Chesapeake Energy 1997 Annual Report Download - page 69

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of June 30, 1997, the Company had the following oil swap arrangements for periods after June 1997:
The Company entered into oil swap arrangements to cancel the effect of the swaps for the months of
August through December at an average price of $21.07 per Bbl.
As of June 30, 1997, the Company had the following gas swap arrangements for periods after June 1997:
The Company entered into gas swap arrangements to cancel the effect of the swaps for the months of
July through October at an average price of $2.133 per MMBtu.
The Company has entered into a curve lock for 4.9 Bcf of gas which allows the Company the option to
hedge April 1999 through November 1999 gas based upon a negative $0.285 differential to December 1998
gas any time between the strike date and December 1998.
Gains or losses on the crude oil and natural gas hedging transactions are recognized as price adjustments
in the month of related production. The Company estimates that had all of the crude oil and natural gas swap
agreements in effect for production periods beginning July 1, 1997 terminated on June 30, 1997, based on the
closing prices for NYMEX futures contracts as of that date, the Company would have paid the counterparty
approximately $185,000, which would have represented the "fair value" at that date. These agreements were
not terminated. The fair value of hedging instruments at June 30, 1996 was a loss of approximately
$4.6 million.
Periodically, the Company's oil and gas marketing subsidiary CEMI enters into various hedging
transactions designed to hedge against physical purchase commitments made by CEMI. Gains or losses on
these transactions are recorded as adjustments to Oil and Gas Marketing Sales in the consolidated statements
of operations and are not considered by management to be material.
Concentration of Credit Risk
Other financial instruments which potentially subject the Company to concentrations of credit risk consist
principally of cash, short-term investments in debt instruments and trade receivables. The Company's
accounts receivable are primarily from purchasers of oil and natural gas products and exploration and
production companies which own interests in properties operated by the Company. The industry concentration
has the potential to impact the Company's overall exposure to credit risk, either positively or negatively, in
that the customers may be similarly affected by changes in economic, industry or other conditions. The
Company generally requires letters of credit for receivables from customers which are not considered
52
Month Volume (Bbls) NYMEX-Index
Strike Price (per Bbl)
July 1997 31,000 $18.60
August 1997 31,000 $18.43
September 1997 30,000 $18.30
October 1997 31,000 $18.19
November 1997 30,000 $18.13
December 1997 31,000 $18.08
January through June 1998 724,000 $19.82
Months Houston Ship Channel
Volume (MMBtu) Index Strike Price (per MMBtu)
July 1997 1,240,000 $2.3 13
August 1997 1,240,000 $2301
September 1997 1,200,000 $2.285
October 1997 1,240,000 $2.300