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Our annual net decline rate on producing properties is projected to be 30% from 2011 to 2012, 19% from
2012 to 2013, 14% from 2013 to 2014, 12% from 2014 to 2015 and 10% from 2015 to 2016. Of our 9.143 tcfe
of proved developed reserves as of December 31, 2010, 950 bcfe were non-producing.
Chesapeake’s ownership interest used in calculating proved reserves and the associated estimated future
net revenue was determined after giving effect to the assumed maximum participation by other parties to our
farmout and participation agreements. The prices used in calculating the estimated future net revenue
attributable to proved reserves do not reflect market prices for natural gas and oil production sold subsequent
to December 31, 2010. There can be no assurance that all of the estimated proved reserves will be produced
and sold at the assumed prices.
The company’s estimated proved reserves and the standardized measure of discounted future net cash
flows of the proved reserves at December 31, 2010, 2009 and 2008, and the changes in quantities and
standardized measure of such reserves for each of the three years then ended, are shown in Note 10 of the
notes to the consolidated financial statements included in Item 8 of this report. No estimates of proved reserves
comparable to those included herein have been included in reports to any federal agency other than the SEC.
There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting
future rates of production and timing of development expenditures, including many factors beyond
Chesapeake’s control. The reserve data represent only estimates. Reserve engineering is a subjective process
of estimating underground accumulations of natural gas and oil that cannot be measured in an exact way, and
the accuracy of any reserve estimate is a function of the quality of available data and of engineering and
geological interpretation and judgment. As a result, estimates made by different engineers often vary. In
addition, results of drilling, testing and production subsequent to the date of an estimate may justify revision of
such estimates, and such revisions may be material. Accordingly, reserve estimates are often different from the
actual quantities of natural gas and oil that are ultimately recovered. Furthermore, the estimated future net
revenue from proved reserves and the associated present value are based upon certain assumptions, including
prices, future production levels and costs that may not prove correct. Future prices and costs may be materially
higher or lower than the prices and costs as of the date of any estimate.
Reserves Price Sensitivity
An increase or decrease in price of $0.10 per mcf for natural gas and $1.00 per barrel for oil would result in
a corresponding change in the December 31, 2010 present value of estimated future net revenue of our proved
reserves of approximately $600 million and $90 million, respectively. The estimated future net revenue used in
this analysis does not include the effects of future income taxes or hedging.
Chesapeake’s management uses forward-looking market-based data in developing its drilling plans,
assessing its capital expenditure needs and projecting future cash flows. We believe that using the 10-year
average future NYMEX strip prices yields a better indication of the likely economic producibility of proved
reserves than the trailing average 12-month price required by the SEC’s reserves rules or a period-end spot
price, as used under the SEC rules before December 31, 2009. Reserve volumes represent estimated
production to be sold in the future. Futures prices, such as the 10-year average NYMEX strip prices, represent
an unbiased consensus estimate by market participants about the likely prices to be received for our future
production. We hedge substantial amounts of future production based on futures prices. While historical data,
such as the trailing 12-month average price required by the SEC’s reporting rule, facilitate comparisons of
proved reserves from company to company and may be helpful in discerning trends, such as price-related
effects on end-user demand, the price at which we can sell our production in the future is by far the major
determinant of the likely economic producibility of our reserves. A 12-month average price adjusts slowly to
falling or rising prices, further detracting from its usefulness as a predictor of the prices at which future
production will actually be sold.
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