Basis of Presentation and Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2013 |
Accounting Policies [Abstract] | ' |
Basis of Accounting, Policy [Policy Text Block] | ' |
Basis of Presentation |
The accompanying consolidated financial statements of Chesapeake are prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and include the accounts of our direct and indirect wholly owned subsidiaries and entities in which Chesapeake has a controlling financial interest. Intercompany accounts and balances have been eliminated. |
Use of Estimates, Policy [Policy Text Block] | ' |
Accounting Estimates |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. |
Estimates of natural gas and oil reserves and their values, future production rates and future costs and expenses are the most significant of our estimates. The accuracy of any reserve estimate is a function of the quality of data available and of engineering and geological interpretation and judgment. In addition, estimates of reserves may be revised based on actual production, results of subsequent exploration and development activities, recent commodity prices, operating costs and other factors. These revisions could materially affect our financial statements. The volatility of commodity prices results in increased uncertainty inherent in such estimates and assumptions. Changes in natural gas, oil or NGL prices could result in actual results differing significantly from our estimates. |
Consolidation, Policy [Policy Text Block] | ' |
Consolidation |
Chesapeake consolidates entities in which we have a controlling financial interest. We consolidate subsidiaries in which we hold, directly or indirectly, more than 50% of the voting rights and variable interest entities (VIEs) in which Chesapeake is the primary beneficiary. We use the equity method of accounting to record our net interests where Chesapeake has the ability to exercise significant influence through its investment in common stock. Under the equity method, our share of net income (loss) is included in our consolidated statements of operations according to our equity ownership or according to the terms of the applicable governing instrument. Investments in securities not accounted for under the equity method have been designated as available-for-sale and, as such, are carried at fair value whenever this value is readily determinable. Otherwise, the investment is carried at cost. See Note 13 for further discussion of our investments. Undivided interests in natural gas and oil exploration and production joint ventures are consolidated on a proportionate basis. |
Noncontrolling Interests |
Noncontrolling interests represent third-party equity ownership in certain of our consolidated subsidiaries and are presented as a component of equity. See Note 8 for further discussion of noncontrolling interests. |
Consolidation, Variable Interest Entity, Policy [Policy Text Block] | ' |
Variable Interest Entities |
VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities independently, or (ii) have equity holders that do not have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the entity’s losses, or the right to receive the entity’s residual returns. We consolidate a VIE when we are the primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. |
Along with a VIE that we consolidate, we also hold a variable interest in another VIE that is not consolidated because we are not the primary beneficiary. We continually monitor both the consolidated and unconsolidated VIEs to determine if any events have occurred that could cause the primary beneficiary to change. See Note 14 for further discussion of VIEs. |
We consolidate the activities of VIEs for which we are the primary beneficiary. |
Risks and Uncertainties [Policy Text Block] | ' |
Risks and Uncertainties |
We have recently conducted a company-wide review of our operations, assets and organizational structure to best position the Company to maximize shareholder value going forward as we focus on our strategic priorities of financial discipline and profitable and efficient growth from captured resources. We intend to apply financial discipline through all aspects of our business, and we believe that the successful execution of this strategy will allow us to better balance capital expenditures with cash flow from operations as well as reduce financial leverage and complexity. While furthering our strategic priorities, certain actions that would reduce financial leverage and complexity could negatively impact our future results of operations and/or liquidity. We expect to incur various cash and noncash charges, including but not limited to impairments of fixed assets, lease termination charges, financing extinguishment costs and charges for unused natural gas transportation and gathering capacity. |
Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block] | ' |
Cash and Cash Equivalents and Restricted Cash |
For purposes of the consolidated financial statements, Chesapeake considers investments in all highly liquid instruments with original maturities of three months or less at date of purchase to be cash equivalents. Restricted cash consists of balances required to be maintained by the terms of the respective agreements governing the activities of CHK Utica, L.L.C. (CHK Utica) and CHK Cleveland Tonkawa, L.L.C. (CHK C-T). See Note 8 for further discussion of these entities. |
Receivables, Policy [Policy Text Block] | ' |
Accounts Receivable |
