Chesapeake Energy 1993 Annual Report Download - page 28

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
OtherProperty and Equipment. Otherproperty and equipment primarily consists of vehicles, oil and
gas servicing equipment, office: buildings, and office equipment. Major renewals and betterments are
capitalized while the costs of repairs and maintenance are charged to expense as incurred. The costs of .assets
retired or otherwise disposed of and the applicable accumulated depreciation are removed form the accounts
and the resUlting gain or loss is reflected in operations. Other property and equipment costs are depreciated
on both straight line and accelerated methods over the estimated useful lives of the assets which range from
3to 30 years.
Capitalized Interest. During 1993, interest of approximately $192,000 was capitalized during periods
of drilling, completing and construction of facilities.
Service Operations. Certain subsidiaries of the Company perform contractual services on wells the
Company operates as well as for third parties. Oil and gas service operationsrevenues and costs and expenses
reflected in the accompanying consolidated statements of operations include amounts derived from certain
of the contractual services provided The Company s economic interest in its oil and gas properties is not
affected by the performance of these contractual services and all intercompany profits have been eliminated
Concentration of Credit Risk. The Company operates exclusively in. the oil. and gas industry. The
Company s joint interest billings and oil and gas sales receiab1es represent substantially all of the balance
included in trade accounts recei able in the accompanying balance sheets
Income Taxes. Except for CEX, the Combined Entities were C Corporations which filed separate
income tax returns prior to the Combination CEX is a partnership and accordingly its taxable income or loss
for periods prior to the Combination was allocated to its individual partners and reported in their income tax
returns Subsequent to the Combination the Company has filed a consolidated federal income tax return
The Company has adopted Statement of Financial Accounting Standards ("SFAS").Nó. 109, 'Accounting
for Income Taxes and has stated its deferred income tax assets and liabilities under the provisions of this
accounting standard for all periods presented
Net Income Per Share. Primary earnings per share for all periods has been computed based upon the
weighted average number of shares outstanding after giving retroactive effect to the 1 8 for 1 stock split the
2 808 000 common shares issued in the Combination the 2 300 000 common shares issued in the initial
public offering the common stock equivalents arising from the exercise of the warrants issued to the Trust
Company of the West ( TCW') on July 2 1992 the common stock equivalents arising from the exercise of
the warrants issued to Belco Oil & Gas Corp ( Belco ) and the common stock equivalents arising from the
exercise of the employee stock options granted in January 1993 Computations of primary and fully diluted
earnings per share have not given effect to common stock equivalents or other contingent issuances for any
period in which their inclusion would have the effect of increasing the earnings per share amount or
decreasing the loss per share amount otherwise computed
Gas Imbalances. The Company follows the 'sales method" of accounting for its oil and gas revenue
whereby the Company recognizes sales reenue on all oil or gas sold to its purchasers regardless of whether
the sales are proportionate to the Company s ownership in the property A receivable or liability is recognized
only to the extent that the Company has an imbalance on a specific property greater than the expected
remaining life of the reservoir The Company s net imbalance positions at June 30 1993 and 1992 were not
materiaL
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