Chesapeake Energy 2012 Annual Report Download - page 158

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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Appalachia Midstream Services. In December 2011, CMD sold its wholly owned subsidiary, Appalachia Midstream
Services, L.L.C. (AMS), which held substantially all of our Marcellus Shale midstream assets, to ACMP for total
consideration of $884 million and recorded a gain of $439 million. At closing, we received cash of $605 million and
9,791,605 common units of ACMP that had a value at closing of $279 million. The stock consideration increased our
ownership in ACMP from 42.3% to 46.1%. The assets sold included an approximate 47% ownership of an integrated
system of assets that consist of 200 miles of pipeline in the Marcellus Shale. In addition, CMD has committed to pay
ACMP any quarterly shortfall between the actual EBITDA from the assets sold and specified quarterly targets, which
total $100 million in 2012 and $150 million in 2013. We have recorded the fair value of this guarantee as a liability. See
Note 4 for further discussion of this commitment. We, and other producers in the area, have 15-year cost of service
gathering and compression agreements with AMS that include significant acreage dedications and an annual fee
redetermination.
Springridge Gas Gathering System. In December 2010, CMD sold its Springridge natural gas gathering system
and related facilities in the Haynesville Shale to ACMP for $500 million and recorded a gain on the sale of $157 million.
In connection with this transaction, ACMP and certain Chesapeake subsidiaries entered into ten-year gathering and
compression agreements covering Chesapeake's and other producers' upstream assets within an area of dedication
around the existing pipeline system. The gathering and compression agreements are similar to the previously existing
gathering agreement between Chesapeake and ACMP and include a minimum volume commitment through 2013 and
annual rate redetermination.
12. Investments
At December 31, 2012 and 2011, we had the following investments:
Carrying Value
Approximate
Ownership %
Accounting
Method
December 31,
2012 2011
($ in millions)
FTS International, Inc. .............................. 30% Equity $ 298 $ 235
Chaparral Energy, Inc............................... 20% Equity 141 143
Sundrop Fuels, Inc. .................................. 50% Equity 111 34
Clean Energy Fuels Corp. ........................ — Cost 100 50
Twin Eagle Resource Management, LLC .30% Equity 34 20
Maalt Specialized Bulk, LLC..................... 49% Equity 13 12
Clean Energy Fuels Corp. ........................ 1% Fair Value 12 12
Gastar Exploration Ltd.............................. 10% Fair Value 8 22
Chesapeake Midstream Partners, L.P.(a) .. — Equity — 987
Other ........................................................ — — 11 16
Total investments $ 728 $ 1,531
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(a) See Sold Investments below.
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 companies.
In 2012, we recorded negative equity method adjustments, prior to intercompany profit eliminations, of $91 million
for our share of FTS’s net loss and recorded accretion adjustments of $45 million related to the excess of our underlying
equity in net assets of FTS over our carrying value. We also funded a capital call of $3 million in 2012. The carrying
value of our investment in FTS was less than our underlying equity in net assets by approximately $622 million as of
December 31, 2012, of which $296 million was attributed to goodwill. The value attributed to goodwill decreased by
$200 million during 2012, which represents our proportionate share, net of tax, of an impairment recorded by FTS
related to its goodwill. The value not attributed to goodwill is being accreted over the nine-year estimated useful lives
of the underlying assets.