Chesapeake Energy 2000 Annual Report Download - page 39

The following table shows our production by region for 1998, 1999 and 2000:
Natural gas production represented approximately 86% of our total production volume on an equivalent
basis in 2000, compared to 81% in 1999 and 72% in 1998. The decrease in oil production from 1998 through
2000 is the result of divestitures that occurred primarily in 1999 and our increasing focus on natural gas.
For 2000, we realized an average price per barrel of oil of $26.39, compared to $16.01 in 1999 and $12.70
in 1998. Natural gas price realizations fluctuated from an average of $1.92 per mcf in 1998 and $1.97 in 1999
to $3.36 per mcf in 2000. In 2000, our hedging activities resulted in a decrease in oil and gas revenues of $30.6
million or $0.23 per mcfe, a decrease of $1.7 million or $0.01 per mcfe in 1999, and an increase of $11.3
million or $0.09 per mcfe in 1998.
Oil and Gas Marketing Sales. Chesapeake realized $157.8 million in oil and gas marketing sales for
third parties in 2000, with corresponding oil and gas marketing expenses of $152.3 million, for a net margin of
$5.5 million. This compares to sales of $74.5 million and $121.1 million, expenses of $71.5 million and $119.0
million, and a margin of $3.0 million and $2.1 million in 1999 and 1998, respectively. The increase in
marketing sales and cost of sales in 2000 as compared to 1999 and 1998 was due primarily to higher oil and gas
prices in 2000 and the fact that we began marketing oil in June 1999.
Production Expenses and Taxes. Production expenses and taxes, which include lifting costs, production
taxes and ad valorem taxes, were $74.9 million in 2000, compared to $59.6 million and $59.5 million in 1999
and 1998, respectively. On a unit of production basis, production expenses and taxes were $0.56 per mcfe in
2000 and $0.45 per mcfe in 1999 and 1998. The increase in costs on a per unit basis in 2000 is due primarily to
higher production taxes resulting from higher oil and gas prices. In general, production taxes are calculated
using value-based formulas that produce higher per unit costs when oil and gas prices are higher. We expect
that lease operating expenses per mcfe will generally remain at current levels throughout 2001, although
production taxes will fluctuate with changes in oil and gas prices.
General and Administrative Expense. General and administrative expenses, which are net of internal
payroll and non-payroll costs capitalized in our oil and gas properties (see note 11 of notes to consolidated
financial statements), were $13.2 million in 2000, $13.5 million in 1999 and $19.9 million in 1998. The
decrease in 1999 compared to 1998 was due primarily to various actions taken to lower corporate overhead,
including staff reductions and office closings which occurred in late 1998 and early 1999. We capitalized $7.0
million, $2.7 million and $5.3 million of internal costs in 2000, 1999 and 1998, respectively, directly related to
our oil and gas exploration and development efforts. We anticipate that general and administrative expenses
for 2001 per mcfe will remain at approximately the same level as 2000.
Oil and Gas Depreciation, Depletion and Amortization. Depreciation, depletion and amortization of oil
and gas properties was $101.3 million, $95.0 million and $146.6 million during 2000, 1999 and 1998,
respectively. The average DD&A rate per mcfe, which is a function of capitalized costs, future development
costs, and the related underlying reserves in the periods presented, was $0.75 ($0.76 in U.S. and $0.71 in
Canada), $0.71 ($0.73 in U.S. and $0.52 in Canada), and $1.13 ($1.17 in U.S. and $0.43 in Canada) in 2000,
1999 and 1998, respectively. We expect the 2001 DD&A rate to be between $1.00 and $1.05 per mcfe.
Depreciation and A,nortization of Other Assets. Depreciation and amortization of other assets was $7.5
million in 2000, compared to $7.8 million in 1999 and $8.1 million in 1998.
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Years Ended December 31,
1998 1999 2000
mmcfe Percent mmcfe Percent mmcfe Percent
Mid-Continent 61,930 48% 68,170 51% 78,342 58%
Gulf Coast 52,793 40 43,909 33 35,154 26
Canada 7,746 611,737 912,076 9
Permian Basin 3,939 35,722 46,166 5
Other areas 3,869 33,954 32,441 2
Total production 130,277 100% 133,492 100% 134,179 100%