Natural Gas And Oil Producing Activities (Unaudited) | 12 Months Ended |
Dec. 31, 2014 |
Natural Gas And Oil Producing Activities (Unaudited) [Abstract] | |
Natural Gas And Oil Producing Activities (Unaudited) | (4) NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) |
The Company’s natural gas and oil properties are located in the United States and Canada. |
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Net Capitalized Costs |
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The following table shows the capitalized costs of natural gas and oil properties and the related accumulated depreciation, depletion and amortization as of December 31, 2014 and 2013: |
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| 2014 | | 2013 | | | | | | | | | | |
| (in millions) | | | | | | | | | | |
Proved properties | $ | 15,860 | | | $ | 12,337 | | | | | | | | | | | |
Unproved properties | | 4,646 | -1 | | | 957 | -1 | | | | | | | | | | |
Total capitalized costs | | 20,506 | -2 | | | 13,294 | | | | | | | | | | | |
Less: Accumulated depreciation, depletion and amortization | | 8,327 | | | | 7,481 | | | | | | | | | | | |
Net capitalized costs | $ | 12,179 | | | $ | 5,813 | | | | | | | | | | | |
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| -1 | | Includes $76 million and $72 million related to the Company’s exploration program in Canada as of December 31, 2014 and 2013, respectively. | | | | | | | | | | | | | | |
| -2 | | Includes approximately $5.0 billion related to the Chesapeake Property Acquisition. | | | | | | | | | | | | | | |
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Natural gas and oil properties not subject to amortization represent investments in unproved properties and major development projects in which the Company owns an interest. These unproved property costs include unevaluated costs associated with leasehold or drilling interests and unevaluated costs associated with wells in progress. The table below sets forth the composition of net unevaluated costs excluded from amortization as of December 31, 2014. |
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| 2014 | | 2013 | | 2012 | | Prior | | Total | | | |
| (in millions) | | | |
Property acquisition costs | $ | 3,892 | | $ | 87 | | $ | 75 | | $ | 142 | | $ | 4,196 | -1 | | |
Exploration and development costs | | 239 | | | 40 | | | 26 | | | 61 | | | 366 | -1 | | |
Capitalized interest | | 13 | | | 10 | | | 14 | | | 47 | | | 84 | -1 | | |
| $ | 4,144 | | $ | 137 | | $ | 115 | | $ | 250 | | $ | 4,646 | | | |
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| -1 | | Property acquisition costs include $36 million, exploration costs include $31 million and capitalized interest includes $9 million related to the Company’s exploration program in Canada. | | | | | | | | | | | | | | |
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Of the total net unevaluated costs excluded from amortization as of December 31, 2014, approximately $3.6 billion is related to the Chesapeake Property Acquistion, approximately $12 million is related to unevaluated seismic costs in the Fayetteville Shale, approximately $34 million is related to the acquisition of undeveloped properties in the Company’s Fayetteville Shale, approximately $138 million is related to the acquisition of undeveloped properties in the Company’s Marcellus Shale and approximately $367 million is related to the acquisition of undeveloped properties in the Company’s New Ventures, excluding its exploration program in Canada. The Company has $76 million of unevaluated costs related to its exploration program in Canada. Additionally, the Company has approximately $267 million of unevaluated costs related to costs of wells in progress. The remaining costs excluded from amortization are related to properties which are not individually significant and on which the evaluation process has not been completed. The timing and amount of property acquisition and seismic costs included in the amortization computation will depend on the location and timing of drilling wells, results of drilling, and other assessments. The Company is, therefore, unable to estimate when these costs will be included in the amortization computation. |
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Costs Incurred in Natural Gas and Oil Exploration and Development |
The table below sets forth capitalized costs incurred in natural gas and oil property acquisition, exploration and development activities: |
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| 2014 | | | 2013 | | | 2012 | | | | | | | |
| (in millions, except per Mcfe amounts) | | | | | | | |
