Chesapeake Energy 1997 Annual Report Download - page 21

During fiscal 1997 the Company initiated eight wells in this project area, seven of which were successfully
completed. The Company has budgeted approximately $14 million to drill 14 gross and net wells in this area
during fiscal 1998.
Wharton County, Texas. During fiscal 1997 the Company acquired approximately 25,000 net acres at a
cost of approximately $29 million in Wharton County, Texas. This exploration project is seeking gas
production from the shallower Frio and Yegua sands and from the Deep Wilcox at depths of up to 19,000 feet.
The Company intends to participate with a 55% interest in a 55,000 acre 3-D seismic program with Coastal
Oil & Gas Corporation, Seagull Energy Corporation and other industry partners during fiscal 1998 to delineate
potential future drillsites in the vicinity of Coastal's recently completed Zeidman Trust #2 well.
Strategic Investments
During fiscal 1997, the Company invested in a number of oil and gas related businesses and projects. The
most significant of these was the Company's May 1997 initial investment in Bayard Drilling Technologies, Inc.
("Bayard"), consisting of an $18 million subordinated loan and the purchase of $7 million of common stock.
In August 1997, the Company agreed to invest up to an additional $9 million and convert certain options,
warrants and note amounts that will facilitate a potential initial public offering by Bayard. On August 27, 1997
Bayard filed a registration statement for an initial public offering of its common stock. Chesapeake,
subsequent to the completion of the transaction noted above, will own 4,194,000 shares of Bayard common
stock (30.4% of the common stock outstanding) and anticipates selling substantially all of its ownership in
Bayard in the IPO (assuming the over-allotment option is exercised) and receiving repayment of the
subordinated loan. If successful, assuming the sale of all of the Company's Bayard stock and based on the
initial filing price of Bayard at $15 per share, the Company would receive total proceeds of approximately
$74 million (net of offering costs) and realize a pre-tax gain of approximately $40 million. No assurance can
be given, however, that Bayard will successfully complete the initial public offering of its common stock, at
what price, or that the net proceeds or pre-tax gain discussed above will be realized by the Company.
Also during fiscal 1997 the Company invested approximately $12 million for its 50% interest in the
Louisiana Austin Chalk Gathering System (a joint venture with Mitchell Energy and Development
Corporation) and $5 million for its 15.5% interest in the Masters Creek Gas Plant (a joint venture among
Union Pacific, Sonat, Helmerich & Payne, and OXY). The Company has budgeted $4 million for its share of
the expansion of these assets during fiscal 1998. The Company considers these mid-stream gas assets to be
non-core and therefore may seek to sell them in fiscal 1998.
Drilling Activity
The following table sets forth the wells drilled by the Company during the periods indicated. In the table,
"gross" refers to the total wells in which the Company has a working interest and "net" refers to gross wells
multiplied by the Company's working interest therein.
4
At June 30, 1997, the Company was drilling 25 gross (19.8 net) exploratory or development wells, of
which 11 gross (8.1 net) wells have been successfully completed and 12 gross (9.7 net) wells are still being
Development:
Year Ended June 30,
1997 1996 1995
Gross Net Gross Net Gross Net
Productive 90 55.0 111 49.5 133 42.6
Non-productive 2.2 41.6 52.8
Total 92 55.2 115 51.1 138 4.4
Exploratory:
Productive 71 46.1 29 16.5 11 5.3
Non-productive 85.7 41.4 1.7
Total 79 51.8 33 17.9 12 6.0