To supplement funding of Chesapeake’s rapid growth, we developed a number of value-creating financing strategies specifically tailored to the risk profile of different assets and designed to secure low-cost financing, limit financial leverage and minimize shareholder dilution. We have executed these strategies very successfully, enabling us to secure a much larger and more valuable resource base than we otherwise would have been able to secure using only our cash flow from operations.
BOLD 25/25 PLAN In early 2011, we outlined our bold 25/25 Plan that was designed to achieve balance sheet metrics worthy of an investment grade rating and thereby improve the value of our common stock. The plan calls for reducing our long-term debt by 25% and increasing our production by 25% over the two-year period ending December 2012. Concurrently, we plan to complete a transformational shift to more liquids production, build one of the largest U.S. onshore oilfield services companies and further expand our industry-leading gathering and processing operations. This is clearly a bold plan that few energy companies of any size would have the ability to accomplish, especially during this challenging period of low natural gas prices. I look forward to writing next year’s letter with this achievement in hand.
wells to develop 8.7 tcfe of proved undeveloped reserves and 350 tcfe of unrisked unproved resources that underlie our leasehold. In other words, Chesapeake has produced only 2% of the resource base we own. This bodes extremely well for the predictability of our growth and the ultimate value of the company’s assets and stock price. In addition, much of our shale gas leasehold has been initially drilled upon and is now considered “held by production” or “HBP’ed,” which turns it from a temporary asset into a permanent asset. This HBP process is also underway on our liquids-rich leasehold and should be largely brought to a conclusion within the next three years. Chesapeake’s total estimated unrisked unproved resource base of 350 tcfe is by far the largest such
U.S. natural gas is the most undervalued asset in the world, and it represents a oncein-a-generation investment opportunity.
BIG FUTURE — CHESAPEAKE HAS CAPTURED THE LARGEST U.S. RESOURCE BASE I am quite confident that when the history of this era of the oil and gas industry is written, the companies that will have performed the best will be those few bold companies that first recognized how unconventional resource development in the U.S. would end the first 150 years of industry history and set the course for the next era. I believe this new era will dominate our industry’s future for at least the next 50 years. I further believe Chesapeake is the best-positioned E&P company to benefit from what lies ahead because our assets and human resources are second to none in quality and size. On Chesapeake’s 15.3 million net acres of leasehold (by comparison, about the size of West Virginia), we have produced 6.6 trillion cubic feet of natural gas equivalent (tcfe) to date from 22,000 net wells and have another 10.1 tcfe left of proved reserves to produce from these existing wells. We could potentially drill up to another 125,000 net
resource base in the U.S. Chesapeake’s market valuation today very clearly does not give this unrivaled resource upside any value. We presume this is because of investors’ overwhelmingly negative view about the near-term future of U.S. natural gas prices. We believe this is a shortsighted approach to determining the value of our company and our unproved resource base. We are determined to unlock this value for our shareholders.
BIG OPPORTUNITY FOR U.S. NATURAL GAS — THE WORLD’S MOST UNDERVALUED ASSET We believe U.S. natural gas is the most undervalued asset in the world, and it represents a once-in-a-generation investment opportunity. 2011 Annual Report | 9