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CHESAPEAKE ENERGY CORPORATION
2012 ANNUAL REPORT

Table of contents

  • Page 1
    C H E S A P E A K E E N E R G Y C O R P O R AT I O N 201 2 AN N UA L R E P O R T

  • Page 2
    ... the Eagle Ford, Utica, Granite Wash, Cleveland, Tonkawa, Mississippi Lime and Niobrara unconventional liquids plays and in the Haynesville/Bossier, Marcellus and Barnett unconventional natural gas shale plays. The company also owns substantial marketing, compression and oilfield services businesses...

  • Page 3
    ...-core assets. This enables us to redirect capital to higher rate-of-return drilling projects and reduces our total invested capital. During 2012, we sold nearly $12 billion of assets, with the largest sales comprising our exits from the Permian Basin and the midstream business. In 2013, we are well...

  • Page 4
    ... generally accepted accounting principles. (b) PV-10 is the present value (10% discount rate) of estimated future gross revenues to be generated from the production of proved reserves, net of estimated production and future development costs, using prices and costs calculated in accordance with SEC...

  • Page 5
    ...79) (2.79) - (2.79) 84 161 1996 $ 111 35 - 146 6 2 33 - 5 54 - 100 46 (14) 4 - (10) 36 - 13 23 - - 23 - - 23 0.43 - 0.43...field differentials. (d) Prior to 2010, NGL revenues and volumes were not material for separate presentation. (e) Excludes unrealized gains (losses) on natural gas and oil hedging...

  • Page 6
    ...the Chairman Nominating, Governance and Social Responsibility Committee Compensation Committee (4) Audit Committee MANAGEMENT TEAM Steven C. Dixon (1) Acting Chief Executive Of cer Chief Operating Of cer (as of April 15, 2013) Martha A. Burger Senior Vice President - Human and Corporate Resources...

  • Page 7
    ... City, Oklahoma 73118 (Address of principal executive offices) (Zip Code) (405) 848-8000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, par value $0.01 New...

  • Page 8

  • Page 9
    ...Disagreements With Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...PART III Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder...

  • Page 10

  • Page 11
    ... Marcellus Shale in the northern Appalachian Basin of West Virginia and Pennsylvania; and the Barnett Shale in the Fort Worth Basin of north-central Texas. In addition, we have built leading positions in the liquids-rich resource plays of the Eagle Ford Shale in South Texas; the Utica Shale in Ohio...

  • Page 12
    ...27% in 2013 compared to 2012, net of expected asset sales. We project that liquids will account for more than 25% of our 2013 production and approximately 60% of our natural gas, oil and NGL revenue, after differentials and realized hedging. Control Substantial Land and Drilling Location Inventories...

  • Page 13
    ... sales of non-core natural gas and oil properties, midstream and other assets for proceeds of approximately $12 billion (including $1.25 billion from the sale of a preferred security in a subsidiary), and in 2013 we are planning to sell additional natural gas and oil properties as well as midstream...

  • Page 14
    ...sands and Granite Wash plays. Eastern Division. Primarily includes the Marcellus Shale in the northern Appalachian Basin of West Virginia and Pennsylvania and the Utica Shale in Ohio and Pennsylvania. Western Division. Primarily includes the Eagle Ford Shale in South Texas, the Niobrara Shale in the...

  • Page 15
    ... 99 1 100 265 15 280 95 5 100 99 7 106 93 7 100 The following table shows the wells we drilled or participated in by operating division: 2012 Gross Net Wells Wells Southern ...Northern ...Eastern ...Western ...Total...363 942 578 718 2,601 183 441 264 384 1,272 2011 Gross Net Wells Wells 1,104...

  • Page 16
    ... The following table sets forth information regarding the production volumes, natural gas, oil and NGL sales, average sales prices received, other operating income and expenses for the periods indicated: Years Ended December 31, 2012 2011 2010 Net Production: Natural gas (bcf) ...Oil (mmbbl) ...NGL...

  • Page 17
    ... by the Chesapeake Granite Wash Trust, 45 bcf of natural gas, 2 mmbbl of oil and 4 mmbbl of NGL of which are attributable to the noncontrolling interest holders. Estimated future net revenue represents the estimated future gross revenue to be generated from the production of proved reserves, net of...

  • Page 18
    ..., rig availability, title issues or delays, and the effect that acquisitions or dispositions may have on prioritizing developmental drilling plans. The SEC's rules for reporting reserves allow the booking of proved undeveloped reserves at locations greater distances from producing wells than...

  • Page 19
    ..., future production levels and costs that may not prove correct. Future prices and costs may be materially higher or lower than the prices and costs as of the date of any estimate. Chesapeake's management uses forward-looking market-based data in developing its drilling plans, assessing its capital...

  • Page 20
    ... Company's reported proved reserves at the close of each quarter. Each quarter, Reservoir Engineering Department managers, the Vice President of Corporate Reserves, the Executive Vice President of Production and the Chief Operating Officer review all significant reserves changes and all new proved...

  • Page 21
    ...by Volume) 44% 24% 21% Operating Division Northern, Western Eastern Southern Ryder Scott Company, L.P...PetroTechnical Services, Division of Schlumberger Technology Corporation...Netherland, Sewell & Associates, Inc... Copies of the reports issued by the engineering firms are filed with this report...

  • Page 22
    ... incurred(a)(b) ..._____ (a) (b) Exploratory and development costs are net of joint venture drilling and completion cost carries of $784 million, $2.570 billion and $1.151 billion in 2012, 2011 and 2010, respectively. Includes capitalized interest and asset retirement cost as follows: $ $ 976 32...

  • Page 23
    ...price structuring, contract administration and nomination services for Chesapeake, its joint working interest owners and other producers. We attempt to enhance the value of our natural gas and oil production by aggregating volumes to be sold to various intermediary markets, end markets and pipelines...

  • Page 24
    ...vary daily, as of February 2013, approximately 80% of our natural gas production was primarily sold under short-term contracts at market-sensitive prices. Sales to Plains Marketing, L.P. represented 11% of our total revenues (before the effects of hedging) for the year ended December 31, 2012. There...

