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2010 ANNUAL REPORT
2010:
A YEAR
OF TRANSITION
AND ACHIEVEMENT

Table of contents

  • Page 1
    2010: A YEAR OF TRANSITION AND ACHIEVEMENT 2010 ANNUAL REPORT

  • Page 2
    ... Headquartered in Oklahoma City, the company's operations are focused on discovering and developing unconventional natural gas and oil fields onshore in the U.S. Chesapeake owns leading positions in the Barnett, Haynesville, Bossier, Marcellus and Pearsall natural gas shale plays and in the Granite...

  • Page 3
    ... | FINANCIAL REVIEW 2010 ANNUAL REPORT | 2 FINANCIAL REVIEW » ($ in millions, except per share data) Years Ended December 31 Six Months Ended December 31 Years Ended June 30 Financial and Operating Data Revenues Natural gas and oil sales Marketing, gathering, compression and service operations...

  • Page 4
    ...$ 100 $0 (1) 05 06 07 08 09 10 $0 00 01 02 03 04 05 06 07 08 09 10 The 2010 peer group is comprised of Anadarko Petroleum Corp., Apache Corp., Devon Energy Corp., Encana Corp. and EOG Resources, Inc. XTO Energy, Inc. was not included in the 2010 peer group due to its acquisition...

  • Page 5
    ... oil, the Eagle Ford Shale in South Texas epitomizes Chesapeake's shift to a balanced focus on natural gas and liquids. 2010 also marked a truly transformative year for our industry. We and a handful of our peers enhanced our capabilities to find and produce significant new resources of oil and...

  • Page 6
    2010 ANNUAL REPORT | 5 Strong Partners Over the past few years, in addition to gathering the industry's best assets, Chesapeake has also built the industry's finest collection of global energy partners and energy stock investors. We have now entered into transactions with PXP, BP, Statoil, Total, ...

  • Page 7
    ... unconventional natural gas and liquids plays in the U.S. - the Barnett, Haynesville, Bossier, Marcellus, Eagle Ford, Pearsall, Niobrara and Utica shales and the Granite Wash, Cleveland, Tonkawa, Mississippian, Bone Spring, Avalon, Wolfcamp and Wolfberry tight sands and fractured carbonates. Having...

  • Page 8
    2010 ANNUAL REPORT | 7 Developing America's fuel in the backyard of America's team: a Chesapeake rig drills deep in the Barnett Shale near Cowboys Stadium in Arlington, Texas.

  • Page 9
    ...cant cost advantage compared with international peers whose feedstock is indexed either to oil or global natural gas prices. Continuing and accelerating shift from coal to natural gas for U.S. electrical power generation To clean our environment, dozens of aging coal-powered electricity plants will...

  • Page 10
    ... returns. second-largest natural gas producer, Columbia Natural Resources, LLC. We are producing from approximately 150 net Granite Wash In 2007 we aggressively accelerated our Marcellus leasehold acquisition wells, are currently drilling with 16 rigs and estimate we could drill efforts and began...

  • Page 11
    ...-10, Chesapeake acquired approximately 800,000 net leasehold acres in these two liquids-rich basins, and in early 2011 we sold 33.3% of our assets in the play to CNOOC for approximately $1.3 billion A Chesapeake discovery, Louisiana's Haynesville Shale recently passed the Barnett Shale to become...

  • Page 12
    ... and Gas Compact Commission, with support of the U.S. Department of Energy. The registry allows for fracking additives to be reported on a well-by-well basis and offers public access to that material on its website. Chesapeake began loading well completion data onto the registry on February 15, 2011...

  • Page 13
    ... beginning 22 years ago with 10 employees in Oklahoma City to employing more than 10,000 people across 15 states today, Chesapeake has always focused on building first-class human resources within a distinctive corporate culture.

  • Page 14
    2010 ANNUAL REPORT | 13 Developing great assets begins with great people, such as the hardworking crews of Nomac, Chesapeake's wholly owned drilling subsidiary. Employees take pride in the critical roles they play in finding and delivering natural gas to their fellow Americans.

  • Page 15
    ...to net unproved property acquisitions, geological and geophysical costs and deferred taxes related to corporate acquisitions) by total proved reserve additions excluding price-related revisions. A non-GAAP financial measure, as defined below. Please refer to the Investors section of our website at...

  • Page 16
    ... national security. Advancing technology for cleaner operations: solar panels at a West Texas well power telemetry systems that provide pumpers with real-time information on oil and water tank levels to alarm them when levels near capacity, preventing tank spills. 10,000 other Chesapeake employees...

  • Page 17
    ... the Barnett, Haynesville, Bossier, Marcellus and Pearsall natural gas shale plays and in the Granite Wash, Cleveland, Tonkawa, Mississippian, Bone Spring, Avalon, Wolfcamp, Wolfberry, Eagle Ford, Niobrara and Utica unconventional liquids plays. In 2010 Chesapeake increased its focus on applying the...

  • Page 18
    ... up to 11,400 net wells on our Anadarko Basin acreage in the future and plan to utilize an average of 31 operated rigs in 2011 to further develop our current 1.7 million net leasehold acres. 5 Anadarko Basin 2010 Total Production: 145 bcfe, +4%, 14% 12/31/10 Proved Reserves: 2,440 bcfe, +21%, 14...

  • Page 19
    2010 ANNUAL REPORT | 19 Unconcerned by a Chesapeake drilling rig, antelope continue their daily routines in southeastern Wyoming's Powder River Basin where the company is developing the promising Niobrara Play.

  • Page 20
    ... the company's geoscience, land and engineering departments has dropped from 49 in 2000 to 36 today. In addition, the average age of the company's 4,000 Oklahoma City headquarters employees is 33. Even as some of Chesapeake's employees retire, the company is well equipped with a seasoned work force...

  • Page 21
    ...invested in drilling rigs, rental tools, water management equipment, trucking, compression equipment, midstream services, and most recently pressure pumping and fracture stimulation equipment. Chesapeake's activities require a high level of planning and project coordination that is best accomplished...

  • Page 22
    22 | SOCIAL RESPONSIBILITY CHESAPEAKE'S COMMITMENT TO BEING A GOOD NEIGHBOR » Through volunteer programs and responsible operations, we strive to be the best neighbor possible in every one of our operating areas by investing in our communities.

  • Page 23
    2010 ANNUAL REPORT | 23 Employees lend a helping hand at Rebuilding Together in Oklahoma City as part of Operation Blue. This annual volunteer initiative provides employees company time to work on projects in their communities.

