Chesapeake Energy 1999 Annual Report Download - page 15

Acreage
The following table sets forth as of December 31, 1999 the gross and net acres of both developed and
undeveloped oil and gas leases which the Company holds. "Gross" acres are the total number of acres in which the
Company owns a working interest. "Net" acres refer to gross acres multiplied by the Company's fractional working
interest. Acreage numbers are stated in thousands and do not include options for additional leasehold held by the
Company, but not yet exercised.
Marketing
The Company's oil production is sold under market sensitive or spot price contracts. The Company's natural gas
production is sold to purchasers under varying percentage-of-proceeds and percentage-of-index contracts or by direct
marketing to end users or aggregators. By the terms of the percentage-of-proceeds contracts, the Company receives
a percentage of the resale price received by the purchaser for sales of residue gas and natural gas liquids recovered
after gathering and processing the Company's gas. The residue gas and natural gas liquids sold by these purchasers
are sold primarily based on spot market prices. The revenue received by the Company from the sale of natural gas
liquids is included in natural gas sales. During 1999, only sales to Aquila Southwest Pipeline Corporation of $31.5
million accounted for more than 10% of the Company's total oil and gas sales. Management believes that the loss of
this customer would not have a material adverse effect on the Company's results of operations or its financial
position.
Chesapeake Energy Marketing, Inc. ("CEMI"), a wholly-owned subsidiary, provides oil and 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 certain geographical areas in which the Company is
active.
Hedging Activities
Periodically the Company utilizes hedging strategies to hedge the price of a portion of its future oil and gas
production and to manage fixed interest rate exposure. See Item 7A Quantitative and Qualitative Disclosures
About Market Risk.
Risk Factors
Substantial Debt Levels Could Affect Operations.
As of December 31, 1999, we had long-term indebtedness of $964.1 million (which included bank indebtedness
of $43.5 million) and stockholders' equity was a deficit of $217.5 million. Our ability tO meet our debt service
requirements throughout the life of the senior notes and our ability to meet our preferred stock obligations will
depend onour future performance, which will be subject to oil and gas prices, our production levels of oil and gas,
general economic conditions, and various financial, business and other factors affecting our operations. Our level of
indebtedness may have the following effects on future operations:
a substantial portion of our cash flow from operations may be dedicated to the payment, of interest on
indebtedness and will not be available for other purposes,
restrictions in our debt instruments limit our ability to borrow additional funds or to dispose of assets and
may affect our flexibility in planning for, and reacting to, changes in the energy industry, and
our ability to obtain additional capital in the future may be impaired.
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Developed Undeveloped Total Developed
and Undeveloped
Gross Net Gross Net Gross Net
Mid-Continent 1,439 563 848 306 2,287 869
GulfCoast 230 156 766 666 996 822
Canada 100 50 641 305 741 355
Other areas 40 21 639 421 679 442
Total 790 2.894 1.698 4 703 2 488