Chesapeake Energy 2012 Annual Report Download - page 87

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77
In addition to the open derivative positions disclosed above, at December 31, 2012, we had $171 million of net
hedging gains related to settled trades for future production periods that will be recorded within natural gas, oil and
NGL sales as realized gains (losses) as they are transferred from either accumulated other comprehensive income
or unrealized gains (losses) in the month of related production based on the terms specified in the original contract as
noted below.
December 31,
2012
($ in millions)
Q1 2013 ....................................................................................................................................... 16
Q2 2013 ....................................................................................................................................... 35
Q3 2013 ....................................................................................................................................... 31
Q4 2013 ....................................................................................................................................... 22
2014 ............................................................................................................................................. (165)
2015 ............................................................................................................................................. 216
2016 – 2022 ................................................................................................................................. 16
Total ....................................................................................................................................... $ 171
The table below reconciles the changes in fair value of our natural gas, oil and NGL derivatives during the years
ended December 31, 2012, 2011 and 2010. Of the $924 million fair value liability as of December 31, 2012, $48 million
related to contracts maturing in the next 12 months and $876 million related to contracts maturing after 12 months. All
open derivative instruments as of December 31, 2012 are expected to mature by December 31, 2022.
2012 2011 2010
($ in millions)
Fair value of contracts outstanding, as of January 1 .................................... $ (1,639) $ (649) $ 21
Change in fair value of contracts .................................................................. 657 664 995
Fair value of new contracts when entered into ............................................. 174 (347) (581)
Contracts realized or otherwise settled ......................................................... (72) (478) (1,691)
Fair value of contracts when closed ............................................................. (44) (829) 607
Fair value of contracts outstanding, as of December 31............................... $ (924) $ (1,639) $ (649)
The change in natural gas, oil and NGL prices during the year ended December 31, 2012 decreased the liability
of our derivative instruments by $657 million. This gain is recorded in natural gas, oil and NGL sales. We entered into
new contracts which were in an asset position of $174 million. We settled contracts that were in an asset position for
$72 million and we closed out contracts that were in an asset position for $44 million. The realized gain is recorded in
natural gas, oil and NGL sales in the month of related production.
Pursuant to accounting guidance for derivatives and hedging, certain derivatives qualify for designation as cash
flow hedges. Following these provisions, changes in the fair value of derivative instruments designated as cash flow
hedges, to the extent they are effective in offsetting cash flows attributable to the hedged risk, are recorded in
accumulated other comprehensive income until the hedged item is recognized in earnings as the physical transactions
being hedged occur. Any change in fair value resulting from ineffectiveness is recognized in natural gas, oil and NGL
sales as unrealized gains (losses). Realized gains (losses) consist of settled contracts related to the production periods
being reported. Unrealized gains (losses) consist of both temporary fluctuations in the mark-to-market values and
settled values related to future production periods of derivatives not designated as cash flow hedges. As of
December 31, 2012, we did not have any natural gas or oil derivatives that were designated as cash flow hedges.