PART I. FINANCIAL INFORMATION


ITEM 1.			Condensed Consolidated Financial Statements

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


		Successor		Predecessor			Successor		Predecessor
		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	340	$	279	Cash and cash equivalents	$	612	$	279
Restricted cash	Restricted cash	68		0		Restricted cash	10		0
Accounts receivable, net	Accounts receivable, net	704		746		Accounts receivable, net	674		746
Short-term derivative assets	Short-term derivative assets	4		19		Short-term derivative assets	0		19
Other current assets	Other current assets	74		64		Other current assets	58		64
Total current assets	Total current assets	1,190		1,108		Total current assets	1,354		1,108
Property and equipment:	Property and equipment:					Property and equipment:
Oil and natural gas properties, successful efforts method	Oil and natural gas properties, successful efforts method					Oil and natural gas properties, successful efforts method
Proved oil and natural gas properties	Proved oil and natural gas properties	4,748		25,734		Proved oil and natural gas properties	4,960		25,734
Unproved properties	Unproved properties	483		1,550		Unproved properties	442		1,550
Other property and equipment	Other property and equipment	491		1,754		Other property and equipment	491		1,754
Total property and equipment	Total property and equipment	5,722		29,038		Total property and equipment	5,893		29,038
Less: accumulated depreciation, depletion and amortization	Less: accumulated depreciation, depletion and amortization	(120)		(23,806)		Less: accumulated depreciation, depletion and amortization	(346)		(23,806)
Property and equipment held for sale, net	Property and equipment held for sale, net	2		10		Property and equipment held for sale, net	3		10
Total property and equipment, net	Total property and equipment, net	5,604		5,242		Total property and equipment, net	5,550		5,242
Long-term derivative assets		2		0

Other long-term assets	Other long-term assets	108		234		Other long-term assets	95		234
Total assets	Total assets	$	6,904	$	6,584	Total assets	$	6,999	$	6,584

The accompanying notes are an integral part of these condensed consolidated financial statements.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS – (Continued)

(Unaudited)


		Successor		Predecessor			Successor		Predecessor
		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Liabilities and equity (deficit)	Liabilities and equity (deficit)					Liabilities and equity (deficit)
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	346	$	346	Accounts payable	$	281	$	346
Current maturities of long-term debt, net		0		1,929
Current maturities of long-term debt						Current maturities of long-term debt	0		1,929
Accrued interest	Accrued interest	11		3		Accrued interest	24		3
Short-term derivative liabilities	Short-term derivative liabilities	305		93		Short-term derivative liabilities	780		93
Other current liabilities	Other current liabilities	781		723		Other current liabilities	781		723
Total current liabilities	Total current liabilities	1,443		3,094		Total current liabilities	1,866		3,094
Long-term debt, net	Long-term debt, net	1,262		0		Long-term debt, net	1,261		0
Long-term derivative liabilities	Long-term derivative liabilities	76		44		Long-term derivative liabilities	211		44
Asset retirement obligations, net of current portion	Asset retirement obligations, net of current portion	237		139		Asset retirement obligations, net of current portion	241		139
Other long-term liabilities	Other long-term liabilities	5		5		Other long-term liabilities	7		5
Liabilities subject to compromise	Liabilities subject to compromise	0		8,643		Liabilities subject to compromise	0		8,643
Total liabilities	Total liabilities	3,023		11,925		Total liabilities	3,586		11,925
Contingencies and commitments (Note 6)	Contingencies and commitments (Note 6)	0		0		Contingencies and commitments (Note 6)	0		0
Stockholders’ equity (deficit):	Stockholders’ equity (deficit):					Stockholders’ equity (deficit):
Predecessor preferred stock, $0.01 par value, 20,000,000 shares authorized: 0 and 5,563,458 shares outstanding	Predecessor preferred stock, $0.01 par value, 20,000,000 shares authorized: 0 and 5,563,458 shares outstanding	—		1,631		Predecessor preferred stock, $0.01 par value, 20,000,000 shares authorized: 0 and 5,563,458 shares outstanding	—		1,631
Predecessor common stock, $0.01 par value, 22,500,000 shares authorized: 0 and 9,780,547 shares issued	Predecessor common stock, $0.01 par value, 22,500,000 shares authorized: 0 and 9,780,547 shares issued	—		0		Predecessor common stock, $0.01 par value, 22,500,000 shares authorized: 0 and 9,780,547 shares issued	—		0
Predecessor additional paid-in capital	Predecessor additional paid-in capital	—		16,937		Predecessor additional paid-in capital	—		16,937
Predecessor accumulated other comprehensive income	Predecessor accumulated other comprehensive income	—		45		Predecessor accumulated other comprehensive income	—		45
Successor common stock, $0.01 par value, 450,000,000 shares authorized: 97,907,081 and 0 shares issued		1		—
Successor common stock, $0.01 par value, 450,000,000 shares authorized: 97,954,037 and 0 shares issued						Successor common stock, $0.01 par value, 450,000,000 shares authorized: 97,954,037 and 0 shares issued	1		—
Successor additional paid-in capital	Successor additional paid-in capital	3,585		—		Successor additional paid-in capital	3,590		—
Retained earnings (accumulated deficit)		295		(23,954)
Accumulated deficit						Accumulated deficit	(178)		(23,954)
Total stockholders’ equity (deficit)	Total stockholders’ equity (deficit)	3,881		(5,341)		Total stockholders’ equity (deficit)	3,413		(5,341)
Total liabilities and stockholders’ equity (deficit)	Total liabilities and stockholders’ equity (deficit)	$	6,904	$	6,584	Total liabilities and stockholders’ equity (deficit)	$	6,999	$	6,584

The accompanying notes are an integral part of these condensed consolidated financial statements.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


		Successor		Predecessor					Successor		Predecessor
		Period from February 10, 2021 through March 31, 2021		Period from January 1, 2021 through February 9, 2021		Three Months Ended March 31, 2020			Three Months Ended June 30, 2021		Three Months Ended June 30, 2020

