Chesapeake Energy 2015 Annual Report Download - page 89

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
85
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. As of
December 31, 2014, our restricted cash consisted 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). The repurchase and cancellation of the
outstanding preferred shares of CHK C-T eliminated the restricted cash maintenance requirement related to this entity.
See Note 8 for further discussion.
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 that we believe
may be uncollectible. During 2015, 2014 and 2013, we recognized $4 million, $2 million and $2 million of bad debt
expense related to potentially uncollectible receivables. Accounts receivable as of December 31, 2015 and 2014 are
detailed below.
December 31,
2015 2014
($ in millions)
Oil, natural gas and NGL sales ....................................................................................... $ 696 $ 1,340
Joint interest ................................................................................................................... 230 691
Other ............................................................................................................................... 226 226
Allowance for doubtful accounts ..................................................................................... (23) (21)
Total accounts receivable, net ................................................................................ $ 1,129 $ 2,236
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, 2015 were prepared by independent
engineering firms and Chesapeake's internal staff. Approximately 59% by volume and 77% by value of these proved
reserves estimates as of December 31, 2015 were prepared by independent engineering firms. In addition, our internal
engineers review and update our reserves on a quarterly basis.
Proceeds from the sale of oil and natural gas properties are accounted for as reductions of capitalized costs
unless these sales involve a significant change in proved reserves and significantly alter the relationship between costs
and proved reserves, in which case a gain or loss is recognized.
The costs of unproved properties are excluded from amortization until the properties are evaluated. We review
all of our unproved properties quarterly to determine whether or not and to what extent proved reserves have been
assigned to the properties and otherwise if impairment has occurred. Unproved properties are grouped by major
prospect area where individual property costs are not significant. In addition, we analyze our unproved leasehold and
transfer to proved properties that portion of our leasehold which can be associated with proved reserves, leasehold
that expired in the quarter or leasehold that is not a part of our development strategy and will be abandoned.