Chesapeake Energy 2013 Annual Report Download - page 49

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Proceeds from any asset sales completed in 2014 and beyond may be used to reduce financial leverage and
complexity and further enhance our liquidity. While furthering our strategic priorities, certain actions that would reduce
financial leverage and complexity could negatively impact our future results of operations. We may incur various cash
charges including but not limited to lease termination charges, financing extinguishment costs and charges for unused
transportation and gathering capacity.
To add more certainty to our future estimated cash flows, we currently have downside price protection, in the
form of over-the-counter derivative contracts, on approximately 68% of our 2014 estimated natural gas production at
an average price of $4.15 per mcf and 58% of our 2014 estimated oil production at an average price of $93.92 per bbl.
See Quantitative and Qualitative Disclosures about Market Risk in Item 7A of this report. Our use of derivative contracts
allows us to reduce the effect of price volatility on our cash flows and EBITDA (defined as earnings before interest,
taxes, depreciation, depletion and amortization), but the amount of estimated production subject to derivative contracts
for any period depends on our outlook on future prices and risk assessment.
As part of our asset sales planning and capital expenditure budgeting process, we closely monitor the resulting
effects on the amounts and timing of our sources and uses of funds, particularly as they affect our ability to maintain
compliance with the financial covenants of our corporate revolving bank credit facility. While asset sales enhance our
ability to reduce debt, sales of producing natural gas and oil properties may adversely affect the amount of cash flow
and EBITDA we generate in future periods and reduce the amount and value of collateral available to secure our
obligations, both of which can be exacerbated by low prices for our production. In September 2012, we obtained an
amendment to our corporate revolving bank credit facility agreement that increased the required 4.00 to 1.00
indebtedness to EBITDA ratio for the quarter ended September 30, 2012 and the four subsequent quarters. See Note
3 of the notes to our consolidated financial statements included in Item 8 of this report for discussion of the terms of
the amendment and the early termination of its provisions on June 28, 2013. For the quarter ended December 31,
2013 and the four previous quarters, our indebtedness to EBITDA ratio was less than 4.00 to 1.00, the ratio currently
in effect and which existed prior to the amendment. Failure to maintain compliance with the covenants of our revolving
bank credit facility agreement could result in the acceleration of outstanding indebtedness under the facility and lead
to cross defaults under our senior note and contingent convertible senior note indentures, secured hedging facility,
equipment master lease agreements and term loan.
Based upon our 2014 capital expenditure budget, our forecasted operating cash flow and projected levels of
indebtedness, we are projecting that we will be in compliance with the financial maintenance covenants of our corporate
revolving bank credit facility. Further, we expect to meet in the ordinary course of business other contractual cash
commitments to third parties pursuant to various agreements described in Contractual Obligations and Off-Balance
Sheet Arrangements below and in Note 4 of the notes to our consolidated financial statements included in Item 8 of
this report, recognizing that we may be required to meet such commitments even if our business plan assumptions
were to change. We believe the assumptions underlying our budget for this period are reasonable and that we have
adequate flexibility, including the ability to adjust discretionary capital expenditures and other spending to adapt to
potential negative developments if needed.