  • Page 24
    ...the local work force isn't yet qualified for the jobs we have open. For example, when Chesapeake began operating in the Marcellus Shale of West Virginia and Pennsylvania, finding experienced rig workers was a challenge. To meet that need, Chesapeake's wholly owned subsidiary, Nomac Drilling, built...

  • Page 25
    ... program. Chesapeake's scholarships help recruit the best and brightest students and provide educational opportunities in communities where we operate. In Oklahoma City, more than 400 employees volunteer for up to an hour a week on company time at four local public schools. Chesapeake's program...

  • Page 26
    ...could be used without compromising well production. In fact, our Marcellus Shale operations are treating and recycling virtually 100% of produced water (more than 10 million gallons per month) for reuse in our hydraulic fracturing operations. Properly conducted modern fracking is a highly engineered...

  • Page 27
    ... and procedures for topics pertinent to the management of our field assets. The range of Chesapeake's commitment to employee health and wellness is also evident at our 72,000-square-foot fitness center, which provides Oklahoma City headquarters employees and their families with on-site access...

  • Page 28
    ..., Jr. (1,2) Chairman, President and CEO National Oilwell Varco, Inc. Houston, Texas V. Burns Hargis (1) President Oklahoma State University Stillwater, Oklahoma Aubrey K. McClendon Chairman of the Board and Chief Executive Officer Chesapeake Energy Corporation Oklahoma City, Oklahoma Richard...

  • Page 29
    ... S. Price, Jr. Senior Vice President - Corporate Development and Government Relations J. Mike Stice Senior Vice President - Natural Gas Projects and Chief Executive Officer Chesapeake Midstream Partners, L.P. Cathy L. Tompkins Senior Vice President - Information Technology and Chief Information...

  • Page 30
    ... year with inclusion in the FORTUNE 100 Best Companies to Work For ® list at #32, the highest-ranking company in the energy production industry. 1989 (3) Kinney Louthan Aubrey McClendon Patsy Watters 1990 (3) Kevin Decker David Higgins Cindi Williams 1991 (4) Steve Dixon Marilyn Pollard Patti...

  • Page 31
    2010 ANNUAL REPORT | 31 George Bradley Kim Brady David Brannen Aron Bridges Ronald Bromlow ...Steve Cantrell OKLAHOMA CITY, OKLAHOMA Chesapeake's IT team manages nearly 2,000 servers and 1.5 million gigabytes of storage to support business functions for more than 10,000 employees. Robert Thompson...

  • Page 32
    ...EMPLOYEES... Cori-Dawn Fields Brad Finley ...planning is critical to the development of regions where one play is stacked atop another, such as the Haynesville and Bossier shales...Houston Eagleston Joe Earley Anthony Earnest Nate Easter Michael Edwards William... Preece Bob Price John Prichard Jr...Jayson Stock ...

  • Page 33
    2010 ANNUAL REPORT... Larry Costello Stoney Costello William Coston Crystal Cottrell Jereme ... Teresita Ferguson Perry Fields III Tommy Fillman... Bonnie House Debbie Houston Scott Howard Seth ... Lamas Jerry Lambert Jr. Corbin Land Sandra Landgraf Bob Langdon Chris Lauhon... Manuel Laura Marcellus Markus Marr ...

  • Page 34
    ...EMPLOYEES...Dale Self Kenneth Sell Jobey Sellers Jon...Jr. Michael B. Welch Toyia Wells Ann Wendorff Leonard Wesley Luke...William Ferrebee Faith Fields... Elyse Fischer Jill Fisher Ranson Fisher Suzanne Fitzpatrick Sam Flaming Stephanie Fleet Matt Fletcher Armando Flores Otoniel Flores Hoyt Ford Rob Ford...

  • Page 35
    2010 ANNUAL REPORT...OKLAHOMA CITY, OKLAHOMA Thinking green, almost 400 Oklahoma City headquarters employees participate in an employee garden, providing fresh vegetables for themselves and local food banks...Jesse Roberts Steve Salter II Ryan Sanders William Sanders Kevin Sanderson Ramon Sandoval Chad ...

  • Page 36
    ...EMPLOYEES Jason Stinson Ken Stinson Joe Stockton William...PENNSYLVANIA Working 24 hours a day, crews in the Marcellus Shale drill for natural gas in this enormous play spanning the Appalachians from West Virginia through Pennsylvania... Dan Barnett Joshua Barron... Coulter Randy Counts Mario Coutino-...

  • Page 37
    2010 ANNUAL REPORT | 37 Jeff C.... Hopkins Cliff Hornsby Ben Horton Janna Hoskins Amber Houston Trevor Houston Veda Howell Jared Howerton Chloe Howlett Clay Hubbard ...Kevin Pinkston Lindsey Pitt Cindy Pittman Aaron Place Jeff Plangman William Plant Arturo Plascencia Ryan Plummer Adam Podschun Erryn...

  • Page 38
    ...EMPLOYEES... Segrest Terry Sells Chellee Semon Hayet...Melanie Welch Geff Welsh Drew West Scott West Colt Westbrook Buck Wheaton ...Williams Brian P. Williams Cody M. Williams Frankie Williams Jr. Lauren Williams Mike Williams...Wyatt Carolynn Wylder Jennifer Yeahquo Tonya York Andrew Yost Kevin Yost Scot Young...

  • Page 39
    2010 ANNUAL REPORT...Fields Casey Fields Kevin Fields Peggy Fields Brett Finley Amanda Finney Jesse Fisher Mike Fisher Randy Fite Billy Fitt William...Ley Micah LeGall Sam ... Timothy Place Monte ...OKLAHOMA CITY, OKLAHOMA Largest in the industry, Chesapeake's Geographic Information Systems department employs...

  • Page 40
    ... Hancel Steen Michael Stephens Teena Sterling Billy Stevens Jr. BIG WELLS, TEXAS In the heart of the Eagle Ford Shale, Chesapeake's vertical integration strategy allows the company to rapidly accelerate its drilling activities. Chance Rodriguez Gustavo Rodriguez John G. Rogers Kathy Rogers Mark...

  • Page 41
    2010 ANNUAL REPORT... Jr. Aaron Chang Gustavo Chang-Koo Bounyeme Chansombat... Cline Jack Clinger Patrick Close Brian Closson Glen Clothier...Cindy Dykes Jude Dysart Richard Eads Stephanie Eagle Cody Eakle Mark Earl Reed Early ...Fultz Jr. Kevin Furr Kyle Gabb William Gaddy Drue Gage Drew Gagliardi Jill ...

