Chesapeake Energy 2012 Annual Report Download - page 162

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
152
Impairments of Fixed Assets and Other
We test our long-lived assets other than natural gas and oil properties for recoverability whenever events or
changes in circumstances indicate that carrying amounts may not be recoverable and recognize an impairment loss
if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. In 2012, 2011 and 2010, we
determined that certain of our property, plant and equipment were being carried at values that were not recoverable
and in excess of fair value. A summary of impairments by asset class for the years ended December 31, 2012, 2011
and 2010 is as follows:
Years Ended December 31,
2012 2011 2010
($ in millions)
Buildings and land .................................................................... $ 248 $ 3 $ —
Drilling rigs and equipment ....................................................... 60 — —
Gathering systems and treating plants ..................................... 64321
Other ........................................................................................ 26 — —
Total impairments ........................................................... $ 340 $ 46 $ 21
Buildings and Land. In 2012 and 2011, we recognized $248 million and $3 million of impairment losses,
respectively, primarily associated with an office building and surface land located in our Barnett Shale operating area.
Due to depressed natural gas prices during 2012 and a shift to a more liquids-focused drilling program, we have
significantly reduced our Barnett Shale operations. 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 from
orderly sales transactions for comparable properties between market participants. The office building and surface land
are included in our other operating segment.
Drilling Rigs and Equipment. As our strategic focus is shifting from a natural gas asset base to a more balanced
natural gas and liquids asset base, and as our budgeted capital expenditures are being reduced, our active rig count
has decreased significantly with a corresponding increase in the number of idle rigs we own or lease. In 2012, we
negotiated the purchase of 25 rigs previously sold in our sale leaseback transactions described in Note 4 from various
lessors for an aggregate price of $61 million, of which $25 million was deemed to be early lease termination costs and
was recognized as impairments of fixed assets and other in the consolidated statement of operations.
In 2012, we recognized $26 million of impairment losses on certain of our owned drilling rigs due to the expectation
that these particular drilling rigs would have insufficient cash flow to recover their carrying values in the business climate
due to depressed natural gas prices. We estimated the fair value of the drilling rigs using prices that would be received
to sell each rig in an orderly transaction between market participants. Also in 2012, we recognized $9 million of
impairment losses primarily related to drill pipe and other equipment. The drilling rigs and equipment are included in
our oilfield services operating segment.
Gathering Systems and Treating Plants. In 2012, 2011 and 2010, we recognized impairments of $6 million, $43
million and $21 million, respectively, related to certain of our midstream assets. The gathering systems and treating
plants are included in our marketing, gathering and compression operating segment.
Other. In 2012, we recorded a $26 million charge related to the shortfall of our net acreage maintenance
commitment with Total in the Barnett Shale. See Net Acreage Maintenance Commitments in Note 4 for further
discussion.