Revenues and other:	Revenues and other:							Revenues and other:
Oil, natural gas and NGL	Oil, natural gas and NGL	$	553	$	398	$	894	Oil, natural gas and NGL	$	892	$	440
Marketing	Marketing	277		239		724		Marketing	539		240
Oil and natural gas derivatives	Oil and natural gas derivatives	46		(382)		907		Oil and natural gas derivatives	(740)		(173)
Gains on sales of assets	Gains on sales of assets	4		5		0		Gains on sales of assets	2		0
Total revenues and other	Total revenues and other	880		260		2,525		Total revenues and other	693		507
Operating expenses:	Operating expenses:							Operating expenses:
Production	Production	40		32		122		Production	74		91
Gathering, processing and transportation	Gathering, processing and transportation	111		102		285		Gathering, processing and transportation	211		270
Severance and ad valorem taxes	Severance and ad valorem taxes	24		18		54		Severance and ad valorem taxes	41		25
Exploration	Exploration	1		2		282		Exploration	1		130
Marketing	Marketing	280		237		746		Marketing	535		242
General and administrative	General and administrative	15		21		65		General and administrative	24		112
Separation and other termination costs	Separation and other termination costs	0		22		5		Separation and other termination costs	11		22
Depreciation, depletion and amortization	Depreciation, depletion and amortization	122		72		603		Depreciation, depletion and amortization	229		158
Impairments	Impairments	0		0		8,522		Impairments	1		0
Other operating expense (income), net		2		(12)		68
Other operating income, net								Other operating income, net	(4)		(2)
Total operating expenses	Total operating expenses	595		494		10,752		Total operating expenses	1,123		1,048
Income (loss) from operations		285		(234)		(8,227)
Loss from operations								Loss from operations	(430)		(541)
Other income (expense):	Other income (expense):							Other income (expense):
Interest expense	Interest expense	(12)		(11)		(145)		Interest expense	(18)		(137)
Gains on purchases or exchanges of debt	Gains on purchases or exchanges of debt	0		0		63		Gains on purchases or exchanges of debt	0		2
Other income (expense)		22		2		(17)
Other income								Other income	9		6
Reorganization items, net	Reorganization items, net	0		5,569		0		Reorganization items, net	0		394
Total other income (expense)	Total other income (expense)	10		5,560		(99)		Total other income (expense)	(9)		265
Income (loss) before income taxes		295		5,326		(8,326)
Loss before income taxes								Loss before income taxes	(439)		(276)
Income tax benefit	Income tax benefit	0		(57)		(13)		Income tax benefit	0		0
Net income (loss)		295		5,383		(8,313)
Net loss								Net loss	(439)		(276)
Net loss attributable to noncontrolling interests	Net loss attributable to noncontrolling interests	0		0		16		Net loss attributable to noncontrolling interests	0		0
Net income (loss) attributable to Chesapeake		295		5,383		(8,297)
Net loss attributable to Chesapeake								Net loss attributable to Chesapeake	(439)		(276)
Preferred stock dividends	Preferred stock dividends	0		0		(22)		Preferred stock dividends	0		0

Net income (loss) available to common stockholders		$	295	$	5,383	$	(8,319)
Earnings (loss) per common share:
Net loss available to common stockholders								Net loss available to common stockholders	$	(439)	$	(276)
Loss per common share:								Loss per common share:
Basic	Basic	$	3.01	$	550.35	$	(852.97)	Basic	$	(4.48)	$	(28.22)
Diluted	Diluted	$	2.75	$	534.51	$	(852.97)	Diluted	$	(4.48)	$	(28.22)
Weighted average common shares outstanding (in thousands):	Weighted average common shares outstanding (in thousands):							Weighted average common shares outstanding (in thousands):
Basic	Basic	97,907		9,781		9,753		Basic	97,931		9,779
Diluted	Diluted	107,159		10,071		9,753		Diluted	97,931		9,779

The accompanying notes are an integral part of these condensed consolidated financial statements.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~OPERATIONS - (Continued)

(Unaudited)

Successor Predecessor
Period from February 10, 2021 through March 31, 2021 Period from January 1, 2021 through February 9, 2021 Three Months Ended
March 31, 2020

Net income (loss) $ 295 $ 5,383 $ (8,313)
Other comprehensive income, net of income tax:
Reclassification of losses on settled derivative instruments 0 3 9
Other comprehensive income 0 3 9
Comprehensive income (loss) 295 5,386 (8,304)
Comprehensive loss attributable to noncontrolling interests 0 0 16
Comprehensive income (loss) attributable to Chesapeake $ 295 $ 5,386 $ (8,288)


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020

Revenues and other:
Oil, natural gas and NGL	$	1,445	$	398	$	1,334
Marketing	816		239		964
Oil and natural gas derivatives	(694)		(382)		734
Gains on sales of assets	6		5		0
Total revenues and other	1,573		260		3,032
Operating expenses:
Production	114		32		213
Gathering, processing and transportation	322		102		555
Severance and ad valorem taxes	65		18		79
Exploration	2		2		412
Marketing	815		237		988
General and administrative	39		21		177
Separation and other termination costs	11		22		27
Depreciation, depletion and amortization	351		72		761
Impairments	1		0		8,522
Other operating expense (income), net	(2)		(12)		66
Total operating expenses	1,718		494		11,800
Loss from operations	(145)		(234)		(8,768)
Other income (expense):
Interest expense	(30)		(11)		(282)
Gains on purchases or exchanges of debt	0		0		65
Other income (expense)	31		2		(11)
Reorganization items, net	0		5,569		394
Total other income	1		5,560		166
Income (loss) before income taxes	(144)		5,326		(8,602)
Income tax benefit	0		(57)		(13)
Net income (loss)	(144)		5,383		(8,589)
Net loss attributable to noncontrolling interests	0		0		16
Net income (loss) attributable to Chesapeake	(144)		5,383		(8,573)
Preferred stock dividends	0		0		(22)

Net income (loss) available to common stockholders	$	(144)	$	5,383	$	(8,595)
Earnings (loss) per common share:
Basic	$	(1.47)	$	550.35	$	(880.18)
Diluted	$	(1.47)	$	534.51	$	(880.18)
Weighted average common shares outstanding (in thousands):
Basic	97,922		9,781		9,765
Diluted	97,922		10,071		9,765

The accompanying notes are an integral part of these condensed consolidated financial statements.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~COMPREHENSIVE INCOME (LOSS)

(Unaudited)

Successor Predecessor
Period from February 10, 2021 through March 31, 2021 Period from January 1, 2021 through February 9, 2021 Three Months Ended
March 31, 2020
Cash flows from operating activities:
Net income (loss) $ 295 $ 5,383 $ (8,313)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation, depletion and amortization 122 72 603
Deferred income tax benefit 0 (57) (10)
Derivative (gains) losses, net (46) 382 (907)
Cash receipts (payments) on derivative settlements, net (32) (17) 89
Stock-based compensation 0 3 5
Gains on sales of assets (4) (5) 0
Impairments 0 0 8,522
Non-cash reorganization items, net 0 (6,680) 0
Exploration 0 2 279
Gains on purchases or exchanges of debt 0 0 (63)
Other 4 45 31
Changes in assets and liabilities 70 851 161
Net cash provided by (used in) operating activities 409 (21) 397
Cash flows from investing activities:
Capital expenditures (77) (66) (518)
Proceeds from divestitures of property and equipment 4 0 7
Net cash used in investing activities (73) (66) (511)
Cash flows from financing activities:
Proceeds from Exit Credit Facility - Tranche A Loans 30 0 0
Payments on Exit Credit Facility - Tranche A Loans (80) (479) 0
Proceeds from pre-petition revolving credit facility borrowings 0 0 2,331
Payments on pre-petition revolving credit facility borrowings 0 0 (2,021)
Payments on DIP Facility borrowings 0 (1,179) 0
Proceeds from issuance of senior notes, net 0 1,000 0
Proceeds from issuance of common stock 0 600 0
Debt issuance and other financing costs (3) (8) 0
Cash paid to purchase debt 0 0 (93)
Cash paid for preferred stock dividends 0 0 (22)
Other 0 (1) (5)
Net cash provided by (used in) financing activities (53) (67) 190
Net increase (decrease) in cash, cash equivalents and restricted cash 283 (154) 76
Cash, cash equivalents and restricted cash, beginning of period 125 279 6
Cash, cash equivalents and restricted cash, end of period $ 408 $ 125 $ 82
Cash and cash equivalents $ 340 $ 39 $ 82
Restricted cash 68 86 0
Total cash, cash equivalents and restricted cash $ 408 $ 125 $ 82


