Chesapeake Energy 2013 Annual Report Download - page 87

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
79
1. Basis of Presentation and Summary of Significant Accounting Policies
Description of Company
Chesapeake Energy Corporation ("Chesapeake" or the "Company") is a natural gas and oil exploration and
production company engaged in the acquisition, exploration and development of properties for the production of natural
gas, oil and natural gas liquids (NGL) from underground reservoirs. We also own substantial marketing, compression
and other oilfield services businesses. Our operations are located onshore in the U.S.
Basis of Presentation
The accompanying consolidated financial statements of Chesapeake are prepared in accordance with accounting
principles generally accepted in the United States (U.S. GAAP) and include the accounts of our direct and indirect
wholly owned subsidiaries and entities in which Chesapeake has a controlling financial interest. Intercompany accounts
and balances have been eliminated.
Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Estimates of natural gas and oil reserves and their values, future production rates and future costs and expenses
are the most significant of our estimates. The accuracy of any reserve estimate is a function of the quality of data
available and of engineering and geological interpretation and judgment. In addition, estimates of reserves may be
revised based on actual production, results of subsequent exploration and development activities, recent commodity
prices, operating costs and other factors. These revisions could materially affect our financial statements. The volatility
of commodity prices results in increased uncertainty inherent in such estimates and assumptions. Changes in natural
gas, oil or NGL prices could result in actual results differing significantly from our estimates.
Consolidation
Chesapeake consolidates entities in which we have a controlling financial interest. We consolidate subsidiaries
in which we hold, directly or indirectly, more than 50% of the voting rights and variable interest entities (VIEs) in which
Chesapeake is the primary beneficiary. We use the equity method of accounting to record our net interests where
Chesapeake has the ability to exercise significant influence through its investment in common stock. Under the equity
method, our share of net income (loss) is included in our consolidated statements of operations according to our equity
ownership or according to the terms of the applicable governing instrument. Investments in securities not accounted
for under the equity method have been designated as available-for-sale and, as such, are carried at fair value whenever
this value is readily determinable. Otherwise, the investment is carried at cost. See Note 13 for further discussion of
our investments. Undivided interests in natural gas and oil exploration and production joint ventures are consolidated
on a proportionate basis.
Noncontrolling Interests
Noncontrolling interests represent third-party equity ownership in certain of our consolidated subsidiaries and are
presented as a component of equity. See Note 8 for further discussion of noncontrolling interests.
Variable Interest Entities
VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities
independently, or (ii) have equity holders that do not have the power to direct the activities of the entity that most
significantly impact its economic performance, the obligation to absorb the entity’s losses, or the right to receive the
entity’s residual returns. We consolidate a VIE when we are the primary beneficiary, which is the party that has both
(i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) through its
interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE that could potentially
be significant to the VIE.