  • Page 25
    ...Ohio, Oklahoma, Pennsylvania, Texas, West Virginia and Wyoming. As of December 31, 2012, we had a fleet of 119 land drilling rigs and are the fifth largest land driller operating in the U.S. Hydraulic Fracturing In 2010, we began the process of building a hydraulic fracturing business under the name...

  • Page 26
    ... a project if the operator owns or controls less than 100% of the leasehold. In addition, state conservation laws establish maximum rates of production from natural gas and oil wells, generally limit the venting or flaring of natural gas and impose certain requirements regarding the ratability...

  • Page 27
    ... to limit the number of wells and the locations at which we can drill. Midstream Operations Historically, Chesapeake invested, directly and through an affiliate, in gathering systems and processing facilities to complement our natural gas operations in regions where we had significant production and...

  • Page 28
    ... Our operations are subject to stringent and complex federal, state and local laws and regulations relating to the protection of human health and safety, the environment and natural resources. These laws and regulations can restrict or impact our business activities in many ways, such as requiring...

  • Page 29
    ... regulatory programs to comport with Federal requirements, as well as changes to state implementation plans for controlling air emissions in regional non-attainment or near-nonattainment areas, may require natural gas and oil exploration and production operators to incur future capital expenditures...

  • Page 30
    ...of the U.S. Department of Energy, to report on a well-by-well basis the additives and chemicals and amount of water used in the hydraulic fracturing process for each of the wells we operate. The website, www.fracfocus.org, also includes information about how hydraulic fracturing works, the chemicals...

  • Page 31
    ...the first quarter of 2013, a revised draft of proposed rules that would impose new requirements on hydraulic fracturing operations conducted on federal lands, including the disclosure of chemical additives used. The results of EPA's guidance, including its definition of diesel fuel, EPA's study, BLM...

  • Page 32
    ... Chairman of the Board from 1989 to June 2012. Mr. McClendon served as a director of the general partner of Access Midstream Partners, L.P. (NYSE:ACMP), formerly Chesapeake Midstream Partners, L.P., from January 2010 to June 2012. On January 29, 2013, Mr. McClendon agreed to retire from the Company...

  • Page 33
    ... 2011, Mr. Winchester served as the Vice President - Boots & Coots of Halliburton. From July 2002 to September 2010, Mr. Winchester served as the President and Chief Executive Officer of Boots & Coots International Well Control, Inc. ("Boots & Coots"), an NYSE-listed oilfield services company...

  • Page 34
    ...and development activities for a company using the full cost method of accounting. Additionally, any internal costs that can be directly identified with acquisition, exploration and development activities are included. Any costs related to production, general corporate overhead or similar activities...

  • Page 35
    ... service and future income tax expense or to depreciation, depletion and amortization, discounted using an annual discount rate of 10%. Price Differential. The difference in the price of natural gas, oil or NGL received at the sales point and the New York Mercantile Exchange (NYMEX). Productive Well...

  • Page 36
    ... are derived directly from the proved reserves table located in Note 10 of the notes to our consolidated financial statements included in Item 8 of this report. Management uses the reserve replacement ratio as an indicator of the Company's ability to replenish annual production volumes and grow...

  • Page 37
    ... Our revenues, operating results, profitability and ability to grow depend primarily upon the prices we receive for the natural gas, oil and NGL we sell. We require substantial expenditures to replace reserves, sustain production and fund our business plans. Lower natural gas, oil and NGL prices can...

  • Page 38
    ... an offering of our capital stock or a refinancing of our debt include financial market conditions, the value of our assets and our performance at the time we need capital. In addition, our failure to comply with the financial and other restrictive covenants relating to our indebtedness could result...

  • Page 39
    ... the level of production from existing wells, prices of natural gas and oil, our success in developing and producing new reserves and the other risk factors discussed herein. Our ability to obtain capital from other sources, such as the capital markets, other financings and asset sales, is dependent...

  • Page 40
    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 be required to write off any PUDs that are not developed within this five-year time frame. You should not ...

  • Page 41
    ... 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, oil and NGL sales, require...

  • Page 42
    ... pending the results of a study regarding the safety of hydraulic fracturing. In addition to state laws, some local municipalities have adopted or are considering adopting land use restrictions, such as city ordinances, that may restrict or prohibit the performance of well drilling in general and/or...

  • Page 43
    ...price and basis protection hedging program related to the natural gas and oil we produce to manage the risk of low commodity prices and to predict with greater certainty the cash flow from our hedged production. We have used the OTC market exclusively for our natural gas and oil derivative contracts...

  • Page 44
    ... systems and transportation pipelines is insufficient to accommodate potential production from existing and new wells. We rely heavily on third parties to meet our natural gas, oil and NGL gathering demand following the sale of substantially all of our midstream business in 2012. Capital constraints...

  • Page 45
    ... or if we were to lose the services of other key personnel, our business could be negatively impacted. On January 29, 2013, Aubrey K. McClendon, our President, Chief Executive Officer (CEO) and a director, agreed with the Board of Directors to retire from the Company. Mr. McClendon will continue to...

  • Page 46
    ... consolidated derivative action, as well as a case on appeal at the Oklahoma Court of Civil Appeals requesting inspection of Company books and records relating to the December 2008 employment agreement with Mr. McClendon. The principal terms of the settlement include the rescission of the sale of an...

  • Page 47
    ... the Securities Exchange Act of 1934 based on alleged misrepresentations regarding the Company's asset monetization strategy, including liabilities associated with its volumetric production payment (VPP) transactions, as well as Mr. McClendon's personal loans and the Company's internal controls. The...

  • Page 48
    lawsuits against us seeking specific performance to require us to acquire their natural gas and oil interests and pay acreage bonus payments, damages based on breach of contract and/or, in certain cases, punitive damages based on alleged fraud. The Company has successfully defended a number of these...

  • Page 49
    ... sales prices per share of our common stock as reported by the New York Stock Exchange and the amount of cash dividends declared per share: Common Stock High Low Year Ended December 31, 2012: Fourth Quarter ...Third Quarter ...Second Quarter ...First Quarter ...Year Ended December 31, 2011: Fourth...

  • Page 50
    ... of employee restricted stock. We make matching contributions to our 401(k) plan and deferred compensation plan using Chesapeake common stock that 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...