	Successor		Predecessor
	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020

Net loss	$	(439)	$	(276)
Other comprehensive income, net of income tax:

Reclassification of losses on settled derivative instruments	0		8
Other comprehensive income	0		8
Comprehensive loss	(439)		(268)
Comprehensive loss attributable to noncontrolling interests	0		0
Comprehensive loss attributable to Chesapeake	$	(439)	$	(268)


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020

Net income (loss)	$	(144)	$	5,383	$	(8,589)
Other comprehensive income, net of income tax:

Reclassification of losses on settled derivative instruments	0		3		17
Other comprehensive income	0		3		17
Comprehensive income (loss)	(144)		5,386		(8,572)
Comprehensive loss attributable to noncontrolling interests	0		0		16
Comprehensive income (loss) attributable to Chesapeake	$	(144)	$	5,386	$	(8,556)

The accompanying notes are an integral part of these condensed consolidated financial statements.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020

Cash flows from operating activities:
Net income (loss)	$	(144)	$	5,383	$	(8,589)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation, depletion and amortization	351		72		761
Deferred income tax benefit	0		(57)		(10)
Derivative (gains) losses, net	694		382		(734)
Cash receipts (payments) on derivative settlements, net	(145)		(17)		880
Stock-based compensation	3		3		9
Gains on sales of assets	(6)		(5)		0
Impairments	1		0		8,522
Non-cash reorganization items, net	0		(6,680)		(449)
Exploration	1		2		406
Gains on purchases or exchanges of debt	0		0		(65)
Other	(3)		45		1
Changes in assets and liabilities	51		851		41
Net cash provided by (used in) operating activities	803		(21)		773
Cash flows from investing activities:
Capital expenditures	(226)		(66)		(867)
Proceeds from divestitures of property and equipment	6		0		11
Net cash used in investing activities	(220)		(66)		(856)
Cash flows from financing activities:
Proceeds from Exit Credit Facility - Tranche A Loans	30		0		0
Payments on Exit Credit Facility - Tranche A Loans	(80)		(479)		0
Proceeds from pre-petition revolving credit facility borrowings	0		0		3,806
Payments on pre-petition revolving credit facility borrowings	0		0		(3,467)

Payments on DIP Facility borrowings	0		(1,179)		0

Proceeds from issuance of senior notes, net	0		1,000		0
Proceeds from issuance of common stock	0		600		0
Proceeds from warrant exercise	2		0		0
Debt issuance and other financing costs	(3)		(8)		(55)

Cash paid to purchase debt	0		0		(95)
Cash paid for common stock dividends	(34)		0		0
Cash paid for preferred stock dividends	0		0		(22)

Other	(2)		0		(8)
Net cash provided by (used in) financing activities	(87)		(66)		159
Net increase (decrease) in cash, cash equivalents and restricted cash	496		(153)		76
Cash, cash equivalents and restricted cash, beginning of period	126		279		6
Cash, cash equivalents and restricted cash, end of period	$	622	$	126	$	82

Cash and cash equivalents	$	612	$	40	$	82
Restricted cash	10		86		0
Total cash, cash equivalents and restricted cash	$	622	$	126	$	82

The accompanying notes are an integral part of these condensed consolidated financial statements.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(Unaudited)


Supplemental disclosures to the condensed consolidated statements of cash flows are presented below:	Supplemental disclosures to the condensed consolidated statements of cash flows are presented below:							Supplemental disclosures to the condensed consolidated statements of cash flows are presented below:

		Successor		Predecessor					Successor		Predecessor
		Period from February 10, 2021 through March 31, 2021		Period from January 1, 2021 through February 9, 2021		Three Months Ended March 31, 2020			Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020

Supplemental cash flow information:	Supplemental cash flow information:							Supplemental cash flow information:
Cash paid for reorganization items, net	Cash paid for reorganization items, net	$	18	$	66	$	0	Cash paid for reorganization items, net	$	65	$	66	$	55
Interest paid, net of capitalized interest	Interest paid, net of capitalized interest	$	0	$	13	$	113	Interest paid, net of capitalized interest	$	3	$	13	$	177
Income taxes paid, net of refunds received	Income taxes paid, net of refunds received	$	(3)	$	0	$	0	Income taxes paid, net of refunds received	$	(3)	$	0	$	(2)

Supplemental disclosure of significant non-cash investing and financing activities:	Supplemental disclosure of significant non-cash investing and financing activities:							Supplemental disclosure of significant non-cash investing and financing activities:
Change in accrued drilling and completion costs	Change in accrued drilling and completion costs	$	(12)	$	(5)	$	(29)	Change in accrued drilling and completion costs	$	14	$	(5)	$	(223)
Put option premium on equity backstop agreement	Put option premium on equity backstop agreement	$	0	$	60	$	0	Put option premium on equity backstop agreement	$	0	$	60	$	0

The accompanying notes are an integral part of these condensed consolidated financial statements.

1112

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


	Attributable to Chesapeake
	Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income		Treasury Stock		Non-controlling Interest		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance as of March 31, 2021 (Successor)	0	$	0	97,907,081	$	1	$	3,585	$	295	$	0	$	0	$	0	$	3,881
Stock-based compensation	—	—		921	—		3		—		—		—		—		3

Issuance of common stock for warrant exercise	—	—		46,035	—		2		—		—		—		—		2
Net loss	—	—		—	—		—		(439)		0		—		—		(439)
Dividends on common stock	—	—		—	—		—		(34)		—		—		—		(34)
Balance as of June 30, 2021 (Successor)	0	$	0	97,954,037	$	1	$	3,590	$	(178)	$	0	$	0	$	0	$	3,413

