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CHK » Topics » Level 2 Fair Value Measurements

This excerpt taken from the CHK 8-K filed Jun 25, 2009.

Level 2 Fair Value Measurements

Derivatives. The fair values of our natural gas swaps are measured internally using established index prices and other sources. These values are based upon, among other things, futures prices and time to maturity.

These excerpts taken from the CHK 10-Q filed May 11, 2009.

Level 1 Fair Value Measurements

Investments. The fair value of Chesapeake’s investment in Gastar Exploration Ltd. common stock is based on a quoted market price.

Other Long-Term Assets and Liabilities. The fair value of other long-term assets and liabilities, consisting of obligations under our Deferred Compensation Plan, is based on quoted market prices.

Level 2 Fair Value Measurements

Derivatives. The fair values of our natural gas swaps are measured internally using established index prices and other sources. These values are based upon, among other things, futures prices and time to maturity. Derivative transactions are also subject to the risk that counterparties will be unable to meet their obligations. Such non-performance risk is considered in the valuation of our derivative instruments, but to date has not had a material impact on the values of our derivatives.

Level 3 Fair Value Measurements

Derivatives. The fair value of our derivative instruments, excluding natural gas swaps, have been established utilizing established index prices, volatility curves and discount factors. These estimates are compared to our counterparty values for reasonableness. Derivative transactions are also subject to the risk that counterparties will be unable to meet their obligations. Such non-performance risk is considered in the valuation of our derivative instruments, but to date has not had a material impact on the values of our derivatives.

Debt. The fair value of our long-term debt is based on the face amount of the debt along with the value of the related interest rate swaps. The interest rate swap values are based on estimates provided by our respective counterparties and reviewed internally for reasonableness using future interest rate curves and time to maturity.

 

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

A reconciliation of Chesapeake’s assets and liabilities classified as Level 3 measurements is presented below.

 

     Derivatives     Debt     Total  
     ($ in millions)  

Balance of Level 3 as of January 1, 2009

    $ 292     $ (1,470 )   $ (1,178 )

Total gains or losses (realized/unrealized):

       

Included in earnings(a)

      (68 )     10       (58 )

Included in other comprehensive income (loss)

      172       —       172  

Purchases, issuances and settlements

      38       —       38  

Transfers in and out of Level 3

      —       —       —  
                        

Balance of Level 3 as of March 31, 2009

    $ 434     $ (1,460 )   $ (1,026 )
                        

 

 

(a)

 

     Natural Gas and Oil
Sales		     Interest
Expense		  
     ($ in millions)  

Total gains and (losses) related to derivatives included in earnings for the period

    $ (66 )   $ (1 )

Change in unrealized gains or (losses) relating to assets still held at reporting date

    $ 103     $ 5  

 

10.

Condensed Consolidating Financial Information

Chesapeake Energy Corporation is a holding company and owns no operating assets and has no significant operations independent of its subsidiaries. As of September 30, 2008, our obligations under our outstanding senior notes and contingent convertible notes listed in Note 6 were fully and unconditionally guaranteed, jointly and severally, by all of our wholly-owned subsidiaries, other than minor subsidiaries, on a senior unsecured basis. Since October 2008, following the restructuring of our non-Appalachian midstream operations, certain of our wholly-owned subsidiaries having significant assets and operations have not guaranteed our outstanding notes. The midstream revolving credit facility referred to in Note 6 contains a covenant restricting Chesapeake Midstream Partners, L.P., the parent of our midstream subsidiaries, from paying dividends or distributions or making loans to Chesapeake.

 

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

Set forth below are condensed consolidating financial statements for Chesapeake Energy Corporation (the “parent”) on a stand-alone, unconsolidated basis, and its combined guarantor and combined non-guarantor subsidiaries as of March 31, 2009 and December 31, 2008 and for the three months ended March 31, 2009 and 2008. The financial information may not necessarily be indicative of results of operations, cash flows, or financial position had the subsidiaries operated as independent entities.

These excerpts taken from the CHK 10-K filed Mar 2, 2009.

Level 1 Fair Value Measurements

Cash Equivalents.    The fair value of cash equivalents is based on quoted market prices.

Investments.    The fair value of Chesapeake’s investment in Gastar Exploration Ltd. common stock is based on a quoted market price.

Other Long-Term Assets and Liabilities.    The fair value of other long-term assets and liabilities, consisting of obligations under our Deferred Compensation Plan, is based on quoted market prices.

 

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Level 2 Fair Value Measurements

Derivatives.    The fair values of our natural gas swaps are measured internally using established index prices and other sources. These values are based upon, among other things, futures prices and time to maturity.

Level 3 Fair Value Measurements

Derivatives.    The fair value of our derivative instruments, excluding natural gas swaps, have been established utilizing established index prices, volatility curves and discount factors. These estimates are compared to our counterparty values for reasonableness. Derivative transactions are also subject to the risk that counterparties will be unable to meet their obligations. Such non-performance risk is considered in the valuation of our derivative instruments, but to date has not had a material impact on the values of our derivatives.

Debt.    The fair value of our long-term debt is based on face value of the debt along with the value of the related interest rate swaps. The interest rate swap values are based on estimates provided by our respective counterparties and reviewed internally for reasonableness using future interest rate curves and time to maturity.

A reconciliation of Chesapeake’s assets and liabilities classified as Level 3 measurements is presented below.

