Chesapeake Energy 2015 Annual Report Download - page 64

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Depreciation and Amortization of Other Assets. Depreciation and amortization of other assets was $130 million
in 2015 compared to $232 million in 2014 and $314 million in 2013. On a unit-of-production basis, depreciation and
amortization of other assets was $0.53 per boe in 2015 compared to $0.90 per boe in 2014 and $1.28 in 2013. Property
and equipment costs are depreciated on a straight-line basis over the estimated useful lives of the assets. In June
2014, we completed the spin-off of our oilfield services business and, therefore, did not incur oilfield services depreciation
expense in 2015 and will not incur this expense in future periods. In 2014, to the extent company-owned oilfield services
equipment was used to drill and complete our wells, a substantial portion of the depreciation (i.e., the portion related
to our utilization of the equipment) was capitalized in oil and natural gas properties as drilling and completion costs.
The following table shows depreciation expense by asset class for 2015, 2014 and 2013 and the estimated useful lives
of these assets.
Years Ended December 31, Estimated
Useful
Life
2015 2014 2013
($ in millions) (in years)
Natural gas compressors(a) ................................................ $ 38 $ 37 $ 35 3 – 20
Buildings and improvements ............................................. 39 42 47 10 – 39
Computers and office equipment....................................... 22 32 44 3 – 7
Vehicles ............................................................................. 10 24 38 0 – 7
Natural gas gathering systems and treating plants(a)......... 11 12 13 20
Oilfield services equipment(b) ............................................. — 74 122 3 – 15
Other ................................................................................. 10 11 15 2 – 20
Total depreciation and amortization of other assets.... $ 130 $ 232 $ 314
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(a) Included in our marketing, gathering and compression operating segment.
(b) Included in our former oilfield services operating segment.
Impairment of Oil and Natural Gas Properties. Our oil and natural gas properties are subject to quarterly full cost
ceiling tests. Under the ceiling test, capitalized costs, less accumulated amortization and related deferred income taxes,
may not exceed an amount equal to the sum of the present value of estimated future net revenues (adjusted for cash
flow hedges) less estimated future expenditures to be incurred in developing and producing the proved reserves, less
any related income tax effects. Throughout 2015, capitalized costs of oil and natural gas properties exceeded the
ceiling, resulting in impairments of the carrying value of our oil and natural gas properties totaling $18.238 billion. Cash
flow hedges as of December 31, 2015, which relate to future periods, increased the ceiling test impairment by $176
million.
As of December 31, 2015, the present value of estimated future net revenue of our proved reserves, discounted
at an annual rate of 10%, was $4.727 billion. Estimated future net revenue represents the estimated future gross
revenue to be generated from the production of proved reserves, net of estimated production and future development
costs, using prices and costs under existing economic conditions as of that date. The prices used in the present value
calculation as of December 31, 2015 were $50.28 per bbl of oil and $2.58 per mcf of natural gas, before price differential
adjustments. Based on first-of-the-month index prices for January and February 2016, as well as the current strip prices
for March 2016, we reasonably expect a decrease of approximately $4.50 per barrel of oil and $0.15 per mcf of natural
gas in the prices we will be using to calculate the estimated future net revenue of our proved reserves as of March 31,
2016, and such decreases are expected to reduce 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 for the quarter ending March 31, 2016. 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.