  • Page 51
    ... Current income taxes ...Deferred income taxes ...Total Income Tax Expense (Benefit)...NET INCOME (LOSS) ...Net income attributable to noncontrolling interests ...NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE...Preferred stock dividends ...Loss on conversion/exchange of preferred stock ...NET INCOME...

  • Page 52
    ...31, 2012 STATEMENT OF OPERATIONS DATA (continued): EARNINGS (LOSS) PER COMMON SHARE: Basic ...Diluted ...CASH DIVIDEND DECLARED PER COMMON SHARE ...CASH FLOW DATA: Cash provided by operating activities ...Cash used in investing activities ...Cash provided by (used in) financing activities ...BALANCE...

  • Page 53
    ...sets forth certain information regarding the production volumes, natural gas, oil and natural gas liquids (NGL) sales, average sales prices received, other operating income and expenses for the periods indicated: Years Ended December 31, 2012 2011 2010 Net Production: Natural gas (bcf) ...Oil (mmbbl...

  • Page 54
    ... Marcellus Shale in the northern Appalachian Basin of West Virginia and Pennsylvania; and the Barnett Shale in the Fort Worth Basin of north-central Texas. In addition, we have built leading positions in the liquids-rich resource plays of the Eagle Ford Shale in South Texas; the Utica Shale in Ohio...

  • Page 55
    ...'s 2013 capital expenditure program and further reduce the Company's long-term debt. We refer you to risks associated with our sales plans, as described in Planned Sales below. Recent Developments On January 29, 2013, Aubrey K. McClendon, our President, Chief Executive Officer (CEO) and a director...

  • Page 56
    ... financial statements included in Item 8 of this report, in June 2012 we received a subpoena duces tecum from the Antitrust Division, Midwest Field Office, of the United States Department of Justice, and demands for documents and information from state governmental agencies, investigating...

  • Page 57
    ..., subject to post-closing adjustments. These midstream assets are located primarily in our Marcellus, Utica, Eagle Ford, Haynesville and Niobrara shale plays. The transaction with ACMP included new gathering and processing agreements covering acreage dedication areas in these plays. We recorded...

  • Page 58
    ... to which we sold a portion of our leasehold, producing properties and other assets located in seven different resource plays and received cash of $7.1 billion and commitments for future drilling and completion cost carries of $9.0 billion. In each of these joint ventures, Chesapeake serves as the...

  • Page 59
    ... Recent Developments, we have other natural gas and oil assets currently for sale, including our northern Eagle Ford assets and various portions of our Marcellus and Utica leasehold in Pennsylvania and Ohio that we consider non-core. We do not have binding agreements for all of our planned asset...

  • Page 60
    ...Off-Balance Sheet Arrangements below and in Note 4 of the notes to our consolidated financial statements included in Item 8 of this report, recognizing that we may be required to meet such commitments even if our business plan assumptions were to change due to circumstances beyond our control. Based...

  • Page 61
    ...(a) ...Sales of natural gas and oil assets: Permian Basin ...Texoma ...Chitwood Knox ...Fayetteville Shale ...TOT (Utica) joint venture ...CNOOC (Niobrara) joint venture ...CNOOC (Eagle Ford) joint venture ...TOT (Barnett) joint venture(b) ...Joint venture leasehold ...Volumetric production payments...

  • Page 62
    ... $21.650 billion in 2012, borrowed $15.509 billion and repaid $17.466 billion in 2011 and borrowed $15.117 billion and repaid $13.303 billion in 2010 under our revolving bank credit facilities. Our corporate facility is secured by natural gas and oil proved reserves. A significant portion of our...

  • Page 63
    ... Capital expenditures related to our midstream, oilfield services and other fixed assets of $2.651 billion during 2012 were primarily related to the expansion of our gathering systems and the growth of our oilfield services businesses, in particular the hydraulic fracturing line of business. We sold...

  • Page 64
    ... $4.0 billion syndicated revolving bank credit facility is used for general corporate purposes. Borrowings under the facility are secured by proved reserves and bear interest at a variable rate. We were in compliance with all covenants under the amended agreement as of December 31, 2012. For further...

  • Page 65
    ... of this report. Midstream Credit Facility. Prior to June 15, 2012, we utilized a $600 million midstream syndicated senior secured revolving bank credit facility to fund capital expenditures to build natural gas gathering and other systems in support of our drilling program and for general corporate...

  • Page 66
    ...2013. There is $1 million of discount associated with these notes. The principal amount shown is based on the exchange rate of $1.3193 to â,¬1.00 as of December 31, 2012. See Note 9 of the notes to our consolidated financial statements included in Item 8 of this report for information on our related...

  • Page 67
    ...-standard credit, unless the credit risk can otherwise be mitigated. During 2012, 2011 and 2010, we recognized nominal amounts of bad debt expense related to potentially uncollectible receivables. Conversions and Exchanges of Contingent Convertible Senior Notes and Preferred Stock In 2010, holders...

  • Page 68
    ... to time, we enter into arrangements and transactions that can give rise to off-balance sheet obligations. As of December 31, 2012, these arrangements and transactions included (i) operating lease agreements, (ii) VPP obligations (to physically deliver and purchase volumes and pay related production...

  • Page 69
    .... Executive management is involved in all risk management activities and the Board of Directors reviews the Company's hedging program at its quarterly board meetings. We believe we have sufficient internal controls to prevent unauthorized hedging. As of December 31, 2012, our natural gas and...

  • Page 70
    ... in interest rates related to our senior notes and credit facilities, we enter into interest rate derivatives. For interest rate derivative contracts designated as fair value hedges, changes in fair values of the derivatives are recorded on the consolidated balance sheets as assets or (liabilities...

  • Page 71
    ... market for these new gas reserves. In order to support the timely construction of these new pipelines, we entered into firm transportation contracts that have resulted in lower natural gas price realizations in the Barnett Shale than in our other major natural gas plays. Our Eastern division...

  • Page 72
    ... meet the growing production, we experienced lower natural gas price realizations in 2012 as a result of higher transportation costs compared to more developed plays. (e) 2012, 2011 and 2010 production reflects various asset sales. See Note 11 of the notes to our consolidated financial statements...

  • Page 73
    ... for 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, divestiture, drilling and completion activities are capitalized. We capitalize internal costs that can be directly...