Proved property acquisition costs | $ | 1,455 | | | $ | 1 | | | $ | – | | | | | | | |
Unproved property acquisition costs (1) | | 3,934 | | | | 168 | | | | 221 | | | | | | | |
Exploration costs(2) | | 232 | | | | 192 | | | | 197 | | | | | | | |
Development costs | | 1,600 | | | | 1,662 | | | | 1,493 | | | | | | | |
Capitalized costs incurred | | 7,221 | | | | 2,023 | | | | 1,911 | | | | | | | |
Full cost pool amortization per Mcfe | $ | 1.10 | | | $ | 1.08 | | | $ | 1.31 | | | | | | | |
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| -1 | | Includes $1 million, $17 million and $4 million, in 2014, 2013 and 2012, respectively, related to the Company’s exploration program in Canada. | | | | | | | | | | | | | | |
| -2 | | Includes $3 million, $12 million and $3 million in 2014, 2013 and 2012, respectively, related to the Company’s exploration program in Canada. | | | | | | | | | | | | | | |
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Capitalized interest is included as part of the cost of natural gas and oil properties. The Company capitalized $55 million, $62 million and $62 million during 2014, 2013 and 2012, respectively, based on the Company’s weighted average cost of borrowings used to finance expenditures. |
In addition to capitalized interest, the Company capitalized internal costs totaling $320 million, $264 million and $237 million during 2014, 2013 and 2012, respectively, that were directly related to the acquisition, exploration and development of the Company’s natural gas and oil properties. Included in these amounts are internal costs from the Company’s subsidiaries involved with vertical integration of the Company’s exploration and development activities and totaled $123 million, $103 million and $82 million during 2014, 2013 and 2012, respectively. All internal costs are included in the Company’s cost of natural gas and oil properties. |
Results of Operations from Natural Gas and Oil Producing Activities |
The table below sets forth the results of operations from natural gas and oil producing activities: |
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| 2014 | | 2013 | | 2012 | | | | | | | | | |
| (in millions) | | | | | | | | | |
Sales | $ | 2,862 | | $ | 2,404 | | $ | 1,963 | | | | | | | | | |
Production (lifting) costs | | -776 | | | -629 | | | -505 | | | | | | | | | |
Depreciation, depletion and amortization | | -884 | | | -735 | | | -765 | | | | | | | | | |
Impairment of natural gas and oil properties | | – | | | – | | | -1,940 | | | | | | | | | |
| | 1,202 | | | 1,040 | | | -1,247 | | | | | | | | | |
Provision (benefit) for income taxes | | 457 | | | 416 | | | -497 | | | | | | | | | |
Results of operations (1) | $ | 745 | | $ | 624 | | $ | -750 | | | | | | | | | |
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| -1 | | Results of operations exclude the mark-to-market gain or loss on commodity derivative instruments. See Note 5 Derivatives and Risk Management. | | | | | | | | | | | | | | |
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The results of operations shown above exclude general and administrative expenses and interest expense and are not necessarily indicative of the contribution made by the Company’s natural gas and oil operations to its consolidated operating results. Income tax expense is calculated by applying the statutory tax rates to the revenues less costs, including depreciation, depletion and amortization, and after giving effect to permanent differences and tax credits. |
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Natural Gas and Oil Reserve Quantities |
The Company engaged the services of Netherland, Sewell & Associates, Inc., or NSAI, an independent petroleum engineering firm, to audit the reserves estimated by the Company’s reservoir engineers. In conducting its audit, the engineers and geologists of NSAI studied the Company’s major properties in detail and independently developed reserve estimates. NSAI’s audit consists primarily of substantive testing, which includes a detailed review of the Company’s major properties and accounted for approximately 97%, 95% and 93% of the present worth of the Company’s total proved reserves as of December 31, 2014, 2013 and 2012, respectively. A reserve audit is not the same as a financial audit and a reserve audit is less rigorous in nature than a reserve report prepared by an independent petroleum engineering firm containing its own estimate of reserves. Reserve estimates are inherently imprecise and the Company’s reserve estimates are generally based upon extrapolation of historical production trends, historical prices of natural gas and crude oil and analogy to similar properties and volumetric calculations. Accordingly, the Company’s estimates are expected to change, and such changes could be material and occur in the near term as future information becomes available. For more information over reserves, refer to the table titled “Changes in Proved Undeveloped Reserves (Bcfe)” in “Business – Exploration and Production” in Item 1 of this Annual Report. |
