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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) 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.

Oil, natural gas and NGL sales ....................................................................................... Joint interest ................................................................................................................... Other ............................................................................................................................... Allowance for doubtful accounts ..................................................................................... Total accounts receivable, net ................................................................................

December 31, 2015 2014 ($ in millions) $ 696 $ 1,340 230 691 226 226 (23) (21) $ 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.

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Profile for Chesapeake Energy

2015 Annual Report  

2015 Annual Report