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Marketing, Gathering and Compression Revenues and Expenses. Marketing, gathering and compression revenues consist of third-party revenues as well as fair value adjustments on our supply contract derivatives (see Note 11 of the notes to our consolidated financial statements included in Item 8 of this report for additional information on our supply contract derivatives). Expenses related to our marketing, gathering and compression operations consist of third-party expenses and exclude depreciation and amortization, general and administrative expenses, impairments of fixed assets and other, net gains or losses on sales of fixed assets and interest expense. See Depreciation and Amortization of Other Assets below for the depreciation and amortization recorded on our marketing, gathering and compression assets. We recognized $4.584 billion in marketing, gathering and compression revenues in 2016, of which $146 million related to cash proceeds from the sale of a long-term natural gas supply contract to a third party, offset by the reversal of cumulative unrealized gains of $297 million associated with the natural gas supply contract, with corresponding expenses of $4.778 billion, for a net loss of $194 million. This compares to revenues of $7.373 billion, of which $296 million related to unrealized gains on the fair value of our supply contract derivative, with corresponding expenses of $7.130 billion, for a net margin of $243 million in 2015 and revenues of $12.225 billion, expenses of $12.236 billion and a net loss before depreciation of $11 million in 2014. Revenues and expenses decreased in 2016 compared to 2015 and 2014 primarily as a result of lower oil, natural gas and NGL prices paid and received in our marketing operations. The margin increase in 2015 as compared to 2014 was primarily the result of an unrealized gain on the fair value adjustment on our supply contract derivatives, partially offset by cost increases on certain sales contracts with third parties entered into to help meet certain of our oil pipeline and other commitments and by lower compression margin as a result of the sale of a significant portion of our compression assets in 2014 and 2015. Oilfield Services Revenues and Expenses. Our oilfield services consisted of third-party revenues and expenses related to our former oilfield services operations and excluded depreciation and amortization, general and administrative expenses, impairments of fixed assets and other, net gains or losses on sales of fixed assets and interest expense. See Depreciation and Amortization of Other Assets below for the depreciation and amortization recorded on our oilfield services assets in 2014. Chesapeake recognized revenues of $546 million, expenses of $431 million with a net margin before depreciation of $115 million in 2014. As a result of the spin-off of our oilfield services business in June 2014, we did not have oilfield services revenues and expenses in 2016 and 2015. Oil, Natural Gas and NGL Production Expenses. Production expenses, which include lifting costs and ad valorem taxes, were $710 million in 2016, compared to $1.046 billion in 2015 and $1.208 billion in 2014. On a unit-of-production basis, production expenses were $3.05 per boe in 2016 compared to $4.22 per boe in 2015 and $4.69 per boe in 2014. The absolute and per unit decrease in 2016 was primarily the result of a reduction in repair and maintenance expenses as well as operating efficiencies across most of our operating areas. Production expenses in 2016, 2015 and 2014 included approximately $44 million, $104 million and $157 million, or $0.19, $0.42 and $0.61 per boe, respectively, associated with VPP production volumes. In connection with certain 2016 divestitures, we purchased the remaining oil and natural gas interests previously sold in connection with five of our VPPs, and a majority of these repurchased oil and natural gas interests were subsequently sold. In addition, one of our VPPs expired in 2015. We anticipate a continued decrease in production expenses associated with VPP production volumes as the contractually scheduled volumes under our remaining VPP agreement decrease and operating efficiencies generally improve. The following table shows our production expenses (excluding ad valorem taxes) by operating division and our ad valorem tax expenses for 2016, 2015 and 2014:

Southern ............................................... Northern ................................................

2016 2015 2014 Production Production Production Expenses $/boe Expenses $/boe Expenses $/boe ($ in millions, except per unit) $ 498 3.92 $ 771 5.36 $ 882 5.92 157 1.49 188 1.81 229 2.10 655 2.81 959 3.87 1,111 4.31

Ad valorem tax ...................................... Total ................................................

$

55

0.24

710

3.05

58

$

87

0.35

1,046

4.22

$

97

0.38

1,208

4.69

Profile for Chesapeake Energy

2016 Annual Report  

2016 Annual Report