Chesapeake Energy 2012 Annual Report Download - page 160

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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an other-than-temporary-impairment of $70 million, and, through December 31, 2012, we had recorded a mark-to-
market pre-tax loss of $11 million in accumulated other comprehensive income for this investment.
Sold Investments
Chesapeake Midstream Partners, L.P. In June 2012, we sold all of our common and subordinated units
representing limited partner interests in Chesapeake Midstream Partners, L.P., now named Access Midstream Partners,
L.P. (NYSE:ACMP), and all of our limited liability company interests in the sole member of its general partner to funds
affiliated with Global Infrastructure Partners for cash proceeds of $2.0 billion. We recorded a $1.032 billion gain
associated with the transaction, including the recognition of a $13 million deferred gain related to equipment previously
sold to ACMP.
During 2012, we recorded positive equity method adjustments of $46 million for our share of ACMP’s income,
received cash distributions of $56 million from ACMP and recorded accretion adjustments of $4 million related to our
share of equity in excess of cost. See Note 13 for further discussion of ACMP.
Utica East Ohio Midstream, 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 investment
in connection with the sale of CMO to ACMP in December 2012. See Note 11 for further discussion.
Ranch Westex, JV LLC. In December 2011, CMD entered into an agreement to form Ranch Westex JV, LLC with
two other parties to develop, construct and operate necessary infrastructure for the processing and gathering of natural
gas in Ward County, Texas. We sold this investment in connection with the sale of CMO to ACMP in December 2012.
See Note 11 for further discussion.
Glass Mountain Pipeline, LLC. In April 2012, CMD entered into an agreement with two other parties to form Glass
Mountain Pipeline, LLC to construct a 210 mile pipeline in western and north central Oklahoma in which CMD had a
50% ownership interest. In 2012, CMD sold its interest for $99 million and recorded a gain of $62 million.
13. Variable Interest Entities
We consolidate the activities of VIEs of which we are the primary beneficiary. The primary beneficiary of a VIE
is that variable interest holder possessing a controlling financial interest through (i) its power to direct the activities of
the VIE that most significantly impact the VIE’s economic performance and (ii) its obligation to absorb losses or its
right to receive benefits from the VIE that could potentially be significant to the VIE. In order to determine whether we
own a variable interest in a VIE, we perform qualitative analysis of the entity’s design, organizational structure, primary
decision makers and relevant agreements.
Consolidated VIE
Chesapeake Granite Wash Trust. For a discussion of the formation, operations and presentation of the Trust,
please see Noncontrolling Interests in Note 8. The Trust is considered a VIE due to the lack of voting or similar decision-
making rights by its equity holders regarding activities that have a significant effect on the economic success of the
Trust. Our ownership in the Trust and our obligations under the development agreement and related drilling support
lien constitute variable interests. We have determined that we are the primary beneficiary of the Trust as (i) we have
the power to direct the activities that most significantly impact the economic performance of the Trust via our obligations
to perform under the development agreement, and (ii) as a result of the subordination and incentive thresholds
applicable to the subordinated units we hold in the Trust, we have the obligation to absorb losses and the right to
receive residual returns that could potentially be significant to the Trust. As a result, we consolidate the Trust in our
financial statements and the common units of the Trust owned by third parties are reflected as a noncontrolling interest.
The Trust is a consolidated entity whose legal existence is separate from Chesapeake and our other consolidated
subsidiaries and the Trust is not a guarantor of any of Chesapeake’s debt. The creditors or beneficial holders of the
Trust have no recourse to the general credit of Chesapeake; however, we have certain obligations to the Trust through
the development agreement that are secured by a drilling support lien on our retained interest in the development
wells up to a specified maximum amount recoverable by the Trust, which could result in the Trust acquiring all or a
portion of our retained interest in the undeveloped portion of an area of mutual interest, if we do not meet our drilling
commitment. In consolidation, as of December 31, 2012, approximately $430 million of net natural gas and oil properties,
$21 million of current liabilities, $1 million of cash and cash equivalents, $4 million of short-term derivative liabilities