Chesapeake Energy 2012 Annual Report Download - page 154

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
144
Joint Ventures
As of December 31, 2012, we had entered into seven significant joint ventures with other leading energy
companies pursuant 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 sharing totaling $9.0 billion. In each of these joint ventures, Chesapeake serves as the operator and conducts all
leasing, drilling, completion, operations and marketing activities for the project. The carry obligations paid by a joint
venture partner are for a specified percentage of our drilling and completion cost obligations. In addition, a joint venture
partner is responsible for its proportionate share of drilling and completion costs as a working interest owner. We bill
our joint venture partners for their drilling carry obligations at the same time we bill them and other joint working interest
owners for their share of drilling costs as they are incurred. For accounting purposes, initial cash proceeds from these
joint venture transactions were reflected as a reduction of natural gas and oil properties with no gain or loss recognized.
The transactions are detailed below.
Primary
Play
Joint
Venture
Partner(a)
Joint
Venture
Date
Interest
Sold
Cash
Proceeds
Received
at Closing
Total
Drilling
Carries
Total Cash
and Drilling
Carry
Proceeds
Drilling
Carries
Remaining(b)
($ in millions)
Utica TOT December 2011 25.0% $ 610 $ 1,422 (c) $ 2,032 $ 1,153
Niobrara CNOOC February 2011 33.3% 570 697 (d) 1,267 463
Eagle Ford CNOOC November 2010 33.3% 1,120 1,080 2,200 —
Barnett TOT January 2010 25.0% 800 1,404 (e) 2,204 —
Marcellus STO November 2008 32.5% 1,250 2,125 3,375 —
Fayetteville BP September 2008 25.0% 1,100 800 1,900 —
Haynesville
& Bossier PXP July 2008 20.0% 1,650 1,508 (f) 3,158 —
$ 7,100 $ 9,036 $ 16,136 $ 1,616
____________________________________________
(a) Joint venture partners include Total S.A. (TOT), CNOOC Limited (CNOOC), Statoil (STO), BP America (BP) and
Plains Exploration & Production Company (PXP).
(b) As of December 31, 2012.
(c) The Utica drilling carries cover 60% of our drilling and completion costs for Utica wells drilled and must be used
by December 2018. We expect to fully utilize these drilling carry commitments prior to expiration. See Note 4 for
further discussion of the Utica drilling carries.
(d) The Niobrara drilling carries cover 67% of our drilling and completion costs for Niobrara wells drilled and must be
used by December 2014. We expect to fully utilize these drilling carry commitments prior to expiration.
(e) 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, TOT accelerated the payment of its remaining joint venture drilling
carry in exchange for an approximate 9% reduction in the total amount of drilling carry obligation owed to us at
that time. As a result, in October 2011, we received $471 million in cash from TOT, which included $46 million of
drilling carry obligation billed and $425 million for the remaining drilling carry obligation. In January 2012,
Chesapeake and TOT agreed to reduce the minimum rig count from 12 to six rigs. In May 2012, Chesapeake
and TOT agreed to further reduce the minimum rig count from six to two rigs.
(f) In September 2009, PXP accelerated the payment of its remaining drilling carry in exchange for an approximate
12% reduction to the remaining drilling carry obligation owed to us at that time.
During 2012, 2011 and 2010, our drilling and completion costs included the benefit of approximately $784 million,
$2.570 billion and $1.151 billion, respectively, in drilling and completion carries paid by our joint venture partners.