Chesapeake Energy 2012 Annual Report Download - page 54

44
Years Ended December 31,
2012 2011 2010
Expenses ($ per mcfe):
Natural gas, oil and NGL production...................................................... $ 0.92 $ 0.90 $ 0.86
Production taxes .................................................................................... $ 0.13 $ 0.16 $ 0.15
General and administrative expenses ................................................... $ 0.38 $ 0.46 $ 0.44
Natural gas, oil and NGL depreciation, depletion and amortization....... $ 1.76 $ 1.37 $ 1.35
Depreciation and amortization of other assets ...................................... $ 0.21 $ 0.24 $ 0.21
Interest expense(c) ................................................................................. $ 0.06 $ 0.03 $ 0.08
Interest Expense ($ in millions):
Interest expense .................................................................................... $ 84 $ 30 $ 99
Interest rate derivatives – realized (gains) losses.................................. $ (1) $ 7 $ (14)
Interest rate derivatives – unrealized (gains) losses.............................. $ (6) $ 7 $ (66)
Total interest expense ....................................................................... $ 77 $ 44 $ 19
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(a) Natural gas equivalent is based on six mcf of natural gas to one barrel of oil or one barrel of NGL. This ratio
reflects an energy content equivalency and not a price or revenue equivalency. Given recent natural gas, oil and
NGL prices, the price for an mcfe of natural gas is significantly less than the price for an mcfe of oil or NGL.
(b) Includes revenue and operating costs and excludes depreciation and amortization of other assets. See
Depreciation and Amortization of Other Assets under Results of Operations for details of the depreciation and
amortization of other assets associated with our marketing, gathering and compression and oilfield services
operating segments.
(c) Includes the effects of realized (gains) losses from interest rate derivatives, but excludes the effects of unrealized
(gains) losses and is net of amounts capitalized.
We are the second-largest producer of natural gas, a top 11 producer of liquids and the most active driller of wells
in the U.S. We own interests in approximately 45,400 producing natural gas and oil wells that are currently producing
approximately 3.9 bcfe per day, net to our interest. The Company has built a large resource base of onshore U.S.
unconventional natural gas and liquids assets. Our core natural gas resource plays are the Haynesville/Bossier Shales
in northwestern Louisiana and East Texas; the Marcellus Shale in the northern Appalachian Basin of West Virginia and
Pennsylvania; and the Barnett Shale in the Fort Worth Basin of north-central Texas. In addition, we have built leading
positions in the liquids-rich resource plays of the Eagle Ford Shale in South Texas; the Utica Shale in Ohio and
Pennsylvania; the Granite Wash, Cleveland, Tonkawa and Mississippi Lime plays in the Anadarko Basin in northwestern
Oklahoma, the Texas Panhandle and southern Kansas; and the Niobrara Shale in the Powder River Basin in Wyoming.
We have also vertically integrated many of our operations and own substantial marketing, compression and oilfield
services businesses.
Proved Reserves. The Company's December 31, 2012 estimated proved reserves were 15.690 tcfe, a decrease
of 3.099 tcfe, or 17%, from 18.789 tcfe at year-end 2011. The decrease was primarily price related as natural gas
prices in 2012 declined to the lowest levels in ten years. The 2012 proved reserve movement included 6.391 tcfe of
extensions, downward revisions of 5.414 tcfe resulting from lower natural gas prices and 1.349 tcfe resulting from
changes to previous estimates. In 2012, we produced 1.422 tcfe, acquired 42 bcfe and divested 1.347 tcfe of estimated
proved reserves, including the disposition of 1.013 tcfe associated with the sale of our Permian Basin assets in
September and October 2012.
Downward price revisions of 5.414 tcfe were the result of a decrease in natural gas prices used in estimating
proved reserves as of December 31, 2012 by $1.36, or 33%, to $2.76 per mcf from $4.12 per mcf as of December 31,
2011, using the trailing 12-month average prices required by the SEC. The reserve reductions included the loss of
significant proved undeveloped reserves, primarily in the Barnett Shale and the Haynesville Shale plays, for which
future development is uneconomic at the natural gas prices used in the reserves estimates. As a result of lower estimated
reserves as of September 30, 2012, we were required to impair the carrying value of our natural gas and oil properties
and, if the trailing 12-month average natural gas, oil and NGL prices are lower in future periods, we could have additional
impairments. An impairment of this type is a non-cash charge that does not impact our liquidity or our ability to comply
with financial covenants. Future impairments of the carrying value of our natural gas and oil properties, if any, will be
dependent on many factors, including natural gas, oil and NGL prices, production rates, levels of reserves, the evaluation