  • Page 42
    42 | EMPLOYEES Kenneth Gentry Chris George Jerry George II Brian Gibbs John Gibbs ...Hoover Joshua Hoover Jaime Hopkins Jason Hopkins Karen Hoppe Tami Horn Tanner Horn Michael Horner William Horner Christopher Hornsby Mike Hornsby Aaron Horton Chaz Horton Amanda Horvath Robert Horvath Eric Hottenstein...

  • Page 43
    ... Robison Tjaden Roblin Frank Rocchio Olga Rocha Randy Rodeheaver CHICAGO, ILLINOIS Chesapeake's Meteorology Division supplies valuable weather information for the company's field operating teams and hedging program. Dan Prine Margaret Pringle Gregory Probst Joseph Probst Elizabeth Proctor Kirk...

  • Page 44
    ... Dan Weinmeister Lauren Weir Cody Weisinger James Welch Michael D. Welch Ashley Wells Daniel Wells Laura Wells Shelli Wells Jason Welty Todd Wenrich Garin Wente Timothy Wescott Tony Wesolick Eric West Kelly West Josh Westbrook Larry Westbrook Daniel Westcott Adam Westerman Jenae Whatley Robert...

  • Page 45
    ... Avenue Oklahoma City, Oklahoma (Address of principal executive offices) 73-1395733 (I.R.S. Employer Identification No.) 73118 (Zip Code) Chesapeake Energy Corporation (405) 848-8000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act...

  • Page 46
    ... and Financial Disclosure . . Item 9A. Controls and Procedures ...Item 9B. Other Information ...Item 5. PART III Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...

  • Page 47
    ... the Marcellus Shale in the northern Appalachian Basin of West Virginia and Pennsylvania. We also have substantial operations in the liquids-rich plays of the Eagle Ford Shale in South Texas, the Granite Wash, Cleveland, Tonkawa and Mississippian plays in the Anadarko Basin in western Oklahoma and...

  • Page 48
    ... Participation Agreement below. Chesapeake Midstream Partners, L.P. On August 3, 2010, Chesapeake Midstream Partners, L.P. (NYSE: CHKM), which we and Global Infrastructure Partners (GIP), a New York-based private equity fund, formed to own, operate, develop and acquire midstream assets, completed...

  • Page 49
    ... Us Our principal executive offices are located at 6100 North Western Avenue, Oklahoma City, Oklahoma 73118 and our main telephone number at that location is (405) 848-8000. We make available free of charge on our website at www.chk.com our annual reports on Form 10-K, quarterly reports on Form 10...

  • Page 50
    ... horizontal drilling and completion technologies, when applied to various new unconventional plays, would likely create a unique opportunity to capture decades worth of drilling opportunities, we embarked on an aggressive lease acquisition program, which we have referred to as the "gas shale land...

  • Page 51
    ... in our drilling rig, compression and trucking service operations and in our midstream gathering operations that create substantial benefits from vertical integration. In 2011 and 2012, we also intend to make significant investments in building our capability to hydraulically fracture our wells. As...

  • Page 52
    ... Shale. Chesapeake's Marcellus Shale proved reserves represented 860 bcfe, or 5%, of our total proved reserves as of December 31, 2010. During 2010, the Marcellus Shale assets produced 53 bcfe, or 5%, of our total production, and we invested approximately $380 million to drill 329 (135 net) wells...

  • Page 53
    ... proved reserves as of December 31, 2010. During 2010, the Eagle Ford Shale assets produced 2 bcfe, or a nominal amount, of our total production, and we invested approximately $243 million to drill 82 (48 net) wells in the Eagle Ford Shale, net of $67 million in drilling and completion cost carries...

  • Page 54
    ... 100% 106 100% 202 100% 120 100% 157 100% 70 100% The following table shows the wells we drilled or participated in by area: 2010 Gross Wells Mid-Continent ...Haynesville/Bossier Shale ...Barnett Shale ...Fayetteville Shale ...Permian and Delaware Basins ...Marcellus Shale ...Eagle Ford Shale...

  • Page 55
    ..., Sales, Prices and Expenses The following table sets forth information regarding the production volumes, natural gas and oil sales, average sales prices received, other operating income and expenses for the periods indicated: Years Ended December 31, 2010 2009 2008 Net Production(a): Natural gas...

  • Page 56
    ...of Proved Reserves 28% 21 18 14 4 5 1 - 9 100% Present Value ($ in millions) $ 6,588 2,408 1,299 1,457 1,058 1,497 245 15 579 15,146(c) Natural Gas (bcf) Mid-Continent ...Haynesville/Bossier Shale ...Barnett Shale ...Fayetteville Shale ...Permian and Delaware Basins ...Marcellus Shale ...Eagle Ford...

  • Page 57
    ... billion in 2013 and $5.3 billion in 2014 and beyond, although the amount and timing of these expenditures will depend on a number of factors, including actual drilling results, service costs, product prices and the availability of capital. Chesapeake's developmental drilling schedules are subject...

  • Page 58
    ... of our proved reserves of approximately $600 million and $90 million, respectively. The estimated future net revenue used in this analysis does not include the effects of future income taxes or hedging. Chesapeake's management uses forward-looking market-based data in developing its drilling plans...

  • Page 59
    ... company's reported proved reserves at the close of each quarter. Each quarter, Reservoir Engineering Department managers, the Vice President of Reservoir Engineering, the Senior Vice President of Production and the Chief Operating Officer review all significant reserves changes and all new proved...

  • Page 60
    ... Ford Shale Marcellus Shale Other Appalachian Basin Mid-Continent (portions) Lee Keeling and Associates, Inc... 7% Data and Consulting Services, Division of Schlumberger Technology Corporation ...Ryder Scott Company, L.P... 7% 6% Copies of the reports issued by the engineering firms are filed...

  • Page 61
    ... of of Net Wells and Unproved Proved Unproved Proved Drilled Development(a) Properties(b) Properties Properties Properties Total ($ in millions) Mid-Continent ...Haynesville/ Bossier Shale ...Barnett Shale ...Fayetteville Shale ...Permian and Delaware Basins ...Marcellus Shale ...Eagle Ford Shale...

  • Page 62
    ... working interest. Acreage numbers do not include our options to acquire additional acreage which have not been exercised. Developed Gross Net Acres Acres Mid-Continent ...Haynesville/Bossier Shale ...Barnett Shale ...Fayetteville Shale ...Permian and Delaware Basins ...Marcellus Shale ...Eagle Ford...

  • Page 63
    ... to operate our midstream assets outside of CHKM. The CMD systems are located in Oklahoma, Texas, Colorado, New Mexico, New York, Ohio, Louisiana, Arkansas, Pennsylvania, Wyoming and West Virginia and consist of approximately 1,750 miles of gathering pipelines, servicing over 1,150 natural gas wells...

