Chesapeake Lost Nearly $1B in '98

Chesapeake Energy 1998 year-end results were hammered by non-cash impairment charges of $881 million. Due mainly to "the severe 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 the value of gas and oil properties, $25 million to write down the company's LA midstream gas gathering assets, and $30 million for Chesapeake's investment in Goth Energy Corp. preferred stock. In 1997 the company had impairment charges of $346 million and a net loss of $233 million on revenues of $390 million.

Last year Chesapeake's oil and gas production increased 62% over 1997 levels to 130 Bcfe. Proved reserves also increased to record levels last year, reaching 1,091 Bcfe, and increase of 144% from 1997's 448 Bcfe.

CEO Aubrey K. McClendon said in an analyst conference call that although Chesapeake projected a decline in production from 130 Bcfe in 1998 to 120 to 125 Bcfe this year, the decline has not materialized yet. "In fact, during the first 75 days of the quarter we produced an average of 360 MMcf of natural gas equivalent per day. That would put us on course to produce about 32 Bcfe during the 1999 first quarter. For the record, production during early March averaged even better than that, about 370 MMcf of gas per day."

The second quarter is expected to get off to a good start as Chesapeake brings on production from some Canadian wells in April. Virtually all of the company's Canadian assets are in the Helmet area of northeast British Columbia where drilling takes place only during the winter.

"Although we project that our production should drop 3 to 5% this year, mainly because of asset sales. The gas component of our production should increase to about 80% as we acquire higher margin gas 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 years ago but a number that still puts us as the second most active driller in the Midcontinent and among the top 20 in the U.S.

Joe Fisher, Houston

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