Chesapeake Energy 2013 Annual Report Download - page 128

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
120
Hedging Facility
We have a multi-counterparty secured hedging facility with 16 counterparties that have committed to provide
approximately 1.063 bboe of hedging capacity for natural gas, oil and NGL price derivatives and 1.063 bboe for basis
derivatives with an aggregate mark-to-market capacity of $17.0 billion under the terms of the facility. As of December 31,
2013, we had hedged under the facility 221 mmboe of our future production with price derivatives and 12 mmboe with
basis derivatives. The multi-counterparty facility allows us to enter into cash-settled natural gas, oil and NGL price and
basis derivatives with the counterparties. Our obligations under the multi-counterparty facility are secured by proved
reserves, the value of which must cover the fair value of the transactions outstanding under the facility by at least 1.65
times at semi-annual collateral redetermination dates and 1.30 times in between those dates, and guarantees by certain
subsidiaries that also guarantee our corporate revolving bank credit facility, indentures, term loan and equipment master
lease agreements. The counterparties’ obligations under the facility must be secured by cash or short-term U.S. Treasury
instruments to the extent that any mark-to-market amounts they owe to Chesapeake exceed defined thresholds. The
maximum volume-based trading capacity under the facility is governed by the expected production of the pledged
reserve collateral, and volume-based trading limits are applied separately to price and basis derivatives. In addition,
there are volume-based sub-limits for natural gas, oil and NGL derivative instruments. Chesapeake has significant
flexibility with regard to releases and/or substitutions of pledged reserves, provided that certain requirements are met
including maintaining specified collateral coverage ratios as well as maintaining credit ratings with either of the
designated rating agencies at or above current levels. The facility does not have a maturity date. Counterparties to the
agreement have the right to cease entering into derivative instruments with the Company on a prospective basis as
long as obligations associated with any existing transactions in the facility continue to be satisfied in accordance with
the terms of the agreement.
12. Natural Gas and Oil Property Divestitures
Under full cost accounting rules, we have accounted for the sale of natural gas and oil properties as an adjustment
to capitalized costs, with no recognition of gain or loss as the sales have not involved a significant change in proved
reserves or significantly altered the relationship between costs and proved reserves. Below is a discussion of our major
oil and gas property divestitures for the years ended December 31, 2013, 2012 and 2011.
In 2013, we sold a wholly owned subsidiary, MKR Holdings, L.L.C. (MKR), to Chief Oil and Gas and two of its
working interest partners, Enerplus and Tug Hill. Net proceeds from the transaction were approximately $490 million.
MKR held producing wells and undeveloped acreage in the Marcellus Shale in Bradford, Lycoming, Sullivan,
Susquehanna and Wyoming counties, Pennsylvania.
In 2013, we sold assets in the Haynesville Shale to EXCO Operating Company, LP (EXCO) for net proceeds of
approximately $257 million. Subsequent to closing, we received approximately $47 million of additional net proceeds
for post-closing adjustments. The assets sold included our operated and non-operated interests in approximately 9,600
net acres in DeSoto and Caddo parishes, Louisiana.
In 2013, we sold assets in the northern Eagle Ford Shale to EXCO for net proceeds of approximately $617 million.
Subsequent to closing, in 2013 we received approximately $32 million of net proceeds for post-closing adjustments
and may receive up to $64 million of additional net proceeds for further post-closing adjustments. The assets sold
included approximately 55,000 net acres in Zavala, Dimmit, La Salle and Frio counties, Texas.
In 2012, we sold the vast majority of our Permian Basin assets, representing approximately 6% of our total proved
reserves as of June 30, 2012, in three separate transactions for total net cash proceeds of approximately $3.091 billion.
Approximately $466 million of additional consideration was withheld subject to certain title, environmental and other
standard contingencies. Following the closing, we received approximately $355 million of such consideration, including
$320 million received subsequent to December 31, 2012, and we expect to receive the majority of the remaining
contingent amount in 2014. Of the total proceeds, we allocated approximately $42 million to our Permian Basin
midstream and other fixed assets. The remaining proceeds were allocated to our Permian Basin natural gas and oil
properties.
In 2012, we sold approximately 40,000 net acres of noncore leasehold in the Chitwood Knox play in Oklahoma
for approximately $540 million in cash.
In 2012, we sold producing assets in the Midland Basin portion of the Permian Basin to affiliates of EnerVest,
Ltd. for approximately $376 million in cash.