Our accounts receivable are primarily from purchasers of natural gas, oil and NGL and from exploration and production companies that own interests in properties we operate. This industry concentration could affect our overall exposure to credit risk, either positively or negatively, because our purchasers and joint working interest owners may be similarly affected by changes in economic, industry or other conditions. We monitor the creditworthiness of all our counterparties and we generally require letters of credit or parent guarantees for receivables from parties which are judged to have sub-standard credit, unless the credit risk can otherwise be mitigated. We utilize an allowance method in accounting for bad debt based on historical trends in addition to specifically identifying receivables we believe will be uncollectible. During 2013, 2012 and 2011, we recognized $2 million, a nominal amount and $1 million of bad debt expense related to potentially uncollectible receivables, and we reduced our allowance by $3 million in 2013 as we wrote off specific receivables against our allowance. Accounts receivable as of December 31, 2013 and 2012 are detailed below. |
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| | December 31, | | | | | | | | | | | | |
| | 2013 | | 2012 | | | | | | | | | | | | |
| | ($ in millions) | | | | | | | | | | | | |
Natural gas, oil and NGL sales | | $ | 1,548 | | | $ | 1,457 | | | | | | | | | | | | | |
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Joint interest | | 417 | | | 592 | | | | | | | | | | | | | |
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Oilfield services | | 63 | | | 24 | | | | | | | | | | | | | |
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Related parties(a) | | 62 | | | 23 | | | | | | | | | | | | | |
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Other | | 150 | | | 168 | | | | | | | | | | | | | |
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Allowance for doubtful accounts | | (18 | ) | | (19 | ) | | | | | | | | | | | | |
Total accounts receivable, net | | $ | 2,222 | | | $ | 2,245 | | | | | | | | | | | | | |
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(a) | See Note 7 for discussion of related party transactions. | | | | | | | | | | | | | | | | | | | |
Oil and Gas Properties Policy [Policy Text Block] | ' |
Natural Gas and Oil Properties |
Chesapeake follows the full cost method of accounting under which all costs associated with natural gas and oil property acquisition, exploration and development activities are capitalized. We capitalize internal costs that can be directly identified with these activities and do not capitalize any costs related to production, general corporate overhead or similar activities (see Supplementary Information - Supplemental Disclosures About Natural Gas, Oil and NGL Producing Activities). Capitalized costs are amortized on a composite unit-of-production method based on proved natural gas and oil reserves. Estimates of our proved reserves as of December 31, 2013 were prepared by independent engineering firms and Chesapeake's internal staff. Approximately 81% of these proved reserves estimates (by volume) as of December 31, 2013 were prepared by independent engineering firms. In addition, our internal engineers review and update our reserves on a quarterly basis. |
Proceeds from the sale of natural gas and oil properties are accounted for as reductions of capitalized costs unless such sales involve a significant change in proved reserves and significantly alter the relationship between costs and proved reserves, in which case a gain or loss is recognized. |
The costs of unproved properties are excluded from amortization until the properties are evaluated. We review all of our unproved properties quarterly to determine whether or not and to what extent proved reserves have been assigned to the properties and otherwise if impairment has occurred. Unproved properties are grouped by major prospect area where individual property costs are not significant. In addition, we analyze our unproved leasehold and transfer to proved properties leasehold that can be associated with reserves, leasehold that expired in the quarter or leasehold that is not a part of our development strategy and will be abandoned. |
The table below sets forth the cost of unproved properties excluded from the amortization base as of December 31, 2013 and the year in which the associated costs were incurred. |
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| | Year of Acquisition | | |
| | 2013 | | 2012 | | 2011 | | Prior | | Total |
| | ($ in millions) |
Leasehold acquisition cost | | $ | 229 | | | $ | 1,648 | | | $ | 2,113 | | | $ | 5,066 | | | $ | 9,056 | |
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Exploration cost | | 623 | | | 341 | | | 93 | | | 8 | | | 1,065 | |
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Capitalized interest | | 667 | | | 516 | | | 270 | | | 439 | | | 1,892 | |
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Total | | $ | 1,519 | | | $ | 2,505 | | | $ | 2,476 | | | $ | 5,513 | | | $ | 12,013 | |
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We also review, on a quarterly basis, the carrying value of our natural gas and oil properties under the full cost accounting rules of the SEC. This quarterly review is referred to as a ceiling test. Under the ceiling test, capitalized costs, less accumulated amortization and related deferred income taxes, may not exceed an amount equal to the sum of the present value of estimated future net revenues (adjusted for natural gas and oil derivatives designated as cash flow hedges) less estimated future expenditures to be incurred in developing and producing the proved reserves, less any related income tax effects. The ceiling test calculation uses costs as of the end of the applicable quarterly period and the unweighted arithmetic average of natural gas, oil and NGL prices on the first day of each month within the 12-month period prior to the ending date of the quarterly period. Such prices are utilized except where different prices are fixed and determinable from applicable contracts for the remaining term of those contracts, including the effects of derivatives designated as cash flow hedges. As of December 31, 2013, none of our open derivative instruments were designated as cash flow hedges. Our natural gas and oil hedging activities are discussed in Note 11. |