Attributable to Chesapeake
Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income Treasury Stock Non-controlling Interest Total Stockholders’ Equity
Shares Amount Shares Amount
Balance as of December 31, 2019 (Predecessor) 5,563,458 $ 1,631 9,772,793 $ 0 $ 16,973 $ (14,220) $ 12 $ (32) $ 37 $ 4,401
Stock-based compensation — —�� 10,980 — (31) — — — — (31)
Dividends on preferred stock — — — — (22) — — — — (22)
Net loss attributable to Chesapeake — — — — — (8,297) — — — (8,297)
Hedging activity — — — — — — 9 — — 9
Purchase of shares for company benefit plans — — — — — — — (2) — (2)
Release of shares for company benefit plans — — — — — — — 34 — 34
Net loss attributable to noncontrolling interests — — — — — — — — (16) (16)
Balance as of March 31, 2020 (Predecessor) 5,563,458 $ 1,631 9,783,773 $ 0 $ 16,920 $ (22,517) $ 21 $ 0 $ 21 $ (3,924)


	Attributable to Chesapeake
	Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Treasury Stock		Non-controlling Interest		Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount
Balance as of March 31, 2020 (Predecessor)	5,563,458	$	1,631	9,783,773	$	0	$	16,920	$	(22,517)	$	21	$	0	$	21	$	(3,924)
Stock-based compensation	—	—		(3,571)	—		4		—		—		—		—		4
Net loss attributable to Chesapeake	—	—		—	—		—		(276)		—		—		—		(276)
Hedging activity	—	—		—	—		—		—		8		—		—		8
Balance as of June 30, 2020 (Predecessor)	5,563,458	$	1,631	9,780,202	$	0	$	16,924	$	(22,793)	$	29	$	0	$	21	$	(4,188)

The accompanying notes are an integral part of these condensed consolidated financial statements.

1213

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - (Continued)

(Unaudited)


		Attributable to Chesapeake																			Attributable to Chesapeake
		Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income		Treasury Stock		Non-controlling Interest		Total Stockholders’ Equity			Preferred Stock			Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income		Treasury Stock		Non-controlling Interest		Total Stockholders’ Equity (Deficit)
		Shares	Amount		Shares	Amount															Shares	Amount		Shares	Amount
Balance as of December 31, 2020 (Predecessor)	Balance as of December 31, 2020 (Predecessor)	5,563,358	$	1,631	9,780,547	$	0	$	16,937	$	(23,954)	$	45	$	0	$	0	$	(5,341)	Balance as of December 31, 2020 (Predecessor)	5,563,358	$	1,631	9,780,547	$	0	$	16,937	$	(23,954)	$	45	$	0	$	0	$	(5,341)
Stock-based compensation	Stock-based compensation	—	—		67	—		3		—		—		—		—		3		Stock-based compensation	—	—		67	—		3		—		—		—		—		3
Hedging activity	Hedging activity	—	—		—	—		—		—		3		—		—		3		Hedging activity	—	—		—	—		—		—		3		—		—		3
Net income	Net income	—	—		—	—		—		5,383		—		—		—		5,383		Net income	—	—		—	—		—		5,383		—		—		—		5,383
Cancellation of Predecessor Equity	Cancellation of Predecessor Equity	(5,563,358)	(1,631)		(9,780,614)	—		(16,940)		18,571		(48)		—		—		(48)		Cancellation of Predecessor Equity	(5,563,358)	(1,631)		(9,780,614)	—		(16,940)		18,571		(48)		—		—		(48)
Issuance of Successor common stock	Issuance of Successor common stock	—	—		97,907,081	1		3,330		—		—		—		—		3,331		Issuance of Successor common stock	—	—		97,907,081	1		3,330		—		—		—		—		3,331
Issuance of Successor Class A warrants	Issuance of Successor Class A warrants	—	—		—	—		93		—		—		—		—		93		Issuance of Successor Class A warrants	—	—		—	—		93		—		—		—		—		93
Issuance of Successor Class B warrants	Issuance of Successor Class B warrants	—	—		—	—		94		—		—		—		—		94		Issuance of Successor Class B warrants	—	—		—	—		94		—		—		—		—		94
Issuance of Successor Class C warrants	Issuance of Successor Class C warrants	—	—		—	—		68		—		—		—		—		68		Issuance of Successor Class C warrants	—	—		—	—		68		—		—		—		—		68
Balance as of February 9, 2021 (Predecessor)	Balance as of February 9, 2021 (Predecessor)	0	$	0	97,907,081	$	1	$	3,585	$	0	$	0	$	0	$	0	$	3,586	Balance as of February 9, 2021 (Predecessor)	0	$	0	97,907,081	$	1	$	3,585	$	0	$	0	$	0	$	0	$	3,586

Balance as of February 10, 2021 (Successor)	Balance as of February 10, 2021 (Successor)	0	$	0	97,907,081	$	1	$	3,585	$	0	$	0	$	0	$	0	$	3,586	Balance as of February 10, 2021 (Successor)	0	$	0	97,907,081	$	1	$	3,585	$	0	$	0	$	0	$	0	$	3,586
Stock-based compensation	Stock-based compensation	—	—		0	—		0		—		—		—		—		0		Stock-based compensation	—	—		921	—		3		—		—		—		—		3
Net income		—	—		—	—		—		295		—		—		—		295
Balance as of March 31, 2021 (Successor)		0	$	0	97,907,081	$	1	$	3,585	$	295	$	0	$	0	$	0	$	3,881
Issuance of common stock for warrant exercise																				Issuance of common stock for warrant exercise	—	—		46,035	—		2		—		—		—		—		2
Net loss																				Net loss	—	—		—	—		—		(144)		—		—		—		(144)
Dividends on common stock																				Dividends on common stock	—	—		—	—		—		(34)		—		—		—		(34)
Balance as of June 30, 2021 (Successor)																				Balance as of June 30, 2021 (Successor)	0	$	0	97,954,037	$	1	$	3,590	$	(178)	$	0	$	0	$	0	$	3,413

The accompanying notes are an integral part of these condensed consolidated financial statements.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - (Continued)

(Unaudited)


	Attributable to Chesapeake
	Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Treasury Stock		Non-controlling Interest		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance as of December 31, 2019 (Predecessor)	5,563,458	$	1,631	9,772,793	$	0	$	16,973	$	(14,220)	$	12	$	(32)	$	37	$	4,401
Stock-based compensation	—	—		7,409	—		(27)		—		—		—		—		(27)
Dividends on preferred stock	—	—		—	—		(22)		—		—		—		—		(22)
Hedging activity	—	—		—	—		—		—		17		—		—		17
Net loss attributable to Chesapeake	—	—		—	—		—		(8,573)		—		—		—		(8,573)
Purchase of shares for company benefit plans	—	—		—	—		—		—		—		(2)		—		(2)
Release of shares for company benefit plans	—	—		—	—		—		—		—		34		—		34
Net loss attributable to noncontrolling interests	—	—		—	—		—		—		—		—		(16)		(16)
Balance as of June 30, 2020 (Predecessor)	5,563,458	$	1,631	9,780,202	$	0	16,924		$	(22,793)	$	29	$	0	$	21	$	(4,188)

The accompanying notes are an integral part of these condensed consolidated financial statements.