  • Page 64
    ... business is utilized primarily to transport drilling rigs for both Chesapeake and third parties. Through this ownership, we are better able to manage the movement of our rigs. As of December 31, 2010, our fleet included 208 trucks and 22 cranes, which mainly service the Mid-Continent, Barnett Shale...

  • Page 65
    .... Chesapeake operates a number of natural gas gathering systems. The U.S. Department of Transportation and certain state agencies regulate the safety and operating aspects of the transportation and storage activities of these facilities. There is currently no price regulation of the company's sales...

  • Page 66
    ... and facilities, install new emission controls on our equipment and facilities, acquire allowances to authorize our greenhouse gas emissions, pay taxes related to our greenhouse gas emissions and administer and manage a greenhouse gas emissions program. Moreover, incentives to conserve energy or use...

  • Page 67
    ... in Oklahoma City and in our operating areas as needed to accommodate our ongoing growth. We also own or lease various field or administrative offices in the areas in which we conduct operations. Employees Chesapeake had approximately 10,000 employees as of December 31, 2010. Glossary of Natural Gas...

  • Page 68
    ... oil well. Exploratory Well. A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of natural gas or oil in another reservoir. Farmout. An assignment of an interest in a drilling location and related acreage conditional upon the drilling of a well...

  • Page 69
    ... natural gas or oil on the basis of available geoscience and engineering data. In the absence of information on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and...

  • Page 70
    ... with no proved reserves. VPP. As we use the term, a volumetric production payment represents a limited-term overriding royalty interest in natural gas and oil reserves that (i) entitles the purchaser to receive scheduled production volumes over a period of time from specific lease interests; (ii...

  • Page 71
    ... Our revenues, operating results, profitability and ability to grow depend primarily upon the prices we receive for the natural gas and oil we sell. We require substantial expenditures to replace reserves, sustain production and fund our business plans. Lower natural gas or oil prices can negatively...

  • Page 72
    ... in a default under that indebtedness, which could adversely affect our business, financial condition and results of operations. Declines in the prices of natural gas and oil could result in a write-down of our asset carrying values. We utilize the full-cost method of accounting for costs related to...

  • Page 73
    ... develop them, we will be required to remove the associated volumes from our reported proved reserves. In addition, under the SEC's reserve reporting rules, because PUDs generally may be booked only if they relate to wells scheduled to be drilled within five years of the date of booking, we may...

  • Page 74
    ... and cost of capital, drilling and production costs, availability of drilling services and equipment, gathering system and pipeline transportation constraints and regulatory approvals. Our hedging activities may reduce the realized prices we receive for our natural gas and oil sales, require...

  • Page 75
    ... legislative and regulatory actions could increase our costs, reduce our revenue and cash flow from natural gas and oil sales, reduce our liquidity or otherwise alter the way we conduct our business. The activities of exploration and production companies operating in the United States are subject to...

  • Page 76
    ... energy futures markets. Such changes could materially reduce our hedging opportunities and negatively affect our revenues and cash flow during periods of low commodity prices. Hydraulic Fracturing Hydraulic fracturing is used in completing greater than 90% of all natural gas and oil wells drilled...

  • Page 77
    ... Appeals. Three derivative actions were filed in the District Court of Oklahoma County, Oklahoma on April 28, May 7, and May 20, 2009 against the company's directors alleging breaches of fiduciary duties relating to compensation of the company's CEO and alleged insider trading, among other things...

  • Page 78
    ... 2011 first quarter by the Pennsylvania Department of Environmental Protection related to alleged methane migration into the groundwater and residential water wells and by the U.S. Environmental Protection Agency related to our compliance with Clean Water Act permitting requirements in West Virginia...

  • Page 79
    ... Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Price Range of Common Stock and Dividends Our common stock trades on the New York Stock Exchange under the symbol "CHK". The following table sets forth, for the periods indicated, the high and low sales prices per share...

  • Page 80
    ... using Chesapeake common stock which is held in treasury or is purchased by the respective plan trustees in the open market. The plans contain no limitation on the number of shares that may be purchased for the purposes of the company contributions. There are no other repurchase plans or programs...

  • Page 81
    ... PER COMMON SHARE ...CASH FLOW DATA: Cash provided by operating activities ...Cash used in investing activities ...Cash provided by (used in) financing activities ...BALANCE SHEET DATA (AT END OF PERIOD): Total assets ...Long-term debt, net of current maturities ...Total equity Years Ended...

  • Page 82
    ...Operations Financial Data The following table sets forth certain information regarding the production volumes, natural gas and oil sales, average sales prices received, other operating income and expenses for the periods indicated: Years Ended December 31, 2010 2009 2008 Net Production: Natural gas...

  • Page 83
    ... the Marcellus Shale in the northern Appalachian Basin of West Virginia and Pennsylvania. We also have substantial operations in the liquids-rich plays of the Eagle Ford Shale in South Texas, the Granite Wash, Cleveland, Tonkawa and Mississippian plays in the Anadarko Basin in western Oklahoma and...

  • Page 84
    ... 31, 2010, our operated wells accounted for approximately 80% of our daily production volume, providing us with a high degree of operational flexibility and cost control. Mitigating natural gas and oil price risk - We actively seek to manage our exposure to adverse market prices for natural gas and...

  • Page 85
    ... we acquire in the Barnett Shale and the Eagle Ford Shale, respectively, at cost plus a fee. The following table provides information about our remaining industry participation agreement drilling and completion carries as of December 31, 2010: Shale Play Marcellus Barnett Eagle Ford Industry...

  • Page 86
    ...Compression - Midstream Gathering Operations. Pending and Planned Asset Sales Fayetteville Shale. On February 21, 2011, we entered into a purchase and sale agreement with a wholly owned subsidiary of BHP Billiton to sell all of our Fayetteville Shale assets, including approximately 487,000 net acres...

  • Page 87
    ...including filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and with the Committee on Foreign Investment in the United States. Closing is expected to occur in the first half of 2011. Frac Tech Holdings, LLC and Chaparral Energy, Inc. Asset Sales. We plan to sell our 25.8% equity...

  • Page 88
    ...in our midstream joint venture agreement with GIP. In June 2009, we received net proceeds of $54 million from the mortgage financing of our regional Barnett Shale headquarters building in Fort Worth, Texas. The interest-only loan has a five-year term at a floating rate of prime plus 275 basis points...

  • Page 89
    ... of control over the timing of our capital expenditures which permits us to defer or accelerate certain capital expenditures if necessary to address any potential liquidity issues. In addition, changes in drilling and field operating costs, drilling results that alter planned development schedules...