  • Page 74
    ... to drill our wells, a substantial portion of the depreciation is capitalized in natural gas and oil properties as drilling and completion costs. The following table shows the estimated useful life of our assets and depreciation expense by asset class for 2012, 2011 and 2010: 2012 Oilfield services...

  • Page 75
    ...retirement and other termination benefits in 2012 primarily related to reducing our Barnett Shale operations, the sale of our Permian Basin assets and charges related to our voluntary separation plan. See Note 21 of the notes to our consolidated financial statements included in Item 8 of this report...

  • Page 76
    ... our investment in Wireless Seismic, Inc. and Big Star Crude Company, L.L.C. in the fourth quarter of 2012. In 2011, Chesapeake recorded $15 million of net income attributable to noncontrolling interests related to third-party ownership in CHK Utica and the Chesapeake Granite Wash Trust. 66

  • Page 77
    ...Any excess of the net book value, less deferred income taxes, is generally written off as an expense. See Natural Gas and Oil Properties in Note 1 of the notes to our consolidated financial statements included in Item 8 of this report for further information on the full cost method of accounting. 67

  • Page 78
    ... gas, oil and NGL prices and, to a lesser extent, interest rates and foreign exchange rates, the Company's financial condition and results of operations can be significantly impacted by changes in the market value of our derivative instruments. As of December 31, 2012, 2011 and 2010, the fair value...

  • Page 79
    ... December 31, 2012 and 2011, we had accrued accounts receivable from our Chief Executive Officer, Aubrey K. McClendon, of $23 million and $45 million, respectively, representing joint interest billings from December 2012 and 2011 related to Mr. McClendon's participation in Company wells pursuant to...

  • Page 80
    ...year contracts. In 2011, it entered into a 12-year sponsorship agreement, committing to pay an average annual fee of $3 million for advertising, use of an arena suite and other benefits. Chesapeake also has committed to purchase tickets to all 2012-2013 home games. In 2012 and 2011, the Company paid...

  • Page 81
    ... sold natural gas gathering systems and related equipment to ACMP. See Note 11 of the notes to our consolidated financial statements included in Item 8 of this report for further discussion. During 2012, 2011 and 2010, our 30%-owned affiliate, FTS, provided us hydraulic fracturing and other services...

  • Page 82
    ... of capital on an economic basis, including planned sales, to fund reserve replacement costs; our ability to replace reserves and sustain production; uncertainties inherent in estimating quantities of natural gas and oil reserves and projecting future rates of production and the amount and timing of...

  • Page 83
    ... trades to the related month of production being hedged. At times, we have taken advantage of attractive strip prices in out-years and sold natural gas and oil call options to our counterparties in exchange for near-term natural gas swaps with fixed prices above the then current market price. This...

  • Page 84
    .... Options: Chesapeake sells, and occasionally buys, call options in exchange for a premium. At the time of settlement, if the market price exceeds the fixed price of the call option, Chesapeake pays the counterparty such excess on sold call options, and Chesapeake receives such excess on bought call...

  • Page 85
    ..., 2012, we had the following open natural gas and oil derivative instruments: Weighted Average Price Volume (tbtu) Natural Gas: Swaps: Q1 2013 ...Q2 2013 ...Call Options (sold): Q1 2013 ...Q2 2013 ...Q3 2013 ...Q4 2013 ...2014 ...2015 ...2016 ...2017 - 2020 ...Call Options (bought)(a): Q1 2013 ...Q2...

  • Page 86
    ...) Weighted Average Price Fixed Call Differential (per bbl) Designated Hedge Fair Value ($ in millions) Oil: Swaps: 95.79 $ Q1 2013 ...5.9 $ - $ - No $ 95.95 Q2 2013 ...6.9 - - No 95.88 Q3 2013 ...7.0 - - No 95.83 Q4 2013 ...6.9 - - No 90.11 2014 - 2015 ...1.4 - - No Call Options (sold): - 94.74...

  • Page 87
    ... for $72 million and we closed out contracts that were in an asset position for $44 million. The realized gain is recorded in natural gas, oil and NGL sales in the month of related production. Pursuant to accounting guidance for derivatives and hedging, certain derivatives qualify for designation as...

  • Page 88
    ... rate and pay a floating market rate) to mitigate our exposure to changes in the fair value of our 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...

  • Page 89
    ... variability in Chesapeake's expected cash flows related to changes in foreign exchange rates and therefore the swaps are designated as cash flow hedges. The fair values of the cross currency swaps are recorded on the consolidated balance sheet as a liability of $20 million at December 31, 2012. The...

  • Page 90
    ... FINANCIAL STATEMENTS CHESAPEAKE ENERGY CORPORATION Management's Report on Internal Control Over Financial Reporting ...Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets at December 31, 2012 and 2011 ...Consolidated Statements...

  • Page 91
    ...of the Company's internal control over financial reporting as of December 31, 2012 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 President and Chief Executive...

  • Page 92
    ...the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform...

  • Page 93
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2012 2011 ($ in millions) CURRENT ASSETS: Cash and cash equivalents ($1 and $1 attributable to our VIEs) ...Restricted cash ...Accounts receivable ...Short-term derivative assets ...Deferred income tax asset ......

  • Page 94
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2012 2011 2010 ($ in millions, except per share data) REVENUES: Natural gas, oil and NGL ...Marketing, gathering and compression ...Oilfield services ...Total Revenues ...OPERATING EXPENSES...

  • Page 95
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2012 2011 2010 ($ in millions) $ (594) $ 1,757 $ 1,774 NET INCOME (LOSS) ...Other comprehensive income (loss), net of income tax: Unrealized gain (loss) on derivative instruments,...

  • Page 96
    ...: Depreciation, depletion and amortization ...Deferred income tax expense (benefit) ...Unrealized (gains) losses on derivatives ...Stock-based compensation ...Gains on sales of fixed assets ...Impairments of fixed assets and other ...Impairment of natural gas and oil properties ...(Gains) losses...

  • Page 97
    ... ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) Years Ended December 31, 2012 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION OF NET CASH PAYMENTS (REFUNDS) FOR: Interest, net of capitalized interest ...Income taxes, net of refunds received ...2011...

