Chesapeake Energy 2010 Annual Report Download - page 164

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
of the initial public offering by CHKM in 2010, we recognized a $90 million gain on our investment. The gain
represented our proportionate share of the excess of offering proceeds over the carrying value of our
investment in CHKM and is reported in earnings (losses) from equity investees on our statements of
operations. The carrying value of our investment in CHKM is less than our underlying equity in net assets by
approximately $237 million as of December 31, 2010. This difference is being accreted over 20 years.
In 2010, we received cash distributions of $88 million from CHKM and its predecessor.
Frac Tech Holdings, LLC. Frac Tech Holdings, LLC provides hydraulic fracturing and other services to oil
and gas companies. In 2010, we made an additional $100 million investment in Frac Tech, recorded positive
equity method adjustments of $55 million for our share of Frac Tech’s income and recorded depreciation
adjustments of $25 million for our cost in excess of equity. In addition, in November 2010 and December 2010,
we received cash distributions of $52 million and $6 million, respectively, from Frac Tech. The carrying value of
our investment in Frac Tech is in excess of our underlying equity in net assets by approximately $153 million as
of December 31, 2010. This excess amount is attributed to certain intangibles associated with the specialty
services provided by Frac Tech and is being amortized over the estimated life of the intangibles. We recently
announced our intention to sell our interest in Frac Tech. The sale is subject to changes in market conditions
and other factors, and there can be no assurance that we will complete the transaction on a timely basis or at
all.
Chaparral Energy, Inc. Chaparral Energy, Inc. is an independent oil and natural gas company engaged in
the production, acquisition and exploitation of oil and natural gas properties. In 2010, we recorded positive
equity method adjustments of $5 million for our share of Chaparral’s income and depreciation adjustments of
$6 million for our cost in excess of equity. The carrying value of our investment in Chaparral is in excess of our
underlying equity in net assets by approximately $58 million as of December 31, 2010. This excess is attributed
to the natural gas and oil reserves held by Chaparral and is being amortized over the estimated life of these
reserves based on a unit of production rate. In addition, as a result of an equity offering by Chaparral to a third
party in April 2010, we recognized a $31 million gain on our investment in 2010. This gain represented our
proportionate share of the excess of offering proceeds over the carrying value of our investment in Chaparral
and is reported in earnings (losses) from equity investees on our statements of operations. Due to the dramatic
decrease in natural gas and oil prices at the end of 2008 and into 2009 as a result of the slowing of the
worldwide economy, on March 31, 2009 and December 31, 2008, we recognized an other than temporary
impairment on our investment in Chaparral of $51 million and $100 million, respectively. We recently
announced our intention to sell our investment in Chaparral. The sale is subject to changes in market
conditions and other factors, and there can be no assurance that we will complete the transaction on a timely
basis or at all.
Gastar Exploration Ltd. Gastar Exploration Ltd. (AMEX: GST) is an independent energy company
engaged in the exploration, development and production of natural gas and oil in the U.S. During 2010, the
common stock price of Gastar decreased from $4.79 per share to $4.30 per share. Due to the dramatic
decrease in natural gas and oil prices at the end of 2008 and into 2009 as a result of the slowing of the
worldwide economy, on March 31, 2009, we recognized an other than temporary impairment on our investment
in Gastar of $70 million. Our investment in Gastar had a historical cost basis of $89 million as of December 31,
2010 and 2009.
Other. In 2010, we invested $20 million for a 40% equity interest in Twin 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 of 2008 and into 2009. The economic weakness
resulted in significantly reduced natural gas and oil prices leading to a meaningful decline in the overall level of
activity in the markets served by our investees. Associated with the weakness in performance of certain of the
investees, as well as an evaluation of their financial condition and near-term prospects, we recognized that an
other than temporary impairment had occurred on March 31, 2009 and December 31, 2008 of $41 million and
$80 million, respectively.
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