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The following table summarizes the changes in the Company’s proved natural gas, NGLs and oil reserves for 2014, 2013 and 2012 all of which were located in the United States: |
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| 2014 | | 2013 | | 2012 |
| Natural | | | | | | Natural | | | | | | Natural | | | | |
| Gas | | Oil | | NGL | | Gas | | Oil | | NGL | | Gas | | Oil | | NGL |
| (Bcf) | | (MBbls) | | (MBbls) | | (Bcf) | | (MBbls) | | (MBbls) | | (Bcf) | | (MBbls) | | (MBbls) |
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Proved reserves, beginning of year | 6,974 | | 373 | | – | | 4,017 | | 244 | | – | | 5,887 | | 996 | | – |
Revisions of previous estimates | 542 | | -14 | | 66 | | 325 | | 38 | | 50 | | -2,088 | | -44 | | – |
Extensions, discoveries and other additions | 1,691 | | 250 | | 48 | | 3,283 | | 229 | | – | | 918 | | 154 | | – |
Production | -765 | | -235 | | -231 | | -655 | | -138 | | -50 | | -564 | | -83 | | – |
Acquisition of reserves in place | 1,367 | | 37,246 | | 118,816 | | 4 | | – | | – | | – | | – | | – |
Disposition of reserves in place | – | | -5 | | – | | – | | – | | – | | -136 | | -779 | | – |
Proved reserves, end of year | 9,809 | | 37,615 | | 118,699 | | 6,974 | | 373 | | – | | 4,017 | | 244 | | – |
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Proved developed reserves: | | | | | | | | | | | | | | | | | |
Beginning of year | 4,237 | | 372 | | – | | 3,196 | | 243 | | – | | 3,254 | | 983 | | – |
End of year | 5,675 | | 7,445 | | 38,632 | | 4,237 | | 372 | | – | | 3,196 | | 243 | | – |
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Proved undeveloped reserves: | | | | | | | | | | | | | | | | | |
Beginning of year | 2,737 | | 1 | | – | | 821 | | 1 | | – | | 2,633 | | 13 | | – |
End of year | 4,134 | | 30,170 | | 80,067 | | 2,737 | | 1 | | – | | 821 | | 1 | | – |
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The Company’s estimated proved natural gas and oil reserves were 10,747 Bcfe at year-end 2014, compared to 6,976 Bcfe at year-end 2013. The significant increase in the Company’s reserves in 2014 was primarily due to the acquisition of approximately 413,000 net acres in Southwest Appalachia, successful development drilling programs in the Fayetteville Shale and Northeast Appalachia and upward performance revisions in Northeast Appalachia. In 2014, the Company’s production was 768 Bcfe, up from 657 Bcfe in 2013. The increase in production in 2014 resulted primarily from a 103 Bcf increase in net production from the Company’s Northeast Appalachia properties, a 3 Bcfe increase in net production from its Southwest Appalachia properties, and an 8 Bcf increase in net production from its Fayetteville Shale properties, which more than offset a combined 3 Bcfe decrease in net production from its East Texas and Arkoma Basin properties. The Company replaced 591% of its production volumes with 1,693 Bcfe of proved reserve additions, net upward revisions of 543 Bcfe, and 2,304 Bcfe of proved reserve additions as a result of acquisitions primarily associated with acreage in Southwest Appalachia. Of the reserve additions, 283 Bcfe, 246 Bcfe and 2 Bcfe from the Company’s Fayetteville Shale, Northeast Appalachia, and Brown Dense divisions, respectively, were proved developed and 573 Bcfe and 589 Bcfe from its Fayetteville Shale and Northeast Appalachia divisions, respectively, were proved undeveloped. In 2014, upward reserve revisions resulting from higher gas prices totaled 38 Bcf, 10 Bcf and 6 Bcf in the Company’s Fayetteville Shale, Northeast Appalachia and Ark-La-Tex divisions, respectively. The Company also had performance revisions in 2014 of (126) Bcf, 636 Bcf and (21) Bcf in its Fayetteville Shale, Northeast Appalachia and Ark-La-Tex divisions, respectively. The Company’s December 31, 2014 proved reserves include 181 Bcfe of proved undeveloped reserves from 60 locations that have a positive present value on an undiscounted basis in compliance with proved reserve requirements, but do not have a positive present value when discounted at 10%. These properties have a negative present value of $28 million when discounted at 10%. The Company has made a final investment decision and is committed to developing these reserves. |
