Chesapeake Energy 2010 Annual Report Download - page 64

significant portion of its compressor fleet, consisting of 2,234 compressors, for $517 million and entered into a
master lease agreement. These transactions were recorded as sales and operating leasebacks.
Service Operations
Drilling
Securing available rigs is an integral part of the exploration process and therefore owning our own drilling
company is a strategic advantage for Chesapeake. In 2001, Chesapeake formed its wholly owned drilling
subsidiary, now Nomac Drilling, L.L.C., with an investment of $26 million to build and refurbish five drilling rigs.
As of December 31, 2010, Chesapeake had invested approximately $1.1 billion to build or acquire 105 drilling
rigs, which are utilized primarily to drill Chesapeake-operated wells. In a series of transactions since 2006, our
drilling subsidiaries sold 86 rigs for $717 million and subsequently leased back the rigs through 2018. These
transactions were recorded as sales and operating leasebacks. The drilling rigs have depth ratings between
3,000 and 25,000 feet and range in drilling horsepower from 450 to 2,000. These drilling rigs are currently
operating in Oklahoma, Texas, Arkansas, Louisiana and Appalachia. Nomac Drilling, L.L.C. is the fifth largest
drilling rig contractor in the U.S.
Trucking
In 2006, Chesapeake expanded its service operations by acquiring two privately-owned oilfield trucking
service companies. We now own one of the largest oilfield and heavy haul transportation companies in the
industry. Our trucking 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 and
Appalachian regions.
Seasonal Nature of Business
Generally, the demand for natural gas decreases during the summer months and increases during the
winter months. Seasonal anomalies such as mild winters or hot summers can lessen or intensify this
fluctuation. In addition, pipelines, utilities, local distribution companies and industrial users utilize natural gas
storage facilities and purchase some of their anticipated winter requirements during the summer. This can
lessen seasonal demand fluctuations. World weather and resultant prices for liquified natural gas (LNG) can
also affect deliveries of competing LNG into this country from abroad, affecting the price of domestically
produced natural gas.
Competition
We compete with both major integrated and other independent natural gas and oil companies in acquiring
desirable leasehold acreage, producing properties and the equipment and expertise necessary to explore,
develop and operate our properties and market our production. Some of our competitors may have larger
financial and other resources than ours. The natural gas and oil industry also faces competition from alternative
fuel sources, including other fossil fuels such as coal and imported LNG. Competitive conditions may be
affected by future legislation and regulations as the U.S. develops new energy and climate-related policies. In
addition, some of our larger competitors may have a competitive advantage when responding to factors that
affect demand for natural gas and oil production, such as changing prices, domestic and foreign political
conditions, weather conditions, the price and availability of alternative fuels, the proximity and capacity of gas
pipelines and other transportation facilities, and overall economic conditions. We believe that our technological
expertise, our exploration, land, drilling and production capabilities and the experience of our management
generally enable us to compete effectively.
Hedging Activities
We utilize hedging strategies to hedge the price of a portion of our future natural gas and oil production
and to manage interest rate exposure. See Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
Regulation
General. All of our operations are conducted onshore in the United States. The U.S. natural gas and oil
industry is regulated at the federal, state and local levels, and some of the laws, rules and regulations that
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