Two primary factors impacting the ceiling test are reserves levels and natural gas, oil and NGL prices, and their associated impact on the present value of estimated future net revenues. Revisions to estimates of natural gas and oil reserves and/or an extended increase or decrease in prices can have a material impact on the present value of estimated future net revenues. Any excess of the net book value is written off as an expense. |
We account for seismic costs as part of our natural gas and oil properties (i.e., full cost pool). Exploration costs may be incurred both before acquiring the related property and after acquiring the property. Further, exploration costs include, among other things, geological and geophysical studies and salaries and other expenses of geologists, geophysical crews and others conducting those studies. Such costs are capitalized as incurred. The Company reviews its unproved properties and associated seismic costs quarterly to determine whether impairment has occurred. To the extent that seismic costs cannot be directly associated with specific unproved properties, they are included in the amortization base as incurred. |
Property, Plant and Equipment, Policy [Policy Text Block] | ' |
Other Property and Equipment |
Other property and equipment consists primarily of oilfield services equipment, including drilling rigs, rental tools and hydraulic fracturing equipment, natural gas compressors, buildings and improvements, land, vehicles, office equipment, natural gas and oil gathering systems and treating plants. Substantially all of our natural gas gathering systems and treating plants were sold in 2013 and 2012 as discussed in Note 15. Major renewals and betterments are capitalized while the costs of repairs and maintenance are charged to expense as incurred. The costs of assets retired or otherwise disposed of and the applicable accumulated depreciation are removed from the accounts, and the resulting gain or loss is reflected in operating costs. See Note 15 for further discussion of our gains and losses on the sales of other property and equipment and a summary of our other property and equipment held for sale as of December 31, 2013. Other property and equipment costs, excluding land, are depreciated on a straight-line basis. |
Realization of the carrying value of other property and equipment is reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets are determined to be impaired if a forecast of undiscounted estimated future net operating cash flows directly related to the asset, including disposal value, if any, is less than the carrying amount of the asset. If any asset is determined to be impaired, the loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. An estimate of fair value is based on the best information available, including prices for similar assets and discounted cash flow. During 2013, 2012 and 2011, we determined that certain of our property and equipment was being carried at values that were not recoverable and in excess of fair value. See Note 16 for further discussion of these impairments. |
Interest Capitalization, Policy [Policy Text Block] | ' |
Capitalized Interest |
Interest from external borrowings is capitalized on significant projects until the asset is ready for service using the weighted average cost of outstanding borrowings. Capitalized interest is determined by multiplying our weighted-average borrowing cost on debt by the average amount of qualifying costs incurred. Capitalized interest is depreciated over the useful lives of the assets in the same manner as the depreciation of the underlying asset. |
Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block] | ' |
Goodwill |
Goodwill represents the excess of the purchase price of a business combination over the fair value of the net assets acquired and is tested for impairment at least annually. Such test includes an assessment of qualitative and quantitative factors. The impairment test requires allocating goodwill and all other assets and liabilities to assigned reporting units. The fair value of each reporting unit is estimated and compared to the net book value of the reporting unit. If the estimated fair value of the reporting unit is less than the net book value, including goodwill, then the goodwill is written down to the implied fair value of the goodwill through a charge to expense. |
Our goodwill of $43 million as of December 31, 2013 and 2012 consisted of the excess consideration over the fair value of assets acquired of $28 million in our Bronco Drilling Company acquisition and $15 million in our Horizon Drilling Services acquisition. Quoted market prices are not available for these reporting units and their fair values are based upon several valuation analyses, including discounted cash flows. We performed annual impairment tests of goodwill in the fourth quarters of 2013 and 2012. Based on these assessments, no impairment of goodwill was required. Goodwill is included in our oilfield services segment. |
Accounts Payable [Policy Text Block] | ' |
Accounts Payable |
Included in accounts payable as of December 31, 2013 and 2012 are liabilities of approximately $397 million and $432 million, respectively, representing the amount by which checks issued, but not yet presented to our banks for collection, exceeded balances in applicable bank accounts. |
Debt, Policy [Policy Text Block] | ' |
Debt Issuance and Hedging Facility Costs |
Included in other long-term assets are costs associated with the issuance of our senior notes, term loan, revolving bank credit facilities and hedging facility. The remaining unamortized issuance costs as of December 31, 2013 and 2012 totaled $145 million and $182 million, respectively, and are being amortized over the life of the applicable debt or facility using the effective interest method. |
Environmental Costs, Policy [Policy Text Block] | ' |
Environmental Remediation Costs |
Chesapeake records environmental reserves for estimated remediation costs related to existing conditions from past operations when the responsibility to remediate is probable and the costs can be reasonably estimated. Expenditures that create future benefits or contribute to future revenue generation are capitalized. |