1315

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.			Basis of Presentation and Summary of Significant Accounting Policies

Description of Company

Chesapeake Energy Corporation ~~("Chesapeake"~~(“Chesapeake”, “we,” “our”, “us” or the ~~"Company"~~“Company”) is an oil and natural gas exploration and production company engaged in the acquisition, exploration and development of properties for the production of oil, natural gas and NGL from underground reservoirs. Our operations are located onshore in the United States. As discussed in Note 2 below, we filed the Chapter 11 Cases on the Petition Date and subsequently operated as a debtor-in-possession, in accordance with applicable provisions of the Bankruptcy Code, until emergence on February 9, 2021. To facilitate our financial statement presentations, we refer to the post-emergence reorganized Company in these condensed consolidated financial statements and footnotes as the “Successor” for periods subsequent to February 9, 2021, and to the pre-emergence company as “Predecessor” for periods on or prior to February 9, 2021.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Chesapeake were prepared in accordance with GAAP and the rules and regulations of the SEC. Pursuant to such rules and regulations, certain disclosures have been condensed or omitted.

This Quarterly Report on Form 10-Q (this “Form 10-Q”) relates to the financial position and periods of February 10, 2021 through ~~March 31,~~June 30, 2021 (“2021 Successor Period”), and January 1, 2021 through February 9, 2021 (“2021 Predecessor Period”) ~~and~~, the three months ended ~~March 31,~~June 30, 2021 (“2021 Successor Quarter”), and the three and six months ended June 30, 2020 (“2020 Predecessor Quarter” and “2020 Predecessor Period”), respectively). Our annual report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”) should be read in conjunction with this Form 10-Q. Except as disclosed herein, and with the exception of information in this report related to our emergence from Chapter 11 and fresh start accounting, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the 2020 Form 10-K. The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of our condensed consolidated financial statements and accompanying notes and include the accounts of our direct and indirect wholly-owned subsidiaries and entities in which we have a controlling financial interest. Intercompany accounts and balances have been eliminated. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.

Segments

Operating segments are defined as components of an enterprise that engage in activities from which it may earn revenues and incur expenses for which separate operational financial information is available and is regularly evaluated by the chief operating decision maker for the purpose of allocating an enterprise’s resources and assessing its operating performance. We have concluded that we have only 1 reportable operating segment due to the similar nature of the exploration and production business across Chesapeake and its consolidated subsidiaries and the fact that our marketing activities are ancillary to our operations.

~~Table of Con~~t e ~~nts~~

~~CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

Restricted Cash

As of ~~March 31,~~June 30, 2021, we had restricted cash of ~~$68~~$10 million. The restricted funds ~~were~~are maintained primarily to pay ~~debtor-related professional fees associated with our Bankruptcy Filing as well as~~ certain convenience class unsecured claims ~~upon~~following our emergence from bankruptcy.

Voluntary Filing under Chapter 11 Bankruptcy

On the Petition Date the Debtors filed the Chapter 11 Cases under the Bankruptcy Code in the Bankruptcy Court. On June 29, 2020, the Bankruptcy Court entered an order authorizing the joint administration of the Chapter 11 Cases under the caption In re Chesapeake Energy Corporation, Case No. 20-33233. Subsidiaries with noncontrolling interests, consolidated variable interest entities and certain de minimis subsidiaries (collectively, the “Non-Filing Entities”) were not part of the Bankruptcy Filing. The Non-Filing Entities have continued to operate in the ordinary course of business.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The Bankruptcy Court confirmed the Plan and entered the Confirmation Order on January 16, 2021. The Debtors emerged from the Chapter 11 Cases on the Effective Date. The Company’s bankruptcy proceedings and related matters have been summarized below.

During the pendency of the Chapter 11 Cases, we continued to operate our business in the ordinary course as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code. The Bankruptcy Court granted the first day relief we requested that was designed primarily to mitigate the impact of the Chapter 11 Cases on our operations, vendors, suppliers, customers and employees. As a result, we were able to conduct normal business activities and satisfy all associated obligations for the period following the Petition Date and were also authorized to pay mineral interest owner royalties, employee wages and benefits, and certain vendors and suppliers in the ordinary course for goods and services provided prior to the Petition Date. During the pendency of the Chapter 11 Cases, all transactions outside the ordinary course of business required the prior approval of the Bankruptcy Court.

Subject to certain specific exceptions under the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed all judicial or administrative actions against us and efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. Absent an order from the Bankruptcy Court, substantially all of the Debtors’ pre-petition liabilities were subject to compromise and discharge under the Bankruptcy Code. The automatic stay was lifted on the Effective Date.

We have applied ASC 852, Reorganizations, in preparing the unaudited condensed consolidated financial statements for the period ended February 9, 2021. ASC 852 requires that the financial statements, for periods subsequent to the Chapter 11 Cases, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses, realized gains and losses and provisions for losses that were realized or incurred during the bankruptcy proceedings, including gain on settlement of liabilities subject to compromise, losses related to executory contracts that have been approved for rejection by the Bankruptcy Court, and unamortized debt issuance costs, premiums and discounts associated with debt classified as liabilities subject to compromise, were recorded as reorganization items, net. In addition, pre-petition obligations that may be impacted by the Chapter 11 process have been classified on the condensed consolidated balance sheet as of December 31, 2020 as liabilities subject to compromise. See Note 3 for more information regarding reorganization items.


2.			Chapter 11 Emergence

As described in N ~~ote~~Note 1, on June 28, 2020, the Debtors filed the Chapter 11 Cases and on September 11, 2020, the Debtors filed the Plan, which was subsequently amended, and entered the Confirmation Order on January 16, 2021. The Debtors then emerged from bankruptcy upon effectiveness of the Plan on February 9, 2021. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Plan.

Plan of Reorganization

In accordance with the Plan confirmed by the Bankruptcy Court, the following significant transactions occurred upon the Company’s emergence from bankruptcy on February 9, 2021:

~~Table of Con~~t e ~~nts~~

~~CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

•On the Effective Date, we issued approximately 97,907,081 shares of New Common Stock, reserved 2,092,918 shares of New Common Stock for future issuance to eligible holders of Allowed Unsecured Notes Claims and Allowed General Unsecured Claims and reserved 37,174,210 shares of New Common Stock for issuance upon exercise of the Warrants, which were the result of the transactions described below. We also entered into a registration rights agreement, warrant agreements and amended our articles of incorporation and bylaws for the authorization of the New Common Stock among other corporate governance actions. See Note 10 for further discussion of our post-emergence equity.

•Each holder of an equity interest in the Predecessor, including Predecessor’s common and preferred stock, had such interest canceled, released, and extinguished without any distribution.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

•Each holder of obligations under the pre-petition revolving credit facility received, at such holder's prior determined allocation, its pro rata share of either Tranche A Loans or Tranche B Loans, on a dollar for dollar basis.

