Chesapeake Energy 2012 Annual Report Download - page 150

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
140
as of December 31, 2012 were $1.75 per mcf of natural gas, $91.78 per barrel of oil and $30.81 per barrel of NGL.
The nonprice-related revisions were primarily the result of our continued execution of the Company's strategy to shift
its drilling focus from natural gas to liquids-rich areas and to drill in the "core of the core" of its acreage positions. As
rigs were reallocated, PUDs were removed from various non-core areas resulting in downward revisions. As of
December 31, 2012, there were no PUDs that had remained undeveloped for five years or more.
During 2011, we acquired approximately 30 bcfe of proved reserves through purchases of natural gas and oil
properties for consideration of $48 million, and we sold 2.776 tcfe of our proved reserves for approximately $2.612
billion, including divestitures related to our Fayetteville Shale assets, a VPP transaction and other non-core asset sales.
During 2011, we recorded negative revisions of 50 bcfe to the December 31, 2010 estimates of our reserves. Included
in the revisions were 273 bcfe of positive revisions to producing properties, offset by 337 bcfe of negative revisions
associated with the deletion of PUD reserves no longer consistent with our development plans. In addition, we had 14
bcfe of positive revisions resulting from higher oil prices. Higher prices increase the economic lives of the underlying
natural gas and oil properties and thereby increase the estimated future reserves. The natural gas and oil prices used
in computing our reserves as of December 31, 2011 were $4.12 per mcf and $95.97 per bbl before price differentials.
Including the effect of price differential adjustments, the prices used in computing our reserves as of December 31,
2011 were $3.19 per mcf of natural gas, $88.50 per bbl of oil and $40.38 per bbl of NGL.
During 2010, we acquired approximately 89 bcfe of proved reserves through purchases of natural gas and oil
properties for consideration of $243 million and we sold 1.493 tcfe of our proved reserves for approximately $2.876
billion, including divestitures related to three VPP transactions, the sale of a portion of our Barnett Shale assets and
other non-core asset sales. During 2010, we recorded positive revisions of 183 bcfe to the December 31, 2009 estimates
of our reserves. Included in the revisions were 189 bcfe of positive revisions resulting from higher natural gas prices
and 6 bcfe of downward revisions resulting from changes to previous estimates. The natural gas and oil prices used
in computing our reserves as of December 31, 2010 were $4.38 per mcf and $79.42 per bbl before price differentials.
Including the effect of price differential adjustments, the prices used in computing our reserves as of December 31,
2010 were $3.52 per mcf of natural gas, $75.17 per bbl of oil and $32.06 per bbl of NGL.
Standardized Measure of Discounted Future Net Cash Flows
Accounting Standards Topic 932 prescribes guidelines for computing a standardized measure 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 average of the first-day-of-the-month prices for the 12 months of the year and year-end
costs to the estimated quantities of natural gas, oil and NGL to be produced. Actual future prices and costs may be
materially higher or lower than the prices and costs used. For each year, estimates are made of quantities of proved
reserves and the future periods during which they are expected to be produced based on continuation of the economic
conditions applied for such year. Estimated future income taxes are computed using current statutory income tax rates
including consideration of the current tax basis of the properties and related carryforwards, giving effect to permanent
differences and tax credits. The resulting future net cash flows are reduced to present value amounts by applying a
10% annual discount factor.
The assumptions used to compute the standardized measure are those prescribed by the Financial Accounting
Standards Board and, as such, do not necessarily reflect our expectations of actual revenue to be derived from those
reserves nor their present worth. The limitations inherent in the reserve quantity estimation process, as discussed
previously, are equally applicable to the standardized measure computations since these estimates reflect the valuation
process.