Chesapeake Energy 1997 Annual Report Download - page 68

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes information about stock options outstanding at June 30, 1997:
The exercise of certain stock options results in state and federal income tax benefits to the Company
related to the difference between the market price of the Common Stock at the date of disposition (or sale)
and the option price. During fiscal 1997, 1996 and 1995, $4,808,000, $7,950,000 and $1,229,000, respectively,
were recorded as adjustments to additional paid-in capital and deferred income taxes with respect to such tax
benefits.
10. Financial Instruments and Hedging Activities
The Company has only limited involvement with derivative financial instruments, as defined in Statement
of Financial Accounting Standards No. 119 "Disclosure About Derivative Financial Instruments and Fair
Value of Financial Instruments" and does not use them for trading purposes. The Company's objective is to
hedge a portion of its exposure to price volatility from producing crude oil and natural gas. These
arrangements may expose the Company to credit risk from its counterparties and to basis risk. The Company
does not expect that the counterparties will fail to meet their obligations given their high credit ratings.
Hedging Activities
Periodically the Company utilizes hedging strategies to hedge the price of a portion of its future oil and
gas production. These strategies include (1) swap arrangements that establish an index-related price above
which the Company pays the counterparty and below which the Company is paid by the counterparty, (2) the
purchase of index-related puts that provide for a "floor" price below which the counterparty pays the
Company the amount by which the price of the commodity is below the contracted floor, (3) the sale of
index-related calls that provide for a "ceiling" price above which the Company pays the counterparty the
amount by which the price of the commodity is above the contracted ceiling, and (4) basis protection swaps.
Results from hedging transactions are reflected in oil and gas sales to the extent related to the Company's oil
and gas production. The Company has not entered into hedging transactions unrelated to the Company's oil
and gas production or physical purchase or sale commitments.
51
Range of
Exercise Prices
Options Outstanding Options Exercisable
Number
Outstanding
6/30/97
Weighted-Avg.
Remaining
Contractual Life Weighted-Avg.
Exercise Price
Number
Exercisable
6/30/97 Weighted-Avg.
Exercise Price
$ 0.56-s 0.67 843,767 5.36 $ 0.59 843,767 $ 0.59
$ 0.71-$ 1.33 784,116 4.36 $ 1.00 784,116 $ 1.00
$ 2.25-$ 2.25 1,128,883 7.30 $ 2.25 406,183 $ 2.25
$ 2.43-s 4.92 408,689 7.43 $ 3.15 394,159 $ 3.08
$ 4.92-$ 4.92 974,910 7.82 $ 4.92 390,774 $ 4.92
$ 5.67-s 5.67 1,213,534 8.17 $ 5.67 217,140 $ 5.67
$ 6.47-$ 6.47 180,000 8.28 $ 6.47 180,000 $ 6.47
$14.25-$14.25 1,513,010 9.82 $14.25 0$ 0.00
$14.75-$25.88 756,750 6.30 $17.85 7,685 $17.67
$30.63-$30.63 100,000 9.27 $30.63 100,000 $30.63
$ 0.56-530.63 7,903,659 7.44 $ 7.09 3,323,824 $ 3.29