Chesapeake Energy 2014 Annual Report Download - page 88

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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Along with a VIE that we consolidate, we also hold a variable interest in another VIE that is not consolidated
because we are not the primary beneficiary. We continually monitor both our consolidated and unconsolidated VIEs
to determine if any events have occurred that could cause the primary beneficiary to change. See Note 15 for further
discussion of VIEs.
Cash and Cash Equivalents and Restricted Cash
For purposes of the consolidated financial statements, Chesapeake considers investments in all highly liquid
instruments with original maturities of three months or less at the date of purchase to be cash equivalents. Restricted
cash consists of the balance required to be maintained by the terms of the agreement governing the activities of CHK
Cleveland Tonkawa, L.L.C. (CHK C-T) and, prior to our repurchase of all of the outstanding preferred shares of CHK
Utica, L.L.C. (CHK Utica) in 2014, also consisted of a balance required to be maintained by the terms of the agreement
governing the activities of CHK Utica. The repurchase of outstanding preferred shares of CHK Utica eliminated the
restricted cash maintenance requirement related to this entity. See Note 8 for further discussion of these entities.
Accounts Receivable
Our accounts receivable are primarily from purchasers of oil, natural gas and NGL and from exploration and
production companies that own interests in properties we operate. This industry concentration could affect our overall
exposure to credit risk, either positively or negatively, because our purchasers and joint working interest owners may
be similarly affected by changes in economic, industry or other conditions. We monitor the creditworthiness of all our
counterparties and 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. We utilize an allowance method
in accounting for bad debt based on historical trends in addition to specifically identifying receivables we believe may
be uncollectible. During 2014, 2013 and 2012, we recognized $2 million, $2 million and a nominal amount of bad debt
expense related to potentially uncollectible receivables, and we reduced our allowance by $3 million in 2013 as we
wrote off specific receivables against our allowance. Accounts receivable as of December 31, 2014 and 2013 are
detailed below.
December 31,
2014 2013
($ in millions)
Oil, natural gas and NGL sales $ 1,340 $ 1,548
Joint interest 691 417
Oilfield services(a) — 63
Related parties(b) — 62
Other 226 150
Allowance for doubtful accounts (21) (18)
Total accounts receivable, net $ 2,236 $ 2,222
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(a) In 2014, in connection with the spin-off of our oilfield services business, accounts receivable related to oilfield
services were removed from our consolidated balance sheet.
(b) See Note 7 for discussion of related party transactions.
Oil and Natural Gas Properties
Chesapeake follows the full cost method of accounting under which all costs associated with oil and natural gas
property acquisition, exploration and development activities are capitalized. We capitalize internal costs that can be
directly identified with these activities and do not capitalize any costs related to production, general corporate overhead
or similar activities (see Supplementary Information - Supplemental Disclosures About Oil, Natural Gas and NGL
Producing Activities). Capitalized costs are amortized on a composite unit-of-production method based on proved oil
and natural gas reserves. Estimates of our proved reserves as of December 31, 2014 were prepared by independent
engineering firms and Chesapeake's internal staff. Approximately 79% of these proved reserves estimates (by volume)
as of December 31, 2014 were prepared by independent engineering firms. In addition, our internal engineers review
and update our reserves on a quarterly basis.