Chesapeake Energy Corp. (NYSE: CHK).(Interview)

Publication: Oil and Gas Investor

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COPYRIGHT 2005 Hart Publications, Inc.

Oil and Gas Investor: Describe briefly the strategy that drives your company.

McClendon: It's really pretty simple. We are building one of the largest onshore natural gas resource bases in the U.S. through a combination of organic growth through the drillbit and acquisitions growth. We focus almost exclusively on natural gas. In addition to our acquisition and exploitation businesses, we also love to explore for new reserves of natural gas, and today are the most active driller of new wells in the U.S.

OGI: Could you describe your core drilling and production areas?

McClendon: We are focused about 70% in the Midcontinent, which consists mostly of Oklahoma and the Texas Panhandle as well as Kansas and western Arkansas. Our other areas of importance are the Permian Basin, South Texas along the upper Texas Gulf Coast, the ArkLaTex region and finally in the Barnett Shale.

OGI: Do you anticipate expanding to any new core areas this year?

McClendon: I don't think so. Beyond the Midcontinent, the areas that I mentioned are all new to the company in the last three years, or they feel like areas where we can extend some of what we do well in the Midcontinent. Specifically, our drillbit expertise and our asset consolidation approach. We've got our hands full right now, and at this time, we're not looking for additional geographic areas. We feel that a major advantage of Chesapeake's strategy is our focus on being able to concentrate on only five states where 99% of our production is and where about half of the U.S. production is located. By focusing on this area, we feel like we can have some of the best returns and growth prospects in the industry.

OGI: What are the characteristics of the basins where you are operating that make sense to the company?

McClendon: All of the areas show similar characteristics. First of all, they are all gas-prone, at least at the depths at which we concentrate. Secondly, multiple formations, which reduce dry hole risk. Thirdly, well-established decline curves, so we don't find ourselves in areas where we're unfamiliar with what...

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