Chesapeake Energy 2012 Annual Report Download - page 70

60
prices at December 31, 2012, we expect to transfer to earnings approximately $20 million of net loss included in
accumulated other comprehensive income during the next 12 months. A detailed explanation of accounting for natural
gas, oil and NGL derivatives appears under Application of Critical Accounting Policies - Hedging elsewhere in this Item
7.
Interest Rate Derivatives
To mitigate our exposure to volatility in interest rates related to our senior notes and credit facilities, we enter into
interest rate derivatives.
For interest rate derivative contracts designated as fair value hedges, changes in fair values of the derivatives
are recorded on the consolidated balance sheets as assets or (liabilities), with corresponding offsetting adjustments
to the debt's carrying value. Changes in the fair value of derivatives not designated as fair value hedges, which occur
prior to their maturity (i.e., temporary fluctuations in mark-to-market values), are reported currently in the consolidated
statements of operations as interest expense and characterized as unrealized gains (losses).
Gains or losses from interest rate derivative contracts are reflected as adjustments to interest expense on the
consolidated statements of operations. The components of interest expense for the years ended December 31, 2012,
2011 and 2010 are presented in Item 7A. Quantitative and Qualitative Disclosures About Market Risk, and a detailed
explanation of accounting for interest rate derivatives appears under Application of Critical Accounting Policies - Hedging
elsewhere in this Item 7.
Foreign Currency Derivatives
On December 6, 2006, we issued €600 million of 6.25% Euro-denominated Senior Notes due 2017. Concurrent
with the issuance of the euro-denominated senior notes, we entered into cross currency swaps to mitigate our exposure
to fluctuations in the euro relative to the dollar over the term of the notes. In May 2011, we purchased and subsequently
retired €256 million in aggregate principal amount of these senior notes following a tender offer, and we simultaneously
unwound the cross currency swaps for the same principal amount. A detailed explanation of accounting for foreign
currency derivatives appears under Application of Critical Accounting Policies - Hedging elsewhere in this Item 7.
Results of Operations
General. For the year ended December 31, 2012, Chesapeake had a net loss of $594 million, or $1.46 per diluted
common share, on total revenues of $12.316 billion. This compares to net income of $1.757 billion, or $2.32 per diluted
common share, on total revenues of $11.635 billion during the year ended December 31, 2011, and net income of
$1.774 billion, or $2.51 per diluted common share, on total revenues of $9.366 billion during the year ended
December 31, 2010. The decrease in net income from 2011 to 2012 is primarily driven by a $2.022 billion after-tax
impairment of natural gas and oil properties recorded in the 2012 third quarter. See Impairment of Natural Gas and
Oil Properties below.
Natural Gas, Oil and NGL Sales. During 2012, natural gas, oil and NGL sales were $6.278 billion compared to
$6.024 billion in 2011 and $5.647 billion in 2010. In 2012, Chesapeake produced and sold 1.422 tcfe at a weighted
average price of $4.02 per mcfe, compared to 1.194 tcfe produced and sold in 2011 at a weighted average price of
$5.70 per mcfe and 1.035 tcfe in 2010 at a weighted average price of $6.09 per mcfe (weighted average prices exclude
the effect of unrealized gains on derivatives of $561 million, unrealized losses on derivatives of $789 million and
unrealized losses of $657 million in 2012, 2011 and 2010, respectively). The decrease in price received per mcfe in
2012 compared to 2011 resulted in a decrease in revenues of $2.397 billion and increased production resulted in a
$1.300 billion increase in revenues, for a total decrease in revenues of $1.097 billion (excluding unrealized gains or
losses on natural gas, oil and NGL derivatives). The increase in production from period to period was primarily generated
through the drillbit.
For 2012, we realized an average price per mcf of natural gas of $2.07, compared to $4.77 in 2011 and $5.57 in
2010 (weighted average prices exclude the effect of unrealized gains or losses on derivatives). Oil prices realized per
barrel (excluding unrealized gains or losses on derivatives) were $91.74, $86.25 and $82.10 in 2012, 2011 and 2010,
respectively. NGL prices realized per barrel (excluding unrealized gains or losses on derivatives) were $29.37, $38.12
and $34.38 in 2012, 2011 and 2010, respectively. Realized gains from our natural gas, oil and NGL derivatives resulted
in a net increase in natural gas, oil and NGL revenues of $358 million, or $0.25 per mcfe, in 2012, a net increase of
$1.554 billion, or $1.30 per mcfe, in 2011 and a net increase of $2.056 billion, or $1.99 per mcfe, in 2010. See Item 7A
for a complete listing of all of our derivative instruments as of December 31, 2012.