Chesapeake Energy 1999 Annual Report Download - page 37

Recently Issued Accounting Standards
On June 15, 1998, the Financial Accounting Standards Board issued FAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). FAS 133 establishes a new model for accounting for derivatives
and hedging activities and supersedes and amends a number of existing standards. FAS 133 (as amended by FAS
137) is effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
FAS 133 standardizes the accounting for derivative instruments by requiring that all derivatives be recognized as
assets and liabilities and measured at fair value. The accounting for changes in the fair value of derivatives (gains
and losses) depends on (i) whether the derivative is designated and qualifies as a hedge, and (ii) the type of hedging
relationship that exists. Changes in the fair value of derivatives that are not designated as hedges or that do not meet
the hedge accounting criteria in FAS 133 are required to be reported in earnings. In addition, all hedging
relationships must be designated, reassessed and documented pursuant to the provisions of FAS 133. The Company
has not yet determined the impact that adoption of FAS 133 will have on the financial statements. However, the
Company believes that all of its derivative instruments will be designated as hedges in accordance with the relevant
accounting criteria, and therefore the impact of the adoption of FAS 133 is not expected to have a material effect on
the Company's financial statements.
Forward-Looking Statements
This Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the Securities Act
of 1933 and Section 21 E of the Securities Exchange Act of 1934. All statements other than statements of historical
facts included in this Form 10-K, including, without limitation, statements regarding oil and gas reserve estimates,
planned capital expenditures, expected oil and gas production, the Company's financial position, business strategy
and other plans and objectives for future operations, expected future expenses, and realization of deferred tax assets,
are forward-looking statements. Although the Company believes that the expectations reflected in such forward-
looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct.
Factors that could cause actual results to differ materially from those expected by the Company, including, without
limitation, factors discussed under Risk Factors in Item 1of this Form 10-K, are substantial indebtedness,
impairment of asset value, need to replace reserves, substantial capital requirements, ability to supplement capital
resources with asset sales, fluctuations in the prices of oil and gas, uncertainties inherent in estimating quantities of
oil and gas reserves, projecting future rates of production and the timing of development expenditures, competition,
operating risks, restrictions imposed by lenders, liquidity and capital requirements, the effects of governmental and
environmental regulation, pending litigation, and adverse changes in the market for the Company's oil and gas
production. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligation to release publicly the result of any revisions to
these forward-looking statements that may be made to reflect events or circumstances after the date hereof,
including, without limitation, changes in the Company's business strategy or planned capital expenditures, or to
reflect the occurrence of unanticipated events.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Commodity Price Risk
The Company's results of operations are highly dependent upon the prices received for oil and natural gas
production.
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:
(i) 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,
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