  • Page 98
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 2012 2011 2010 ($ in millions) PREFERRED STOCK: Balance, beginning of period ...Issuance of 0, 0 and 1,500,000 shares of 5.75% preferred stock ...Issuance of 0, 0 and 1,100,000 ...

  • Page 99
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 2012 2011 2010 ($ in millions) TREASURY STOCK - COMMON: Balance, beginning of period ...Purchase of 652,443, 425,140 and 351,163 shares for company benefit plans ...Release of 57,...

  • Page 100
    ...liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Estimates of natural gas and oil reserves and their values, future production rates and future costs and expenses are...

  • Page 101
    ... and we have hedges in place covering approximately 50% of our projected 2013 natural gas production, we continue to have significant exposure to natural gas prices. Approximately 70% and 83% of our estimated proved reserves volumes as of December 31, 2012 and December 31, 2011, respectively, were...

  • Page 102
    ... Tonkawa, L.L.C. (CHK C-T). For CHK Utica, we must retain a minimum cash balance equal to two quarterly dividend payments. In addition, cash proceeds received from CHK Utica asset sales must be used to fund CHK Utica's capital expenditures or to redeem its preferred shares. For CHK C-T, we must...

  • Page 103
    ... firms and Chesapeake's internal staff. Approximately 89% of these proved reserves estimates (by volume) as of December 31, 2012 were prepared by independent engineering firms. In addition, our internal engineers review and update our reserves on a quarterly basis. The average composite rates used...

  • Page 104
    ... the net book value, less deferred income taxes, is written off as an expense. We account for seismic costs in accordance with Rule 4-10 of Regulation S-X. Specifically, Rule 4-10 requires that all companies that use the full cost method capitalize exploration costs as part of their natural gas and...

  • Page 105
    ... Horizon Drilling Services acquisition. Quoted market prices are not available for these reporting units and their fair values are based upon several valuation analyses, including discounted cash flows. We performed annual impairment tests of goodwill in the fourth quarters of 2012 and 2011. Based...

  • Page 106
    ... making lease payments related to these assets of approximately $15 million in 2013, $16 million in 2014, $17 million in 2015, $17 million in 2016, $17 million in 2017 and $709 million in 2018 and beyond. In 2009, we financed our regional Barnett Shale headquarters building in Fort Worth, Texas...

  • Page 107
    ... contract drilling, hydraulic fracturing, oilfield rentals, oilfield trucking and other oilfield services operations for both Chesapeake-operated wells and wells operated by third parties. • Drilling. We earn revenues by drilling oil and natural gas wells for our customers under daywork contracts...

  • Page 108
    ...Compensation Chesapeake's stock-based compensation program during 2012, 2011 and 2010 consisted of restricted stock issued to employees and non-employee directors. Prior to 2006, we also issued stock options. We recognize in our financial statements the cost of employee services received in exchange...

  • Page 109
    ... services operating segment, and the land and buildings are reported under our other operating segment. Natural gas and oil properties that we intend to sell are not presented as held for sale pursuant to the rules governing full cost accounting for oil and gas properties. A summary of the assets...

  • Page 110
    ...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 entities with complex capital structures as well as...

  • Page 111
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) For the years ended December 31, 2011 and 2010, all outstanding securities that were convertible into common stock were included in the calculation of diluted EPS. A reconciliation of basic EPS ...

  • Page 112
    ... on the exchange rate of $1.3193 to â,¬1.00 and $1.2973 to â,¬1.00 as of December 31, 2012 and 2011, respectively. See Note 9 for information on our related foreign currency derivatives. Issuers are Chesapeake Oilfield Operating, L.L.C. (COO), an indirect wholly owned subsidiary of the Company, and...

  • Page 113
    ... the new facility, which priced at 98% of par, bear interest at our option, at either (a) the Eurodollar rate, which is based on the London Interbank Offered Rate (LIBOR), plus a margin of 4.50% or (b) a base rate equal to the greater of (i) the Bank of America, N.A. prime rate, (ii) the federal...

  • Page 114
    ... $1.263 billion from the offering to repay indebtedness outstanding under our corporate revolving bank credit facility. At any time from and including November 15, 2012 to and including March 15, 2013, we may redeem some or all of the notes at a redemption price equal to 100% of the principal amount...

  • Page 115
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) During 2011, we issued $1.0 billion of 6.125% Senior Notes due 2021 in a registered public offering. We used the net proceeds of $977 million from the offering to repay indebtedness outstanding ...

  • Page 116
    ... billion syndicated revolving bank credit facility is used for general corporate purposes. Borrowings under the facility are secured by proved reserves and bear interest at our option at either (i) the greater of the reference rate of Union Bank, N.A. or the federal funds effective rate plus 0.50...

  • Page 117
    ... to declare and pay cash dividends on our common or preferred stock if an event of default has occurred. Oilfield Services Credit Facility. Our $500 million syndicated oilfield services revolving bank credit facility is used to fund capital expenditures and for general corporate purposes associated...

  • Page 118
    ... senior secured revolving bank credit facility to fund capital expenditures to build natural gas gathering and other systems in support of our drilling program and for general corporate purposes associated with our midstream operations. With the anticipated sale of our midstream business in...

  • Page 119
    ... the Securities Exchange Act of 1934 based on alleged misrepresentations regarding the Company's asset monetization strategy, including liabilities associated with its volumetric production payment (VPP) transactions, as well as Mr. McClendon's personal loans and the Company's internal controls. The...

  • Page 120
    ...Board of Directors commenced its own investigation of these allegations in June 2012 and recently concluded that the Company did not violate antitrust laws in connection with the acquisition of Michigan oil and gas rights in 2010. Business Operations. Chesapeake is involved in various other lawsuits...

  • Page 121
    ... consolidated financial position, results of operations or cash flow of the Company. Commitments Rig Leases In a series of transactions beginning in 2006, our drilling subsidiaries have sold 68 drilling rigs (net of 26 repurchased rigs) and related equipment and entered into master lease agreements...

  • Page 122
    ... and Transportation Agreements We have contractual commitments with midstream service companies and pipeline carriers for future gathering, processing and transportation of natural gas and liquids to move certain of our production to market. Working interest owners and royalty interest owners will...

