6 5 - RR DONNELLEY FINANCIAL - External Home Login
6 5 - RR DONNELLEY FINANCIAL - External Home Login
6 5 - RR DONNELLEY FINANCIAL - External Home Login
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Contractual Obligations<br />
The table below summarizes our cash contractual obligations as of December 31, 2010 ($ in millions):<br />
Total<br />
Less Than<br />
1 Year<br />
Payments Due By Period<br />
1-3<br />
Years<br />
3-5<br />
Years<br />
More Than<br />
5 Years<br />
Long-term debt:<br />
Principal ............................... $ 13,408 $ — $ 500 $ 5,131 $ 7,777<br />
Interest ................................ 5,193 595 1,173 996 2,429<br />
Financing lease obligations and other ......... 894 18 37 90 749<br />
Operating lease obligations ................. 916 170 345 287 114<br />
Asset retirement obligations (a) ............... 301 — 61 7 233<br />
Purchase obligations (b) ..................... 5,054 930 874 797 2,453<br />
Unrecognized tax benefits (c) ................. 34 34 — — —<br />
Standby letters of credit .................... 13 13 — — —<br />
Total contractual cash obligations ........ $ 25,813 $ 1,760 $ 2,990 $ 7,308 $ 13,755<br />
(a) Asset retirement obligations represent estimated discounted costs for future dismantlement and<br />
(b)<br />
abandonment costs. These obligations are recorded as liabilities on our December 31, 2010 balance<br />
sheet.<br />
See Note 4 of the notes to our consolidated financial statements in Item 8 of this report for a description of<br />
transportation and drilling contract commitments.<br />
(c) See Note 5 of the notes to our consolidated financial statements in Item 8 of this report for a description of<br />
unrecognized tax benefits.<br />
Chesapeake has commitments to purchase any natural gas and oil associated with certain volumetric<br />
production payment transactions based on market prices at the time of production and the purchased gas will<br />
be resold.<br />
Under minimum volume throughput agreements, Chesapeake has agreed to move fixed volumes of<br />
natural gas over certain time periods, usually multiple years, through certain midstream systems. At the end of<br />
the term or annually, Chesapeake will be invoiced for any shortfalls in such volume commitments.<br />
Hedging Activities<br />
Natural Gas and Oil Hedging Activities<br />
Our results of operations and cash flows are impacted by changes in market prices for natural gas and oil.<br />
To mitigate a portion of the exposure to adverse market changes, we have entered into various derivative<br />
instruments. Executive management is involved in all risk management activities and the Board of Directors<br />
reviews the company’s hedging program at its quarterly Board meetings. We believe we have sufficient internal<br />
controls to prevent unauthorized hedging. As of December 31, 2010, our natural gas and oil derivative<br />
instruments were comprised of swaps, call options, put options, knockout swaps and basis protection swaps.<br />
Item 7A – Quantitative and Qualitative Disclosures About Market Risk contains a description of each of these<br />
instruments. Although derivatives often fail to achieve 100% effectiveness for accounting purposes, we believe<br />
our derivative instruments continue to be highly effective in achieving our risk management objectives.<br />
Hedging allows us to predict with greater certainty the effective prices we will receive for our natural gas<br />
and oil production. We closely monitor the fair value of our derivative contracts and may elect to settle a<br />
contract prior to its scheduled maturity date in order to lock in a gain or loss. Commodity markets are volatile<br />
and Chesapeake’s hedging activities are dynamic.<br />
Mark-to-market positions under natural gas and oil derivative contracts fluctuate with commodity prices. As<br />
described above under Hedging Facility, our secured multi-counterparty hedging facility allows us to minimize<br />
the potential liquidity impact of significant mark-to-market fluctuations in the value of our natural gas and oil<br />
derivatives by pledging natural gas and oil proved reserves.<br />
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