Chesapeake Energy 2013 Annual Report Download - page 19

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In 2013 and 2012, we sold substantially all of our midstream business and most of our gathering assets. We
continue to own the following midstream assets: (i) certain gathering pipelines primarily associated with vertical well
production in the northeastern U.S.; (ii) flowlines, which are generally between 200 feet and one mile in length, for our
production in each operating area; and (iii) four natural gas processing facilities located in West Virginia. See Note 15
of the notes to the consolidated financial statements included in Item 8 of this report for further discussion of the
midstream sale transactions.
Compression Operations
Since 2003, Chesapeake has built its compression business through its wholly owned subsidiary, MidCon
Compression, L.L.C. (MidCon). MidCon operates wellhead and system compressors, with over 1.0 million horsepower
of compression, to facilitate the transportation of natural gas primarily produced from Chesapeake-operated wells.
Our marketing activities, along with our midstream gathering and compression operations, constitute a reportable
segment under accounting guidance for disclosure about segments of an enterprise and related information. See Note
20 of the notes to our consolidated financial statements included in Item 8 of this report.
Oilfield Services
We formed COS Holdings, L.L.C. (formerly Chesapeake Oilfield Services, L.L.C.) (COS) in 2011 to own and
operate our oilfield services assets. COS is a diversified oilfield services company that provides a wide range of well
site services, primarily to Chesapeake and its working interest partners. These services include drilling, hydraulic
fracturing, oilfield rentals, rig relocation, fluid handling and disposal and manufacturing of natural gas compressor
packages. These services are fundamental to establishing and maintaining the flow of natural gas and oil throughout
the productive life of a well. A source of liquidity for COS's business is the $500 million oilfield services revolving bank
credit facility described under Liquidity and Capital Resources in Item 7 of this report. Additionally, in October 2011,
Chesapeake Oilfield Operating, L.L.C. (COO), a wholly owned subsidiary of COS, issued $650 million principal amount
of 6.625% Senior Notes due 2019. Proceeds from this placement were used to make a cash distribution to its direct
parent, COS, to enable it to reduce indebtedness under an intercompany note with Chesapeake. See Note 3 of the
notes to the consolidated financial statements included in Item 8 of this report for further discussion of the revolving
bank credit facility and senior notes.
Our oilfield services operations constitute a reportable segment under accounting guidance for disclosure about
segments of an enterprise and related information. See Note 20 of the notes to our consolidated financial statements
included in Item 8 of this report.
On February 24, 2014, we announced that we are pursuing strategic alternatives for COS, including a potential
spin-off to Chesapeake shareholders or an outright sale. As of December 31, 2013, COS owned or leased 115 land
drilling rigs, including 10 proprietary, fit-for-purpose PeakeRigsTM that utilize advanced electronic drilling technology.
Also as of December 31, 2013, COS owned nine hydraulic fracturing fleets with an aggregate of 360,000 horsepower;
a diversified oilfield rentals business; an oilfield trucking fleet consisting of 260 rig relocation trucks; 67 cranes and
forklifts used to move drilling rigs and other heavy equipment; and 246 fluid hauling trucks.
Competition
We compete with both major integrated and other independent natural gas and oil companies in all aspects of
our business to explore, develop and operate our properties and market our production. Some of our competitors may
have larger financial and other resources than ours. Competitive conditions may be affected by future legislation and
regulations as the U.S. develops new energy and climate-related policies. In addition, some of our larger competitors
may have a competitive advantage when responding to factors that affect demand for natural gas and oil production,
such as changing prices, domestic and foreign political conditions, weather conditions, the price and availability of
alternative fuels, the proximity and capacity of natural gas pipelines and other transportation facilities, and overall
economic conditions. We believe that our technological expertise, our exploration, land, drilling and production
capabilities and the experience of our management generally enable us to compete effectively.
Derivative Activities
We utilize derivative instruments to provide downside price protection on a portion of our future natural gas and
oil production and to manage interest rate exposure. See Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.