XML 22 R10.htm IDEA: XBRL DOCUMENT
v3.4.0.3

Basis of Presentation and Summary of Significant Accounting Policies (Note) | 3 Months Ended
--- | ---
Mar. 31, 2016
Accounting Policies [Abstract] |
Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies Disclosure | Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Chesapeake Energy Corporation ("Chesapeake" or the "Company") and its subsidiaries were prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and include the accounts of our direct and indirect wholly owned subsidiaries and entities in which Chesapeake has a controlling financial interest. Intercompany accounts and balances have been eliminated. These financial statements were prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all disclosures required for financial statements prepared in conformity with U.S. GAAP. This Form 10-Q relates to the three months ended March 31, 2016 (the "Current Quarter") and the three months ended March 31, 2015 (the "Prior Quarter"). Chesapeake's annual report on Form 10-K for the year ended December 31, 2015 ("2015 Form 10-K") includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Form 10-Q. All material adjustments (consisting solely of normal recurring adjustments) which, in the opinion of management, are necessary for a fair statement of the results for the interim periods have been reflected. The results for the Current Quarter are not necessarily indicative of the results to be expected for the full year. Risks and Uncertainties Chesapeake’s strategy for 2016 is to focus on improving liquidity and generating cash. Our ability to grow, make capital expenditures and service our debt depends primarily upon the prices we receive for the oil, natural gas and natural gas liquids (NGL) we sell. Substantial expenditures are required to replace reserves, sustain production and fund our business plans. Historically, oil and natural gas prices have been very volatile, and may be subject to wide fluctuations in the future. The substantial decline in oil, natural gas and NGL prices from 2014 levels has negatively affected the amount of cash we have available for capital expenditures and debt service. In the Current Quarter, our capitalized costs of oil and natural gas properties exceeded our full cost ceiling, resulting in a noncash impairment in the carrying value of our oil and natural gas properties of $853 million, which was the primary driver of our net loss in the Current Quarter of $921 million. Based on the first-day-of-the-month prices we have received over the 11 months ended May 1, 2016, as well as the current strip price for June 2016, we expect to record downward reserve revisions and another material write-down in the carrying value of our oil and natural gas properties in the second quarter of 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. As of March 31, 2016, we had a cash balance of approximately $16 million compared to $825 million as of December 31, 2015, and we had a net working capital deficit of approximately $1.341 billion compared to a net working capital deficit of approximately $1.205 billion as of December 31, 2015. Based on our cash balance, forecasted cash flows from operating activities and availability under our revolving credit facility, we expect to be able to fund our planned capital expenditures budget, meet our debt service requirements and fund our other commitments and obligations for the next 12 months. Oil, natural gas and NGL prices have a material impact on our financial position, results of operations, cash flows and quantities of reserves that may be economically produced. If depressed prices persist throughout 2017 and we are unable to restructure or refinance our debt or generate additional liquidity through other actions, our ability to comply with the financial covenants under our revolving credit facility and make scheduled debt payments could be adversely impacted. In April 2016, we further amended our revolving credit facility agreement. Pursuant to the amendment, our borrowing base was reaffirmed in the amount of $4.0 billion and our next scheduled borrowing base redetermination date was postponed until June 15, 2017, with the consenting lenders agreeing not to exercise their interim redetermination right prior to that date. The amendment also modifies the credit agreement to provide for, among other things, (i) the suspension or modification of certain financial covenants and (ii) the granting of liens and security interests on substantially all of our assets, including mortgages encumbering 90% of our proved oil and gas properties that constitute borrowing base properties, all hedge contracts and personal property, subject to certain agreed upon carve outs. See Note 3 for further discussion of our revolving credit facility. As of March 31, 2016, we had approximately $9.425 billion principal amount of debt outstanding, of which $1.625 billion matures or can be put to us in 2017 (including $344 million of maturities in January 2017, $902 million which can be put to us in May 2017 and $379 million that matures in August 2017) and $878 million that matures or can be put to us in 2018. See Note 3 for further discussion of our debt obligations, including principal and carrying amounts of our notes. As of March 31, 2016, we had $367 million of outstanding borrowings under our revolving credit facility. As operator of a substantial portion of our oil and natural gas properties under development, we have significant control and flexibility over the development plan and the associated timing, enabling us to reduce at least a portion of our capital spending as needed. We have reduced our budgeted 2016 capital expenditures, inclusive of capitalized interest, to $1.3 - $1.8 billion, a significant reduction from our 2015 capital spending level of $3.6 billion. We currently plan to use cash flows from operations, cash on hand and our revolving credit facility to fund our capital expenditures during 2016. We expect to generate additional liquidity with proceeds from potential sales of assets that we determine do not fit our strategic