisitions
 LNG is a risk to be monitored
– But, our view is that U.S. gas prices will need to approximate BTU parity with world
oil prices to attract LNG imports in the 2009 and beyond time frame
– Worldwide liquefaction capacity rather than U.S. regas capacity will be the bottleneck
U.S. natural gas production curve today is similar to U.S. oil production
curve in the 1970’s: a peak, then a steady decline regardless of price
increases and technology improvements
15
Gas Well Deliquification Workshop – 2-27-2006
Including CNR, CHK is the
6th Largest U.S. Gas Producer
Daily U.S. Natural Gas Production
Company (C)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
BP
ConocoPhillips/BR
Chevron
ExxonMobil
Devon (1)
Chesapeake (2)
EnCana (3)
Anadarko (4)
XTO (5)
Dominion
Shell
Kerr-McGee (6)
EOG (7)
Williams
Occidental
El Paso
Marathon
Apache (8)
Pioneer (9)
Newfield (10)
Total
Ticker
BP
COP
CVX
XOM
DVN
CHK
ECA
APC
XTO
D
RD
KMG
EOG
WMB
OXY
EP
MRO
APA
PXD
NFX
4Q ‘05
2,359
2,257 (F)
1,638
1,620
1,458
1,286/1,396(G)
1,154
1,114
1,102
932
919
883
749
629(H)
572
559(H)
549
514
450
429
21,173
(A,B)
4Q ‘04
3Q ‘05
2,651
2,130
1,618
1,810
1,620
1,002
1,007
1,306
916
1,013
1,302
1,041
666
560
499
593
568
637
546
585
22,070
2,456
2,170
1,676
1,614
1,485
1,183
1,099
1,098
1,087
935
948
937
724
629
564
559
562
586
460
509
21,281
4Q ’05
vs. 4Q ‘04
% Change (D)
4Q ‘05
vs. 3Q ‘05
% Change (D)
(11.0 ) %
6.0
1.2
(10.5 )
(10.0 )
28.3
14.6
(14.7 )
20.3
( 8.0)
(29.4 )
(15.2 )
12.5
12.3
14.6
( 5.8 )
( 3.3 )
(19.3 )
(17.7 )
(26.6 )
( 4.1 )
( 3.9 ) %
4.0
( 2.3 )
0.4
( 1.8 )
8.7
5.0
1.5
1.4
( 0.3 )
( 3.1 )
( 5.8 )
3.5
0.0
1.4
0.0
2.2
(12.4 )
( 2.3 )
(15.6 )
( 0.5 )
US Rigs
at 2/23/06 (E)
24
46
11
9
46
76
47
30
52
32
14
26
38
21
16
12
13
26
13
23
575
The top 20 gas producers (with their royalty owners @ 20%) account
for ≈50% of U.S. gas production, but only 37% of drilling activity
(A) Based on company reports
(B) In mmcf per day
(C) Independents in green, majors in black, pipelines in red
(D) CHK’s change calculated on reported 4Q ’05 gas production
(E) Source: Smith International Survey (operated rig count)
(F) Pro forma for the acquisition of Burlington
(G) CHK’s reported gas production in 4Q ’05 was 1,286 mmcf per day
- production of 1,399 mmcf per day is pro forma for the mid-quarter CNR acquisition and the acquisitions announced on 1/17/06
(H) WMB and EP 4Q ’05 production estimated at 3Q ’05 levels
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Gas Well Deliquification Workshop – 2-27-2006
Current Oil & Gas Market
Thoughts
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Gas Well Deliquification Workshop – 2-27-2006
Drivers of Future Oil and Gas Prices

Oil and natural gas is increasingly difficult and expensive to find, all across the
globe – and we are consuming 31 billion bbls/year

World population growth will continue until at least 2050, increasing by approx.
50% – that’s 3 billion more energy consumers (10x current USA population)

50% of today’s population (mostly Asia) is rapidly industrializing, and rapidly
expanding energy consumption

Average U.S. oil consumption per capita: 25.3 bbls/year 2003

Average Korean oil consumption per capita: 17.7 bbls/year 2003

Average Japanese oil consumption per capita: 15.6 bbls/year 2003

Average Chinese oil consumption per capita: 1.8 bbls/year 2003

Average Indian oil consumption per capita: 0.9 bbls/year 2003

When urbanized Chinese (40%) and Indians (30%) reach same per capita
consumption as Japanese/Koreans average today, the world
will consume 42% more oil than today – where will 35 million new bbls/day come
from? How quickly will China and India get there?
The Great Debate: How close are we to a peak
of worldwide crude production?
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Gas Well Deliquification Workshop – 2-27-2006
Drivers of Future
Oil and Gas Prices, Part II

In addition to Asia, the U.S. and others will also continue to grow – remember, the U.S.
adds the equivalent of a new Texas every 7-8 years in population and energy demand

Despite the obvious need for massive new resources of oil and natural gas, futures
markets and most investors/analysts believe that lower oil and gas prices are inevitable
–


