Chesapeake Energy 2012 Annual Report Download - page 18

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used in our reserve reports were $1.75 per mcf of natural gas, $91.78 per barrel of oil and $30.81 per barrel of
NGL. These prices should not be interpreted as a prediction of future prices, nor do they reflect the value of our
commodity derivative instruments in place as of December 31, 2012. The amounts shown do not give effect to
non-property related expenses, such as corporate general and administrative expenses and debt service, or to
depreciation, depletion and amortization. The present value of estimated future net revenue differs from the
standardized measure only because the former does not include the effects of estimated future income tax
expenses ($3.1 billion as of December 31, 2012).
Management uses future net revenue, which is calculated without deducting estimated future income tax
expenses, and the present value thereof, as one measure of the value of the Company's current proved reserves
and to compare relative values among peer companies. We also understand that securities analysts and rating
agencies use this measure in similar ways. While future net revenue and present value are based on prices, costs
and discount factors which are consistent from company to company, the standardized measure of discounted
future net cash flows is dependent on the unique tax situation of each individual company.
(d) Additional information on the standardized measure is presented in Note 10 of the notes to our consolidated
financial statements included in Item 8 of this report.
As of December 31, 2012, our reserve estimates included 6.746 tcfe of reserves classified as proved undeveloped
(PUD), compared to 8.683 tcfe as of December 31, 2011. Presented below is a summary of changes in our proved
undeveloped reserves for 2012.
Total
(bcfe)
Proved undeveloped reserves, beginning of period ..................................................................... 8,683
Extensions, discoveries and other additions ................................................................................ 4,161
Revisions of previous estimates(a) ................................................................................................ (4,778)
Developed .................................................................................................................................... (961)
Sale of reserves-in-place .............................................................................................................. (363)
Purchase of reserves-in-place ...................................................................................................... 4
Proved undeveloped reserves, end of period ........................................................................... 6,746
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(a) Included in this amount are 4,009 bcfe of downward price-related revisions.
As of December 31, 2012, there were no PUDs that had remained undeveloped for five years or more. In 2012,
we invested approximately $1.035 billion, net of drilling and completion cost carries of $86 million, to convert 961 bcfe
of PUDs to proved developed reserves. In 2013, we estimate that we will invest approximately $2.4 billion, net of drilling
and completion cost carries of $95 million, for PUD conversion.
The future net revenue attributable to our estimated proved undeveloped reserves of $21.779 billion as of
December 31, 2012, and the $6.980 billion present value thereof, has been calculated assuming that we will expend
approximately $12.0 billion to develop these reserves: $2.4 billion in 2013, $2.2 billion in 2014, $2.6 billion in 2015,
$2.6 billion in 2016 and $2.2 billion in 2017, although the amount and timing of these expenditures will depend on a
number of factors, including actual drilling results, service costs, commodity prices and the availability of capital.
Chesapeake's developmental drilling schedules are subject to revision and reprioritization throughout the year resulting
from unknowable factors such as the relative success in an individual developmental drilling prospect leading to an
additional drilling opportunity, rig availability, title issues or delays, and the effect that acquisitions or dispositions may
have on prioritizing developmental drilling plans.
The SEC's rules for reporting reserves allow the booking of proved undeveloped reserves at locations greater
distances from producing wells than immediate offsets. All proved reserves are required to meet reasonable certainty
standards; thus, locations more than direct offsets to producing wells must be shown to be underlain by the productive
formation. Reasonable certainty also requires that the formation is continuous between the producing wells and the
PUD locations and that the PUDs are economically viable.