Chesapeake Energy 1997 Annual Report Download - page 38

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The following table shows the Company's production by major field area for fiscal 1997 and fiscal 1996:
For the Year Ended June 30,
The Company's gas production represented approximately 79% of the Company's total production
volume on an equivalent basis in fiscal 1997. This compares to 86% in fiscal 1996 and 79% in fiscal 1995. This
decrease in gas production as a percentage of total production in fiscal 1997 was the result of drilling in the
Louisiana Trend, which tends to produce more oil than gas.
For fiscal 1997, the Company realized an average price per barrel of oil of $20.93, compared to $17.85 in
fiscal 1996 and $17.36 in fiscal 1995. The Company markets its oil on monthly average equivalent spot price
contracts and typically receives a premium to the price posted for West Texas Intermediate crude oil.
Gas price realizations increased from fiscal 1996 to 1997 from $1.66 per Mcf to $2.18 per Mcf, or 31%,
generally as the result of market conditions. Gas prices in fiscal 1995 averaged $1.48 per Mcf. The Company's
gas price realizations in fiscal 1997 were also higher due to the increase in Louisiana Trend gas production,
which generally receives premium prices at least equivalent to Henry Hub indexes due to the high Btu content
and favorable market location of the production.
The Company's hedging activities resulted in decreases in oil and gas revenues of $7.4 million,
$5.9 million, and none in fiscal 1997, 1996 and 1995, respectively.
Oil and Gas Marketing Sales. In December 1995, the Company entered into the oil and gas marketing
business by establishing a subsidiary to provide primarily natural gas marketing services including commodity
price structuring, contract administration and nomination services for the Company, its partners and other oil
and natural gas producers in the geographical areas in which the Company is active. The Company realized
$76.2 million in oil and gas marketing sales for third parties in fiscal 1997, with corresponding oil and gas
marketing expenses of $75.1 million, resulting in a gross margin of $1.1 million. This compares to sales of
$28.4 million, expenses of $27.5 million, and a margin of $0.9 million in fiscal 1996. There were no comparable
marketing activities in fiscal 1995.
Oil and Gas Service Operations. On June 30, 1996, Peak USA Energy Services, Ltd., a limited
partnership ("Peak"), was formed by Peak Oilfield Services Company (a joint venture between Cook Inlet
Region, Inc. and Nabors Industries, Inc.) and Chesapeake for the purpose of purchasing the Company's
oilfield service assets and providing rig moving, transportation and related site construction services to the
Company and others in the industry. The Company sold its service company assets to Peak for $6.4 million,
and simultaneously invested $2.5 million in exchange for a 33.3% partnership interest in Peak. This transaction
resulted in recognition of a $1.8 million pre-tax gain during the fourth fiscal quarter of 1996 (reported in
Interest and other revenues). A deferred gain from the sale of service company assets of $0.9 million was
recorded as a reduction in the Company's investment in Peak and is being amortized to income over the
estimated useful lives of the Peak assets. The Company's investment in Peak is accounted for using the equity
method, and resulted in $0.5 million of income being included in Interest and other revenues in fiscal 1997,
Revenues from oil and gas service operations were $6.3 million in fiscal 1996, down 28% from
$8.8 million in fiscal 1995. The related costs and expenses of these operations were $4.9 million and
$7.7 million for the two years ended June 30, 1996 and 1995 respectively. The gross profit margin of 22% in
fiscal 1996 was up from the 12% margin in fiscal 1995. The gross profit margin derived from these operations is
21
1997 1996
Production Production
(MMcfe) Percent (MMcfe) Percent
Texas 47,398 61% 49,347 82%
Oklahoma 17,370 22 10,420 17
Louisiana Trend 12,785 16 69 -
All Other Fields 1,072 1354
Total Production 78,625 100% 60,190 100%