Chesapeake Energy 2013 Annual Report Download - page 165

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION – (Continued)
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in 2013 and 192 mmboe of downward revisions resulting from changes to previous estimates. Higher prices increase
the economic lives of the underlying natural gas and oil properties and thereby increase the estimated future reserves.
The natural gas and oil prices used in computing our reserves as of December 31, 2013 were $3.67 per mcf and $96.82
per bbl before price differentials. Including the effect of price differential adjustments, the prices used in computing our
reserves as of December 31, 2013 were $2.37 per mcf of natural gas, $95.89 per barrel of oil and $25.78 per barrel
of NGL. Included in the non-price revisions were 355 mmboe of downward revisions to our estimated PUD reserves,
offset by 163 mmboe of upward revisions for performance. Of the 355 mmboe of downward PUD revisions, 280 mmboe
related primarily to revised well spacing in our core development area in the Marcellus Shale, the extension of our
development plan beyond five years for locations outside the core of our Eagle Ford Shale acreage and the removal
of PUDs with only marginally economic estimated production. The remaining 75 mmboe of downward revisions were
primarily due to a reduction in estimated PUD reserves per well in the Mississippi Lime play.
During 2012, we acquired approximately 7 mmboe of proved reserves through purchases of natural gas and oil
properties for consideration of $332 million, and we sold 225 mmboe of our proved reserves for approximately $2.381
billion. During 2012, we recorded downward revisions of 1.127 bboe to the December 31, 2011 estimates of our
reserves. Included in the revisions were 902 mmboe of downward revisions resulting from lower natural gas prices in
2012 and 225 mmboe of downward revisions resulting from changes to previous estimates. Lower prices decrease
the economic lives of the underlying natural gas and oil properties and thereby decrease the estimated future reserves.
The natural gas and oil prices used in computing our reserves as of December 31, 2012 were $2.76 per mcf and $94.84
per bbl before price differentials. Including the effect of price differential adjustments, the prices used in computing our
reserves as of December 31, 2012 were $1.75 per mcf of natural gas, $91.78 per barrel of oil and $30.81 per barrel
of NGL. The non price-related revisions were primarily the result of our continued execution of our strategy to shift the
Company’s drilling focus from natural gas to liquids-rich areas and to drill in the "core of the core" of our acreage
positions. As rigs were reallocated, PUDs were removed from various noncore areas resulting in downward revisions.
During 2011, we acquired approximately 5 mmboe of proved reserves through purchases of natural gas and oil
properties for consideration of $48 million, and we sold 463 bboe of our proved reserves for approximately $2.612
billion, including divestitures related to our Fayetteville Shale assets, a VPP transaction and other non-core asset sales.
During 2011, we recorded downward revisions of 8 mmboe to the December 31, 2010 estimates of our reserves.
Included in the revisions were 46 mmboe of upward revisions to producing properties, offset by 56 mmboe of downward
revisions associated with the deletion of PUDs no longer consistent with our development plans. In addition, we had
2 mmboe of upward revisions resulting from higher oil prices. Higher prices increase the economic lives of the underlying
natural gas and oil properties and thereby increase the estimated future reserves. The natural gas and oil prices used
in computing our reserves as of December 31, 2011 were $4.12 per mcf and $95.97 per bbl before price differentials.
Including the effect of price differential adjustments, the prices used in computing our reserves as of December 31,
2011 were $3.19 per mcf of natural gas, $88.50 per bbl of oil and $40.38 per bbl of NGL.
Standardized Measure of Discounted Future Net Cash Flows
Accounting Standards Codification Topic 932 prescribes guidelines for computing a standardized measure of
future net cash flows and changes therein relating to estimated proved reserves. Chesapeake has followed these
guidelines which are briefly discussed below.
Future cash inflows and future production and development costs as of December 31, 2013, 2012 and 2011 were
determined by applying the average of the first-day-of-the-month prices for the 12 months of the year and year-end
costs to the estimated quantities of natural gas, oil and NGL to be produced. Actual future prices and costs may be
materially higher or lower than the prices and costs used. For each year, estimates are made of quantities of proved
reserves and the future periods during which they are expected to be produced based on continuation of the economic
conditions applied for such year. Estimated future income taxes are computed using current statutory income tax rates
including consideration of the current tax basis of the properties and related carryforwards, giving effect to permanent
differences and tax credits. The resulting future net cash flows are reduced to present value amounts by applying a
10% annual discount factor.
The assumptions used to compute the standardized measure are those prescribed by the Financial Accounting
Standards Board and, as such, do not necessarily reflect our expectations of actual revenue to be derived from those
reserves nor their present worth. The limitations inherent in the reserve quantity estimation process, as discussed
previously, are equally applicable to the standardized measure computations since these estimates reflect the valuation
process.