  • Page 123
    ... long production lead times. As a result, we have outstanding orders and commitments for such equipment. As of December 31, 2012, we had $118 million of purchase obligations related to future capital expenditures for drilling rigs and related equipment and hydraulic fracturing equipment in 2013...

  • Page 124
    ... has committed to pay ACMP for any quarterly shortfall between the actual adjusted EBITDA from the assets sold and specified quarterly targets, which total $100 million in 2012 and $150 million in 2013. We recorded this guarantee at an estimated fair value of $27 million at the time of the sale. No...

  • Page 125
    ... ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The effective income tax expense (benefit) differed from the computed "expected" federal income tax expense on earnings before income taxes for the following reasons: Years Ended December 31, 2012 2011 2010...

  • Page 126
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Deferred tax assets relating to tax benefits of employee share-based compensation have been reduced for stock options exercised and restricted stock that vested in periods in which Chesapeake was ...

  • Page 127
    ...state fiscal authorities. The Internal Revenue Service (IRS) is currently auditing our federal income tax returns for 2007 through 2011. 6. Related Party Transactions Chief Executive Officer As of December 31, 2012 and 2011, we had accrued accounts receivable from our Chief Executive Officer, Aubrey...

  • Page 128
    .... Other Related Parties During 2012 and 2011, our formerly 46%-owned affiliate, Chesapeake Midstream Partners, L.P., now named Access Midstream Partners, L.P. (NYSE:ACMP), provided us natural gas gathering and treating services in the ordinary course of business. In addition, there are agreements in...

  • Page 129
    ...of an employee's base salary and performance bonus) with Chesapeake common stock purchased in the open market. The Company contributed $91 million, $72 million and $54 million to the 401(k) Plan in 2012, 2011 and 2010, respectively. Chesapeake also maintains a nonqualified deferred compensation plan...

  • Page 130
    ...the primary conversion terms as of December 31, 2012: Liquidation Preference per Share Holder's Conversion Right Company's Conversion Right From Company's Market Conversion Trigger(a) Preferred Stock Series Issue Date Conversion Rate Conversion Price 5.75% cumulative convertible non-voting 5.75...

  • Page 131
    ... of the Board of Directors. No awards may be granted under the plan after September 30, 2014. The plan has been approved by our shareholders. There were 170,151, 68,824 and 87,500 shares of restricted stock issued to our non-employee directors from the plan in 2012, 2011 and 2010, respectively...

  • Page 132
    ..., issued during 2012, 2011 and 2010, respectively, from the plan. As of December 31, 2012, there were approximately 82,500 shares remaining available for issuance under the plan. Under Chesapeake's 2003 Stock Award Plan for Non-Employee Directors, 10,000 shares of Chesapeake's common stock are...

  • Page 133
    ... could result in state and federal income tax benefits related to the difference between the market price of the common stock at the date of vesting and the date of grant. During the years ended December 31, 2012, 2011 and 2010, we recognized reductions in tax benefits related to restricted stock of...

  • Page 134
    .... The following table provides information related to stock option activity for 2012, 2011 and 2010: Number of Shares Underlying Options (in thousands) Weighted Average Exercise Price Per Share $ $ $ $ $ 9.84 7.45 12.69 8.90 7.59 9.84 8.36 6.29 8.90 Weighted Average Contract Life in Years 1.41...

  • Page 135
    ... CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Performance Share Units In January 2012, we granted performance share units (PSUs) to senior management under our Long Term Incentive Plan that include both an internal performance measure and an external market...

  • Page 136
    ...the redemption of CHK Utica preferred shares. As a result of the sale of non-core Utica Shale assets in 2012, the amount reserved for paying capital expenditures, approximately $155 million, is reflected as restricted cash in other long-term assets on our consolidated balance sheet as of December 31...

  • Page 137
    ..., but did not meet our ORRI commitment. The ORRI will increase to 4% for wells drilled in 2013, and the ultimate number of wells in which we must assign an interest will be reduced accordingly. Chesapeake Granite Wash Trust. In November 2011, Chesapeake Granite Wash Trust (the Trust) sold 23,000,000...

  • Page 138
    ..., Ltd., received 9% of the membership units. Each member was responsible for its proportionate share of capital costs. We determined that Cardinal constituted a VIE and that Chesapeake was the primary beneficiary. As a result, Cardinal was included in our consolidated financial statements until...

  • Page 139
    ... Options: Chesapeake sells, and occasionally buys, call options in exchange for a premium. At the time of settlement, if the market price exceeds the fixed price of the call option, Chesapeake pays the counterparty such excess on sold call options, and Chesapeake receives such excess on bought call...

  • Page 140
    ... flow hedges. Therefore, changes in the fair value of these derivatives are reported in the consolidated statement of operations. See further discussion below under Cash Flow Hedges. The components of natural gas, oil and NGL sales for the years ended December 31, 2012, 2011 and 2010 are presented...

  • Page 141
    ... rate and pay a floating market rate) to mitigate our exposure to changes in the fair value of our 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...

  • Page 142
    ... variability in Chesapeake's expected cash flows related to changes in foreign exchange rates and therefore the swaps are designated as cash flow hedges. The fair values of the cross currency swaps are recorded on the consolidated balance sheet as a liability of $20 million at December 31, 2012. The...

  • Page 143
    ... scheduled to settle over the next twelve months based on market prices/rates as of the respective balance sheet dates. The derivative settlement amounts are not due until the month in which the related hedged transaction occurs. Cash settlements of our derivative instruments are generally...

  • Page 144
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Fair Value Hedges For interest rate derivative instruments designated as fair value hedges, the fair values of the hedges are recorded on the consolidated balance sheets as assets or liabilities, ...

  • Page 145
    ... flow or fair value hedges: Years Ended December 31, Derivative Contracts Commodity contracts ...Interest rate contracts ...Location of Gain (Loss) Natural gas, oil and NGL sales...Interest expense...$ $ 2012 2011 2010 ($ in millions) 892 $ 348 $ 629 (1) 891 $ (12) 336 $ 60 689 Total ...Credit Risk...

  • Page 146
    ... incurred(a)(b) ..._____ (a) (b) Exploratory and development costs are net of joint venture drilling and completion cost carries of $784 million, $2.570 billion and $1.151 billion in 2012, 2011 and 2010, respectively. Includes capitalized interest and asset retirement cost as follows: $ $ 976 32...

