Chesapeake Energy 1997 Annual Report Download - page 73

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1996 and fiscal 1995 was recorded to "Revisions of previous estimate" with no net change to year-end reserve
quantities.
Standardized Measure of Discounted Future Net Cash Flows (unaudited)
Statement of Financial Accounting Standards No. 69 ("SFAS 69") prescribes guidelines for computing
a standardized measure of future net cash flows and changes therein relating to estimated proved reserves. The
Company has followed these guidelines which are briefly discussed below.
Future cash inflows and future production and development costs are determined by applying year-end
prices and costs to the estimated quantities of oil and gas to be produced. Estimates are made of quantities of
proved reserves and the future periods during which they are expected to be produced based on year-end
economic conditions. Estimated future income taxes are computed using current statutory income tax rates
including consideration for the current tax basis of the properties and related carryforwards, giving effect to
permanent differences and tax credits. The resulting future net cash flows are reduced to present value
amounts by applying a 10% annual discount factor.
The assumptions used to compute the standardized measure are those prescribed by the Financial
Accounting Standards Board and, as such, do not necessarily reflect the Company's expectations of actual
revenue to be derived from those reserves nor their present worth. The limitations inherent in the reserve
quantity estimation process, as discussed previously, are equally applicable to the standardized measure
computations since these estimates are the basis for the valuation process.
The following summary sets forth the Company's future net cash flows relating to proved oil and gas
reserves based on the standardized measure prescribed in SFAS 69:
56
June 30,
1997 1996 1995
($ in thousands)
Future cash inflows $ 954,839 $1,101,642 $ 427,377
Future production costs (190,604) (168,974) (75,927)
Future development costs (152,281) (137,068) (76,543)
Future income tax provision (104,183) (135,543) (51,789)
Future net cash flows 507,771 660,057 223,118
Less effect of a 10% discount factor (92,273) (198,646) (63,207)
Standardized measure of discounted future net cash
flows $ 415,498 $461,411 $ 159,911