Chesapeake Energy 2013 Annual Report Download - page 142

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
134
18. Fair Value Measurements
Recurring Fair Value Measurement
Other Current Assets. Assets related to forfeited Company matches of employee contributions to Chesapeake’s
employee benefit plans are included in other current assets. The fair value of these assets is determined using quoted
market prices as they consist of exchange-traded securities.
Investments. The fair value of Chesapeake’s investments in Clean Energy and Gastar common stock was based
on quoted market prices.
Other Current Liabilities. Liabilities related to Chesapeake’s deferred compensation plan are included in other
current liabilities. The fair values of these liabilities are determined using quoted market prices, as the plan consists
of exchange-traded mutual funds.
Derivatives. The fair value of most of our derivatives is based on third-party pricing models which utilize inputs
that are either readily available in the public market, such as natural gas and oil forward curves and discount rates, or
can be corroborated from active markets or broker quotes. These values are compared to the values given by our
counterparties for reasonableness. Since natural gas, oil, interest rate and cross currency swaps do not include
optionality and therefore generally have no unobservable inputs, they are classified as Level 2. All other derivatives
have some level of unobservable input, such as volatility curves, and are therefore classified as Level 3. Derivatives
are also subject to the risk that either party to a contract will be unable to meet its obligations. We factor non-performance
risk into the valuation of our derivatives using current published credit default swap rates. To date, this has not had a
material impact on the values of our derivatives.