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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) We have taken a number of actions to improve our liquidity. We eliminated quarterly cash dividends on our common stock effective in the 2015 third quarter and suspended payment of dividends on our convertible preferred stock in the 2016 first quarter. In December 2015, we completed private exchanges of approximately $3.9 billion aggregate principal amount of long-term debt for approximately $2.4 billion aggregate principal amount of newly issued 8.00% Senior Secured Second Lien Notes due 2022. In September and December 2015, we amended our $4.0 billion revolving credit facility to provide more flexibility and access to liquidity. In September 2015, we reduced our workforce by approximately 15% as part of an overall plan to reduce costs and better align our workforce with the needs of our business and current oil and natural gas commodity prices. In August 2015, we closed the CHK C-T transactions described in Note 8. We terminated our secured hedge facility in February 2016 and are in the process of securing new hedges with the collateral for our revolving credit facility. The collateral for our recently terminated secured hedge facility is now available for other purposes, including additional collateral under our credit facility. We are also evaluating additional capital exchanges, asset sales, joint ventures and farmouts to increase our liquidity and cash flow. Finally, we recently restructured certain of our gathering agreements to improve our per-unit-gathering rates beginning in 2016, enhance volume growth and satisfy minimum volume commitment obligations. As highlighted above, we have taken measures to mitigate the risks and uncertainties facing us in 2016, including mitigating a portion of our downside exposure to lower commodity prices through derivative contracts, but there can be no assurance that such measures, even if successfully implemented, 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 remain at depressed levels, 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. Consolidation Chesapeake consolidates entities in which we have a controlling financial interest. We consolidate subsidiaries in which we hold, directly or indirectly, more than 50% of the voting rights and variable interest entities (VIEs) in which Chesapeake is the primary beneficiary. We use the equity method of accounting to record our net interests where Chesapeake has the ability to exercise significant influence through its investment. Under the equity method, our share of net income (loss) is included in our consolidated statements of operations according to our equity ownership or according to the terms of the applicable governing instrument. Investments in securities not accounted for under the equity method have been designated as available-for-sale and, as such, are carried at fair value whenever this value is readily determinable. Otherwise, the investment is carried at cost. See Note 14 for further discussion of our investments. Undivided interests in oil and natural gas exploration and production joint ventures are consolidated on a proportionate basis. Noncontrolling Interests Noncontrolling interests represent third-party equity ownership in certain of our consolidated subsidiaries and are presented as a component of equity. See Note 8 for further discussion of noncontrolling interests. Variable Interest Entities VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities independently, or (ii) have equity holders that do not have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the entity’s losses, or the right to receive the entity’s residual returns. We consolidate a VIE when we are the primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Along with a VIE that we consolidate, we also hold a variable interest in another VIE that is not consolidated because we are not the primary beneficiary. We continually monitor both our consolidated and unconsolidated VIEs to determine if any reconsideration events have occurred that could cause the primary beneficiary to change. See Note 15 for further discussion of VIEs. 84

Profile for Chesapeake Energy

2015 Annual Report  

2015 Annual Report