Chesapeake Energy 2014 Annual Report Download - page 162

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION – (Continued)
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During 2014, we acquired approximately 14 mmboe of proved reserves through purchases of oil and natural gas
properties for consideration of $168 million, and we sold 362 mmboe of proved reserves for approximately $4.7 billion.
We recorded downward revisions of 51 mmboe, which was comprised of a 78 mmboe reduction of previous estimates
partially offset by a 27 mmboe increase resulting primarily from higher natural gas prices in 2014. The oil and natural
gas prices used in computing our reserves as of December 31, 2014 were $94.98 per bbl and $4.35 per mcf, respectively,
before price differentials. Including the effect of price differential adjustments, the prices used in computing our reserves
as of December 31, 2014 were $89.09 per barrel of oil, $2.68 per mcf of natural gas and $24.10 per barrel of NGL.
During 2013, we acquired approximately 2 mmboe of proved reserves through purchases of oil and natural gas
properties for consideration of $22 million, and we sold 189 mmboe of proved reserves for approximately $1.621 billion.
During 2013, we recorded downward revisions of 30 mmboe to the December 31, 2012 estimates of our reserves.
Included in the revisions were 162 mmboe of upward revisions resulting from higher oil, natural gas and NGL prices
in 2013 and 192 mmboe of downward revisions resulting from changes to previous estimates. Higher prices increase
the economic lives of the underlying oil and natural gas properties and thereby increase the estimated future reserves.
The oil and natural gas prices used in computing our reserves as of December 31, 2013 were $96.82 per bbl and $3.67
per mcf, respectively, before price differentials. Including the effect of price differential adjustments, the prices used in
computing our reserves as of December 31, 2013 were $95.89 per barrel of oil, $2.37 per mcf of natural gas and $25.78
per barrel of NGL. Included in the non-price revisions were 355 mmboe of downward revisions to our estimated PUD
reserves, offset by 163 mmboe of upward revisions for performance.
During 2012, we acquired approximately 7 mmboe of proved reserves through purchases of oil and natural gas
properties for consideration of $332 million, and we sold 225 mmboe of our proved reserves for approximately $2.381
billion. During 2012, we recorded downward revisions of 1.127 bboe to the December 31, 2011 estimates of our
reserves. Included in the revisions were 902 mmboe of downward revisions resulting from lower natural gas prices in
2012 and 225 mmboe of downward revisions resulting from changes to previous estimates. Lower prices decrease
the economic lives of the underlying oil and natural gas properties and thereby decrease the estimated future reserves.
The oil and natural gas prices used in computing our reserves as of December 31, 2012 were $94.84 per bbl and $2.76
per mcf, respectively, before price differentials. Including the effect of price differential adjustments, the prices used in
computing our reserves as of December 31, 2012 were $91.78 per barrel of oil, $1.75 per mcf of natural gas and $30.81
per barrel of NGL. The non price-related revisions were primarily the result of our continued execution of our strategy
to shift the Company’s drilling focus from natural gas to liquids-rich areas and to drill in the "core of the core" of our
acreage positions. As rigs were reallocated, PUDs were removed from various noncore areas resulting in downward
revisions.
Standardized Measure of Discounted Future Net Cash Flows
Accounting Standards Codification Topic 932 prescribes guidelines for computing a standardized measure of
future net cash flows and changes therein relating to estimated proved reserves. Chesapeake has followed these
guidelines which are briefly discussed below.
Future cash inflows and future production and development costs as of December 31, 2014, 2013 and 2012 were
determined by applying the average of the first-day-of-the-month prices for the 12 months of the year and year-end
costs to the estimated quantities of oil, natural gas and NGL to be produced. Actual future prices and costs may be
materially higher or lower than the prices and costs used. For each year, estimates are made of quantities of proved
reserves and the future periods during which they are expected to be produced based on continuation of the economic
conditions applied for that year. Estimated future income taxes are computed using current statutory income tax rates
including consideration of the current tax basis of the properties and related carryforwards, giving effect to permanent
differences and tax credits. The resulting future net cash flows are reduced to present value amounts by applying a
10% annual discount factor.
The assumptions used to compute the standardized measure are those prescribed by the Financial Accounting
Standards Board and do not necessarily reflect our expectations of actual revenue to be derived from those reserves
nor their present worth. The limitations inherent in the reserve quantity estimation process, as discussed previously,
are equally applicable to the standardized measure computations since these estimates reflect the valuation process.