Chesapeake Energy 2013 Annual Report Download - page 63

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Natural Gas, Oil and NGL Depreciation, Depletion and Amortization. Depreciation, depletion and amortization
(DD&A) of natural gas, oil and NGL properties was $2.589 billion, $2.507 billion and $1.632 billion in 2013, 2012 and
2011, respectively. The $82 million and $875 million increases in 2013 and 2012 are primarily the result of 3% and
19% increases in production in 2013 and 2012, respectively, the 2012 decrease in the Barnett Shale and Haynesville
Shale proved undeveloped reserves primarily as a result of downward price revisions, and the higher costs of liquids-
rich plays compared to natural gas plays as we shift to a more liquids-focused strategy. The average DD&A rate per
boe, which is a function of capitalized costs, future development costs and the related underlying reserves in the periods
presented, was $10.59, $10.58 and $8.20 in 2013, 2012 and 2011, respectively.
Depreciation and Amortization of Other Assets. Depreciation and amortization of other assets was $314 million
in 2013, compared to $304 million in 2012 and $291 million in 2011. Depreciation and amortization of other assets was
$1.28, $1.28 and $1.46 per boe in 2013, 2012 and 2011, respectively. The increase in 2013 is primarily due to increases
in depreciation resulting from additions to our hydraulic fracturing equipment during 2013 compared to 2012 and 2011,
partially offset by significant decreases in depreciation for natural gas gathering assets, most of which were sold in
2012 and 2013. See Note 15 of the notes to our consolidated financial statements included in Item 8 of this report for
information regarding these sales.
Property and equipment costs are depreciated on a straight-line basis over the estimated useful lives of the
assets. To the extent company-owned oilfield services equipment is used to drill and complete our wells, a substantial
portion of the depreciation (i.e., the portion related to our utilization of the equipment) is capitalized in natural gas and
oil properties as drilling and completion costs. The following table shows depreciation expense by asset class for 2013,
2012 and 2011 and the estimated useful lives of these assets.
Years Ended December 31, Estimated
Useful
Life
2013 2012 2011
($ in millions) (in years)
Oilfield services equipment(a) ................................................... $ 122 $ 61 $ 52 3 - 15
Natural gas gathering systems and treating plants(b)........... 13 46 58 20
Buildings and improvements ............................................... 47 42 34 10 - 39
Natural gas compressors(b) ................................................. 35 26 18 3 - 20
Computers and office equipment ........................................ 44 45 40 3 - 7
Vehicles ............................................................................... 38 52 46 0 - 7
Other ................................................................................... 15 32 43 2 - 20
Total depreciation and amortization of other assets.......... $ 314 $ 304 $ 291
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(a) Included in our oilfield services operating segment.
(b) Included in our marketing, gathering and compression operating segment.
Impairment of Natural Gas and Oil Properties. In 2012, we reported a non-cash impairment charge on our natural
gas and oil properties of $3.315 billion, primarily resulting from a 10% decrease in trailing 12-month average first-day-
of-the-month natural gas prices as of September 30, 2012 compared to June 30, 2012, and the impairment of certain
undeveloped leasehold, primarily in the Williston and DJ Basins. We account for our natural gas and oil properties
using the full cost method of accounting, which limits the amount of costs we can capitalize and requires us to write
off these costs if the carrying value of natural gas and oil assets in the evaluated portion of our full cost pool exceeds
the sum of the present value of expected future net cash flows of proved reserves using a 10% pre-tax discount rate
based on pricing and cost assumptions prescribed by the SEC and the present value of natural gas and oil derivative
instruments designated as cash flow hedges. See Note 16 of the notes to our consolidated financial statements included
in Item 8 of this report for further discussion of our impairment of natural gas and oil properties.
Impairments of Fixed Assets and Other. In 2013, 2012 and 2011, we recognized $546 million, $340 million and
$46 million, respectively, of impairment losses and other charges primarily related to buildings, land, gathering systems
and drilling rigs. See Note 16 of the notes to our consolidated financial statements included in Item 8 of this report for
further discussion of our impairments of fixed assets and other.