Chesapeake Energy 2014 Annual Report Download - page 35

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three years, and such expenses may continue to be significant in 2015 and future years. Further, attention to these
matters by members of our senior management has been required, reducing the time they have available to devote
to managing the Company's business.
Our level of indebtedness may limit our financial flexibility.
As of December 31, 2014, we had indebtedness of $11.535 billion, and our net indebtedness represented 30%
of our total book capitalization, which we define as the sum of total equity and total current and long-term debt less
unrestricted cash.
Our level of indebtedness affects our operations in several ways, including the following:
• a portion of our cash flows from operating activities must be used to service our indebtedness and is not
available for other purposes;
• we may be at a competitive disadvantage as compared to similar companies that have less debt;
• the covenants contained in the agreements governing our outstanding indebtedness and future indebtedness
may limit our ability to borrow additional funds, pay dividends and make certain investments and may also
affect our flexibility in planning for, and reacting to, changes in the economy and in our industry;
• additional financing we may need in the future for working capital, capital expenditures, acquisitions, general
corporate or other purposes may have higher costs and more restrictive covenants; and
• a lowering of the credit ratings of our debt may negatively affect the cost, terms, conditions and availability
of future financing, and lower ratings will increase the interest rate we pay on our revolving credit facility and
may subject us to additional covenants under that facility.
Our revolving credit facility is unsecured. However, we will be required to provide collateral and the revolving
credit facility will become subject to a borrowing base if our credit rating declines to specified levels. In addition, the
institution of a borrowing base or, following any such institution, the reduction of the borrowing base due to a decline
in commodity prices or otherwise, could require us to repay indebtedness in excess of the borrowing base, or we might
need to further secure the lenders with additional collateral. A prolonged decline in commodity prices could increase
the risk of a lower credit rating. We may incur additional debt, including secured indebtedness, in order to develop our
properties and make future acquisitions. A higher level of indebtedness increases the risk that we may default on our
obligations. Our ability to meet our debt obligations and to reduce our level of indebtedness depends on our future
performance. In addition, our failure to comply with the financial and other restrictive covenants relating to our
indebtedness could result in a default and acceleration of such indebtedness and lead to cross defaults under our
other indebtedness. In this circumstance, our ability to refinance indebtedness may be limited.
We may continue to incur cash and noncash charges that would negatively impact our future results of
operations and liquidity.
We may take actions in response to the current market environment and as part of our strategic priorities to reduce
financial leverage and complexity that will cause us to recognize various cash and noncash charges in 2015 and future
years. These charges could include financing extinguishment costs, charges for unused drilling contract terminations
or standby fees and charges for unused transportation and gathering capacity. If incurred, these charges would
negatively impact our future results of operations and liquidity.
Oil and natural gas drilling and producing operations can be hazardous and may expose us to liabilities.
Oil and natural gas operations are subject to many risks, including well blowouts, cratering and explosions, pipe
failures, fires, formations with abnormal pressures, uncontrollable flows of oil, natural gas, brine or well fluids, severe
weather, natural disasters, groundwater contamination and other environmental hazards and risks. Some of these
risks or hazards could materially and adversely affect our revenues and expenses by reducing or shutting in production
from wells, loss of equipment or otherwise negatively impacting the projected economic performance of our prospects.
If any of these risks occurs, we could sustain substantial losses as a result of:
• injury or loss of life;
• severe damage to or destruction of property, natural resources or equipment;
• pollution or other environmental damage;
• clean-up responsibilities;