Chesapeake Energy 2014 Annual Report Download - page 61

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Results of Operations
General. For the year ended December 31, 2014, Chesapeake had net income of $2.056 billion, or $1.87 per
diluted common share, on total revenues of $20.951 billion. This compares to net income of $894 million, or $0.73 per
diluted common share, on total revenues of $17.506 billion for the year ended December 31, 2013 and a net loss of
$594 million, or $1.46 per common share, on total revenues of $12.316 billion for the year ended December 31, 2012.
The increase in net income in 2014 was primarily driven by an increase in unrealized gains on our oil and natural gas
derivative contracts as the future commodity prices moved lower. In addition, 2013 results include charges of
approximately $546 million for the impairment of buildings, land, drilling rigs, gathering systems and other assets and
$248 million related to restructuring and other termination costs incurred in connection with a workforce reduction,
executive officer separations and other employee terminations. The charges reflect actions taken as a result of the
company-wide review of our operations, assets and organizational structure in the second half of 2013. The net loss
in 2012 was primarily driven by a $2.022 billion after-tax impairment of oil and natural gas properties recorded in the
2012 third quarter. See Impairment of Oil and Natural Gas Properties below.
Oil, Natural Gas and NGL Sales. During 2014, oil, natural gas and NGL sales were $8.180 billion compared to
$7.052 billion in 2013 and $6.278 billion in 2012. In 2014, Chesapeake produced and sold 258 mmboe for $7.162
billion at a weighted average price of $27.78 per boe (excluding the effect of derivatives), compared to 244 mmboe
produced and sold in 2013 for $6.923 billion at a weighted average price of $28.33 per boe (excluding the effect of
derivatives) and 237 mmboe produced and sold in 2012 for $5.359 billion at a weighted average price of $22.61 per
boe (excluding the effect of derivatives). The decrease in the price received per boe in 2014 compared to 2013 resulted
in a $141 million decrease in revenues, and increased sales volumes resulted in a $380 million increase in revenues,
for a net increase in revenues of $239 million (excluding the effect of derivatives).
For 2014, our average price received per barrel of oil was $87.13, compared to $95.17 in 2013 and $90.49 in
2012 (excluding the effect of derivatives). Natural gas prices received per mcf (excluding the effect of derivatives) were
$2.54, $2.22 and $1.77 in 2014, 2013 and 2012, respectively. NGL prices received per barrel (excluding the effect of
derivatives) were $21.27, $27.87 and $29.89, in 2014, 2013 and 2012, respectively. In 2014, realized prices for natural
gas increased due to the higher average Henry Hub price compared to 2013 and 2012, partially offset by higher natural
gas gathering and transportation costs, primarily resulting from a fee associated with a production shortfall below the
minimum volume commitment under our Barnett and Haynesville gathering agreements. In 2013, realized prices for
natural gas were negatively affected by higher year-over-year natural gas gathering and transportation costs, primarily
as a result of construction of midstream systems being undertaken in certain of our less mature operating areas and
a fee associated with a production shortfall below the minimum volume commitment under our Barnett gathering
agreement. For 2015, we expect that we will continue to see increased gathering and transportation costs, including
higher minimum volume commitment fees under our Barnett and Haynesville natural gas gathering agreements.
Natural gas prices after gathering, transportation and basis differentials were $1.87 per mcf below the Henry Hub
natural gas benchmark price in 2014, as compared to differentials of $1.43 per mcf in 2013 and $1.02 per mcf in 2012.
This was primarily the result of significant weakening of Marcellus Shale basis differentials and increased gathering
and transportation costs, including higher minimum volume commitment fees under our Barnett and Haynesville natural
gas gathering agreements.
Gains and losses from our oil, natural gas and NGL derivatives resulted in a net increase in oil, natural gas and
NGL revenues of $1.018 billion, $129 million and $919 million in 2014, 2013 and 2012, respectively. See Item 7A.
Quantitative and Qualitative Disclosures About Market Risk of this report for a complete listing of all of our derivative
instruments as of December 31, 2014.
A change in oil, natural gas and NGL prices has a significant impact on our revenues and cash flows. Assuming
our 2014 production levels and without considering the effect of derivatives, an increase or decrease of $1.00 per
barrel of oil sold would result in an increase or decrease in 2014 revenues and cash flows of approximately $42 million
and $41 million, respectively, an increase or decrease of $0.10 per mcf of natural gas sold would result in an increase
or decrease in 2014 revenues and cash flows of approximately $109 million and $107 million, respectively, and an
increase or decrease of $1.00 per barrel of NGL sold would result in an increase or decrease in 2014 revenues and
cash flows of $33 million and $32 million, respectively.