Chesapeake Energy 2014 Annual Report Download - page 66

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The risk that we will be required to write down the carrying value of our oil and natural gas properties increases
when oil and natural gas prices are low. The NYMEX WTI index price of oil declined significantly from $105.37 per bbl
as of June 30, 2014 to $53.27 per bbl as of December 31, 2014, and the Henry Hub index price of natural gas declined
from $4.46 per mcf to $2.89 per mcf over the same period. Based on the decline in oil and natural gas prices in the
second half of 2014 and into 2015, we expect to have a material write-down of the carrying value of our oil and natural
gas properties in the 2015 first quarter. Further material write-downs in subsequent quarters will occur if the trailing
12-month commodity prices continue to fall as compared to the commodity prices used in prior quarters.
Impairments of Fixed Assets and Other. In 2014, 2013 and 2012, we recognized $88 million, $546 million and
$340 million, respectively, of fixed asset impairment losses and other charges. The 2014 amount relates to charges
recorded for a joint venture net acreage shortfall and impairments related to a gathering system, drilling rigs, natural
gas compressors and buildings and land. The 2013 amount relates to impairments of certain of our gathering systems
and treating plants, drilling rigs, buildings and land, a gas gathering termination fee and a contract drilling agreement
termination fee. The 2012 amount relates to impairments of buildings and land, drilling rigs and equipment and charges
for a joint venture net acreage shortfall. See Note 17 of the notes to our consolidated financial statements included in
Item 8 of this report for further discussion of our impairments of fixed assets and other.
Net Gains on Sales of Fixed Assets. In 2014, net gains on sales of fixed assets were $199 million compared to
$302 million in 2013 and $267 million in 2012. The 2014 amount primarily relates to the sale of natural gas compressors
and crude hauling assets. The 2013 and 2012 amounts primarily relate to the sale of certain of our midstream gathering
systems. See Note 16 of the notes to our consolidated financial statements included in Item 8 of this report for a
discussion of our net gains on sales of fixed assets.
Interest Expense. Interest expense was $89 million in 2014 compared to $227 million in 2013 and $77 million in
2012 as follows:
Years Ended December 31,
2014 2013 2012
($ in millions)
Interest expense on senior notes $ 704 $ 740 $ 732
Interest expense on term loans 36 116 173
Amortization of loan discount, issuance costs and other 42 91 89
Interest expense on credit facilities 28 38 70
Realized gains on interest rate derivatives(a) (12) (9) (1)
Unrealized (gains) losses on interest rate derivatives(b) (72) 67 (6)
Capitalized interest (637) (816) (980)
Total interest expense $ 89 $ 227 $ 77
Average senior notes borrowings $ 11,653 $ 10,991 $ 10,487
Average term loan borrowings $ 625 $ 2,000 $ 2,096
Average credit facilities borrowings $ 306 $ 678 $ 2,517
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(a) Includes settlements related to the current period interest accrual and the effect of gains (losses) on early-
terminated trades. Settlements of early-terminated trades are reflected in realized (gains) losses over the original
life of the hedged item.
(b) Includes changes in the fair value of open interest rate derivatives offset by amounts reclassified to realized (gains)
losses during the current period.
The decrease in 2014 interest expense was primarily due to a decrease in interest expense on our senior notes
and term loans as a result of our debt refinancing in April 2014, the elimination of debt related to the spin-off of our
oilfield services business and unrealized gains on interest rate derivatives, offset by a decrease in the amount of interest
capitalized as a result of a lower average balance of unevaluated oil and natural gas properties, the primary asset on
which interest is capitalized. See Note 3 of the notes to our consolidated financial statements included in Item 8 of this
report for a discussion of our debt refinancing. The increase in 2013 interest expense was primarily due to a decrease
in the amount of interest capitalized as a result of a lower average balance of unevaluated oil and natural gas properties,
the primary asset on which interest is capitalized. Interest expense, excluding unrealized gains or losses on interest