Chesapeake Energy 1998 Annual Report Download - page 36

ITEM 2. Properties
Primary Operating Areas
The Company's strategy is to focus its acquisition and development efforts in tl*ee areas: (i) the Mid-Continent
(consisting of Oklahoma, southwestern Kansas and the Texas Panhandle), (ii) the onshore Gull Coast in Texas and
Louisiana, and (iii) the Helmet area in northeastern British Columbia. In addition, the Company will selectively
pursue exploration projects such as the Deep Tuscaloosa in Louisiana and the Deep Wilcox in Wharton County,
Texas
Mid-Continent Region. The Company's Mid-Continent proved reserves of 625 Bcfe represented 57% of the
Company's total proved reserves as" of December 31, 1998 and this area produced 64 Bcfe, or 49% of the
Company's 1998 production.
During 1998, the Company invested approximately $63 million to drill 165 gross (96.1 net) wells in the Mid-
Continent. The Company has budgeted approximately $50 million for the Mid-Continent during 1999, representing
approximately 56% of the Company's total budget for exploration and development activities during the year. The
Company anticipates the Mid-Continent will contribute approximately 67 Bcfe of production during 1999, or 54%
of expected total production.
Gulf Coast. The Company's Gulf Coast proved reserves, consisting of the Austin Chalk Trend in Texas and
Louisiana and the Tuscaloosa Trend in Louisiana, represented 151 Bcfe, or 14% of the Company's total proved
reserves as of December 31, 1998. During 1998, the Gulf Coast assets produced 52 Bcfe, or 40% of the Company's
total production. The Company anticipates the Gull Coast will contribute approximately 38 Bcfe of production
during 1999, or 31% of expected total production.
During 1998, the Company invested approximately $109 million to drill 37 gross (17.8 net) wells in the Gulf
Coast. For 1999, the Company has budgeted approximately $6 million for Texas Austin Chalk and Louisiana
Austin Chalk drilling and $15 million for Tuscaloosa exploratory drilling activities. In the aggregate, these Gulf
Coast expenditures represent approximately 23% of the Company's total budget for exploration and development
activities in 1999.
Helmet Area. During fiscal 1996 and 1997, the Company began to evaluate the possibility of developing a third
core area of operations to complement its activities in the Mid-Continent and Gulf Coast regions. Management
believed that the North American gas market would significantly tighten and as a result, Canadian natural gas
prices, which have significantly lagged U.S. natural gas prices during the past 15 years, would increase inthe future
compared to U.S. gas prices. During 1998, the Company entered into two transactions which established a
significant presence in a major gas field in northeastern British Columbia.
The Company's Canadian proved reserves of 232 Bcfe represented 21% of the Company's total proved reserves
at December 31, 1998. During 1998, production from Canada was 8 Bcfe, or 6% of the Company's total
production. The Company has budgeted $15 million to drill seven net wells in 1999 and expects production of 20
Bcfe, or 16% of the Company's estimated total production for 1999.
Other Operating Areas
Permian Basin. In 1,995, the Company initiated drilling activity in the Permian Basin in the Lovington area of
Lea County, New Mexico. In this project, the Company is utilizing 3-D seismic technology to search for prospects
that management believes have been overlooked in this portion of the Permian Basin because of inconclusive results
provided by traditional 2-D seismic technology. During 1998, the Company drilled seven wells in the Lovington
area, four of which were successfully completed and three were unsuccessful. The Company has budgeted
approximately $0.8 million to drill one gross (0.8 net) well in this area during 1999.
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