  • Page 90
    ... sales of other assets ...Other ...Total other investing activities ...Total cash used in investing activities ...(a) Including related capitalized interest. Bank Credit Facilities We utilize two revolving bank credit facilities, described below, as sources of liquidity. Corporate Midstream Credit...

  • Page 91
    ... basis, by Chesapeake and certain of our wholly owned subsidiaries. Midstream Credit Facility. Our $300 million midstream syndicated revolving bank credit facility is used to fund capital expenditures to build natural gas gathering and other systems for our drilling program and for general corporate...

  • Page 92
    ... any mark-to-market amounts they owe to Chesapeake exceed defined thresholds. The maximum volume-based hedging capacity under the facility is governed by the expected production of the pledged reserve collateral, and volume-based hedging limits are applied separately to price and basis hedges. In...

  • Page 93
    ...at any time at specified make-whole or redemption prices. Our senior notes are governed by indentures containing covenants that may limit our ability and our subsidiaries' ability to incur certain secured indebtedness; enter into sale/leaseback transactions; and consolidate, merge or transfer assets...

  • Page 94
    ... tax benefits. Chesapeake has commitments to purchase any natural gas and oil associated with certain volumetric production payment transactions based on market prices at the time of production and the purchased gas will be resold. Under minimum volume throughput agreements, Chesapeake has...

  • Page 95
    ...and 2009, we sold natural gas and oil call options on a portion of our projected production from 2011 to 2017 and received above-market fixed price natural gas swaps in 2010, 2011 and 2012. Additional information concerning the changes in fair value of our natural gas and oil derivative contracts is...

  • Page 96
    ... currency derivatives appears under Application of Critical Accounting Policies - Hedging elsewhere in this Item 7. Results of Operations General. For the year ended December 31, 2010, Chesapeake had net income of $1.774 billion, or $2.51 per diluted common share, on total revenues of $9.366 billion...

  • Page 97
    ... show our production and prices by region for 2010, 2009 and 2008: 2010 Natural Gas (bcf) ($/mcf)(b) (mmbbl) Mid-Continent ...Haynesville/Bossier Shale ...Barnett Shale ...Fayetteville Shale ...Permian and Delaware Basins ...Marcellus Shale ...Eagle Ford Shale ...Rockies/Williston Basin ...Other...

  • Page 98
    ... Basins ...Marcellus Shale ...Eagle Ford Shale ...Rockies/Williston Basin ...Other ...Total(c) ...(a) Includes NGLs (b) The average sales price excludes gains (losses) on derivatives. (c) 2010 production reflects the sale of a 25% industry participation interest in the company's Barnett Shale assets...

  • Page 99
    ... and reporting of our stock-based compensation. Chesapeake follows the full-cost method of accounting under which all costs associated with natural gas and oil property acquisition, exploration and development activities are capitalized. We capitalize internal costs that can be directly identified...

  • Page 100
    ...regional field office consistent with the business model we use elsewhere in the country. As a result, we consolidated the management of our Eastern Division land, legal, accounting, information technology, geoscience and engineering departments into our corporate offices in Oklahoma City. The costs...

  • Page 101
    ..., respectively. The 2010 income consisted of $106 million related to our equity in the net income of certain investments and $121 million related to the initial public offering by CHKM and a private offering of common stock by Chaparral Energy, Inc., which represented our proportionate share of the...

  • Page 102
    ...by the dramatic slowing of the worldwide economy and the freezing of the credit markets in the fourth quarter of 2008 and into 2009 and 2010. The economic weakness has resulted in significantly reduced natural gas and oil prices leading to a meaningful decline in the overall level of activity in the...

  • Page 103
    .... Chesapeake uses commodity price and financial risk management instruments to mitigate our exposure to price fluctuations in natural gas and oil and changes in interest rates and foreign exchange rates. Recognized gains and losses on derivative contracts are reported as a component of the related...

  • Page 104
    .... Costs of drilling exploratory wells that do not result in proved reserves are charged to expense. Depreciation, depletion, amortization and impairment of natural gas and oil properties are generally calculated on a well by well or lease or field basis versus the aggregated "full-cost" pool basis...

  • Page 105
    ... 2010 which were invoiced and timely paid in January 2011. Since Chesapeake was founded in 1989, Mr. McClendon has acquired working interests in virtually all of our natural gas and oil properties by participating in our drilling activities under the terms of the Founder Well Participation Program...

  • Page 106
    ... oil reserves, expected natural gas and oil production and future expenses, assumptions regarding future natural gas and oil prices, planned capital expenditures, and anticipated asset acquisitions and sales, as well as statements concerning anticipated cash flow and liquidity, business strategy and...

  • Page 107
    ... natural gas and oil volume we hedge. Swaps are used when the price level is acceptable. We also sell calls, taking advantage of market volatility for a portion of our projected production volumes when the strike price levels and the premiums are attractive to us. Beginning in late 2009 and in 2010...

  • Page 108
    ...used the value to buy back call options for the same periods. This increased our capacity to hedge additional volumes. As of December 31, 2010, our natural gas and oil derivative instruments consisted of the following: • • Swaps: Chesapeake receives a fixed price and pays a floating market price...

  • Page 109
    ...December 31, 2010, we had the following open natural gas and oil derivative instruments. Volume (bbtu) Natural Gas: Swaps: Q1 2011 ...Q2 2011 ...Q3 2011 ...Q4 2011 ...2012 ...Other Swaps(a): Q1 2011 ...Q2 2011 ...Q3 2011 ...Q4 2011 ...2012 ...Call Options: 2012 ...2013 ...2014 ...2015 ...2016 - 2020...

  • Page 110
    ...Q4 2011 ...Other Swaps(a): 2012 ...2013 ...Call Options(b): Q1 2011 ...Q2 2011 ...Q3 2011 ...Q4 2011 ...2012 ...2013 ...2014 ...2015 ...2016 - 2017 ...Knock-Out Swaps: Q1 2011 ...Q2 2011 ...Q3 2011 ...Q4 2011 ...2012 ... Fixed Weighted Average Price Cash Flow Fair Put Call Differential Hedge Value...

  • Page 111
    ... of contracts when closed ...Fair value of contracts outstanding, as of December 31 ... The change in natural gas and oil prices during the year ended December 31, 2010 increased the value of our derivative assets by $995 million. This gain is recorded in natural gas and oil sales or in accumulated...

  • Page 112
    ... senior notes. We enter into floating-to-fixed interest rate swaps (we receive a floating market rate and a pay fixed interest rate) to manage our interest rate exposure related to our bank credit facility borrowings. Call options: Occasionally we sell call options for a premium when we think it is...