 

     Derivatives     Debt     Total  
     ($ in millions)  

Balance of Level 3 as of January 1, 2008

    $ (340 )   $ (2,404 )   $ (2,744 )

Total gains or losses (realized/unrealized):

       

Included in earnings (a)

      744       184       928  

Included in other comprehensive income (loss)

      (82 )     —       (82 )

Purchases, issuances and settlements

      (30 )     750 (b)     720  

Transfers in and out of Level 3

      —       —       —  
                        

Balance of Level 3 as of December 31, 2008

    $ 292     $ (1,470 )   $ (1,178 )
                        

 

         Natural Gas and Oil
Revenue		    Interest  
         ($ in millions)  

(a)

  

Total gains and losses related to derivatives included in earnings for the period

    $ 876    $ (132 )
 

Change in unrealized gains or losses relating to assets still held at reporting date

    $ 815    $ (126 )

 

(b) Amount represents debt no longer recorded at fair value as a result of the termination of interest rate swaps in 2008.

Level 1 Fair Value Measurements

FACE="Times New Roman" SIZE="2">Cash Equivalents.    The fair value of cash equivalents is based on quoted market prices.

FACE="Times New Roman" SIZE="2">Investments.    The fair value of Chesapeake’s investment in Gastar Exploration Ltd. common stock is based on a quoted market price.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Other Long-Term Assets and Liabilities.    The fair value of other long-term assets and liabilities, consisting of obligations
under our Deferred Compensation Plan, is based on quoted market prices.

 


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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center">NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

SIZE="1"> 


Level 2 Fair Value Measurements

FACE="Times New Roman" SIZE="2">Derivatives.    The fair values of our natural gas swaps are measured internally using established index prices and other sources. These values are based upon, among other things, futures
prices and time to maturity.

This excerpt taken from the CHK 8-K filed Jan 28, 2009.

Level 2 Fair Value Measurements

Derivatives. The fair values of our natural gas swaps are measured internally using established index prices and other sources. These values are based upon, among other things, futures prices and time to maturity.

 

26

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

This excerpt taken from the CHK 10-Q filed Nov 10, 2008.

Level 2 Fair Value Measurements

Derivatives. The fair values of our natural gas swaps are measured internally using established index prices and other sources. These values are based upon, among other things, futures prices and time to maturity.

 

26

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

This excerpt taken from the CHK 10-Q filed Aug 11, 2008.

Level 3 Fair Value Measurements

Derivatives. The fair values of our derivatives, excluding natural gas swaps, are based on estimates provided by our respective counterparties and reviewed internally using established index prices and other sources. These values are based upon, among other things, futures prices, interest rate curves and time to maturity.

Debt. The fair value of our long-term debt is based on face value of the debt along with the value of the related interest rate swaps. The interest rate swap values are based on estimates provided by our respective counterparties and reviewed internally for reasonableness using future interest rate curves and time to maturity.

 

22

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

A reconciliation of Chesapeake’s assets and liabilities classified as Level 3 measurements is presented below.

 

     Derivatives     Debt     Total  
     ($ in millions)  

Balance of Level 3 as of January 1, 2008

    $ (340 )   $ (2,404 )   $ (2,744 )

Total gains or losses (realized/unrealized):

       

Included in earnings(a)

     (4,180 )     (127 )     (4,307 )

Included in other comprehensive income (loss)

      (51 )     —       (51 )

Purchases, issuances and settlements

      (489 )     (1,250 )(b)     (1,739 )

Transfers in and out of Level 3

      —       —       —  
                        

Balance of Level 3 as of June 30, 2008

    $ (5,060 )   $ (3,781 )   $ (8,841 )
                        

 

(a)

           Natural Gas and Oil
Revenue		     Interest
          ($ in millions)
  

Total gains and losses related to derivatives included in earnings for the period

    $ (4,245 )   $ 65
                 
  

Change in unrealized gains or losses relating to assets still held at reporting date

    $ (4,405 )   $ 69
                 

 

(b)

Amount represents debt now recorded at fair value as a result of new interest rate swaps entered into in the Current Period.

This excerpt taken from the CHK 10-Q filed May 12, 2008.

Level 3 Fair Value Measurements

Derivatives. The fair values of our derivatives, excluding natural gas swaps, are based on estimates provided by our respective counterparties and reviewed internally using established index prices and other sources. These values are based upon, among other things, futures prices, interest rate curves and time to maturity.

Debt. The fair value of our long-term debt is based on face value of the debt along with the value of the related interest rate swaps. The interest rate swap values are based on estimates provided by our respective counterparties and reviewed internally for reasonableness using future interest rate curves and time to maturity.

A reconciliation of Chesapeake’s assets and liabilities classified as Level 3 measurements is presented below.

 

     Derivatives     Debt     Total  
     ($ in millions)  

Balance of Level 3 as of January 1, 2008

    $ (340 )   $ (2,404 )   $ (2,744 )

Total gains or losses (realized/unrealized):

       

Included in earnings(a)

      (1,053 )     (36 )     (1,089 )

Included in other comprehensive income (loss)

      (32 )     —       (32 )

Purchases, issuances and settlements

      (18 )     700 (b)     682  

Transfers in and out of Level 3

      —       —       —  
                        

Balance of Level 3 as of March 31, 2008

    $ (1,443 )   $ (1,740 )   $ (3,183 )
                        

 

(a)

       
      Natural Gas
and
Oil Revenue		     Interest
Expense
     ($ in millions)

         Total gains and losses included in earnings for the period (above)

    $ (1,112 )   $ 59
              

         Change in unrealized gains or losses relating to assets still held at reporting date

    $ (1,060 )   $ 59
              

(b)    Amount represents debt no longer recorded at fair value due to the closing of the related interest rate swap in the Current Quarter.

 

20

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

EXCERPTS ON THIS PAGE:

8-K
Jun 25, 2009
10-Q (3 sections)
May 11, 2009
10-K (5 sections)
Mar 2, 2009
8-K
Jan 28, 2009
10-Q
Nov 10, 2008
10-Q
Aug 11, 2008
10-Q
May 12, 2008

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