Chesapeake Energy 2012 Annual Report Download - page 166

Download and view the complete annual report

Please find page 166 of the 2012 Chesapeake Energy annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 196

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184
  • 185
  • 186
  • 187
  • 188
  • 189
  • 190
  • 191
  • 192
  • 193
  • 194
  • 195
  • 196

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
156
Qualitative Disclosures about Unobservable Inputs for Level 3 Fair Value Measurements
The significant unobservable inputs for Level 3 derivative contracts include unpublished forward prices of natural
gas and oil, market volatility and credit risk of counterparties. Changes in these inputs will impact the fair value
measurement of our derivative contracts. For example, an increase (decrease) in the forward prices and volatility of
natural gas and oil prices will decrease (increase) the fair value of natural gas and oil derivatives and adverse changes
to our counterparties’ creditworthiness will decrease the fair value of our derivatives.
Quantitative Disclosures about Unobservable Inputs for Level 3 Fair Value Measurements
Instrument
Type
Unobservable
Input Range
Weighted
Average
Fair Value
December 31,
2012
($ in millions)
Oil Trades(a) ......................... Oil price volatility curve 15.79% - 28.74% 21.94% $ (761)
Oil Basis Swaps(b) ...............
Physical pricing point forward
curves $8.21 - $18.49 $ 13.23 $ —
Natural Gas Trades(a) .......... Natural gas price volatility curve 20.93% - 39.44% 22.45% $ (240)
Natural Gas Basis Swaps(b) Physical pricing point forward
curves ($1.73) - $0.02 $ (0.20) $ (15)
____________________________________________
(a) Fair value is based on an estimate derived from option models.
(b) Fair value is based on an estimate of discounted cash flows.
Nonrecurring Fair Value Measurements
Fair value measurements were applied with respect to our non-financial assets, measured on a nonrecurring
basis, to determine impairments. These assets consist primarily of land, buildings, drilling rigs and drill pipe. We have
either received a bid from a third party or used a third party to assess the fair value of these assets. Since the inputs
used are not observable in the market, these assets are classified as Level 3 in the fair value hierarchy. See Note 14
for additional discussion.
Fair Value of Other Financial Instruments
The following disclosure of the estimated fair value of financial instruments is made in accordance with accounting
guidance for financial instruments. The carrying values of financial instruments comprising cash and cash equivalents,
restricted cash, accounts payable and accounts receivable approximate fair values due to the short-term maturities
of these instruments. We estimate the fair value of our exchange-traded debt using quoted market prices (Level 1).
The fair value of all other debt, which consists of our credit facilities and our term loans, is estimated using our credit
default swap rate (Level 2). Fair value is compared to the carrying value, excluding the impact of interest rate derivatives,
in the table below.
December 31, 2012 December 31, 2011
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
($ in millions)
Current maturities of long-term debt (Level 1)...... $ 463 $ 480 $ — $ —
Long-term debt (Level 1) ...................................... $9,759 $ 10,457 $ 8,849 $ 9,709
Long-term debt (Level 2) ...................................... $2,378 $ 2,284 $ 1,749 $ 1,690