priorities. Management continues to review operational plans for the remainder of 2016 and beyond, which could result in changes to projected capital expenditures and revenues from sales of oil, natural gas and NGL. We closely monitor the amounts and timing of our sources and uses of funds, particularly as they affect our ability to maintain compliance with the financial covenants of our revolving credit facility. Since December 2015, Moody’s Investor Services, Inc. has lowered our senior unsecured credit rating from “Ba3” to “Caa3”, and Standard & Poor’s Rating Services has lowered our senior unsecured credit rating from “BB-” to “CC”. Some of our counterparties have requested or required us to post collateral as financial assurance of our performance under certain contractual arrangements, such as gathering, processing, transportation and hedging agreements. As of May 3, 2016, we have received requests to post approximately $281 million in collateral under such arrangements, of which we have posted approximately $247 million (excluding the supersedeas bond with respect to the 6.775% Senior Notes due 2019 (the 2019 Notes) litigation discussed in Note 4). We have posted the required collateral, primarily in the form of letters of credit and cash, or are otherwise complying with these contractual requests for collateral. We may be requested or required by other counterparties to post additional collateral in an aggregate amount of approximately $696 million, which may be in the form of additional letters of credit, cash or other acceptable collateral. However, we have substantial long-term business relationships with each of these counterparties, and we may be able to mitigate any collateral requests through ongoing business arrangements and by offsetting amounts that the counterparty owes us. Any posting of additional collateral consisting of cash or letters of credit, which would reduce availability under our credit facility, will negatively impact our liquidity. We may seek to access the capital markets to refinance a portion of our outstanding indebtedness and improve our li q uidity. We have historically used the debt capital markets, our most efficient method of raising capital, to supplement our liquidity needs. However, access to funds obtained through the high-yield debt market, particularly in the energy sector, has been severely constrained by a variety of market factors that could hinder our ability to raise new capital. We do not believe the high-yield debt market is currently accessible to us at favorable terms, and our accessibility may not improve during the remainder of 2016. We have taken measures to mitigate the risks and uncertainties facing us for the next 12 months, including mitigating a portion of our downside exposure to lower commodity prices through derivative contracts, the suspension of payment of dividends on our convertible preferred stock and the April 2016 amendment to our revolving credit facility; however, there can be no assurance that these measures will satisfy our needs. Further, our ability to generate operating cash flow in the current commodity price environment, sell assets, access capital markets or take any other action to improve our liquidity and manage our debt is subject to the risks discussed above and the other risks and uncertainties that exist in our industry, some of which we may not be able to anticipate at this time or control. If commodity prices decrease, or if we fail to complete significant asset sales, access the capital markets on favorable terms or take other actions to improve our liquidity, we may not be able to fund budgeted capital expenditures or meet our debt service requirements in 2017 or beyond. Reclassifications In April 2015, the Financial Accounting Standards Board (FASB) issued guidance that requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. This standard requires retrospective application and is effective for annual reporting periods beginning after December 15, 2015. This change in accounting principle is preferable since it allows debt issuance costs and debt issuance discounts to be presented similarly in the consolidated balance sheets as a reduction to the face amount of our debt balances. A retrospective change to our consolidated balance sheet as of December 31, 2015, as previously presented, is required pursuant to the guidance. The retrospective adjustment to the December 31, 2015 consolidated balance sheet is shown below.
|  | As Previously Reported |  | December 31, 2015 Adjustment Effect |  | As Adjusted
|  | $ in millions
Other long-term assets |  | $ | 333 |  |  | $ | (43 | ) |  | $ | 290 |
Long-term debt, net |  | $ | 10,354 |  |  | $ | 43 |  |  | $ | 10,311 |
Beginning in the fourth quarter of 2015, we began presenting third party transportation and gathering costs as a component of operating expenses in the statement of operations. Previously, these costs were reflected as deductions to oil, natural gas and NGL sales. These costs have been reclassified in our condensed consolidated statement of operations for the Prior Quarter to conform to the presentation used for the Current Quarter. The net effect of this reclassification did not impact our previously reported net loss, stockholders’ equity or cash flows; however, previously reported oil, natural gas and NGL sales have increased from the amounts previously reported, and total operating expenses have increased by those same amounts.

X
- References No definition available. + Details
Name: | us-gaap_AccountingPoliciesAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for the general note to the financial statements for the reporting entity which may include, descriptions of the basis of presentation, business description, significant accounting policies, consolidations, reclassifications, new pronouncements not yet adopted and changes in accounting principles. + References No definition available. + Details
Name: | us-gaap_OrganizationConsolidationBasisOfPresentationBusinessDescriptionAndAccountingPoliciesTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration