Chesapeake Energy 2014 Annual Report Download - page 64

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The following table shows our production expenses (excluding ad valorem taxes) by operating division and our
ad valorem tax expenses for 2014, 2013 and 2012:
2014 2013 2012
Production
Expenses $/boe Production Expenses $/boe Production Expenses $/boe
($ in millions, except per unit)
Southern(a) $ 882 5.92 $ 925 5.46 $ 1,087 5.70
Northern 229 2.10 164 2.19 143 3.10
1,111 4.31 1,089 4.46 1,230 5.19
Ad valorem tax 97 0.38 70 0.28 74 0.31
Total $ 1,208 4.69 $ 1,159 4.74 $ 1,304 5.50
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(a) The per unit increase in the Southern Division from 2013 to 2014 is primarily the result of increased artificial lift,
repairs and maintenance and a higher percentage of oil produced which has higher lifting costs.
Production Taxes. Production taxes were $232 million in 2014 compared to $229 million in 2013 and $188 million
in 2012. On a unit-of-production basis, production taxes were $0.90 per boe in 2014 compared to $0.94 per boe in
2013 and $0.79 per boe in 2012. In general, production taxes are calculated using value-based formulas that produce
higher per unit costs when oil, natural gas and NGL prices are higher. Production taxes in 2014, 2013 and 2012 included
approximately $16 million, $22 million and $20 million, or $0.06, $0.09 and $0.08 per boe, respectively, associated
with VPP production volumes. We anticipate a continued decrease in production tax expenses associated with VPP
production volumes as the contractually scheduled volumes under our VPP agreements decrease. In addition, our
obligations with respect to three of our ten VPPs have been terminated as described in the above discussion of
production expenses.
General and Administrative Expenses. General and administrative expenses were $322 million in 2014, $457
million in 2013 and $535 million in 2012, or $1.25, $1.86, and $2.26 per boe, respectively. The absolute and per unit
expense decrease in 2014 was primarily due to our workforce reduction in the second half of 2013 and efforts to reduce
our overhead. In addition, fair value adjustments to performance share units (PSUs), reflecting changes in the trading
price of our common stock, were significantly lower in 2014 compared to 2013 and 2012. Included in general and
administrative expenses is stock-based compensation of $46 million in 2014, $60 million in 2013 and $71 million in
2012. See Note 9 of the notes to our consolidated financial statements included in Item 8 of this report for further
discussion of our stock-based compensation.
Chesapeake follows the full cost method of accounting under which all costs associated with oil and natural gas
property acquisition, drilling and completion activities are capitalized. We capitalize internal costs that can be directly
identified with the acquisition of leasehold, as well as drilling and completion activities, and do not include any costs
related to production, general corporate overhead or similar activities. We capitalized $230 million, $317 million and
$434 million of internal costs in the 2014, 2013 and 2012, respectively, directly related to our oil and natural gas property
acquisition and drilling and completion efforts. The decrease was primarily due to a decrease in our drilling activity,
lower costs and increased emphasis on operational efficiencies.
Restructuring and Other Termination Costs. We recorded expense of $7 million, $248 million and $7 million of
restructuring and other termination costs in 2014, 2013 and 2012, respectively. The 2014 amount primarily related to
costs incurred related to the spin-off of our oilfield services business in June 2014. These costs were partially offset
by negative fair value adjustments to PSUs granted to former executives of the Company. See Note 9 of the notes to
our consolidated financial statements included in Item 8 of this report for further discussion of our share-based
compensation. The 2013 amount primarily related to workforce reductions, senior management separations and our
voluntary separation plan. The 2012 amount related to other termination benefits. The Company committed to a
workforce reduction plan in September 2013 that resulted in a reduction of approximately 900 employees. In connection
with the workforce reduction plan, we incurred a total charge of $66 million. The acceleration of vesting of stock-based
compensation accounted for approximately $45 million of this expense. We also incurred charges of approximately
$182 million in 2013 related to the separation from the Company of certain other employees, including approximately
$107 million related to our former CEO and other executive officers that were outside the workforce reduction plan.