Chesapeake Energy 2013 Annual Report Download - page 91

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
83
Environmental Remediation Costs
Chesapeake records environmental reserves for estimated remediation costs related to existing conditions from
past operations when the responsibility to remediate is probable and the costs can be reasonably
estimated. Expenditures that create future benefits or contribute to future revenue generation are capitalized.
Asset Retirement Obligations
We recognize liabilities for retirement obligations associated with the retirement of tangible long-lived assets that
result from the acquisition, construction and development of the assets. We recognize the fair value of a liability for a
retirement obligation in the period in which the liability is incurred. For natural gas and oil properties, this is the period
in which a natural gas or oil well is acquired or drilled. The liability is then accreted each period until the liability is
settled or the well is sold, at which time the liability is removed. The related asset retirement cost is capitalized as part
of the carrying amount of our natural gas and oil properties. See Note 19 for further discussion of asset retirement
obligations.
Revenue Recognition
Natural Gas, Oil and NGL Sales. Revenue from the sale of natural gas, oil and NGL is recognized when title
passes, net of royalties due to third parties and gathering and transportation charges.
Natural Gas Imbalances. We follow the "sales method" of accounting for our natural gas revenue whereby we
recognize sales revenue on all natural gas sold to our purchasers, regardless of whether the sales are proportionate
to our ownership in the property. An asset or a liability is recognized to the extent that we have an imbalance in excess
of the remaining natural gas reserves on the underlying properties. The natural gas imbalance liability net position as
of December 31, 2013 and 2012 was $11 million and $9 million, respectively.
Marketing, Gathering and Compression Sales. Chesapeake takes title to the natural gas, oil and NGL it purchases
from other interest owners in operated wells at defined delivery points and delivers the product to third parties, at which
time revenues are recorded. Chesapeake's results of operations related to its natural gas, oil and NGL marketing
activities are presented on a "gross" basis, because we act as a principal rather than an agent. Gathering and
compression revenues consist of fees billed to other interest owners in operated wells or third-party producers for the
gathering, treating and compression of natural gas. Revenues are recognized when the service is performed and are
based upon non-regulated rates and the related gathering, treating and compression volumes. All significant
intercompany accounts and transactions have been eliminated.