  • Page 113
    ... $796 million at December 31, 2010 using an exchange rate of $1.3269 to â,¬1.00. Additional Disclosures Regarding Derivative Instruments In accordance with accounting guidance for derivatives and hedging, to the extent that a legal right of set-off exists, Chesapeake nets the value of its derivative...

  • Page 114
    ...Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS CHESAPEAKE ENERGY CORPORATION Page Management's Report on Internal Control Over Financial Reporting Consolidated Financial Statements: ... 69 70 71 72 73 75 77 78 135 Report of Independent Registered Public Accounting Firm...

  • Page 115
    ... of the company's internal control over financial reporting as of December 31, 2010 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report which appears herein. /s/ AUBREY K. MCCLENDON Aubrey K. McClendon Chairman of the Board and...

  • Page 116
    ... ACCOUNTING FIRM To the Board of Directors and Shareholders of Chesapeake Energy Corporation, In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Chesapeake Energy Corporation and its subsidiaries...

  • Page 117
    ... ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2010 CURRENT ASSETS: Cash and cash equivalents ...Accounts receivable ...Short-term derivative instruments ...Deferred income tax asset ...Other current assets ...Total Current Assets ...PROPERTY AND EQUIPMENT: Natural gas...

  • Page 118
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2010 2009 2008 ($ in millions, except per share data) REVENUES: Natural gas and oil sales ...Marketing, gathering and compression sales ...Service operations revenue ...Total Revenues ......

  • Page 119
    ...stock dividends ...(92) Proceeds from sale of noncontrolling interest in midstream joint venture ...- Realized gains on financing derivatives ...621 Proceeds from mortgage of building ...- Proceeds from sale/leaseback of real estate surface assets ...- Net increase (decrease) in outstanding payments...

  • Page 120
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION OF CASH PAYMENTS FOR: Years Ended December 31, 2010 2009 2008 ($ in millions) Interest, net of capitalized interest ...$ 11 $ 64 $ 97 Income taxes, net ...

  • Page 121
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY Years Ended December 31, 2010 2009 2008 ($ in millions, except per share data) PREFERRED STOCK: Balance, beginning of period ...$ Issuance of 1,500,000, 0 and 0 shares of 5.75% preferred stock ...Issuance of 1,100,000, ...

  • Page 122
    ... 2,975 shares for company benefit plans ...Balance, end of period ...TOTAL CHESAPEAKE STOCKHOLDERS' EQUITY ...NONCONTROLLING INTEREST: Balance, beginning of period ...Sale of noncontrolling interest in midstream joint venture ...Allocation of joint venture capital to Global Infrastructure Partners...

  • Page 123
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2010 2009 2008 ($ in millions) $ 1,774 $ (5,805) $ 604 Net income (loss) ...Other comprehensive income (loss), net of income tax: Change in fair value of derivative instruments, ...

  • Page 124
    ..., New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Utah, Virginia, West Virginia and Wyoming. Principles of Consolidation The accompanying consolidated financial statements of Chesapeake include the accounts of our direct and indirect wholly owned subsidiaries...

  • Page 125
    ... (see Note 10). Capitalized costs are amortized on a composite unit-of-production method based on proved natural gas and oil reserves. Estimates of our proved reserves as of December 31, 2010 were prepared by both third-party engineering firms and Chesapeake's internal staff. Approximately 78...

  • Page 126
    ...treating plants, drilling rigs and associated equipment, land, buildings and improvements, natural gas compressors, vehicles and office equipment. Major renewals and betterments are capitalized while the costs of repairs and maintenance are charged to expense as incurred. The costs of assets retired...

  • Page 127
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) have control. Under the equity method, we recognize our share of the investee's earnings in our consolidated statements of operations. Investments in securities not accounted for under the equity ...

  • Page 128
    ... gas reserves on the underlying properties. The natural gas imbalance net position at December 31, 2010 and 2009 was a liability of $7 million. Marketing Gathering and Compression Sales. Chesapeake takes title to the natural gas it purchases from other working interest owners in operated wells...

  • Page 129
    ... received in exchange for awards of equity instruments based on the fair value at the date of grant of those awards. We utilize the Black-Scholes option pricing model to measure the fair value of stock options. To the extent compensation cost relates to employees directly involved in natural gas...

  • Page 130
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 2. Net Income Per Share Accounting guidance for Earnings Per Share (EPS) requires presentation of "basic" and "diluted" earnings per share on the face of the statements of operations for all ...

  • Page 131
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) A reconciliation for the years ended December 31, 2010 and 2008 is as follows: Income Shares Per Share (Numerator) (Denominator) Amount (in millions, except per share data) For the Year Ended ...

  • Page 132
    ...common stock using a net share settlement process. One such triggering circumstance is when the price of our common stock exceeds a threshold amount during a specified period in a fiscal quarter. Convertibility based on common stock price is measured quarter by quarter. In the fourth quarter of 2010...

  • Page 133
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Contingent Convertible Senior Notes Common Stock Price Conversion Thresholds $ $ $ 48.62 64.26 107.36 Contingent Interest First Payable (if applicable) May 14, 2016 November 14, 2017 June 14, 2019...

  • Page 134
    ... a downgrade of our credit ratings. Corporate Credit Facility Our $4.0 billion syndicated revolving bank credit facility is used for general corporate purposes. Borrowings under the facility are secured by natural gas and oil proved reserves and bear interest at our option at either (i) the greater...

  • Page 135
    ... basis, by Chesapeake and certain of our wholly owned subsidiaries. Midstream Credit Facility Our $300 million midstream syndicated revolving bank credit facility is used to fund capital expenditures to build natural gas gathering and other systems for our drilling program and for general corporate...

  • Page 136
    ...against us related to alleged methane migration in Pennsylvania and compliance with Clean Water Act permitting requirements in West Virginia. While these actions may result in monetary sanctions, we do not expect that they will have a material adverse effect on our operations. Rig Leases In a series...

  • Page 137
    ...company receives rights to flow natural gas production through pipelines located in highly competitive markets. The aggregate undiscounted amounts of such required demand payments are presented below: December 31, 2010 ($ in millions) $ 353 414 407 402 395 2,453 $ 4,424 2011 ...2012 ...2013 ...2014...

  • Page 138
    ... volumetric production payment transactions. The purchase commitments are based on market prices at the time of production, and the purchased natural gas and oil is resold. Minimum Volume Commitments We are a party to two gas gathering agreements with a subsidiary of Chesapeake Midstream Partners...

  • Page 139
    ... instruments ...Volumetric production payments ...Contingent convertible debt ...Other ...Deferred tax liabilities ...Deferred tax assets: Net operating loss carryforwards ...Derivative instruments ...Asset retirement obligation ...Investments ...Deferred stock compensation ...Accrued liabilities...