•Each holder of obligations under the FLLO Term Loan Facility received its pro rata share of 23,022,420 shares of New Common Stock.

•Each holder of an Allowed Second Lien Notes Claim received its pro rata share of 3,635,118 shares of New Common Stock, 11,111,111 Class A Warrants to purchase 11,111,111 shares of New Common Stock, 12,345,679 Class B Warrants to purchase 12,345,679 shares of New Common Stock, and 6,858,710 Class C Warrants to purchase 6,858,710 shares of New Common Stock.

•Each holder of an Allowed Unsecured Notes Claim received its pro rata share of 1,311,089 shares of New Common Stock and 2,473,757 Class C Warrants to purchase 2,473,757 shares of New Common Stock.

•Each holder of an Allowed General Unsecured Claim received its pro rata share of 231,112 shares of New Common Stock and 436,060 Class C Warrants to purchase 436,060 shares of New Common Stock; provided that to the extent such Allowed General Unsecured Claim is a Convenience Claim, such holder instead received its pro rata share of $10 million, which pro rata share shall not exceed 5 percent of such Convenience Claim.

•Participants in the Rights Offering extending to the applicable classes under the Plan received 62,927,320 shares of New Common Stock.

•In connection with the Rights Offering described above, the Backstop Parties under the Backstop Commitment Agreement received 6,337,031 shares of New Common Stock in respect to the Put Option Premium, and 442,991 shares of New Common Stock were issued in connection with the backstop obligation thereunder to purchase unsubscribed shares of the New Common Stock.

•2,092,918 shares of New Common Stock and 3,948,893 Class C Warrants were reserved for future issuance to eligible holders of Allowed Unsecured Notes Claims and Allowed General Unsecured Claims. The reserved New Common Stock and Class C Warrants will be issued on a pro rata basis upon the determination of the allowed portion of all disputed General Unsecured Claims and Unsecured Notes Claims.

•The 2021 Long Term Incentive Plan (the “LTIP”) was approved with a share reserve equal to 6,800,000 shares of New Company Stock.

•Each holder of an Allowed Other Secured Claim will receive, at the Company's option and in consultation with the Required Consenting Stakeholders (as defined in the Plan): (a) payment in full in cash; (b) the collateral securing its secured claim; (c) reinstatement of its secured claim; or (d) such other treatment that renders its secured claim unimpaired in accordance with Section 1124 of the Bankruptcy Code.

•Each holder of an Allowed Other Priority Claim will receive cash up to the allowed amount of its claim.

~~Table of Con~~t e ~~nts~~

~~CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

Additionally, pursuant to the Plan confirmed by the Bankruptcy Court, the Company’s post-emergence Board of Directors is comprised of six directors, including the Company’s Interim Chief Executive Officer, ~~Mike~~Michael Wichterich, and five non-employee directors, Timothy S. Duncan, Benjamin C. Duster, IV, Sarah Emerson, Matthew M. Gallagher and Brian Steck.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


3.			Fresh Start Accounting

Fresh Start Accounting

In connection with our emergence from bankruptcy and in accordance with ASC 852, we qualified for and applied fresh start accounting on the Effective Date. We were required to apply fresh start accounting because (i) the holders of existing voting shares of the Company prior to its emergence received less than 50% of the voting shares of the Company outstanding following its emergence from bankruptcy and (ii) the reorganization value of our assets immediately prior to confirmation of the Plan of approximately $6.8 billion was less than the post-petition liabilities and allowed claims of $13.2 billion.

In accordance with ASC 852, with the application of fresh start accounting, the Company allocated its reorganization value to its individual assets based on their estimated fair value in conformity with FASB ASC Topic 820 - Fair Value Measurements and FASB ASC Topic 805 - Business Combinations. Accordingly, the consolidated financial statements after February 9, 2021 are not comparable with the consolidated financial statements as of or prior to that date. The Effective Date fair values of the Successor’s assets and liabilities differ materially from their recorded values as reflected on the historical balance sheet of the Predecessor.

Reorganization Value

Reorganization value is derived from an estimate of enterprise value, or fair value of the Company’s interest-bearing debt and stockholders’ equity. Under ASC 852, reorganization value generally approximates fair value of the entity before considering liabilities and is intended to approximate the amount a willing buyer would pay for the assets immediately after the effects of a restructuring. As set forth in the disclosure statement, amended for updated pricing, and approved by the Bankruptcy Court, the enterprise value of the Successor was estimated to be between $3.5 billion and $4.9 billion. With the assistance of third-party valuation advisors, we determined the enterprise value and corresponding implied equity value of the Successor using various valuation approaches and methods, including: (i) income approach using a calculation of present value of future cash flows based on our financial projections, (ii) the market approach using selling prices of similar assets and (iii) the cost approach. For GAAP purposes, the Company valued the Successor’s individual assets, liabilities and equity instruments and determined an estimate of the enterprise value within the estimated range. Management concluded that the best estimate of enterprise value was $4.85 billion. Specific valuation approaches and key assumptions used to arrive at reorganization value, and the value of discrete assets and liabilities resulting from the application of fresh start accounting, are described below in greater detail within the valuation process.

The enterprise value and corresponding implied equity value are dependent upon achieving the future financial results set forth in our valuation using an asset-based methodology of estimated proved reserves, undeveloped properties, and other financial information, considerations and projections, applying a combination of the income, cost and market approaches as of the fresh start reporting date of February 9, 2021. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the financial projections, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, there is no assurance that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially.

~~Table of Con~~t e ~~nts~~

~~CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

The following table reconciles the enterprise value to the implied fair value of the Successor’s equity as of the Effective Date:


	February 9, 2021
Enterprise Value	$	4,851
Plus: Cash and cash equivalents(a)	48
Less: Fair value of debt	(1,313)
Successor equity value	$	3,586

____________________________________________

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

(a)Cash and cash equivalents includes $8 million that was initially classified as restricted cash as of the Effective Date but subsequently released from escrow and returned to the Successor. Restricted cash exclusive of the $8 million is not included in the table above.

The following table reconciles the enterprise value to the reorganization value as of the Effective Date:


	February 9, 2021
Enterprise Value	$	4,851
Plus: Cash and cash equivalents(a)	48
Plus: Current liabilities	1,582
Plus: Asset retirement obligations (non-current portion)	236
Plus: Other non-current liabilities	97
Reorganization value of Successor assets	$	6,814

Valuation Process

The fair values of our oil and natural gas properties, other property and equipment, other long-term assets, long-term debt, asset retirement obligations and warrants were estimated as of the Effective Date.

