Chesapeake Energy 1998 year-end results were hammered bynon-cash impairment charges of $881 million. Due mainly to “thesevere decline in oil and natural gas prices during 1998″Chesapeake lost $934 million on revenues of $382 million.

The impairment charges included $826 million to write down thevalue of gas and oil properties, $25 million to write down thecompany’s LA midstream gas gathering assets, and $30 million forChesapeake’s investment in Goth Energy Corp. preferred stock. In1997 the company had impairment charges of $346 million and a netloss of $233 million on revenues of $390 million.

Last year Chesapeake’s oil and gas production increased 62% over1997 levels to 130 Bcfe. Proved reserves also increased to recordlevels last year, reaching 1,091 Bcfe, and increase of 144% from1997’s 448 Bcfe.

CEO Aubrey K. McClendon said in an analyst conference call thatalthough Chesapeake projected a decline in production from 130 Bcfein 1998 to 120 to 125 Bcfe this year, the decline has notmaterialized yet. “In fact, during the first 75 days of the quarterwe produced an average of 360 MMcf of natural gas equivalent perday. That would put us on course to produce about 32 Bcfe duringthe 1999 first quarter. For the record, production during earlyMarch averaged even better than that, about 370 MMcf of gas perday.”

The second quarter is expected to get off to a good start asChesapeake brings on production from some Canadian wells in April.Virtually all of the company’s Canadian assets are in the Helmetarea of northeast British Columbia where drilling takes place onlyduring the winter.

“Although we project that our production should drop 3 to 5%this year, mainly because of asset sales. The gas component of ourproduction should increase to about 80% as we acquire higher margingas assets and sell lower margin oil assets.

Chesapeake is keeping six to eight rigs active currently.”That’s clearly a far cry from the 30 or so we kept busy two yearsago but a number that still puts us as the second most activedriller in the Midcontinent and among the top 20 in the U.S.

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