Why so much denial of what appear to be easily visible trends?
–
Energy has not been expensive for 20 years (almost half of U.S. population has
never known anything other than cheap energy)
–
It’s inconvenient to think about the implications of energy prices – every thing you
own and do today is predicated on cheap energy
–
–
Policies favoring cheap energy and a pristine environment are often in conflict
Technology will save us – maybe, but much higher prices will be needed to drive
the needed increases in energy technology investment
Bush’s inaugural “Freedom from Tyranny” policy is bullish for energy prices
–
–

although this is changing before our eyes
If he’s right, strong demand increases will overwhelm supply increases
If he’s wrong, supply will be at risk for a long time
Hurricanes Katrina and Rita demonstrate the folly of putting too many of our energy
infrastructure eggs in one (very fragile) basket
And finally, when will peace, love and harmony
break out in oil producing regions of the world?
19
Gas Well Deliquification Workshop – 2-27-2006
Where to
From Here?
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Gas Well Deliquification Workshop – 2-27-2006
Ten Questions to Ponder
 Can LNG gas supply accretion (from a 2.5 bcf/day base in ‘05) overcome continuing
U.S./Canada gas supply depletion (from a 70 bcf/day current base)?
 Will all (or enough) spot cargoes of LNG come to the U.S. and at what price?
 Will LNG importers have financial motivation to undercut U.S. gas prices at the
moment of importation?
 When will we build gas pipeline from McKenzie Delta Alaska? How much of the
McKenzie gas gets past Canadian oil sands projects? Should Alaska gas be liquefied
instead?
 What happens if energy demand in India and China (40% of the world’s population)
increases by 35 million bbls/day in next 15 years?
 How will U.S. resolve its public policy conflicts between cheap energy vs. a pristine
environment?
 Will world oil production peak? When? ’06, ’10, ’15? Ever?
 After an oil production peak, how much stranded gas becomes converted to liquids
rather than to LNG?
 How high do oil/natural gas prices have to rise to cut short economic growth?
 How will Iraq and Iran play out and what happens if (or when?) House of Saud falls?
At what prices for oil and gas are you willing
to change your consumption habits?
21
Gas Well Deliquification Workshop – 2-27-2006
Your Q&A
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Gas Well Deliquification Workshop – 2-27-2006
Corporate Information
Chesapeake Headquarters
6100 N. Western Avenue
Oklahoma City, OK 73118
Contacts:
Jim C. Johnson
President
Chesapeake Energy Marketing, Inc.
(405) 879-9163
[email protected]
Web site: www.chkenergy.com
Common Stock – NYSE: CHK
Other Publicly Traded Securities
6.0% Convertible Preferred Stock
5.0% Convertible Preferred Stock (2003 Series)
4.125% Convertible Preferred Stock
5.0% Convertible Preferred Stock (2005 Series)
4.5% Convertible Preferred Stock
5.0% Convertible Preferred Stock (2005 B Series)
7.5% Senior Notes Due 2013
7.5% Senior Notes Due 2014
7.0% Senior Notes Due 2014
7.75% Senior Notes Due 2015
6.875% Senior Notes Due 2016
6.375% Senior Notes Due 2015
6.625% Senior Notes Due 2016
6.50% Senior Notes Due 2017
6.25% Senior Notes Due 2018
6.875% Senior Notes Due 2020
2.75% Contingent Convertible Senior Notes Due 2035
CUSIP
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Ticker
CHKPrA
CHKPrB
n/a
n/a
CHK PrD
n/a
CHK13
CHK14
CHKA14
CHK15
CHK16
CHKJ15
CHKJ16
n/a
CHK18
n/a
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Jeff Fisher
Senior Vice President
Production
(405) 767-4018
[email protected]
Human Resources
[email protected]
www.chkenergy.com
23
Gas Well Deliquification Workshop – 2-27-2006
Certain Reserve & Production Information
 The Securities and Exchange Commission has generally permitted oil and gas
companies, in their filings 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,” “possible” and “non-proved” reserves,
reserve “potential” or “upside” 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.
 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 our recent
acquisitions where we may have limited review of data or experience with the
properties, may be subject to revision and may be different from those 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.
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Gas Well Deliquification Workshop – 2-27-2006
Forward-Looking Statements
This report includes “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, our business strategy and other plans and objectives for
future operations, including our planned common stock offering. In addition, statements concerning the fair value of
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.
Although we believe the expectations 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 or by known or unknown risks and uncertainties. Factors that could cause actual results to differ materially
from expected results are described under “Risk Factors” beginning on page S-12 of the Prospectus Supplement dated
December 8, 2005 we filed with the Securities and Exchange Commission on December 8, 2005. 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 and on our ability to make debt service and preferred stock dividend payments as they
become due, our ability to compete effectively against strong independent oil and gas companies and majors, the
availability of capital on an economic basis to fund reserve replacement costs, uncertainties inherent in estimating
quantities of oil and gas reserves and projecting future rates of production and the timing of development expenditures,
our ability to replace reserves and sustain production, uncertainties in evaluating oil and gas reserves of acquired
properties and associated potential liabilities, unsuccessful exploration and development drilling, declines in the values of
our oil and gas properties resulting in ceiling test write-downs, lower prices realized on oil and gas sales and collateral
required to secure hedging liabilities resulting from our commodity price risk management activities, drilling and operating
risks, 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
presentation, and we undertake no obligation to update this information. We urge you to carefully review and consider the
disclosures made in this presentation and our filings with the Securities and Exchange Commission that attempt to advise
interested parties of the risks and factors that may affect our business.
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