Chesapeake Energy 2015 Annual Report Download - page 31

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the present value of estimated future net revenue of our proved reserves by approximately $1.2 billion in the 2016 first
quarter. Such decrease is likely to be a significant factor in the amount of impairment recorded in the 2016 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.
Significant capital expenditures are required to replace our reserves and conduct our business, and our
access to capital is constrained and subject to uncertainty.
Our exploration, development and acquisition activities require substantial capital expenditures. We intend to fund
our capital expenditures through cash flows from operations, cash on hand and borrowings under our revolving credit
facility. Our ability to generate operating cash flow is subject to many of the risks and uncertainties that exist in our
industry, some of which we may not be able to anticipate at this time. Future cash flows from operations are subject
to a number of risks and variables, such as the level of production from existing wells, prices of oil, natural gas and
NGL, our success in developing and producing new reserves and the other risk factors discussed herein. If we are
unable to fund our capital expenditures as planned, we could experience a curtailment of our exploration and
development activity, a loss of properties and a decline in our oil, natural gas and NGL reserves.
If we are not able to replace reserves, we may not be able to sustain production.
Our future success depends largely upon our ability to find, develop or acquire additional oil and natural gas
reserves that are economically recoverable. Unless we replace the reserves we produce through successful
development, exploration or acquisition activities, our proved reserves and production will decline over time. Our reserve
estimates as of December 31, 2015 reflect an expected decline in the production rate on our producing properties of
approximately 31% in 2016 and 21% in 2017. Thus, our future oil and natural gas reserves and production, and therefore
our cash flow and income, are highly dependent on our success in efficiently developing our current reserves and
economically finding or acquiring additional recoverable reserves.
The actual quantities of and future net revenues from our proved reserves may be less than our estimates.
The estimates of our proved reserves and the estimated future net revenues from our proved reserves included
in this report are based upon various assumptions, including assumptions required by the SEC relating to oil, natural
gas and NGL prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. The process
of estimating oil, natural gas and NGL reserves is complex and involves significant decisions and assumptions
associated with geological, geophysical, engineering and economic data for each well. Therefore, these estimates are
subject to future revisions.
Actual future production, oil, natural gas and NGL prices, revenues, taxes, development expenditures, operating
expenses and quantities of recoverable oil, natural gas and NGL reserves most likely will vary from these estimates.
Such variations may be significant and could materially affect the estimated quantities and present value of our proved
reserves. In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration
and development drilling, prevailing oil and natural gas prices and other factors, many of which are beyond our control.
As of December 31, 2015, approximately 16% of our estimated proved reserves (by volume) were undeveloped.
These reserve estimates reflect our plans to make significant capital expenditures to convert our PUDs into proved
developed reserves, including approximately $1.4 billion during the five years ending in 2020. You should be aware
that the estimated development costs may not equal our actual costs, development may not occur as scheduled and
results may not be as estimated. If we choose not to develop PUDs, or if we are not otherwise able to successfully
develop them, we will be required to remove them from our reported proved reserves. In addition, under the SEC's
reserve reporting rules, because PUDs generally may be booked only if they relate to wells scheduled to be drilled
within five years of the date of booking, we may be required to remove any PUDs that are not developed within this
five-year time frame.
You should not assume that the present values included in this report represent the current market value of our
estimated reserves. In accordance with SEC requirements, the estimates of our present values are based on prices
and costs as of the date of the estimates. The price on the date of estimate is calculated as the average oil and natural
gas price during the 12 months ending in the current reporting period, determined as the unweighted arithmetic average
of prices on the first day of each month within the 12-month period. The December 31, 2015 present value is based
on $50.28 per bbl of oil and $2.58 per mcf of natural gas before basis differential adjustments. These prices are
substantially higher than current 2016 prices for oil and natural gas. Actual future prices and costs may be materially
higher or lower than the prices and costs as of the date of an estimate.