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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
119
Fair Value
The fair value of our derivatives is based on third-party pricing models which utilize inputs that are either readily
available in the public market, such as oil and natural gas forward curves and discount rates, or can be corroborated
from active markets or broker quotes. These values are compared to the values given by our counterparties for
reasonableness. Since oil, natural gas, interest rate and cross currency swaps do not include optionality and therefore
generally have no unobservable inputs, they are classified as Level 2. All other derivatives have some level of
unobservable input, such as volatility curves, and are therefore classified as Level 3. Derivatives are also subject to
the risk that either party to a contract will be unable to meet its obligations. We factor non-performance risk into the
valuation of our derivatives using current published credit default swap rates. To date, this has not had a material
impact on the values of our derivatives.
The following table provides information for financial assets (liabilities) measured at fair value on a recurring basis
as of December 31, 2014 and 2013:
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3) Total
Fair Value
($ in millions)
As of December 31, 2014
Derivative Assets (Liabilities):
Commodity assets $ — $ 785 $ 205 $ 990
Commodity liabilities — (9) (259) (268)
Interest rate liabilities — (17) — (17)
Foreign currency liabilities — (53) — (53)
Total derivatives $ — $ 706 $ (54) $ 652
As of December 31, 2013
Derivative Assets (Liabilities):
Commodity assets $ — $ 25 $ 15 $ 40
Commodity liabilities — (100) (493) (593)
Interest rate liabilities — (98) — (98)
Foreign currency assets — 2 — 2
Total derivatives $ — $ (171) $ (478) $ (649)