redeemable at the option of the Company at any time at the redemption or make-whole prices set forth in the Indenture.
Financial Flexibility and Liquidity The Company had working capital of $64.2 million at December 31, 1997. In January 1998, the Company arranged a $500 million revolving credit facility with a group of commercial banks. The facility has an initial committed borrowing base of $200 million ($168 million until the acquisition of DLB Oil & Gas, Inc. is consummated), of which $120 million was used to payoff bank debt assumed in the acquisition of Hugoton Energy Corporation on March 10, 1998 and the remainder is anticipated to be used for other acquisitions. The borrowing base can be expanded as other acquisitions create collateral value. Borrowings under the facility are secured by CAC's pledge of its subsidiaries' capital stock and bear interest currently at a rate equal to the Eurodollar rate plus 1.5%. The borrower under this facility is Chesapeake Acquisition Corporation ("CAC"), a wholly-owned subsidiary of the Company. CAC is an "unrestricted subsidiary" under the terms of the Company's Senior Note Indentures and is not a guarantor of the senior note indebtedness. The Company is not a guarantor of the revolving credit facility. The Senior Note Indentures contain various restrictions for the Company and its restricted subsidiaries to incur additional indebtedness. As of December 31, 1997, the Company estimates that commercial bank indebtedness of $75 million could have been incurred within these restrictions. This restriction does not apply to borrowings incurred by CAC and other unrestricted subsidiaries. Debt ratings for the Senior Notes are Ba3 by Moody's Investors Service and BB- by Standard & Poor's Corporation as of March 25, 1998, although both have recently placed the Company on review with negative implications. The Company's long-term debt represented approximately 65% of total capital at December 31, 1997. There are no scheduled principal payments required on any of the Senior Notes until June 2002. The Company believes it has adequate resources, including budgeted cash flow from operations, to fund its capital expenditure budget for exploration and development activities during 1998, which is currently estimated to be approximately $235 million. However, continued low oil prices or unfavorable drilling results could cause the Company to further reduce its drilling program, which is largely discretionary. Additional acquisitions, if any, beyond the announced acquisitions will be funded by a combination of commercial bank debt and/or the issuance of additional public debt or equity securities. If these additional resources are not available, the Company may not be able to successfully pursue its revised 1998 business strategy. Year 2000
Year 2000 issues result from the inability of computer programs or computerized equipment to accurately calculate, store or use a date subsequent to December 31, 1999. Although the erroneous date can be interpreted in a number of different ways typically the year 2000 is interpreted by the computer as the year 1900. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business. The Company has completed an assessment of its core financial and operational software systems and has found them either already in compliance or the necessary steps to bring them into compliance have been identified. These tasks are scheduled for completion by December 31, 1998. The Company believes that the successful completion of these tasks will mitigate any critical Year 2000 issues. However, if these tasks are not completed by year-end 1999, the Year 2000 issue could have a material impact on the Company's ability to meet financial and reporting requirements. It should not impact the Company's ability to continue exploration, drilling or production activities. Assessment of other less critical software systems and various types of equipment is continuing and should be completed by September 1998. The Company believes that the potential impact, if any, of these 35