Chesapeake Energy 1994 Annual Report Download - page 48

OIL AND GAS RESERVE QUANTITIES (UNAUDITED)
The reserve information presented below is based upon
reports prepared by the independent petroleum
engineering firm of Williamson Petroleum Consultants,
Inc. ("Williamson") as of June 30, 1994, June 30, 1993,
and October 1, 1992 (adjusted to June 30, 1992 by the
company). The information is presented in accordance
with regulations prescribed by the Securities and Exchange
Commission. The company emphasizes that reserve
estimates ate inherently imprecise. The company's reserve
estimates were generally based upon extrapolation of
historical production trends, analogy to similar properties
and volumetric calculations. Accordingly, these estimates
On October 25, 1993, the company entered into a joint
development agreement ("Joint Development Agreement")
with Union Pacific Resources Company ("UPRC"), the oil
and gas production subsidiary of Union Pacific
Corporation, and privately held GeoSouthern Energy
Corporation ("GeoSouthern"). UPRC and GeoSouthern
have agreed to combine their leasehold position with the
company's contractual rights in a 20,000 gross acre
development area in the Fayette County portion of the
Giddings Field in southern Texas. The company entered
into the Joint Development Agreement with the objective
of enhancing the rate of return on capital invested in this
area by optimizing well spacing and applying recent
advances in drilling technology. The company's estimated
ownership interests in the proved undeveloped properties
covered by the Joint Development Agreement are
significantly less than those used in the June 30, 1993
reserve report. The impact of the reduced ownership
percentages is reflected as sales of reserves in place in the
preceding table.
are expected to change, and such changes could be
material, as future information becomes available.
Proved oil and gas reserves represent the estimated
quantities of crude oil, natural gas, and natural gas liquids
which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating
conditions. Proved developed oil and gas reserves are those
expected to be recovered through existing wells with
existing equipment and operating methods.
Presented below is a summary of changes in estimated
reserves of the company based upon the reports prepared
by Williamson.
The revisions in the company's estimated quantities of
oil and gas are attributable to revised estimates by
Williamson. For fiscal 1992, significant downward
revisions were attributed to the company's interests in the
First Shot Field in Texas. At the end of fiscal 1993,
Williamson significantly reduced the estimated quantities
of oil and significantly increased the estimated quantities of
gas attributable to the company's interests in the Giddings
Field in Texas to reflect the higher gas to oil production
ratio experienced by the company in fiscal 1993.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET
CASH FLOWS (UNAUDITED)
SFAS No. 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
JUNE 30, 1994 JUNE 30, 1993 JUNE 30, 1992
OIL GAS
(MBBL) (MMCF) OIL
(MB8L) GAS
(MMCM OIL
(MBBL) GAS
(MMCM
Proved reserves, beginning of year 9,622 79,763 11,147 68,618 3,212 17,334
Extensions, discoveries and other additions 2,335 82,965 1,576 15,078 10,140 60,745
Revisions of previous estimate (868) (5,523) (2,427) 3,529 (1,746) (5,504)
Production (537) (6,927) (276) (2,677) (374) (1,252)
Sale of reserves-in-place (6,398) (33,212) (398) (4,789) (97) (2,718)
Purchase of undeveloped reserves-in-place 412 13
Proved reserves, end of year 4,154 117,066 9,622 79,763 11,147 68,618
Proved developed reserves, end of year 1,313 30,445 830 11,893 1,049 11,492
46 CHESAPEAKE ENERGY CORPORATION