Chesapeake Energy 2014 Annual Report Download - page 33

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You should not assume that the present values included in this report represent the current market value of our
estimated reserves. In accordance with SEC requirements, the estimates of our present values are based on prices
and costs as of the date of the estimates. The price on the date of estimate is calculated as the average oil and natural
gas price during the 12 months ending in the current reporting period, determined as the unweighted arithmetic average
of prices on the first day of each month within the 12-month period. The December 31, 2014 present value is based
on $94.98 per bbl of oil and $4.35 per mcf of natural gas before price differential adjustments. These prices are
substantially higher than current and expected 2015 prices for oil and natural gas. Actual future prices and costs may
be materially higher or lower than the prices and costs as of the date of an estimate.
The timing of both the production and the expenses from the development and production of oil and natural gas
properties will affect both the timing of actual future net cash flows from our proved reserves and their present value.
Any changes in consumption by oil, natural gas and NGL purchasers or in governmental regulations or taxation will
also affect the actual future net cash flows from our production. In addition, the 10% discount factor which is required
by the SEC to be used in calculating discounted future net cash flows for reporting purposes is not necessarily the
most appropriate discount factor. The effective interest rate at various times and the risks associated with our business
or the oil and natural gas industry in general will affect the appropriateness of the 10% discount factor.
Our development and exploratory drilling efforts and our well operations may not be profitable or achieve
our targeted returns.
We have acquired significant amounts of undeveloped properties. Development and exploratory drilling and
production activities are subject to many risks, including the risk that no commercially productive reservoirs will be
discovered. We have acquired undeveloped properties that we believe will enhance our growth potential and increase
our earnings over time. However, we cannot assure you that all prospects will be economically viable or that we will
not abandon our initial investments. Additionally, there can be no assurance that undeveloped properties acquired by
us will be profitably developed, that new wells drilled by us in prospects that we pursue will be productive or that we
will recover all or any portion of our investment in such undeveloped properties or wells.
Drilling for oil and natural gas may involve unprofitable efforts, not only from dry wells but also from wells that are
productive but do not produce sufficient commercial quantities to cover the drilling, operating and other costs. The cost
of drilling, completing and operating a well is often uncertain, and many factors can adversely affect the economics of
a well or property. Drilling and completion operations may be curtailed, delayed or canceled as a result of unexpected
drilling conditions, title problems, equipment failures or accidents, shortages of midstream transportation, equipment
or personnel, environmental issues, state or local bans or moratoriums on hydraulic fracturing, and a decline in
commodity prices, among others. The profitability of wells, particularly in certain of the shale plays in which we operate,
may be reduced or eliminated as commodity prices decline. In addition, wells that are profitable may not meet our
internal return targets, which are dependent upon the current and future market prices for oil, natural gas and NGL,
costs associated with producing oil, natural gas and NGL and our ability to add reserves at an acceptable cost. We
rely to a significant extent on seismic data and other advanced technologies in evaluating undeveloped properties and
in conducting our exploration activities. The seismic data and other technologies we use do not allow us to know
conclusively, prior to acquisition of undeveloped properties, or drilling a well, whether oil or natural gas is present or
may be produced economically. If we incur significant expense in acquiring or developing properties that do not produce
as expected or at profitable levels, it could have a material adverse effect on our results of operations and financial
condition.
Certain of our undeveloped leasehold assets are subject to leases that will expire over the next several
years unless production is established on units containing the acreage.
Leases on oil and natural gas properties typically have a term of three to five years, after which they expire unless,
prior to expiration, a well is drilled and production of hydrocarbons in paying quantities is established. If our leases
expire and we are unable to renew the leases, we will lose our right to develop the related properties. Although we
seek to actively manage our undeveloped properties, our drilling plans for these areas are subject to change based
upon various factors, including drilling results, oil and natural gas prices, the availability and cost of capital, drilling and
production costs, availability of drilling services and equipment, gathering system and pipeline transportation constraints
and regulatory approvals. Low commodity prices may cause us to delay our drilling plans and, as a result, lose our
right to develop the related properties.