Chesapeake Energy 2014 Annual Report Download - page 139

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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17. Impairments
Impairments of Oil and Natural Gas Properties
Our oil and natural gas properties are subject to quarterly full cost ceiling tests. As of September 30, 2012,
capitalized costs of oil and natural gas properties exceeded the ceiling, resulting in an impairment in the carrying value
of oil and natural gas properties of $3.315 billion. Cash flow hedges as of September 30, 2012, which related to future
periods, increased the ceiling test impairment by $279 million. We were not required to record impairments of oil and
natural gas properties for any other quarter in 2012 or for any quarters in 2013 or 2014. Based on the decline in oil
and natural gas prices in the second half of 2014 and into 2015, we expect to have a material write-down of the carrying
value of our oil and natural gas properties in the 2015 first quarter. Further material write-downs in subsequent quarters
will occur if the trailing 12-month commodity prices continue to fall as compared to the commodity prices used in prior
quarters.
Impairments of Fixed Assets and Other
We review our long-lived assets, other than oil and natural gas properties, for recoverability whenever events or
changes in circumstances indicate that carrying amounts may not be recoverable. We recognize an impairment loss
if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. A summary of our impairments
of fixed assets by asset class and other charges for the years ended December 31, 2014, 2013 and 2012 is as follows:
Years Ended December 31,
2014 2013 2012
($ in millions)
Natural gas compressors $ 11 $ — $ —
Gathering systems and treating plants 13 22 6
Oilfield services equipment 23 71 60
Buildings and land 18 366 248
Other 23 87 26
Total impairments of fixed assets and other $ 88 $ 546 $ 340
Oilfield Services Equipment. In 2014, we purchased 31 leased rigs and equipment from various lessors for an
aggregate purchase price of $140 million. In connection with these purchases, we paid $8 million in early lease
termination costs, which are included in impairments of fixed assets and other in the consolidated statement of
operations. We recognized an impairment loss of approximately $15 million related to leasehold improvements
associated with these assets. In 2013, we purchased 23 leased rigs (two of which were classified as held for sale
assets as of December 31, 2013) from various lessors for an aggregate purchase price of $141 million and paid
approximately $22 million in early lease termination costs, which is included in impairments of fixed assets and other
in the consolidated statement of operations. In addition, we impaired approximately $22 million related to leasehold
improvements and other costs associated with these assets. In 2013, we also recognized $27 million of impairment
losses on certain of our drilling rigs that qualified as held for sale during 2013 for the difference between the carrying
amount and fair value, less the anticipated costs to sell. We estimated the fair value using prices expected to be
received. In 2012, we purchased 25 leased rigs from various lessors for an aggregate purchase price of $36 million
and paid approximately $25 million in early lease termination costs, which is included in impairments of fixed assets
and other in the consolidated statement of operations. In addition, in 2012, we recognized $26 million of impairment
losses on certain of our drilling rigs that we expected would have insufficient cash flow to recover carrying values
because of a change in business climate resulting from depressed natural gas prices. In 2012, we also recognized $9
million of impairment losses primarily related to drill pipe and other oilfield services equipment.
Buildings and Land. In 2013, we determined we would sell certain of our buildings and land (other than our core
campus) in the Oklahoma City area. We recognized an impairment loss of $186 million on these assets for the difference
between the carrying amount and fair value of the assets, less the anticipated costs to sell. Given the impairment
losses associated with these assets, we tested other noncore buildings and land that we owned in the Oklahoma City
area for recoverability. As a result of this test, we recognized an impairment loss of $69 million on these assets in 2013.