Chesapeake Energy 2015 Annual Report Download - page 106

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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Pressure Pumping Contracts
In connection with the spin-off of our oilfield services business in June 2014, we entered into an agreement with
a subsidiary of SSE for pressure pumping services. The services agreement requires us to utilize, at market-based
pricing, the lesser of (i) seven, five and three pressure pumping crews in years one, two and three of the agreement,
respectively, or (ii) 50% of the total number of all pressure pumping crews working for us in all of our operating regions
during the respective year. We are also required to utilize SSE pressure pumping services for a minimum number of
fracture stages as set forth in the agreement. We are entitled to terminate the agreement in certain situations, including
if SSE fails to provide the overall quality of service provided by similar service providers. As of December 31, 2015,
the aggregate undiscounted minimum future payments under this agreement are detailed below.
December 31,
2015
($ in millions)
2016 ............................................................................................................................................. $ 122
2017 ............................................................................................................................................. 64
Total ..................................................................................................................................... $ 186
Drilling Commitments
We have committed to drill wells for the benefit of Chesapeake Granite Wash Trust. See Noncontrolling Interests
in Note 8 for discussion of this commitment.
Oil, Natural Gas and NGL Purchase Commitments
We commit to purchase oil, natural gas and NGL from other owners in the properties we operate, including owners
associated with our volumetric production payment (VPP) transactions. Production purchases under these
arrangements are based on market prices at the time of production, and the purchased oil, natural gas and NGL are
resold at market prices. See Volumetric Production Payments in Note 12 for further discussion of our VPP transactions.
Net Acreage Maintenance Commitments
Under the terms of our Barnett and Utica Shale joint venture agreements with Total S.A. (see Joint Ventures in
Note 12), we are required to extend, renew or replace expiring joint leasehold, at our cost, to ensure that the net
acreage is maintained in certain designated areas as of future measurement dates. In 2015, we entered into a settlement
with Total regarding our acreage maintenance commitment in our Barnett Shale joint venture and accrued a $70 million
charge, which is included in impairments of fixed assets and other in our consolidated statement of operations.
Other Commitments
As part of our normal course of business, we enter into various agreements providing, or otherwise arranging for,
financial or performance assurances to third parties on behalf of our wholly owned guarantor subsidiaries. These
agreements may include future payment obligations or commitments regarding operational performance that effectively
guarantee our subsidiaries’ future performance.
In connection with divestitures, our purchase and sale agreements generally provide indemnification to the
counterparty for liabilities incurred as a result of a breach of a representation or warranty by the indemnifying party
and/or other specified matters. These indemnifications generally have a discrete term and are intended to protect the
parties against risks that are difficult to predict or cannot be quantified at the time of entering into or consummating a
particular transaction. For divestitures of oil and natural gas properties, our purchase and sale agreements may require
the return of a portion of the proceeds we receive as a result of uncured title defects.
Certain of our oil and natural gas properties are burdened by non-operating interests such as royalty and overriding
royalty interests, including overriding royalty interests sold through our VPP transactions. As the holder of the working
interest from which these interests have been created, we have the responsibility to bear the cost of developing and
producing the reserves attributable to these interests. See Volumetric Production Payments in Note 12 for further
discussion of our VPP transactions.