Chesapeake Energy 1998 Annual Report Download - page 13

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In these core areas, Chesapeake will concentrate on improving operational
efficiencies, increasing production through the installation of additional com-
pression facilities and completing various production stimulation programs and
mechanical reworks. The remaining budget is dedicated to higher-potential,
higher-risk areas such as the Tuscaloosa Trend in Louisiana and the Austin
Chalk Trend in Texas.
We are also continuing to reduce Chesapeake's already low operating costs
though our program of selling approximately 1,000 low margin oil properties.
To date, we have generated proceeds of $40 million with an additional $45 mil-
lion of sales projected for later this year.
In addition, the company has reduced its general and administrative expenses.
After completing eight acquisitions in early 1998, we have reduced Chesapeake's
pro forma overhead expense by 40%. Recently, we further reduced staff by consoli-
dating our Texas and Louisiana district offices into our Oklahoma City headquarters.
Looking Forward
To continue enhancing the value of Chesapeake's assets, we are building our
inventory of drilling opportunities and retaining our best employees. We have
a strong technical team that rigorously reviews all of our assets to identify the
best opportunities to increase production and reserves. It is important for you
to know that Chesapeake's management, directors and employees own 30% of
the company's outstanding common shares. This level of ownership, among the
highest levels in our industry, keeps all Chesapeake employees focused on our
goal of continuing to build a first-class inventory of natural gas projects.
We believe the fundamental value of Chesapeake's natural gas reserves will
move up dramatically in the near future. All of our efforts are designed to reach
this point with the best set of assets and the highest quality people possible. We
believe the wisdom of our transformation to a long-lived natural gas producer
will be strongly vindicated and that better days are ahead for Chesapeake and
our shareholders in 1999 and beyond.
Aubrey K. McClendon Tom L. Ward
March 15, 1999
Chesapeake's
Costs vs. Peers' Costs
$1.25
1.00
.75
.50
.25
0
G&A
LOE
Chesapeake Peer Group
In spite of higher interest
costs, Chesapeake's oper-
ating cost structure is
nearly 15% below that of
its peers because of our
exceptionally low lease
operating and G&A
expenses.
Chesapeake Energy Corporation Annual Report 1998 11