Chesapeake Energy 2010 Annual Report Download - page 95

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The estimated fair values of our natural gas and oil derivative contracts as of December 31, 2010 and
2009 are provided below.
December 31,
2010 2009
($ in millions)
Derivative assets (liabilities)(a):
Fixed-price natural gas swaps .............................................. $ 1,307 $ 662
Natural gas call options ................................................... (701) (541)
Natural gas put options ................................................... (59) (50)
Fixed-price natural gas knockout swaps ..................................... — 17
Fixed-price natural gas collars .............................................. — 92
Natural gas basis protection swaps .......................................... (55) (50)
Fixed-price oil swaps ..................................................... (31) 3
Oil call options(b) ......................................................... (1,129) (144)
Fixed-price oil knockout swaps ............................................. 19 32
Estimated fair value .................................................... $ (649) $ 21
(a) See Item 7A. Quantitative and Qualitative Disclosures About Market Risk of this report for additional
information concerning derivative transactions.
(b) During 2010 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
as follows:
2010 2009 2008
($ in millions)
Fair value of contracts outstanding, as of January 1 .................... $ 21 $ 1,305 $ (369)
Change in fair value of contracts .................................... 995 1,266 1,880
Fair value of new contracts when entered into ......................... (581) (21) (569)
Contracts realized or otherwise settled ............................... (1,691) (2,102) 9
Fair value of contracts when closed ................................. 607 (427) 354
Fair value of contracts outstanding, as of December 31 ................. $ (649) $ 21 $ 1,305
Our realized and unrealized gains and losses on natural gas and oil derivatives during 2010, 2009 and
2008 were as follows:
Years Ended December 31,
2010 2009 2008
($ in millions)
Natural gas and oil sales .......................................... $ 4,248 $ 3,291 $ 7,069
Realized gains (losses) on natural gas and oil derivatives(a) .............. 2,056 2,346 (8)
Unrealized gains (losses) on non-qualifying natural gas and oil
derivatives(b) .................................................. (634) (624) 887
Unrealized gains (losses) on ineffectiveness of cash flow hedges ......... (23) 36 (90)
Total natural gas and oil sales .................................. $ 5,647 $ 5,049 $ 7,858
(a) Consists of settled trades related to the production periods being reported.
(b) Consists of both temporary fluctuations in the mark-to-market values of non-qualifying trades and settled
values of non-qualifying trades related to future production periods.
Changes in the fair value of natural gas and oil derivative instruments designated as cash flow hedges, to
the extent effective in offsetting cash flows attributable to the hedged commodities, and locked-in gains and
losses of settled derivative contracts are recorded in accumulated other comprehensive income and are
transferred to earnings in the month of related production. These unrealized gains (losses), net of related tax
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