The Company’s estimated proved natural gas and oil reserves were 6,976 Bcfe at year-end 2013, compared to 4,018 Bcfe at year-end 2012. The significant increase in the Company’s reserves in 2013 was primarily due to its successful development drilling programs in the Fayetteville Shale and Northeast Appalachia and the higher natural gas price environment compared to 2012. In 2013, the Company’s production was 657 Bcfe, up from 565 Bcfe in 2012. The increase in production in 2013 resulted primarily from a 97 Bcf increase in net production from the Company’s Northeast Appalachia properties, a 1 Bcfe increase in net production from its New Ventures properties, and a 1 Bcf increase in net production from its Fayetteville Shale properties, which more than offset a combined 7 Bcfe decrease in net production from its East Texas and Arkoma Basin properties. The Company replaced 550% of its production volumes with 3,285 Bcfe of proved reserve additions, net upward revisions of 326 Bcfe, and 4 Bcfe of proved reserve additions as a result of acquisitions. Of the reserve additions, 557 Bcfe, 386 Bcfe and 2 Bcfe from the Company’s Fayetteville Shale, Northeast Appalachia and Brown Dense divisions, respectively, were proved developed and 1,530 Bcfe and 810 Bcfe from its Fayetteville Shale and Northeast Appalachia divisions, respectively, were proved undeveloped. In 2013, upward reserve revisions resulting from higher gas prices totaled 191 Bcf, 35 Bcf and 21 Bcf in the Fayetteville Shale, Northeast Appalachia, and the Company’s Ark-La-Tex division, respectively. The Company also had upward performance revisions in 2013 of 16 Bcf, 62 Bcf and 1 Bcf in the Fayetteville Shale, Northeast Appalachia, and the Company’s New Ventures division, respectively. Additionally, the Company’s reserves increased by 4 Bcf in 2013 as a result of the acquisition of natural gas leases and wells in Northeast Appalachia. The Company’s December 31, 2013 proved reserves include 662 Bcfe of proved undeveloped reserves from 268 locations that have a positive present value on an undiscounted basis in compliance with proved reserve requirements, but do not have a positive present value when discounted at 10%. These properties have a negative present value of $97 million when discounted when at 10%. |
The Company’s estimated proved natural gas and oil reserves were 4,018 Bcfe at year-end 2012, compared to 5,893 Bcfe at year-end 2011. The overall decrease in total estimated proved reserves in 2012 was primarily due to the low natural gas price environment. In 2012, the Company’s production was 565 Bcfe, up from 500 Bcfe in 2011. The increase in production in 2012 resulted primarily from a 49 Bcf increase in production from the Fayetteville Shale and a 30 Bcf increase in the Company’s Northeast Appalachia production, which more than offset a combined 14 Bcfe decrease in net production from the Company’s East Texas and Arkoma Basin properties. The Company replaced its production volumes with 920 Bcfe of proved reserve additions as a result of its drilling and acquisition program but also incurred net downward revisions of 2,088 Bcfe principally due to a decrease in the price of natural gas and to a lesser extent due to downward performance revisions of 336 Bcfe. Of the reserve additions, 383 Bcfe, 195 Bcfe, 3 Bcfe and 2 Bcfe from the Company’s Fayetteville Shale, Northeast Appalachia, Ark-La-Tex, and New Ventures divisions, respectively, were proved developed and 32 Bcfe and 305 Bcfe from its Fayetteville Shale and Northeast Appalachia divisions, respectively, were proved undeveloped. The total downward reserve revisions were primarily impacted by the low commodity price environment in 2012 and to a lesser extent by downward performance revisions. In 2012, downward reserve revisions resulting from lower gas prices totaled 1,684 Bcf, 9 Bcf and 59 Bcf in the Fayetteville Shale, Northeast Appalachia, and the Company’s Ark-La-Tex division, respectively. The Company also had a net downward performance revision in 2012 of 362 Bcf and 10 Bcf in the Fayetteville Shale and its Ark-La-Tex division, respectively. The Company had a net positive performance revision in 2012 of 36 Bcf in Northeast Appalachia. Additionally, the Company’s reserves decreased by 141 Bcf in 2012 as a result of its disposition of natural gas leases and wells in the Overton Field in East Texas. The Company’s December 31, 2012 proved reserves include 355 Bcfe of proved undeveloped reserves from 198 locations that have a positive present value on an undiscounted basis in compliance with proved reserve requirements, but do not have a positive present value when discounted at 10%. These properties have a negative present value of $71 million when discounted when at 10%. |
