Chesapeake Energy 2014 Annual Report Download - page 87

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
79
1. Basis of Presentation and Summary of Significant Accounting Policies
Description of Company
Chesapeake Energy Corporation ("Chesapeake" or the "Company") is an oil and natural gas exploration and
production company engaged in the acquisition, exploration and development of properties for the production of oil,
natural gas and natural gas liquids (NGL) from underground reservoirs. We also own oil and natural gas marketing
and natural gas gathering and compression businesses, and prior to June 30, 2014, an oilfield services business (see
Note 13). Our operations are located onshore in the United States.
Basis of Presentation
The accompanying consolidated financial statements of Chesapeake were prepared in accordance with
accounting principles generally accepted in the United States (U.S. GAAP) and include the accounts of our direct and
indirect wholly owned subsidiaries and entities in which Chesapeake has a controlling financial interest. Intercompany
accounts and balances have been eliminated.
Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Estimates of oil and natural gas reserves and their values, future production rates and future costs and expenses
are the most significant of our estimates. The accuracy of any reserve estimate is a function of the quality of data
available and of engineering and geological interpretation and judgment. In addition, estimates of reserves may be
revised based on actual production, results of subsequent exploration and development activities, recent commodity
prices, operating costs and other factors. These revisions could materially affect our financial statements. The volatility
of commodity prices results in increased uncertainty inherent in these estimates and assumptions. Changes in oil,
natural gas or NGL prices could result in actual results differing significantly from our estimates.
Consolidation
Chesapeake consolidates entities in which we have a controlling financial interest. We consolidate subsidiaries
in which we hold, directly or indirectly, more than 50% of the voting rights and variable interest entities (VIEs) in which
Chesapeake is the primary beneficiary. We use the equity method of accounting to record our net interests where
Chesapeake has the ability to exercise significant influence through its investment. Under the equity method, our share
of net income (loss) is included in our consolidated statements of operations according to our equity ownership or
according to the terms of the applicable governing instrument. Investments in securities not accounted for under the
equity method have been designated as available-for-sale and, as such, are carried at fair value whenever this value
is readily determinable. Otherwise, the investment is carried at cost. See Note 14 for further discussion of our
investments. Undivided interests in oil and natural gas exploration and production joint ventures are consolidated on
a proportionate basis.
Noncontrolling Interests
Noncontrolling interests represent third-party equity ownership in certain of our consolidated subsidiaries and are
presented as a component of equity. See Note 8 for further discussion of noncontrolling interests.
Variable Interest Entities
VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities
independently, or (ii) have equity holders that do not have the power to direct the activities of the entity that most
significantly impact its economic performance, the obligation to absorb the entity’s losses, or the right to receive the
entity’s residual returns. We consolidate a VIE when we are the primary beneficiary, which is the party that has both
(i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) through its
interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE that could potentially
be significant to the VIE.