Oil and natural gas properties. The Company’s principal assets are its oil and natural gas properties, which are accounted for under the successful efforts accounting method. The Company determined the fair value of its oil and natural gas properties based on the discounted future net cash flows expected to be generated from these assets. Discounted cash flow models by operating area were prepared using the estimated future revenues and operating costs for all developed wells and undeveloped properties comprising the proved and unproved reserves. Significant inputs associated with the calculation of discounted future net cash flows include estimates of (i) recoverable reserves, (ii) production rates, (iii) future operating and development costs, (iv) future commodity prices escalated by an inflationary rate after five years, adjusted for differentials, and (v) a market-based weighted average cost of capital by operating area. The Company utilized NYMEX strip pricing, adjusted for differentials, to value the reserves. The NYMEX strip pricing inputs used are classified as Level 1 fair value assumptions and all other inputs are classified as Level 3 fair value assumptions. The discount rates utilized were derived using a weighted average cost of capital computation, which included an estimated cost of debt and equity for market participants with similar geographies and asset development type by operating area.

Other property and equipment. The fair value of other property and equipment such as buildings, land, computer equipment, and other equipment was determined using replacement cost method under the cost approach which considers historical acquisition costs for the assets adjusted for inflation, as well as factors in any potential obsolescence based on the current condition of the assets and the ability of those assets to generate cash flow.

~~Table of Con~~t e ~~nts~~

~~CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

Long-term debt. A market approach, based upon quotes from major financial institutions, was used to measure the fair value of the $500 million aggregate principal amount of 5.5% Senior Notes due 2026 (the “2026 Notes”) and $500 million aggregate principal amount of 5.875% Senior Notes due 2029 (the “2029 Notes” and, together with the 2026 Notes, the “Notes”). The carrying value of borrowings under our Exit Credit Facility approximated fair value as the terms and interest rates are based on prevailing market rates.

Asset retirement obligations. The fair value of the Company’s asset retirement obligations was revalued based upon estimated current reclamation costs for our assets with reclamation obligations, an appropriate long-term inflation adjustment, and our revised credit adjusted risk-free rate. The credit adjusted risk-free rate was based on an evaluation of an interest rate that equates to a risk-free interest rate adjusted for the effect of our credit standing.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Warrants. The fair values of the Warrants issued upon the Effective Date were estimated using a Black-Scholes model, a commonly used option-pricing model. The Black-Scholes model was used to estimate the fair value of the warrants with an implied stock price of $20.52; initial exercise price per share of $27.63, $32.13 and $36.18 for Class A, Class B and Class C Warrants, respectively; expected volatility of 58% estimated using volatilities of similar entities; risk-free rate using a 5-year Treasury bond rate; and an expected annual dividend yield which was estimated to be zero.

Condensed Consolidated Balance Sheet

The following consolidated balance sheet is as of February 9, 2021. This consolidated balance sheet includes adjustments that reflect the consummation of the transactions contemplated by the Plan (reflected in the column “Reorganization Adjustments”) as well as fair value adjustments as a result of the adoption of fresh start accounting (reflected in the column “Fresh Start Adjustments”) as of the Effective Date. The explanatory notes following the table below provide further details on the adjustments, including the assumptions and methods used to determine fair value for its assets, liabilities and warrants.


													Predecessor		Reorganization Adjustments			Fresh Start Adjustments			Successor
		Predecessor		Reorganization Adjustments			Fresh Start Adjustments			Successor
Assets	Assets											Assets
Current assets:	Current assets:											Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	243	$	(203)	(a)	$	0		$	40	Cash and cash equivalents	$	243	$	(203)	(a)	$	—		$	40
Restricted cash	Restricted cash	0		86		(b)	0			86		Restricted cash	0		86		(b)	—			86
Accounts receivable, net	Accounts receivable, net	861		(18)		(c)	0			843		Accounts receivable, net	861		(18)		(c)	0			843
Short-term derivative assets	Short-term derivative assets	0		0			0			0		Short-term derivative assets	0		0			0			0
Other current assets	Other current assets	66		(5)		(d)	0			61		Other current assets	66		(5)		(d)	0			61
Total current assets	Total current assets	1,170		(140)			0			1,030		Total current assets	1,170		(140)			0			1,030
Property and equipment:	Property and equipment:											Property and equipment:
Oil and natural gas properties, successful efforts method	Oil and natural gas properties, successful efforts method											Oil and natural gas properties, successful efforts method
Proved oil and natural gas properties	Proved oil and natural gas properties	25,794		0			(21,108)		(o)	4,686		Proved oil and natural gas properties	25,794		0			(21,108)		(o)	4,686
Unproved properties	Unproved properties	1,546		0			(1,063)		(o)	483		Unproved properties	1,546		0			(1,063)		(o)	483
Other property and equipment	Other property and equipment	1,755		0			(1,256)		(o)	499		Other property and equipment	1,755		0			(1,256)		(o)	499
Total property and equipment	Total property and equipment	29,095		0			(23,427)		(o)	5,668		Total property and equipment	29,095		0			(23,427)		(o)	5,668
Less: accumulated depreciation, depletion and amortization	Less: accumulated depreciation, depletion and amortization	(23,877)		0			23,877		(o)	0		Less: accumulated depreciation, depletion and amortization	(23,877)		0			23,877		(o)	0
Property and equipment held for sale, net	Property and equipment held for sale, net	9		0			(7)		(o)	2		Property and equipment held for sale, net	9		0			(7)		(o)	2
Total property and equipment, net	Total property and equipment, net	5,227		0			443		(o)	5,670		Total property and equipment, net	5,227		0			443		(o)	5,670
Other long-term assets	Other long-term assets	198		0			(84)		(p)	114		Other long-term assets	198		0			(84)		(p)	114
Total assets	Total assets	$	6,595	$	(140)		$	359		$	6,814	Total assets	$	6,595	$	(140)		$	359		$	6,814