The Company has no reserves from synthetic gas, synthetic oil or nonrenewable natural resources intended to be upgraded into synthetic gas or oil. The Company used standard engineering and geoscience methods, or a combination of methodologies in determining estimates of material properties, including performance and test date analysis offset statistical analogy of performance data, volumetric evaluation, including analysis of petrophysical parameters (including porosity, net pay, fluid saturations (i.e., water, oil and gas) and permeability) in combination with estimated reservoir parameters (including reservoir temperature and pressure, formation depth and formation volume factors), geological analysis, including structure and isopach maps and seismic analysis, including review of 2-D and 3-D data to ascertain faults, closure and other factors. |
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Standardized Measure of Discounted Future Net Cash Flows |
The following standardized measures of discounted future net cash flows relating to proved natural gas and oil reserves as of December 31, 2014, 2013 and 2012 are calculated after income taxes and discounted using a 10% annual discount rate and do not purport to present the fair market value the Company’s proved gas and oil reserves: |
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| 2014 | | 2013 | | 2012 | | | | | | | | | |
| (in millions) | | | | | | | | | |
Future cash inflows | $ | 41,812 | | $ | 22,624 | | $ | 9,570 | | | | | | | | | |
Future production costs | | -16,477 | | | -8,896 | | | -4,737 | | | | | | | | | |
Future development costs | | -5,750 | | | -3,626 | | | -711 | | | | | | | | | |
Future income tax expense | | -4,743 | | | -3,223 | | | -745 | | | | | | | | | |
Future net cash flows | | 14,842 | | | 6,879 | | | 3,377 | | | | | | | | | |
10% annual discount for estimated timing of cash flows | | -7,299 | | | -3,143 | | | -1,326 | | | | | | | | | |
Standardized measure of discounted future net cash flows | $ | 7,543 | | $ | 3,736 | | $ | 2,051 | | | | | | | | | |
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Under the standardized measure, future cash inflows were estimated by applying an average price from the first day of each month from the previous 12 months, adjusted for known contractual changes, to the estimated future production of year-end proved reserves. Prices used for the standardized measure above were $4.35 per MMBtu for natural gas, $91.48 per barrel for oil and $23.79 per barrel for NGLs in 2014, $3.67 per MMBtu for natural gas, $93.42 per barrel for oil and $43.45 per barrel for NGLs in 2013, and $2.76 per MMBtu for natural gas and $91.21 per barrel for oil in 2012. Future cash inflows were reduced by estimated future production and development costs based on year-end costs to determine pre-tax cash inflows. Future income taxes were computed by applying the year-end statutory rate to the excess of pre-tax cash inflows over the Company’s tax basis in the associated proved gas and oil properties after giving effect to permanent differences and tax credits. |
Following is an analysis of changes in the standardized measure during 2014, 2013 and 2012: |
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| 2014 | | 2013 | | 2012 | | | | | | | | | |
| (in millions) | | | | | | | | | |
Standardized measure, beginning of year | $ | 3,736 | | $ | 2,051 | | $ | 3,451 | | | | | | | | | |
Sales and transfers of natural gas and oil produced, net of production costs | | -2,084 | | | -1,774 | | | -1,444 | | | | | | | | | |
Net changes in prices and production costs | | 1,192 | | | 1,853 | | | -2,605 | | | | | | | | | |
Extensions, discoveries, and other additions, net of future production and development costs | | 1,049 | | | 1,454 | | | 550 | | | | | | | | | |
Acquisition of reserves in place | | 1,897 | | | 5 | | | – | | | | | | | | | |
Sales of reserves in place | | – | | | – | | | -157 | | | | | | | | | |
Revisions of previous quantity estimates | | 622 | | | 349 | | | -1,109 | | | | | | | | | |
Accretion of discount | | 513 | | | 232 | | | 480 | | | | | | | | | |
Net change in income taxes | | -522 | | | -1,120 | | | 1,079 | | | | | | | | | |
Changes in estimated future development costs | | 110 | | | -196 | | | 2,476 | | | | | | | | | |
Previously estimated development costs incurred during the year | | 815 | | | 223 | | | 62 | | | | | | | | | |
Changes in production rates (timing) and other | | 215 | | | 659 | | | -732 | | | | | | | | | |
Standardized measure, end of year | $ | 7,543 | | $ | 3,736 | | $ | 2,051 | | | | | | | | | |
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