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Spin-Off of Oilfield Services Business (Notes) | 6 Months Ended
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Jun. 30, 2014
Discontinued Operations and Disposal Groups [Abstract] |
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block] |
2. | Spin-Off of Oilfield Services Business
On June 30, 2014, we completed the spin-off of our oilfield services business, which we previously conducted through our indirect, wholly owned subsidiary Chesapeake Oilfield Operating, L.L.C. (COO), into an independent, publicly traded company called Seventy Seven Energy Inc. (SSE). Following the close of business on June 30, 2014, we distributed to Chesapeake shareholders one share of SSE common stock and cash in lieu of fractional shares for every 14 shares of Chesapeake common stock held on June 19, 2014, the record date for the distribution. Prior to the completion of the spin-off, we and COO and its affiliates engaged in the following series of transactions:
• | COO and certain of its subsidiaries entered into a $275 million senior secured revolving credit facility and a $400 million secured term loan, the proceeds of which were used to repay in full and terminate COO’s existing credit facility.
• | COO distributed to us its compression unit manufacturing business, its geosteering business and the proceeds from the sale of substantially all of its crude oil hauling business. See Note 13 for further discussion of the sale.
• | We transferred certain of our buildings and land to a subsidiary of COO, most of which COO had been leasing from us prior to the spin-off, at carrying value.
• | COO issued $500 million of 6.5% Senior Notes due 2022 in a private placement and used the net proceeds to make a cash distribution of approximately $391 million to us, to repay a portion of outstanding indebtedness under the new revolving credit facility and for general corporate purposes.
• | COO converted from a limited liability company into a corporation named Seventy Seven Energy Inc.
• | We distributed all of SSE’s outstanding shares to our shareholders, which resulted in SSE becoming an independent, publicly traded company.
As of June 30, 2014, following the spin-off, we have no ownership interest in SSE. Therefore, we no longer consolidate SSE’s assets and liabilities as of June 30, 2014. Because we expect to have continuing cash flows associated with SSE’s future operations through various agreements described below, our former oilfield services segment’s historical financial results for periods up to the spin-off date will continue to be included in our historical financial results as a component of continuing operations. For segment disclosures, we have labeled our oilfield services segment as “former oilfield services”. See Note 17 for additional information regarding our segments. In connection with the spin-off, we entered into several agreements to define the terms and conditions of the spin-off and our ongoing relationship with SSE after the spin-off, including a master separation agreement, a tax sharing agreement, an employee matters agreement, a transition services agreement, a services agreement and certain commercial agreements. These agreements, among other things, allocate responsibility for obligations arising before and after the distribution date, including obligations relating to taxes, employees, various transition services and oilfield services.
• | The master separation agreement sets forth the agreements between SSE and Chesapeake regarding the principal transactions that were necessary to effect the spin-off and also sets forth other agreements that govern certain aspects of SSE’s relationship with Chesapeake after the completion of the spin-off.
• | The tax sharing agreement governs the respective rights, responsibilities and obligations of SSE and Chesapeake with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, and certain other matters regarding taxes.
• | The employee matters agreement addresses employee compensation and benefit plans and programs, and other related matters in connection with the spin-off, including the treatment of holders of Chesapeake common stock options, restricted stock awards, restricted stock units and performance share units, and the cooperation between SSE and Chesapeake in the sharing of employee information and maintenance of confidentiality. See Note 8 for additional information regarding the effect of the spin-off on outstanding equity compensation.
• | The transition services agreement sets forth the terms on which we will provide SSE certain services. Transition services include marketing and corporate communication, human resources, information technology, security, legal, risk management, tax, environmental health and safety, maintenance, internal audit, accounting, treasury and certain other services specified in the agreement. In consideration for such services, SSE will pay Chesapeake a negotiated fee for providing those 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 materially comply with the overall quality of service provided by similar service providers. As of June 30, 2014, the aggregate undiscounted minimum future payments under this agreement were approximately $283 million.
• | We have also entered into drilling agreements that are rig-specific daywork drilling contracts with terms ranging from three months to three years and at market-based rates. We have the right to terminate a drilling agreement in certain circumstances. As of June 30, 2014, the aggregate undiscounted minimum future payments under these drilling agreements were approximately $393 million.
Our stockholders’ equity decreased by $268 million as a result of the spin-off. The following table shows the components of the decrease, which consisted of the book value of the assets and liabilities of COO as of the spin-off date of June 30, 2014. The spin-off is reflected on our condensed consolidated statement of cash flows primarily as non-cash activity.
|  | June 30, 2014
|  | ($ in millions)
Assets |  |
Cash and cash equivalents |  | $ | 8 |
Accounts receivable, net(a) |  | 378 |
Other current assets |  | 46 |
Total current assets |  | 432 |
Oilfield services equipment |  | 2,632 |
Accumulated depreciation |  | (900 | )
Investments |  | 8 |
Deferred income tax asset |  | 8 |
Other long-term assets |  | 68 |
Total assets |  | $ | 2,248 |
Liabilities |  |
Accounts payable(a) |  | $ | 62 |
Accrued interest |  | 6 |
Other current liabilities |  | 180 |
Total current liabilities |  | 248 |
Long-term debt, net |  | 1,568 |
Deferred income tax liabilities |  | 160 |
Asset retirement obligations |  | 1 |
Other long-term liabilities |  | 3 |
Total long-term liabilities |  | 1,732 |
Spin-Off of Oilfield Services Business |  | $ | 268 |
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(a) | Includes affiliate receivables and payables of $309 million and $8 million, respectively, that were previously eliminated in consolidation.
In the Current Quarter, we recognized $12 million of charges associated with the spin-off that are included in restructuring and other termination costs on our condensed consolidated statement of operations. See Note 15 for further details regarding these charges.

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- Definition The entire disclosure for the facts and circumstances leading to the completed or expected disposal, manner and timing of disposal, the gain (loss) recognized in the income statement and the income statement caption that includes that gain (loss), amounts of revenues and pretax profit or loss reported in discontinued operations, the segment in which the disposal group was reported, and the classification (whether sold or classified as held for sale) and carrying value of the assets and liabilities comprising the disposal group. Includes all disposal groups, including those classified as components of the entity (discontinued operations). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6391110&loc=d3e2941-110230 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1361-107760 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e957-107759 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e1012-107759 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1510-107760 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e1020-107759 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 45 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=8077374&loc=d3e2443-110228 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1474-107760 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1436-107760 + Details
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