Chesapeake Energy 2012 Annual Report Download - page 63

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Uses of Funds
The following table presents the uses of our cash and cash equivalents for 2012, 2011 and 2010:
2012 2011 2010
($ in millions)
Natural gas and oil expenditures:
Drilling and completion costs(a) .................................................................. $ (8,707) $ (7,257) $ (5,061)
Acquisitions of proved properties .............................................................. (342) (48) (243)
Acquisitions of unproved properties .......................................................... (2,043) (4,296) (6,015)
Geological and geophysical costs(b) .......................................................... (193) (210) (181)
Interest capitalized on unproved properties ............................................... (806) (630) (687)
Total natural gas and oil expenditures................................................. (12,091) (12,441) (12,187)
Other uses of cash and cash equivalents:
Additions to other property and equipment ................................................ (2,651) (2,009) (1,326)
Acquisition of drilling company .................................................................. — (339) —
Payments of credit facility borrowings, net ................................................ (1,332) (1,957) —
Cash paid to purchase debt ...................................................................... (4,000) (2,015) (3,434)
Dividends paid ........................................................................................... (398) (379) (281)
Distributions to noncontrolling interest owners .......................................... (218) (9) —
Cash paid for financing derivatives(c) ......................................................... (37) — —
Additions to investments ........................................................................... (395) — (134)
Other ......................................................................................................... (474) (227) (119)
Total uses of cash and cash equivalents............................................... $ (21,596) $ (19,376) $ (17,481)
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(a) Net of $784 million, $2.570 billion and $1.151 billion in drilling and completion carries received from our joint
venture partners during 2012, 2011 and 2010, respectively.
(b) Includes related capitalized interest.
(c) Reflects derivatives deemed to contain, for accounting purposes, a significant financing element at contract
inception.
Our primary use of funds is for capital expenditures related to exploration, development and acquisition of natural
gas and oil properties. Drilling and completion costs during 2012 reflected the impact of our deliberate transition to
liquids-focused drilling and reduced natural gas drilling and a reduction in the amount of drilling and completion carries
received from our joint venture partners. During the 2012 first quarter, our rig count was as high as 165 rigs as we
were quickly ramping up our liquids-focused drilling while, at the same time, we were gradually ramping down drilling
of natural gas wells. As of February 28, 2013, our rig count had been reduced to 83 operated rigs. Our natural gas
drilling activities were sharply reduced in 2012, from 50 rigs at the beginning of the year to an average of 9 rigs in the
fourth quarter. The 2012 drilling and completion expenditures also reflected significant well completion costs for natural
gas wells that had been drilled, but not completed, in prior periods. These completions, which represented more than
60% of all natural gas wells we completed during 2012, enabled us to hold by production the related leasehold according
to the terms of our leases. Approximately 75% of our unproved property leasehold acquisition costs of $2.043 billion
during 2012 were focused on adding to our acreage in the Utica, Marcellus and Mid-Continent plays. Capital
expenditures related to our midstream, oilfield services and other fixed assets of $2.651 billion during 2012 were
primarily related to the expansion of our gathering systems and the growth of our oilfield services businesses, in
particular the hydraulic fracturing line of business. We sold substantially all of our midstream business in December
2012.
In October and November 2012, we fully repaid the $4.0 billion May 2012 term loans for $4.0 billion with cash
proceeds from asset sales and proceeds from the issuance of our November 2012 term loan. We recorded a loss of
approximately $200 million with this repayment.
In 2011, we completed and settled tender offers to purchase $2.044 billion in principal amount of our senior notes
and contingent convertible senior notes for $2.186 billion in cash, including approximately $171 million in cash premiums,
primarily funded with a portion of the net proceeds we received from the sale of our Fayetteville Shale assets.