Chesapeake Energy 2015 Annual Report Download - page 32

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The timing of both the production and the expenses from the development and production of oil and natural gas
properties will affect both the timing of actual future net cash flows from our proved reserves and their present value.
Any changes in consumption or in governmental regulations or taxation will also affect the actual future net cash flows
from our production. In addition, the 10% discount factor which is required by the SEC to be used in calculating
discounted future net cash flows for reporting purposes is not necessarily the most appropriate discount factor. Interest
rates in effect from time to time and the risks associated with our business or the oil and gas industry in general will
affect the appropriateness of the 10% discount factor.
Our development and exploratory drilling efforts and our well operations may not be profitable or achieve
our targeted returns.
We have a substantial inventory of undeveloped properties. Development and exploratory drilling and production
activities are subject to many risks, including the risk that no commercially productive reservoirs will be discovered.
We have acquired undeveloped properties that we believe will enhance our growth potential and increase our earnings
over time. However, we cannot assure you that all prospects will be economically viable or that we will not abandon
our initial investments. Additionally, there can be no assurance that undeveloped properties acquired by us will be
profitably developed, that new wells drilled by us in prospects that we pursue will be productive or that we will recover
all or any portion of our investment in such undeveloped properties or wells.
Drilling for oil and natural gas may involve unprofitable efforts, not only from dry wells but also from wells that are
productive but do not produce sufficient commercial quantities to cover the drilling, operating and other costs. The cost
of drilling, completing and operating a well is often uncertain, and many factors can adversely affect the economics of
a well or property. Drilling and completion operations may be curtailed, delayed or canceled as a result of unexpected
drilling conditions, title problems, equipment failures or accidents, shortages of midstream transportation, equipment
or personnel, environmental issues, state or local bans or moratoriums on hydraulic fracturing and produced water
disposal, and a decline in commodity prices, among others. The profitability of wells, particularly in certain of the areas
in which we operate, will be reduced or eliminated as commodity prices decline. In addition, wells that are profitable
may not meet our internal return targets, which are dependent upon the current and future market prices for oil, natural
gas and NGL, costs associated with producing oil, natural gas and NGL and our ability to add reserves at an acceptable
cost. All costs of development and exploratory drilling activities are capitalized, even if the activities do not result in
commercially productive discoveries, which may result in a future impairment of our oil and natural gas properties if
commodity prices remain low.
We rely to a significant extent on seismic data and other advanced technologies in evaluating undeveloped
properties and in conducting our exploration activities. The seismic data and other technologies we use do not allow
us to know conclusively, prior to acquisition of undeveloped properties, or drilling a well, whether oil or natural gas is
present or may be produced economically. If we incur significant expense in acquiring or developing properties that
do not produce as expected or at profitable levels, it could have a material adverse effect on our results of operations
and financial condition.
Certain of our undeveloped leasehold assets are subject to leases that will expire over the next several
years unless production is established on units containing the acreage.
Leases on oil and natural gas properties typically have a term of three to five years, after which they expire unless,
prior to expiration, a well is drilled and production of hydrocarbons in paying quantities is established. If our leases on
our undeveloped properties expire and we are unable to renew the leases, we will lose our right to develop the related
properties. Although we seek to actively manage our undeveloped properties, our drilling plans for these areas are
subject to change based upon various factors, including drilling results, oil and natural gas prices, the availability and
cost of capital, drilling and production costs, availability of drilling services and equipment, gathering system and pipeline
transportation constraints and regulatory approvals. If commodity prices remain low, we may be required to delay our
drilling plans and, as a result, lose our right to develop the related properties.