Chesapeake Energy 2013 Annual Report Download - page 123

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
115
The components of natural gas, oil and NGL sales for the years ended December 31, 2013, 2012 and 2011
are presented below.
Years Ended December 31,
2013 2012 2011
($ in millions)
Natural gas, oil and NGL sales ...................................................................... $ 6,923 $ 5,359 $ 5,259
Gains on natural gas, oil and NGL derivatives............................................... 129 919 772
Losses on ineffectiveness of cash flow hedges ............................................. — — (7)
Total natural gas, oil and NGL sales........................................................ $ 7,052 $ 6,278 $ 6,024
We have terminated certain commodity derivative contracts that were previously designated as cash flow hedges
for which the hedged production is still expected to occur. See further discussion below under Cash Flow Hedges.
Interest Rate Derivatives
As of December 31, 2013 and 2012, our interest rate derivative instruments consisted of swaps. Chesapeake
enters into fixed-to-floating interest rate swaps (we receive a fixed interest rate and pay a floating market rate) to
mitigate our exposure to changes in the fair value of our senior notes. We enter into floating-to-fixed interest rate swaps
(we receive a floating market rate and pay a fixed interest rate) to manage our interest rate exposure related to our
bank credit facilities borrowings.
The notional amount and the estimated fair value of our interest rate derivative liabilities as of December 31,
2013 and 2012 are provided below.
December 31, 2013 December 31, 2012
Notional
Amount Fair Value Notional Amount Fair Value
($ in millions)
Interest rate swaps.................................................................... $ 2,250 $ (98) $ 1,050 $ (35)
The components of interest expense for the years ended 2013, 2012 and 2011 are presented below.
Years Ended December 31,
2013 2012 2011
($ in millions)
Interest expense on senior notes ................................................................... $ 740 $ 732 $ 653
Interest expense on credit facilities ................................................................ 38 70 70
Interest expense on term loans ..................................................................... 116 173 —
(Gains) losses on interest rate derivatives ..................................................... 58 (7) 14
Amortization of loan discount, issuance costs and other ............................... 91 89 39
Capitalized interest ........................................................................................ (816) (980) (732)
Total interest expense ............................................................................. $ 227 $ 77 $ 44
We have terminated certain fair value hedges related to senior notes. Gains and losses related to these terminated
hedges will be amortized as an adjustment to interest expense over the remaining term of the related senior notes.
Over the next seven years, we will recognize $14 million in net gains in earnings related to such transactions.
Foreign Currency Derivatives
In December 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. Under the terms of the remaining cross currency