Asset Retirement Obligations and Environmental Cost, Policy [Policy Text Block] | ' |
Asset Retirement Obligations |
We recognize liabilities for retirement obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction and development of the assets. We recognize the fair value of a liability for a retirement obligation in the period in which the liability is incurred. For natural gas and oil properties, this is the period in which a natural gas or oil well is acquired or drilled. The liability is then accreted each period until the liability is settled or the well is sold, at which time the liability is removed. The related asset retirement cost is capitalized as part of the carrying amount of our natural gas and oil properties. See Note 19 for further discussion of asset retirement obligations. |
Revenue Recognition, Policy [Policy Text Block] | ' |
Revenue Recognition |
Natural Gas, Oil and NGL Sales. Revenue from the sale of natural gas, oil and NGL is recognized when title passes, net of royalties due to third parties and gathering and transportation charges. |
Natural Gas Imbalances. We follow the "sales method" of accounting for our natural gas revenue whereby we recognize sales revenue on all natural gas sold to our purchasers, regardless of whether the sales are proportionate to our ownership in the property. An asset or a liability is recognized to the extent that we have an imbalance in excess of the remaining natural gas reserves on the underlying properties. The natural gas imbalance liability net position as of December 31, 2013 and 2012 was $11 million and $9 million, respectively. |
Marketing, Gathering and Compression Sales. Chesapeake takes title to the natural gas, oil and NGL it purchases from other interest owners in operated wells at defined delivery points and delivers the product to third parties, at which time revenues are recorded. Chesapeake's results of operations related to its natural gas, oil and NGL marketing activities are presented on a "gross" basis, because we act as a principal rather than an agent. Gathering and compression revenues consist of fees billed to other interest owners in operated wells or third-party producers for the gathering, treating and compression of natural gas. Revenues are recognized when the service is performed and are based upon non-regulated rates and the related gathering, treating and compression volumes. All significant intercompany accounts and transactions have been eliminated. |
Oilfield Services Revenue. Our oilfield services operating segment is responsible for contract drilling, hydraulic fracturing, oilfield rentals, oilfield trucking and other oilfield services operations for both Chesapeake-operated wells and wells operated by third parties. |
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• | Drilling. Revenues are generated by drilling oil and natural gas wells for our customers under daywork contracts and recognized for the days completed based on the dayrate specified in each contract. Revenue generated and costs incurred for mobilization services are recognized over the days of actual mobilization. | | | | | | | | | | | | | | | | | | | |
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• | Hydraulic Fracturing. Revenue is recognized upon the completion of each fracturing stage. Typically one or more fracturing stages per day per active crew is completed during the course of a job. A stage is considered complete when the customer requests or the job design dictates that pumping discontinue for that stage. Invoices typically include a lump sum equipment charge determined by the rate per stage specified in each contract and product charges for sand, chemicals and other products actually consumed during the course of providing fracturing services. | | | | | | | | | | | | | | | | | | | |
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• | Oilfield Rentals. Oilfield equipment rentals include drill pipe, drill collars, tubing, blowout preventers, and frac and mud tanks, and services include air drilling services and services associated with the transfer of fresh water to the wellsite. Rentals and services are priced by the day or hour based on the type of equipment being rented and the service job performed. Revenue is recognized ratably over the term of the rental. | | | | | | | | | | | | | | | | | | | |
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• | Oilfield Trucking. Oilfield trucking provides rig relocation and logistics services as well as fluid handling services. Trucks move drilling rigs, crude oil, other fluids and construction materials to and from the wellsites and also transport produced water from the wellsites. These services are priced on a per barrel basis based on mileage and revenue is recognized as services are performed. | | | | | | | | | | | | | | | | | | | |
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• | Other Operations. A manufacturing subsidiary designs, engineers and fabricates natural gas compressor packages that are purchased primarily by Chesapeake. Compression units are priced based on certain specifications such as horsepower, stages and additional options. Revenue is recognized upon completion and transfer of ownership of the natural gas compression unit. | | | | | | | | | | | | | | | | | | | |
Fair Value Measurement, Policy [Policy Text Block] | ' |
Fair Value Measurements |
Certain financial instruments are reported at fair value on our consolidated balance sheets. Under fair value measurement accounting guidance, fair value is defined as the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants, i.e., an exit price. To estimate an exit price, a three-level hierarchy is used. The fair value hierarchy prioritizes the inputs, which refer broadly to assumptions market participants would use in pricing an asset or a liability, into three levels. Level 1 inputs are unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority. Level 2 inputs are inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability and have the lowest priority. |