  • Page 140
    ... and state income tax refunds, $13 million related to alternative minimum tax credits used and $87 million related to uncertain tax positions. As of December 31, 2010, we classified $139 million of deferred tax assets as current that were attributable to net operating losses expected to be utilized...

  • Page 141
    ... 2010 which were invoiced and timely paid in January 2011. Since Chesapeake was founded in 1989, Mr. McClendon has acquired working interests in virtually all of our natural gas and oil properties by participating in our drilling activities under the terms of the Founder Well Participation Program...

  • Page 142
    ... the Chesapeake Energy Corporation Amended and Restated Deferred Compensation Plan (DC Plan). Prior to 2009, to be eligible to participate in the DC Plan, an employee must have received annual compensation (base salary and bonus combined in the prior 12 months) of at least $100,000, had a minimum of...

  • Page 143
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 2010, 2009 and 2008, respectively, to fund the match. The company's non-employee directors are able to defer up to 100% of director fees into the DC Plan. Any assets placed in trust by Chesapeake ...

  • Page 144
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Preferred Stock Following is a summary of our preferred stock, including the primary conversion terms as of December 31, 2010: Company's Liquidation Holder's Company's Market Preference Conversion...

  • Page 145
    ... preferred stock are payable quarterly in cash, common stock or a combination thereof. Stock-Based Compensation Plans Under Chesapeake's Long Term Incentive Plan, restricted stock, stock options, stock appreciation rights, performance shares and other stock awards may be awarded to employees...

  • Page 146
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) the shares underlying the option on the date of grant. Restricted stock and options granted become vested at dates determined by a committee of the Board of Directors. No awards may be granted ...

  • Page 147
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) to natural gas and oil properties are recognized in general and administrative expenses, production expenses, marketing, gathering and compression expenses or service operations expense. Note 1 ...

  • Page 148
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table provides information related to stock option activity for 2010, 2009 and 2008: Number of Weighted Weighted Shares Average Average Aggregate Underlying Exercise Price Contract ...

  • Page 149
    ... 31, 2010 and 2009, our natural gas and oil derivative instruments were comprised of the following types of instruments: • • Swaps: Chesapeake receives a fixed price and pays a floating market price to the counterparty for the hedged commodity. Call options: Chesapeake sells call options in...

  • Page 150
    ... 31, 2010 Volume Fair Value ($ in millions) Natural gas (bbtu): Fixed-price swaps ...Call options ...Put options ...Fixed-price knockout swaps ...Fixed-price collars ...Basis protection swaps ...Total natural gas ...Oil (mbbl): Fixed-price swaps ...Call options ...Fixed-price knockout swaps ...Total...

  • Page 151
    ...senior notes. We enter into floating-to-fixed interest rate swaps (we receive a floating market rate and pay a fixed interest rate) to manage our interest rate exposure related to our bank credit facilities borrowings. Call options: Occasionally we sell call options for a premium when we think it is...

  • Page 152
    ... at December 31, 2010 using an exchange rate of $1.3269 to â,¬1.00. Additional Disclosures Regarding Derivative Instruments and Hedging Activities In accordance with accounting guidance for derivatives and hedging, to the extent that a legal right of set-off exists, Chesapeake nets the value of its...

  • Page 153
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table sets forth the fair value of each classification of derivative instrument as of December 31, 2010 and 2009 on a gross basis without regard to same-counterparty netting: Fair ...

  • Page 154
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table presents the pre-tax gain (loss) recognized in, and reclassified from, accumulated other comprehensive income (AOCI) and recognized in net income (loss), including any hedge ...

  • Page 155
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 10. Supplemental Disclosures About Natural Gas and Oil Producing Activities Net Capitalized Costs Evaluated and unevaluated capitalized costs related to Chesapeake's natural gas and oil producing ...

  • Page 156
    ... been capitalized are summarized as follows: 2010 Development and exploration costs: Development drilling(a) ...Exploratory drilling ...Geological and geophysical costs(b)(c) ...Asset retirement obligation and other ...Acquisition costs: Unproved properties(d) ...Proved properties ...Deferred income...

  • Page 157
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Natural Gas and Oil Reserve Quantities (unaudited) Chesapeake's petroleum engineers and independent petroleum engineering firms estimated all of our proved reserves as of December 31, 2010 and ...

  • Page 158
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Proved developed natural gas and oil reserves are reserves of any category that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the...

  • Page 159
    ...and we sold 1.493 tcfe of our proved reserves for approximately $2.876 billion including divestitures related to three volumetric production payment transactions, the sale of a portion of our Barnett Shale assets and other non-core asset sales. During 2010, we recorded positive revisions of 183 bcfe...

  • Page 160
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following summary sets forth our future net cash flows relating to proved natural gas and oil reserves based on the standardized measure: Years Ended December 31, 2010 2009 2008 ($ in millions...

  • Page 161
    ... in approximately 1.8 million net acres of our Marcellus Shale leasehold along with 2.5 bcfe of estimated proved reserves. Chesapeake received $1.25 billion in cash at closing, and Statoil agreed to fund 75% of our share of drilling and completion costs in the Marcellus Shale until an additional...

  • Page 162
    ... 2008 December 2007 Region Barnett Shale Permian Basin East Texas and the Texas Gulf Coast South Texas Anadarko and Arkoma Basins Anadarko Basin Texas, Oklahoma and Kansas Kentucky and West Virginia Proved Reserves Proceeds (bcfe) $ / mcfe ($ in millions) (at time of sale) $ 1,150 390 $ 2.93 $ 335...

  • Page 163
    ...% 26% 20% 11% - Accounting Method Equity Equity Equity Cost Cost/Equity Chesapeake Midstream Partners, L.P. On September 30, 2009, we formed a joint venture with Global Infrastructure Partners (GIP), a New York-based private equity fund, to own and operate natural gas midstream assets. As part of...

  • Page 164
    ... Eagle Resource Management LLC, a natural gas trading and management firm. In 2010, we recorded a $16 million impairment of certain other equity investments. Our investees were impacted by the dramatic slowing of the worldwide economy and the tightening of the credit markets in the fourth quarter...

  • Page 165
    ... regional field office consistent with the business model the company uses elsewhere in the country. As a result, we consolidated the management of our Eastern Division land, legal, accounting, information technology, geoscience and engineering departments into our corporate offices in Oklahoma City...

  • Page 166
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table provides fair value measurement information for financial assets (liabilities) measured at fair value on a recurring basis as of December 31, 2010: Quoted Prices in Active ...

