Chesapeake Energy 1998 Annual Report Download - page 47

The following table shows the Company's production by region for the Transition Period and the Prior Period:
For the Six Months Ended December 31.
Natural gas production represented approximately 71% of the Company's total production volume on an
equivalent basis in the Transition Period, compared to 82% in the Prior Period. This decrease in gas production as a
percentage of total production was primarily the result of new production in the Louisiana Trend, which tends to
produce more oil than gas.
For the Transition Period, the Company realized an average price per barrel of oil of $18.59, compared to
$21.88 in the Prior Period. Gas price realizations increased slightly from $2.18 per Mcf in the Prior Period to $2.24
per Mcf in the Transition Period. The Company's hedging activities resulted in decreases in oil and gas revenues of
$4.3 million and $7 1 million in the Transition Period and Prior Period, respectively.
Oil and Gas Marketing Sales. The Company realized $58.2 million in oil and gas marketing sales for third
parties in the Transition Period, with corresponding oil and gas marketing expenses of $58.2 million This
compares to sales of $30 0 million, expenses of $29.5 million, and a margin of $0.5 million in the Prior Period.
Production Expenses and Taxes. Production expenses and taxes, which include lifting costs, production taxes
and excise taxes, increased to $10.1 million in the Transition Period, compared to $5.9 million in the Prior Period.
These increases were primarily the result of increased operating costs and increased production. On a unit of
production basis, production expenses and taxes increased to $0.27 per Mcfe compared to $0.16 per Mcfe in the
Prior Period.
Impairment of Oil and Gas Properties. The Company incurred an impairment of oil and gas properties charge
of $110.0 million for the Transition Period. This writedown was caused by several factors, including oil prices
declining from $18.38 at June 30, 1997 to $17.62 at December 31, 1997, and drilling and completion costs
continuing to escalate during the Transition Period. Higher costs caused the Company's capital spending to exceed
budgeted amounts during the Transition Period and also increased the estimated future capital expenditures to be
incurred to develop the Company's proved undeveloped reserves. The Company's results from wells completed
during the Transition Period in the Louisiana Trend continued to be inconsistent and production performance from
various properties in the Navasota River and Independence areas were lower than projected at June 30, 1997. As a
result of the above factors, the Company recorded a downward revision to its proved reserves of 38 net Bcfe in the
Austin Chalk Trend as of December 31, 1997.
Excluding the purchase of additional leasehold, the Company incurred approximately $85 million in capital
expenditures in the Louisiana Trend during the Transition Period, of which approximately $67 million were
incurred in the Masters Creek area. Approximately $16 million of the drilling costs were incurred on Company
operated wells that had not been completed at December 31, 1997.
In the Masters Creek area, the Company completed operations on 11 wells during the Transition Period.
Although 10 of the 11 wells were commercially productive, the drilling costs incurred through December 31, 1997
of approximately $58 million for the 10 wells were higher than anticipated and assigned reserves were lower than
expected. The lower reserve quantities were due in part to lower oil prices at December 31, 1997. In addition, the
Company transferred approximately $11 million of previously unevaluated leasehold costs from all areas of the
Louisiana Trend to the amortization base of the full-cost pool during the Transition Period.
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1997 1996
MMcfe Percent MMcfe Percent
Mid-Continent 8,852 23% 8,980 24%
Gulf Coast 26,220 68 26,243 71
Allotherareas 9_1.Z
Total production 100% 100%