Chesapeake Energy 1997 Annual Report Download - page 20

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Louisiana drilling in fiscal 1998 primarily in the Masters Creek area and to allow others to lead the continued
exploration of areas outside of Masters Creek.
The Masters Creek area, where as of September 30, 1997 the Company and the Company's competitors
have completed approximately 36 out of 40 wells as commercially productive with approximately 25 additional
wells currently drilling, has generally been much more successful than the other areas within the Louisiana
Trend. As of September 30, 1997, the Company had eight rigs operating in this area and is participating in
more than 10 non-operated wells. For fiscal 1998, the Company has budgeted $125 million to drill
approximately 25 net wells targeting the Austin Chalk formation and $13 million to drill two net wells
targeting the Tuscaloosa formation. These planned expenditures, in combination with anticipated seismic
costs, represent approximately 50% of the Company's planned exploration and development capital expendi-
tures for all areas. There can be no assurance that the Louisiana Trend drilling will yield substantial economic
returns. Failure of the wells to produce significant quantities of economically attractive reserves and
production could have a material adverse impact on the Company's future financial condition and results of
operations, and could result in a future ceiling limitation under rules of the Securities and Exchange
Commission.
Oklahoma. Chesapeake's largest concentration of proved reserves is located in Oklahoma and is
comprised of the Knox, Golden Trend, Sholem Alechem, and Arkoma Basin areas. These areas are generally
characterized by relatively long lived production from multiple pay zones. The Company has conducted and is
evaluating 3-D seismic surveys over significant portions of its Oklahoma leasehold in an effort to enhance its
future drilling efforts. In fiscal 1997, the Company invested approximately $68 million to drill 51 gross
(32 net) wells in Oklahoma. The Company has budgeted approximately $28 million in fiscal 1998 to drill
36 gross (21 net) wells in Oklahoma.
Giddings Field. Chesapeake's second largest concentration of proved reserves and its highest concentra-
tion of present value is located in the Giddings Field, Texas. The primary producing formation in Giddings is
the Austin Chalk formation, a fractured carbonate reservoir found at depths ranging from 7,000 feet to
17,000 feet along a 15,000 square mile trend in southeastern Texas and central Louisiana. Chesapeake has
concentrated its drilling efforts in the gas prone downdip portion of the Giddings Field, where the Austin
Chalk is located at depths below 11,000 feet.
The Giddings Field contributed approximately 44.6 Bcfe, or 57% of the Company's total production in
fiscal 1997, compared to 47.2 Bcfe or 78% in 1996. The Company expects production to decline in this
relatively mature area in fiscal 1998. In fiscal 1997, the Company invested approximately $57 million to drill
36 gross (19 net) wells in Giddings. The Company has budgeted approximately $17 million to drill 18 gross
(eight net) wells in Giddings during fiscal 1998.
Other Operating Areas
Williston Basin. During fiscal 1996, Chesapeake began acquiring leasehold in the Williston Basin,
located in eastern Montana and western North Dakota, and as of June 30, 1997 owned more than
700,000 gross (500,000 net) acres. During fiscal 1997, the Company drilled and successfully completed four
vertical wells targeting the Red River formation on the northern portion of its leasehold. On the southern
portion of its leasehold, the Company was unsuccessful in an attempt to establish horizontally drilled Red
River production. Also during fiscal 1997, the Company tested a third large area of its Williston acreage with a
successful horizontal Nesson well. Currently, the Company is focusing its Williston efforts on continuing to
develop the Nesson formation. The Company has budgeted $6 million to drill six gross and net wells during
fiscal 1998 in the Williston Basin.
Permian Basin. In fiscal 1995, the Company initiated 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
algal reef buildups that management believes have been overlooked in this portion of the Permian Basin
because of inconclusive results provided by traditional 2-D seismic technology.
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