Chesapeake Energy 1999 Annual Report Download - page 73

During 1999, the Company acquired approximately 101 Bcfe of proved reserves through purchases of oil and gas
properties for consideration of $52 million. The Company also sold 59 Bcfe of proved reserves for consideration of
approximately $46 million. During 1999, the Company recorded upward revisions of 80 Bcfe to the December 31,
1998 estimates of its U.S. reserves, and downward revisions of 99 Bcfe to the December 31, 1998 estimates of its
Canadian reserves, for a net Company wide revision of 19 Bcfe, or approximately 1.7%. The upward revisions to its
U.S. reserves were caused by higher oil and gas prices at December 31, 1999, and actual performance in excess of
predicted performance. Higher prices extend the economic lives of the underlying oil and gas properties and thereby
increase the estimated future reserves. The downward revisions to its Canadian reserves were caused by a reduction
of the Company's proved undeveloped locations and an increase in projected transportation and operating costs in
Canada, which decreased the economic lives of the underlying properties.
During 1998, the Company acquired approximately 750 Bcfe of proved reserves through mergers or through
purchases of oil and gas properties. The total consideration given for the acquisitions was 30.8 million shares of
Company common stock, $280 million of cash, the assumption of $205 million of debt, and the incurrence of
approximately $20 million of other acquisition related costs. Also during 1998, the Company recorded downward
revisions to the December 31, 1997 estimates of approximately 4,082 MBbI and 60,477 MMcf, or approximately 85
Bcfe. These reserve revisions were primarily attributable to lower oil and gas prices at December 31, 1998. The
weighted average prices used to value the Company's reserves at December 31, 1998 were $10.48 per barrel of oil
and $1.68 per Mcf of gas, as compared to the prices used at December 31, 1997 of $17.62 per barrel of oil and $2.29
per Mcfofgas.
For the six months ended December 31, 1997, the Company recorded downward revisions to the June 30, 1997
reserve estimates of approximately 3,428 MBb1 and 24,189 MMcf, or approximately 45 Bcfe. The reserverevisions
were primarily attributable to lower than expected results from development drilling and production which
eliminated certain previously established proved reserves.
On December 16, 1997, Chesapeake acquired AnSon Production Corporation, a privately owned oil and gas
producer based in Oklahoma City. Consideration for this acquisition was approximately $43 million. The Company
estimates that it acquired approximately 26.4 Bcfe in connection with this acquisition.
For the fiscal year ended June 30, 1997, the Company recorded downward revisions to the previous year's
reserve estimates of approximately 5,989 MBb1 and 137,938 MMcf, or approximately 174 Bcfe. The reserve
revisions were primarily attributable to the decrease in oil and gas prices between periods, higher drilling and
completion costs, and unfavorable developmental drilling and production results during fiscal 1997. Specifically, the
Company recorded aggregate downward adjustments to proved reserves of 159 Bcfe for the Knox, Giddings and
Louisiana Trend areas.
Standardized Measure of Discounted Future Net Cash Flows (unaudited)
Statement of Financial Accounting Standards No. 69 ("SFAS 69") prescribes guidelines for computing a
standardized measure of future net cash flows and changes therein relating to estimated proved reserves. The
Company has followed these guidelines which are briefly discussed below.
Future cash inflows and future production and development costs are determined by applying year-end prices and
costs to the estimated quantities of oil and gas to be produced. Estimates are made of quantities of proved reserves
and the future periods during which they are expected to be produced based on year-end economic conditions.
Estimated future income taxes are computed using current statutory income tax rates including consideration for the
current tax basis of the properties and related carryforwards, giving effect to permanent differences and tax credits.
The resulting future net cash flows are reduced to present value amounts by applying a 10% annual discount factor.
The assumptions used to compute the standardized measure are those prescribed by the Financial Accounting
Standards Board and, as such, do not necessarily reflect the Company's expectations of actual revenue to be derived
from those reserves nor their present worth. The limitations inherent in the reserve quantity estimation process, as
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