Chesapeake Energy 2000 Annual Report Download - page 57

if impairment has occurred. Unevaluated properties are grouped by major producing area where individual property
costs are not significant, and assessed individually when individual costs are significant.
We review the carrying value of our oil and gas properties under the full-cost accounting rules of the Securities
and Exchange Commission on a quarterly basis. Under these rules, capitalized costs, less accumulated amortization
and related deferred income taxes, may not exceed an amount equal to the sum of the present value of estimated
future net revenues less estimated future expenditures to be incurred in developing and producing the proved
reserves, less any related income tax effects: During 1998, capitalized costs of oil and gas properties exceeded the
estimated present value of future net revenues from our proved reserves, net of related income tax considerations,
resulting in writedowns in the carrying value of oil and gas properties of $826 million.
Other Property and Equipment
Other property and equipment consists primarily ofgas gathering and processing facilities, vehicles, land, office
buildings and equipment, and software. Major renewals and betterments are capitalized while the costs of repairs
and maintenance are charged to expense as incurred. The costs of assets retired or otherwise disposed of and the
applicable accumulated depreciation are removed from the accounts, and the resulting gain or loss is reflected in
operations. Other property and equipment costs are depreciated on both straight-line and accelerated methods.
Buildings are depreciated on a straight-line basis over 31.5 years. All other property and equipment are depreciated
over the estimated useful lives of the assets, which range from five to seven years.
Capitalized Interest
During 1998, 1999 and 2000, interest of approximately $6.5 million, $3.5 million and $2.4 million, respectively,
was capitalized on significant investments in unproved properties that were not being currently depreciated,
depleted, or amortized and on which exploration activities were in progress.
Income Taxes
Chesapeake has adopted Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. SFAS 109 requires deferred tax liabilities or assets to be recognized for the anticipated future tax effects of
temporary differences that arise as a result of the differences in the carrying amounts and the tax bases of assets and
liabilities.
Net Income (Loss) Per Share
Statement of Financial Accounting Standards No. 128, Earnings Per Share, requires presentation of "basic"
and "diluted" earnings per share, as defined, on the face of the statements of operations for all entities with complex
capital structures. SFAS 128 requires a reconciliation of the numerator and denominator of the basic and diluted
EPS computations. For 1998, there was no difference between actual weighted average shares outstanding, which
are used in computing basic EPS and diluted weighted average shares, which are used in computing diluted BPS.
The following weighted securities were not included in the calculation of diluted earnings per share, as the
effect was antidilutive:
For the year ended December 31, 1999 and 2000, outstanding options to purchase 1.3 million and
1.1 million shares of common stock at a weighted average exercise price of $7.14 and $8.73,
respectively, were antidilutive because the exercise prices of the options were greater than the average
market price of the common stock.
For the year ended December 31, 1999, the assumed conversion of the outstanding preferred stock
(convertible into 33 million common shares) was not included as the effect was antidilutive.
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