Chesapeake Energy 2010 Annual Report Download - page 87

customary conditions, 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
interest in Frac Tech Holdings, LLC and our 20% equity interest in Chaparral Energy, Inc. Each of the
foregoing proposed transactions is subject to changes in market conditions and other factors, and there can be
no assurance that we will complete any or all of these transactions on a timely basis or at all.
Other. During 2011, the company expects to enter into additional asset monetizations, including industry
participation agreements in liquids-rich plays, new VPPs, certain midstream assets sales and various other
smaller planned sales.
Capital Expenditures
Our exploration, development and acquisition activities require us to make substantial capital
expenditures. Our current budgeted drilling and completion capital expenditures, net of drilling and completion
carries, are $5.0 - $5.4 billion in 2011 and $5.4 - $5.8 billion in 2012. We anticipate funding all or substantially
all budgeted drilling and completion capital expenditures using cash flow from operations in 2011 and 2012.
We plan to fund our leasehold acquisition capital expenditures, together with other capital expenditure
requirements, with a combination of revolving bank credit facility borrowings and proceeds from asset
monetizations. As of December 31, 2010, we had made commitments to acquire additional proved and
unproved properties in various transactions during the next twelve months for approximately $350 million.
Liquidity and Capital Resources
Sources and Uses of Funds
Cash flow from operations is a significant source of liquidity we use to fund capital expenditures, pay
dividends and repay debt. Cash provided by operating activities was $5.117 billion in 2010, compared to
$4.356 billion in 2009 and $5.357 billion in 2008. Changes in cash flow from operations are largely due to the
same factors that affect our net income, excluding various non-cash items such as impairments of assets,
depreciation, depletion and amortization, deferred income taxes and changes in our derivative instruments.
See the discussion below under Results of Operations.
Changes in market prices for natural gas and oil directly impact the level of our cash flow from operations.
To mitigate the risk of declines in natural gas and oil prices and to provide more predictable future cash flow
from operations, we have entered into various derivative instruments. Assuming future NYMEX natural gas
settlement prices average $4.50 per mcf for 2011 and including the effect of the company’s open derivatives as
of February 22, 2011, closed contracts and previously collected call premiums, the company estimates its
average natural gas price will be $5.98 per mcf for 2011. This estimate does not include the effect of basis
differentials and gathering costs. Our natural gas and oil derivatives as of December 31, 2010 are detailed in
Item 7A of this report. Depending on changes in natural gas and oil futures markets and management’s view of
underlying natural gas and oil supply and demand trends, we may increase or decrease our current hedging
positions.
Our $4.0 billion corporate revolving bank credit facility, our $300 million midstream revolving bank credit
facility and cash and cash equivalents are other sources of liquidity. We use the credit facilities and cash on
hand to fund daily operating activities and capital expenditures as needed. We borrowed $15.117 billion and
repaid $13.303 billion in 2010, we borrowed $7.761 billion and repaid $9.758 billion in 2009, and we borrowed
$13.291 billion and repaid $11.307 billion in 2008 from our revolving bank credit facilities. Our corporate facility
is secured by natural gas and oil proved reserves. A significant portion of our natural gas and oil reserves are
currently unencumbered and therefore available to be pledged as additional collateral if needed to respond to
borrowing base and collateral redeterminations our lenders might make in the future. Accordingly, we believe
our borrowing capacity under this facility will not be reduced as a result of any such future redeterminations.
Our midstream facility is secured by substantially all of our wholly owned midstream assets and is not subject
to periodic borrowing base redeterminations. Our revolving bank credit facilities are described below under
Bank Credit Facilities.
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