  • Page 147
    ... firms estimated an aggregate of 89%, 77% and 78% of our estimated proved reserves (by volume) as of December 31, 2012, 2011 and 2010, respectively, as set forth below. December 31, 2012 2011 2010 Ryder Scott Company, L.P...PetroTechnical Services, Division of Schlumberger Technology Corporation...

  • Page 148
    ... to the cost of a new well. The information below on our natural gas, oil and NGL reserves is presented in accordance with regulations prescribed by the SEC as in effect as of the date of such estimates. Our reserve estimates are generally based upon extrapolation of historical production trends...

  • Page 149
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Gas (bcf) December 31, 2011 Proved reserves, beginning of period ...Extensions, discoveries and other additions ...Revisions of previous estimates ...Production ...Sale of reserves-in-place ......

  • Page 150
    ... of future net cash flows and changes therein relating to estimated proved reserves. Chesapeake has followed these guidelines which are briefly discussed below. Future cash inflows and future production and development costs as of December 31, 2012, 2011 and 2010 were determined by applying the...

  • Page 151
    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, oil and NGL reserves based on the standardized measure: Years Ended December 31, 2012 2011 2010 ($ in ...

  • Page 152
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 11. Acquisitions and Divestitures Acquisition of Bronco Drilling In June 2011, we acquired Bronco Drilling Company, Inc., a publicly traded contract land drilling services company, for an ...

  • Page 153
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Divestitures of Natural Gas and Oil Properties During 2012 and 2011, we engaged in the asset sales transactions described below as well as other individually insignificant sales. Permian Basin. In...

  • Page 154
    ...costs for Niobrara wells drilled and must be used by December 2014. We expect to fully utilize these drilling carry commitments prior to expiration. In conjunction with an agreement requiring us to maintain our operated rig count at no less than 12 rigs in the Barnett Shale through December 31, 2012...

  • Page 155
    ... ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) During 2012, 2011 and 2010, as part of our joint venture agreements with CNOOC, TOT, STO and PXP, we sold interests in additional leasehold we acquired in the Niobrara, Eagle Ford, Marcellus, Barnett, Utica...

  • Page 156
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Our outstanding VPPs consist of the following: Volume Sold VPP # Date of VPP Division Anadarko Basin Granite Wash Mid-Continent Barnett Shale East Texas and Texas Gulf Coast South Texas Anadarko ...

  • Page 157
    ... the dry gas gathering systems in the Utica Shale play, (iii) tiered fees based on volumes delivered relative to scheduled volumes through 2015 and thereafter cost-of-service based fees redetermined annually in the Eagle Ford Shale play, and (iv) annual minimum volume commitments and a fixed fee per...

  • Page 158
    ...Accounting Method Equity Equity Equity Cost Equity Equity Fair Value Fair Value Equity - $ FTS International, Inc. FTS International, Inc. (FTS), based in Fort Worth, Texas, is a privately held company which, through its subsidiaries, provides hydraulic fracturing and other services to oil and gas...

  • Page 159
    ... July 2011 and July 2012, with the remaining note scheduled to be issued in June 2013. The notes bear interest at the annual rate of 7.5%, payable quarterly, and are convertible at our option into shares of Clean Energy's common stock at a 22.5% conversion premium, resulting in a conversion price of...

  • Page 160
    ..., LLC. In March 2012, CMD entered into an agreement to form Utica East Ohio Midstream, LLC (UEOM) with M3 Midstream, L.L.C. and EV Energy Partners, L.P. to develop necessary infrastructure for the gathering and processing of natural gas and NGL in the Utica Shale play in eastern Ohio. We sold this...

  • Page 161
    ...and the resulting gain or loss is reflected in operating costs. A summary of our gains or losses by asset class for the years ended December 31, 2012, 2011 and 2010 is as follows: Years Ended December 31, 2012 Gathering systems and treating plants ...Drilling rigs and equipment ...Buildings and land...

  • Page 162
    ...The change in business climate related to the Barnett Shale required us to test these long-lived assets for recoverability in 2012. We have a purchase offer from a third party that we used to determine the fair value of the office building and measured the fair value of the surface land using prices...

  • Page 163
    ... related to Chesapeake's deferred compensation plan are included in other long-term assets and other long-term liabilities, respectively. The fair values of these assets and liabilities are determined using quoted market prices, as the plan consists of exchange-traded mutual funds and company...

  • Page 164
    ... 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, 2012: Quoted Prices in Active Markets...

  • Page 165
    ...) relating to assets still held at reporting date ...(b) $ $ 567 374 2011 2012 ($ in millions) $ 113 $ 6 $ (263) $ - The values related to interest rate and cross currency swaps were transferred from Level 3 to Level 2 as a result of our ability to use data readily available in the public market...

  • Page 166
    ... to our non-financial assets, measured on a nonrecurring basis, to determine impairments. These assets consist primarily of land, buildings, drilling rigs and drill pipe. We have either received a bid from a third party or used a third party to assess the fair value of these assets. Since the inputs...

  • Page 167
    ... services business. COO provides a wide range of well site services, primarily to Chesapeake and its working interest partners, including contract drilling, hydraulic fracturing, oilfield rentals, transportation and manufacturing of natural gas compressor packages and related production equipment...

  • Page 168
    CHESAPEAKE 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, oil and NGL related to Chesapeake's ownership interests by...

  • Page 169
    ... ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Marketing, Gathering and Compression Exploration and Production For the Year Ended December 31, 2011: Revenues ...Intersegment revenues ...Total revenues ...Unrealized (gains) losses on natural gas...

  • Page 170
    ... ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Marketing, Gathering and Compression Exploration and Production For the Year Ended December 31, 2010: Revenues ...Intersegment revenues ...Total revenues ...Unrealized (gains) losses on natural gas...

  • Page 171
    ... to pay dividends or distributions or make loans to Chesapeake. COS and its subsidiaries were released as guarantors of our senior notes, contingent convertible senior notes and corporate credit facility in October 2011 when they were formally reorganized and capitalized. Our midstream subsidiary...

