Chesapeake Energy 1998 Annual Report Download - page 91

were primarily attributable to lower than expected results from development drilling and production which
eliminated certain previously established proven reserves.
On December 16, 1997, Chesapeake acquired AnSon Production Corporation, a privately owned oil and gas
producer based in Oklahoma City. Consideration for this acquisition was approximately $43 million. The
Company estimates that it acquired approximately 26.4 Bcfe in connection with this acquisition.
For the fiscal year ended June 30, 1997, the Company recorded downward revisions to the previous year's
reserve estimates of approximately 5,989 MBb1 and 137,938 MMcf, or approximately 174 Bcfe. The reserve
revisions were primarily attributable to the decrease in oil and gas prices between periods, higher drilling and
completion costs, and unfavorable developmental drilling and production results during fiscal 1997. Specifically,
the Company recorded aggregate downward adjustments to proved reserves of 159 Bcfe for the Knox, Giddings and
Louisiana Trend areas.
On April 30, 1996, the Company purchased interests in certain producing and non-producing oil and gas
properties, including approximately 14,000 net acres of unevaluated leasehold, from Amerada Hess Corporation for
$37.8 million The properties are located in the Knox and Golden Trend fields of southern Oklahoma, most of
which are operated by the Company. In fiscal 1996 the reserves acquired from Amerada Hess Corporation were
included in both "extensions, discoveries and other additions" and "purchase of reserves-in-place". The fiscal 1996
presentation has been restated to remove the acquired reserves from "extensions, discoveries and other additions"
with a corresponding offset to "revisions of previous estimate". This revision resulted in no net change to total oil
and gas reserves.
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 Company's reserve values were calculated using weighted average prices at December 31, 1998 of $10.48
per barrel of oil and $1.68 per Mcf of natural gas. If prices in future periods are below the average realized levels at
December 31, 1998, future impairment charges will likely be incurred.
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 sun-u-nary 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:
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