The valuation techniques that may be used to measure fair value include a market approach, an income approach and a cost approach. A market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. An income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectations, including present value techniques, option-pricing models and the excess earnings method. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). |
Derivatives, Policy [Policy Text Block] | ' |
Derivatives |
Derivative instruments are recorded on the consolidated balance sheets as derivative assets or derivative liabilities at fair value, and changes in a derivative’s fair value are recognized currently in earnings unless specific hedge accounting criteria are met. For qualifying commodity derivative instruments designated as cash flow hedges, changes in fair value, to the extent the hedge is effective, are recognized in other comprehensive income until the hedged item is recognized in earnings. Any change in fair value resulting from ineffectiveness is recognized immediately in earnings. Changes in the fair value of interest rate derivative instruments designated as fair value hedges are recorded on the consolidated balance sheets as assets or liabilities, and the debt's carrying value amount is adjusted by the change in the fair value of the debt subsequent to the initiation of the derivative. Differences between the changes in the fair values of the hedged item and the derivative instrument, if any, represent hedge effectiveness and are recognized currently in earnings. |
We have elected not to designate any of our qualifying commodity and interest rate derivatives as cash flow or fair value hedges. Therefore, changes in fair value of these derivatives that occur prior to their maturity (i.e., temporary fluctuations in value) are recognized in the consolidated statements of operations within natural gas, oil and NGL sales and interest expense, respectively. Derivative instruments reflected as current in the consolidated balance sheets represent the estimated fair value of derivatives scheduled to settle over the next twelve months based on market prices/rates as of the respective balance sheet dates. Cash settlements of our derivative instruments are generally classified as operating cash flows unless the derivatives are deemed to contain, for accounting purposes, a significant financing element at contract inception, in which case these cash settlements are classified as financing cash flows in the accompanying consolidated statement of cash flows. All of our derivative instruments are subject to master netting arrangements by contract type (i.e., commodity, interest rate and cross currency contracts) which provide for offsetting of asset and liability positions within each contract type, as well as related cash collateral if applicable, by counterparty. Therefore, we net the value of our derivative instruments by contract type with the same counterparty in the accompanying consolidated balance sheets. |
We have established the fair value of our derivative instruments using established index prices, volatility curves and discount factors. These estimates are compared to our counterparty values for reasonableness. The values we report in our financial statements are as of a point in time and subsequently change as these estimates are revised to reflect actual results, changes in market conditions and other factors. Derivative transactions are 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. See Note 11 for further discussion of our derivative instruments. |
Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block] | ' |
Share-Based Compensation |
Chesapeake’s share-based compensation program consists of restricted stock, stock options and performance share units granted to employees and restricted stock granted to non-employee directors under our Long Term Incentive Plan. We recognize in our financial statements the cost of employee services received in exchange for restricted stock and stock options based on the fair value of the equity instruments as of the grant date. For employees, this value is amortized over the vesting period, which is generally three or four years from the grant date. For directors, although restricted stock grants vest over three years, this value is recognized immediately as there is a non-substantive service condition for vesting. Because performance share units can only be settled in cash, they are classified as a liability in our consolidated financial statements and are measured at fair value as of the grant date and re-measured at fair value at the end of each reporting period. These fair value adjustments are recognized as compensation expense in the consolidated statements of operations. |
To the extent compensation cost relates to employees directly involved in the acquisition of natural gas and oil leasehold and exploration and development activities, such amounts are capitalized to natural gas and oil properties. Amounts not capitalized to natural gas and oil properties are recognized as general and administrative expenses, natural gas, oil and NGL production expenses, marketing, gathering and compression expenses or oilfield services expenses, based on the employees involved in those activities. |
Cash inflows resulting from tax deductions in excess of compensation expense recognized for stock options and restricted stock are classified as financing cash inflows, while reductions in tax benefits are classified as operating cash outflows in our consolidated statements of cash flows. See Note 9 for further discussion of share-based compensation. |
Reclassification, Policy [Policy Text Block] | ' |
Reclassifications |
Certain reclassifications have been made to the consolidated financial statements for 2012 and 2011 to conform to the presentation used for the 2013 consolidated financial statements. |