Chesapeake Energy 1997 Annual Report Download - page 53

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Description of Company
The Company is a U.S. petroleum exploration and production company engaged in the acquisition,
exploration, and development of properties for the production of crude oil and natural gas from underground
reservoirs. The Company's properties are located primarily in Texas, Louisiana, Oklahoma, Montana, North
Dakota and New Mexico.
Principles of Consolidation
The accompanying consolidated financial statements of Chesapeake Energy Corporation (the "Com-
pany" or "Parent") include the accounts of Chesapeake Operating, Inc. ("COl"), Chesapeake Exploration
Limited Partnership ("CEX"), a limited partnership, Chesapeake Louisiana, L.P. ("CLLP"), a limited
partnership, Chesapeake Gas Development Corporation ("CGDC"), Chesapeake Energy Marketing, Inc.
("CEMI"), Chesapeake Canada Corporation ("CCC"), Chesapeake Energy Louisiana Corporation
("CELC"), Lindsay Oil Field Supply, Inc.("LOF"), Sander Trucking Company, Inc. ("STCO") and
subsidiaries of those entities. As of June 30, 1997, CGDC had been merged into CEX and LOF and STCO
had been dissolved. All significant intercompany accounts and transactions have been eliminated.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those
estimates.
Cash Equivalents
For purposes of the consolidated financial statements, the Company considers investments in all highly
liquid debt instruments with maturities of three months or less at date of purchase to be cash equivalents.
Investmenis
The Company invests in various equity securities and short-term debt instruments including corporate
bonds and auction preferreds, commercial paper and government agency notes. The Company has classified all
of its short-term investments in equity and debt instruments as trading securities, which are carried at fair
value with unrealized holding gains and losses included in earnings. At June 30, 1997, the Company had an
unrealized holding loss of $0.6 million included in interest and other revenue. At June 30, 1996 the Company
had no trading securities. Investments in equity securities and limited partnerships that do not have readily
determinable fair values are stated at cost and are included in noncurrent other assets. In determining realized
gains and losses, the cost of securities sold is based on the average cost method.
Inventory
Inventory consists primarily of tubular goods and other lease and well equipment which the Company
plans to utilize in its ongoing exploration and development activities and is carried at the lower of cost or
market using the specific identification method.
Oil and Gas Properties
The Company follows the full cost method of accounting under which all costs associated with property
acquisition, exploration and development activities are capitalized. The Company capitalizes internal costs
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