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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Effect of Derivative Instruments – Accumulated Other Comprehensive Income (Loss) A reconciliation of the changes in accumulated other comprehensive income (loss) in our consolidated statements of stockholders’ equity related to our cash flow hedges is presented below.

Balance, beginning of period .......................................... Net change in fair value .............................................. Losses reclassified to income ..................................... Balance, end of period ....................................................

Years Ended December 31, 2016 2015 2014 Before After Before After Before After Tax Tax Tax Tax Tax Tax ($ in millions) $ (160) $ (99) $ (231) $ (143) $ (269) $ (167) (27) (13) 32 20 1 1 34 16 39 24 37 23 $ (153) $ (96) $ (160) $ (99) $ (231) $ (143)

Approximately $97 million of the accumulated other comprehensive loss as of December 31, 2016 represents the net deferred loss associated with commodity derivative contracts that were previously designated as cash flow hedges for which the hedged production is still expected to occur. Deferred gain or loss amounts will be recognized in earnings in the month in which the originally forecasted hedged production occurs. As of December 31, 2016, we expect to transfer approximately $22 million of net loss included in accumulated other comprehensive income to net income (loss) during the next 12 months. The remaining amounts will be transferred by December 31, 2022. Credit Risk Considerations Our derivative instruments expose us to our counterparties’ credit risk. To mitigate this risk, we enter into derivative contracts only with counterparties that are rated investment grade and deemed by management to be competent and competitive market makers, and we attempt to limit our exposure to non-performance by any single counterparty. As of December 31, 2016, our oil, natural gas and NGL and foreign currency derivative instruments were spread among 12 counterparties. Hedging Arrangements In 2015, we began entering into bilateral hedging agreements. The counterparties’ and our obligations under certain of the bilateral hedging agreements must be secured by cash or letters of credit to the extent that any markto-market amounts owed to us or by us exceed defined thresholds. In 2016, certain of our counterparties that are also lenders (or affiliates of our lenders) under our revolving credit facility entered into derivative contracts to be secured by the same collateral that secures the revolving credit facility. This allows us to reduce any letters of credit posted as security with those counterparties.

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Profile for Chesapeake Energy

2016 Annual Report  

2016 Annual Report