  • Page 172
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2012 ($ in millions) Guarantor Subsidiaries NonGuarantor Subsidiaries Parent Eliminations Consolidated CURRENT ASSETS: Cash and cash ...

  • Page 173
    CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2011 ($ in millions) Guarantor Subsidiaries(a) NonGuarantor Subsidiaries Parent (a) Eliminations Consolidated CURRENT ASSETS: Cash and...

  • Page 174
    ... and oil properties ...Net (gains) losses on sales of fixed assets ...Impairments of fixed assets and other...Employee retirement and other termination benefits ...Total Operating Expenses...INCOME (LOSS) FROM OPERATIONS ...OTHER INCOME (EXPENSE) Interest expense ...Earnings (losses) on investments...

  • Page 175
    ... and NGL production ...Production taxes ...Marketing, gathering and compression Oilfield services ...General and administrative ...Natural gas, oil and NGL depreciation, depletion and amortization ...Depreciation and amortization of other assets ...Net gains on sales of fixed assets...Impairments of...

  • Page 176
    ... and NGL production ...Production taxes ...Marketing, gathering and compression Oilfield services ...General and administrative ...Natural gas, oil and NGL depreciation, depletion and amortization ...Depreciation and amortization of other assets ...Net gains on sales of fixed assets...Impairments of...

  • Page 177
    ... ...Other investing activities ...Cash used in investing activities...CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from credit facilities borrowings ...Payments on credit facilities borrowings ...Proceeds from issuance of term loans, net of discount and offering costs ...Proceeds from issuance of...

  • 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 discount and offering costs ...Cash paid to purchase debt...Proceeds from sales of...

  • Page 179
    ... from credit facilities borrowings ...Payments on credit facilities borrowings ...Proceeds from issuance of senior notes, net of discount and offering costs ...Proceeds from issuance of preferred stock, net of offering costs ...Cash paid to purchase debt ...Proceeds from sales of noncontrolling...

  • Page 180
    ... STATEMENTS - (Continued) 19. Quarterly Financial Data (unaudited) Summarized unaudited quarterly financial data for 2012 and 2011 are as follows ($ in millions except per share data): Quarters Ended March 31, 2012 Total revenues ...Gross profit(a)(b) ...Net income (loss) attributable to Chesapeake...

  • Page 181
    ... Standards The Financial Accounting Standards Board (FASB) recently issued the following standards which we reviewed to determine the potential impact on our financial statements upon adoption. In February 2013, the FASB issued guidance on disclosure of information about changes in accumulated...

  • Page 182
    ... however, Chesapeake will never receive less than $4.00 per mmbtu for the natural gas it delivers to the plant regardless of methanol prices. On January 29, 2013, we announced that Aubrey K. McClendon, our President, Chief Executive Officer (CEO) and a director, agreed to retire from the Company. Mr...

  • Page 183
    ... Accounts Deductions ($ in millions 6) - Balance at End of Period Description December 31, 2012: Allowance for doubtful accounts...Valuation allowance for deferred tax assets ...December 31, 2011: Allowance for doubtful accounts...Valuation allowance for deferred tax assets ...December 31, 2010...

  • Page 184
    ... in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to management, including our principal executive and principal financial officers...

  • Page 185
    ... by reference to the definitive Proxy 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 April 30, 2013. ITEM 14. Principal Accountant Fees and Services The information called for by this Item...

  • Page 186
    ... statement schedules are applicable or required. Exhibits. The following exhibits are filed herewith pursuant to the requirements of Item 601 of Regulation SK: Incorporated by Reference Exhibit Number 2.1* Exhibit Description Purchase Agreement, dated June 7, 2012, by and among Chesapeake Midstream...

  • Page 187
    ...% Senior Notes due 2013. Indenture dated as of December 6, 2006 among Chesapeake, as issuer, the subsidiaries signatory thereto, as Subsidiary Guarantors, The Bank of New York Mellon Trust Company, N.A., as Trustee, AIB/ BNY Fund Management (Ireland) Limited, as Irish Paying Agent and Transfer Agent...

  • Page 188
    ... Restated Credit Agreement, dated as of September 19, 2011, among Chesapeake Energy Corporation, as the Company, Chesapeake Exploration L.L.C., as Borrower, Union Bank, N.A., as Administrative Agent, the other agents named therein and the several lenders parties thereto. Form 8-K SEC File Number 001...

  • Page 189
    ... Chesapeake Energy Corporation, as Borrower, Bank of America , as Administrative Agent, Goldman Sachs Bank USA and Jefferies Finance LLC, as Syndication Agent, and the several banks and other financial institution or entities from time to time parties thereto Chesapeake's 2003 Stock Incentive Plan...

  • Page 190
    ...2013 Performance Share Unit Award Agreement for Amended and Restated Long Term Incentive Plan. Restated Founder Participation Program. Well 8-K 10-K 001-13726 001-13726 1.2 10.1.13 5/2/2012 3/1/2011 8-K 001-13726 10.1.17 12/21/2011 8-K 001-13726 10.3 2/4/2013 Form 10-Q 10-Q 10-Q 10-Q SEC File Number...

  • Page 191
    ... 1, 2013 between Executive Vice President/ Senior Vice President and Chesapeake Energy Corporation. Letter Agreement, dated as of April 30, 2012, between the Board of Directors and Aubrey K. McClendon. Form of Indemnity Agreement for officers and directors of Chesapeake and its subsidiaries. Ratios...

  • Page 192
    ...-Oxley Act of 2002. Report of Netherland, Sewell & Associates, Inc. Report of PetroTechnical Services, Division of Schlumberger Technology Corporation. Report of Ryder Scott Company, L.P. XBRL Instance Document. XBRL Taxonomy Schema Document. Extension Form SEC File Number Exhibit Filing Date Filed...

  • Page 193
    ... of 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 Date: March 1, 2013 By: /S/ AUBREY K. MCCLENDON Aubrey K. McClendon President and Chief Executive Officer POWER...

  • Page 194

  • Page 195
    ...corporate headquarters address. COMMON STOCK Chesapeake Energy Corporation's common stock is listed on the New York Stock Exchange (NYSE) under the symbol CHK. As of March 31, 2013 there were approximately 355,000 beneficial owners of our common stock. COMMON STOCK DIVIDENDS During 2012, the company...

  • Page 196
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