  • Page 167
    ... value of our long-term debt and our convertible preferred stock primarily using quoted market prices. Fair value is compared to the carrying value, excluding the impact of interest rate derivatives, in the table below. December 31, 2010 December 31, 2009 Carrying Estimated Carrying Estimated Amount...

  • Page 168
    ... marketing, gathering and compression of natural gas and oil primarily from Chesapeakeoperated wells. We also have drilling rig and trucking operations which are responsible for providing drilling rigs primarily used on Chesapeake-operated wells and trucking services utilized in the transportation...

  • Page 169
    ... ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Management evaluates the performance of our segments based upon income (loss) before income taxes. Revenues from the sale of natural gas and oil related to Chesapeake's ownership interests by the marketing...

  • Page 170
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Exploration and Production For the Year Ended December 31, 2009: Revenues ...$ Intersegment revenues ...Total revenues ...Depreciation, depletion and amortization ...Other income (expense) ......

  • Page 171
    .... Condensed Consolidating Financial Information Chesapeake Energy Corporation is a holding company and owns no operating assets and has no significant operations independent of its subsidiaries. Our obligations under our outstanding senior notes and contingent convertible senior notes listed in Note...

  • Page 172
    ...) Parent CURRENT ASSETS: Cash and cash equivalents ...$ Other ...Total Current Assets ...PROPERTY AND EQUIPMENT: Natural gas and oil properties, at cost based on full-cost accounting ...Other property and equipment, net ...Total Property and Equipment ...Other assets ...Investments in subsidiaries...

  • Page 173
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2010 ($ in millions) Parent REVENUES: Natural gas and oil sales ...$ Marketing, gathering and compression sales ......

  • Page 174
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2009 ($ in millions) Parent REVENUES: Natural gas and oil sales ...$ Marketing, gathering and compression sales ......

  • Page 175
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2008 ($ in millions) Parent REVENUES: Natural gas and oil sales . . $ Marketing, gathering and compression sales ......

  • Page 176
    ... ...Cash used in investing activities ...CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from credit facilities borrowings . . Payments on credit facilities borrowings . . Proceeds from issuance of senior notes, net of offering costs ...Proceeds from preferred stock, net of offering costs ...Cash...

  • Page 177
    ...used in investing activities ...CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from credit facilities borrowings . . Payments on credit facilities borrowings . . Proceeds from issuance of senior notes, net of offering costs ...Proceeds from sales of noncontrolling interest in midstream joint venture...

  • Page 178
    ... Cash used in investing activities ...CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from credit facilities borrowings ...Payments on credit facilities borrowings ...Proceeds from issuance of senior notes, net of offering costs ...Proceeds from issuance of common stock, net of offering costs ...Cash...

  • Page 179
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 18. Quarterly Financial Data (unaudited) Summarized unaudited quarterly financial data for 2010 and 2009 are as follows ($ in millions except per share data): March 31, 2010 Total revenues ...$ ...

  • Page 180
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 20. Subsequent Events Fayetteville Shale Asset Sale On February 21, 2011, we entered into a purchase and sale agreement with BHP Billiton Petroleum, a wholly owned subsidiary of BHP Billiton ...

  • Page 181
    Schedule II CHESAPEAKE ENERGY CORPORATION VALUATION AND QUALIFYING ACCOUNTS ($ in millions) Balance at Beginning of Period Additions Charged Charged To Balance at To Other End Expense Accounts Deductions of Period 6 18 - 24 - 12 - Description December 31, 2010: Allowance for doubtful accounts ...

  • Page 182
    ... and communicated to Chesapeake management, including Chesapeake's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Changes in Internal Controls No changes in the company's internal control over financial reporting occurred...

  • Page 183
    ...Statement to be filed by Chesapeake pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934 not later than May 2, 2011. ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information called for...

  • Page 184
    ... Convertible Preferred Stock, as amended. Chesapeake's Amended and Restated 8-K 001-13726 Bylaws. Indenture dated as of August 16, 2005 8-K 001-13726 among Chesapeake, as issuer, the subsidiaries signatory thereto, as Subsidiary Guarantors, and The Bank of New York Mellon Trust Company, N.A., as...

  • Page 185
    ... by Reference SEC File Filed Furnished Form Number Exhibit Filing Date Herewith Herewith 4.1 06/30/2006 Indenture dated as of June 30, 2006 8-K 001-13726 among Chesapeake, as issuer, the subsidiaries signatory thereto, as Subsidiary Guarantors and The Bank of New York Mellon Trust Company, N.A., as...

  • Page 186
    .... Eighth Amended and Restated Credit 8-K Agreement, dated as of December 2, 2010, among Chesapeake Energy Corporation, as the Company, Chesapeake Exploration L.L.C., as Borrower, Union Bank, N.A., as Administrative Agent, Wells Fargo Bank, National Association, The Royal Bank of Scotland plc and BNP...

  • Page 187
    ...for Non-Employee Directors, as amended. 10.1.13†Chesapeake Energy Corporation Amended and Restated Deferred Compensation Plan. 10.1.14†Chesapeake's Amended and 8-K 001-13726 10.1.14 06/17/2010 Restated Long Term Incentive Plan. 10.1.14.1†Form of Restricted Stock Award Agreement for the Long...

  • Page 188
    ... of Data & Consulting Services, Division of Schlumberger Technology Corporation. 23.4 Consent of Lee Associates, Inc. Keeling and 10.3 02/29/2008 X X X X X X X X 23.5 Consent of Ryder Scott Company, L.P. 31.1 Aubrey K. McClendon, Chairman and Chief Executive Officer, Certification pursuant...

  • Page 189
    ... Exhibit SEC File Filed Furnished Number Exhibit Description Form Number Exhibit Filing Date Herewith Herewith 99.2 Report of Data & Consulting Services, X Division of Schlumberger Technology Corporation. 99.3 Report of Lee Keeling and Associates, Inc. 99.4 Report of Ryder Scott Company, L.P. 101...

  • Page 190
    ... the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHESAPEAKE ENERGY CORPORATION By /s/ AUBREY K. MCCLENDON Aubrey K. McClendon Chairman of the Board and Chief Executive Officer POWER OF ATTORNEY...

  • Page 191
    ... Corporate Headquarters 6100 North Western Avenue Oklahoma City, OK 73118 (405) 935-8000 Internet Address Company financial information, public disclosures and other information are available through Chesapeake's website at www.chk.com. Common Stock Chesapeake Energy Corporation's common stock...

  • Page 192
    CHESAPEAKE ENERGY CORPORATION » 2010 ANNUAL REPORT 6100 NORTH WESTERN AVENUE OKLAHOMA CITY, OK 73118 WWW.CHK.COM