Chesapeake Energy 2013 Annual Report Download - page 62

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The following table shows our production expenses by operating division and our ad valorem tax expenses for
2013, 2012 and 2011:
2013 2012 2011
Production
Expenses $/boe Production Expenses $/boe Production Expenses $/boe
($ in millions, except per unit)
Southern .......................................... $ 925 5.46 $ 1,087 5.70 $ 875 5.01
Northern .......................................... 164 2.19 143 3.10 136 5.57
1,089 4.46 1,230 5.19 1,011 5.08
Ad valorem tax ................................ 70 0.28 74 0.31 62 0.31
Total........................................... $1,159 4.74 $ 1,304 5.50 $ 1,073 5.39
Production Taxes. Production taxes were $229 million in 2013 compared to $188 million in 2012 and $192 million
in 2011. On a unit-of-production basis, production taxes were $0.94 per boe in 2013 compared to $0.79 per boe in
2012 and $0.96 per boe in 2011. In general, production taxes are calculated using value-based formulas that produce
higher per unit costs when natural gas, oil and NGL prices are higher. The $41 million increase in production taxes in
2013 was primarily due to the increase in the unhedged price of our production from $22.61 per boe to $28.33 per
boe. Production taxes in 2013, 2012 and 2011 included approximately $21 million, $20 million and $34 million,
respectively, or $0.08, $0.08 and $0.17 per boe, respectively, associated with VPP production volumes.
General and Administrative Expenses. General and administrative expenses were $457 million in 2013, $535
million in 2012 and $548 million in 2011, or $1.86, $2.26 and $2.75 per boe, respectively. The absolute and per unit
expense decrease in 2013 was primarily due to our efforts to reduce our cost structure and increased emphasis on
operational efficiencies, partially offset by an increase in legal expenses relating to various corporate matters. In addition,
we anticipate the workforce reduction described below will result in future cost savings and help the Company
demonstrate more profitable and efficient growth. Included in general and administrative expenses is stock-based
compensation of $60 million in 2013, $71 million in 2012 and $92 million in 2011. See Note 9 of the notes to our
consolidated financial statements included in Item 8 of this report for further discussion of our stock-based
compensation.
Chesapeake follows the full cost method of accounting under which all costs associated with natural gas and oil
property acquisition, drilling and completion activities are capitalized. We capitalize internal costs that can be directly
identified with acquisition of leasehold and drilling and completion activities and do not include any costs related to
production, general corporate overhead or similar activities. We capitalized $317 million, $434 million and $432 million
of internal costs in 2013, 2012 and 2011, respectively, directly related to our natural gas and oil property acquisition
and drilling and completion efforts. The decrease was primarily due to our cost structure initiatives and increased
emphasis on operational efficiencies in addition to a substantial decrease in our acquisition of unproved properties
and lower drilling and completion expenditures.
Restructuring and Other Termination Costs. We recorded $248 million and $7 million of restructuring and other
termination costs in 2013 and 2012, respectively. The 2013 amount primarily related to workforce reductions, senior
management separations and our voluntary separation plan. The 2012 amount related to other termination benefits.
The Company committed to a workforce reduction plan in September 2013 that resulted in a reduction of approximately
900 employees. In connection with the workforce reduction plan, we incurred a total charge of $66 million. The
acceleration of vesting of stock-based compensation accounted for approximately $45 million of this expense. We also
incurred charges of approximately $182 million in 2013 related to the separation from the Company of certain other
employees, including approximately $107 million related to our former CEO and other executive officers that were
outside the workforce reduction plan. See Note 17 of the notes to our consolidated financial statements included in
Item 8 of this report for further discussion.