Chesapeake Energy 2014 Annual Report Download - page 58

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Credit Risk
Derivative instruments that enable us to manage our exposure to oil, natural gas and NGL prices, as well as to
interest rate and foreign currency volatility, expose us to credit risk from our counterparties. To mitigate this risk, we
enter into derivative contracts only with counterparties that are rated investment grade and deemed by management
to be competent and competitive market makers, and we attempt to limit our exposure to non-performance by any
single counterparty. As of December 31, 2014, our oil, natural gas and interest rate derivative instruments were spread
among 18 counterparties. We also invested available cash balances with many of these same counterparties as well
as other relationship banks. Additionally, the counterparties under our multi-counterparty secured hedging facility are
required to secure their obligations in excess of defined thresholds. We use this facility for substantially all of our oil,
natural gas and NGL derivatives.
Our accounts receivable are primarily from purchasers of oil, natural gas and NGL ($1.340 billion as of
December 31, 2014) and exploration and production companies that own interests in properties we operate ($691
million as of December 31, 2014). This industry concentration has the potential to impact our overall exposure to credit
risk, either positively or negatively, in that our customers and joint working interest owners may be similarly affected
by changes in economic, industry or other conditions. We generally require letters of credit or parent guarantees for
receivables from parties which are judged to have sub-standard credit, unless the credit risk can otherwise be mitigated.
During 2014, 2013 and 2012, we recognized nominal amounts of bad debt expense related to potentially uncollectible
receivables.
Contractual Obligations and Off-Balance Sheet Arrangements
From time to time, we enter into arrangements and transactions that can give rise to off-balance sheet obligations.
As of December 31, 2014, these arrangements and transactions included (i) operating lease agreements, (ii) volumetric
production payments (VPPs) (to purchase production and pay related production expenses and taxes in the future),
(iii) open purchase commitments, (iv) open delivery commitments, (v) open drilling commitments, (vi) undrawn letters
of credit, (vii) open gathering and transportation commitments, and (viii) various other commitments we enter into in
the ordinary course of business that could result in a future cash obligation. See Notes 4 and 12 of the notes to our
consolidated financial statements included in Item 8 of this report for further discussion of commitments and VPPs,
respectively.
The table below summarizes our contractual cash obligations for both recorded obligations and certain off-balance
sheet arrangements and commitments as of December 31, 2014.
Payments Due By Period
Total Less Than
1 Year 1-3 Years 3-5 Years More Than 5 Years
($ in millions)
Long-term debt:
Principal(a) $11,756 $ 396 $ 2,744 $ 2,516 $ 6,100
Interest 4,028 590 1,109 921 1,408
Operating lease obligations(b) 11 5 5 1 —
Operating commitments(c) 17,012 2,332 4,481 3,319 6,880
Unrecognized tax benefits(d) 45 — — 45 —
Standby letters of credit 15 15 — — —
Deferred premium on call options 181 95 86 — —
Other 49 12 13 8 16
Total contractual cash obligations(e) $33,097 $ 3,445 $ 8,438 $ 6,810 $ 14,404
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(a) Total principal amount of debt maturities, using the earliest demand repurchase date for contingent convertible
senior notes.
(b) See Note 4 of the notes to our consolidated financial statements included in Item 8 of this report for a description
of our operating lease obligations.
(c) See Note 4 of the notes to our consolidated financial statements included in Item 8 of this report for a description
of gathering, processing and transportation agreements and drilling contracts.