Chesapeake Energy 1997 Annual Report Download - page 72

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
approximately 50.0%, 0.6% and 0.5% of total proved reserves as of June 30, 1997, 1996 and 1995, respectively.
The information is presented in accordance with regulations prescribed by the Securities and Exchange
Commission. The Company emphasizes that reserve estimates are inherently imprecise. The Company's
reserve estimates were generally based upon extrapolation of historical production trends, analogy to similar
properties and volumetric calculations. Accordingly, these estimates are expected to change, and such changes
could be material, as future information becomes available.
Proved oil and gas reserves represent the estimated quantities of crude oil, natural gas, and natural gas
liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating conditions. Proved developed oil
and gas reserves are those expected to be recovered through existing wells with existing equipment and
operating methods. All of the Company's oil and gas reserves are located in the United States.
Presented below is a summary of changes in estimated reserves of the Company based upon the reports
prepared by Williamson and the Company's petroleum engineers for 1997, 1996 and 1995:
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As of the fiscal year ended June 30, 1997, the Company recorded revisions to the previous years' reserve
estimates of approximately six million barrels of oil and 138 million Mcf, or approximately 174 Bcfe. The
reserve revisions are primarily attributable to the decrease in oil and gas pricing between periods, escalating
development costs at June 30, 1997, and unfavorable developmental drilling and production results during
fiscal 1997. Specifically, the Company recorded downward adjustments to proved reserves of 159 Bcfe in the
Knox, Giddings and Louisiana Trend areas.
On April 30, 1996, the Company purchased interests in certain producing and non-producing oil and gas
properties, including approximately 14,000 net acres of unevaluated leasehold, from Amerada Hess Corpora-
tion for $37.8 million. The properties are located in the Knox and Golden Trend fields of southern Oklahoma,
most of which are operated by the Company. In fiscal 1996 the reserves acquired from Amerada Hess
Corporation were included in both "Extensions, discoveries and other additions" and "Purchase of reserves in-
place". The fiscal 1996 presentation has been restated in the current year to remove the acquired reserves from
"Extensions, discoveries and other additions" with a corresponding offset to "Revisions of previous estimate".
This revision resulted in no net change to total oil and gas reserves.
In prior years, the Company reported "Extensions, discoveries and other additions" net of current year
production related thereto: The Company began reporting this category inclusive of current year production in
fiscal 1997 and restated fiscal 1996 and fiscal 1995 quantities accordingly. A corresponding change in fiscal
June 30,
1997 1996 1995
Oil
(MBbI) Gas
(MMcf) Oil
(MBbI) Gas (MMcf) Oil
(MBbI) Gas
(MMCI)
Proved reserves, beginning of year. 12,258 351,224 5,116 211,808 4,154 117,066
Extensions, discoveries and other
additions 13,874 147,485 8,781 158,052 2,549 138,372
Revisions of previous estimate (5,989) (137,938) (669) 12,987 (448) (18,516)
Production (2,770) (62,005) (1,413) (51,710) (1,139) (25,114)
Sale of reserves-in-place
Purchase of reserves-in-place 443 20,087
Proved reserves, end of year 17,373 298,766 12,258 351,224 5,116 211,808
Proved developed reserves,
end of year 7,324 151,879 3,648 144,721 1,973 77,764