1921

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


													Predecessor		Reorganization Adjustments			Fresh Start Adjustments			Successor

		Predecessor		Reorganization Adjustments			Fresh Start Adjustments			Successor
Liabilities and stockholders’ equity (deficit)	Liabilities and stockholders’ equity (deficit)											Liabilities and stockholders’ equity (deficit)
Current liabilities:	Current liabilities:											Current liabilities:
Accounts payable	Accounts payable	$	391	$	24	(e)	$	0		$	415	Accounts payable	$	391	$	24	(e)	$	0		$	415
Current maturities of long-term debt, net	Current maturities of long-term debt, net	1,929		(1,929)		(f)	0			0		Current maturities of long-term debt, net	1,929		(1,929)		(f)	0			0
Accrued interest	Accrued interest	4		(4)		(g)	0			0		Accrued interest	4		(4)		(g)	0			0
Short-term derivative liabilities	Short-term derivative liabilities	398		0			0			398		Short-term derivative liabilities	398		0			0			398
Other current liabilities	Other current liabilities	645		124		(h)	0			769		Other current liabilities	645		124		(h)	0			769
Total current liabilities	Total current liabilities	3,367		(1,785)			0			1,582		Total current liabilities	3,367		(1,785)			0			1,582
Long-term debt, net	Long-term debt, net	0		1,261		(i)	52		(q)	1,313		Long-term debt, net	0		1,261		(i)	52		(q)	1,313
Long-term derivative liabilities	Long-term derivative liabilities	90		0			0			90		Long-term derivative liabilities	90		0			0			90
Asset retirement obligations, net of current portion	Asset retirement obligations, net of current portion	139		0			97		(r)	236		Asset retirement obligations, net of current portion	139		0			97		(r)	236
Other long-term liabilities	Other long-term liabilities	5		2		(j)	0			7		Other long-term liabilities	5		2		(j)	—			7
Liabilities subject to compromise	Liabilities subject to compromise	9,574		(9,574)		(k)	0			0		Liabilities subject to compromise	9,574		(9,574)		(k)	0			0
Total liabilities	Total liabilities	13,175		(10,096)			149			3,228		Total liabilities	13,175		(10,096)			149			3,228
Contingencies and commitments (Note 6)	Contingencies and commitments (Note 6)	0		0			0			0		Contingencies and commitments (Note 6)	0		0			0			0
Stockholders’ equity (deficit):	Stockholders’ equity (deficit):											Stockholders’ equity (deficit):
Predecessor preferred stock	Predecessor preferred stock	1,631		(1,631)		(l)	0			0		Predecessor preferred stock	1,631		(1,631)		(l)	0			0
Predecessor common stock	Predecessor common stock	—		—			—			—		Predecessor common stock	—		—			—			—
Predecessor additional paid-in capital	Predecessor additional paid-in capital	16,940		(16,940)		(l)	0			—		Predecessor additional paid-in capital	16,940		(16,940)		(l)	0			0
Successor common stock	Successor common stock	0		1		(m)	0			1		Successor common stock	0		1		(m)	0			1
Successor additional paid-in-capital	Successor additional paid-in-capital	—		3,585		(m)	0			3,585		Successor additional paid-in-capital	0		3,585		(m)	0			3,585
Accumulated other comprehensive income	Accumulated other comprehensive income	48		0			(48)		(s)	0		Accumulated other comprehensive income	48		0			(48)		(s)	0
Accumulated deficit	Accumulated deficit	(25,199)		24,941		(n)	258		(t)	0		Accumulated deficit	(25,199)		24,941		(n)	258		(t)	0
Total stockholders’ equity (deficit)	Total stockholders’ equity (deficit)	(6,580)		9,956			210			3,586		Total stockholders’ equity (deficit)	(6,580)		9,956			210			3,586
Total liabilities and stockholders’ equity (deficit)	Total liabilities and stockholders’ equity (deficit)	$	6,595	$	(140)		$	359		$	6,814	Total liabilities and stockholders’ equity (deficit)	$	6,595	$	(140)		$	359		$	6,814

Reorganization Adjustments

(a)The table below reflects the sources and uses of cash on the Effective Date from implementation of the Plan:


Sources:
Proceeds from issuance of the Notes	$	1,000
Proceeds from Rights Offering	600
Proceeds from refunds of interest deposit for the Notes	5
Total sources of cash	$	1,605
Uses:
Payment of roll-up of DIP Facility balance	$	(1,179)
Payment of Exit Credit Facility - Tranche A Loan	(479)
Transfers to restricted cash for professional fee reserve	(76)
Transfers to restricted cash for convenience claim distribution reserve	(10)
Payment of professional fees	(31)
Payment of DIP Facility interest and fees	(12)
Payment of FLLO alternative transaction fee	(12)
Payment of the Notes fees funded out of escrow	(8)
Payment of RBL interest and fees	(1)
Total uses of cash	$	(1,808)
Net cash used	$	(203)

(b)Represents the transfer of funds to a restricted cash account for purposes of funding the professional fee reserve and the convenience claim distribution reserve.

(c)Reflects the removal of an insurance receivable associated with a discharged legal liability.

(d)Reflects the collection of an interest deposit for the senior unsecured notes.

(e)Changes in accounts payable include the following:


Accrual of professional service provider success fees	$	38
Accrual of convenience claim distribution reserve	10
Accrual of professional service provider fees	5
Reinstatement of accounts payable from liabilities subject to compromise	2
Payment of professional fees	(31)
Net impact to accounts payable	$	24

(f)Reflects payment of the pre-petition credit facility for $1.179 billion and transfer of the Tranche A and Tranche B Loans to long-term debt for $750 million.

(g)Reflect payments of accrued interest and fees on the DIP Facility.

(h)Changes in other current liabilities include the following:


Reinstatement of other current liabilities from liabilities subject to compromise	$	191
Accrual of the Notes fees	2
Settlement of Put Option Premium through issuance of Successor Common Stock	(60)
Payment of DIP Facility fees	(9)
Net impact to other current liabilities	$	124

2022

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

(i)Change in long-term debt include the following:


Issuance of the Notes	$	1,000
Issuance of Tranche A and Tranche B Loans	750
Payments on Tranche A Loans	(479)
Debt issuance costs for the Notes	(10)
Net impact to long-term debt, net	$	1,261

(j) Reflects reinstatement of a long-term lease liability.

(k) On the Effective Date, liabilities subject to compromise were settled in accordance with the Plan as follows:


Liabilities subject to compromise pre-emergence	$	9,574
To be reinstated on the Effective Date:
Accounts payable	$	(2)
Other current liabilities	(191)
Other long-term liabilities	(2)
Total liabilities reinstated	$	(195)
Consideration provided to settle amounts per the Plan or Reorganization:
Issuance of Successor common stock associated with the Rights Offering and Backstop Commitment and settlement of the Put Option Premium	$	(2,311)
Proceeds from issuance of Successor common stock associated with the Rights Offering and Backstop Commitment	600
Issuance of Successor common stock to FLLO Term Loan holders, incremental to the Rights Offering and Backstop Commitment	(783)
Issuance of Successor common stock to second lien note holders, incremental to the Rights Offering and Backstop Commitment	(124)
Issuance of Successor common stock to unsecured note holders	(45)
Issuance of Successor common stock to general unsecured claims	(8)
Fair value of Class A Warrants	(93)
Fair value of Class B Warrants	(94)
Fair value of Class C Warrants	(68)
Proceeds to holders of general unsecured claims	(10)
Total consideration provided to settle amounts per the Plan	$	(2,936)
Gain on settlement of liabilities subject to compromise	$	6,443

(l)Pursuant to the Plan, as of the Effective Date, all equity interests in Predecessor, including Predecessor’s common and preferred stock, were cancelled without any distribution.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

(m)Reflects the Successor equity including the issuance of 97,907,081 shares of New Common Stock, 11,111,111 shares of Class A Warrants, 12,345,679 shares of Class B Warrants and 9,768,527 shares of Class C Warrants pursuant to the Plan.

~~Table of Con~~t e ~~nts~~

~~CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~


Issuance of Successor equity associated with the Rights Offering and Backstop Commitment	$	2,371
Issuance of Successor equity to holders of the FLLO Term Loan, incremental to the Rights Offering and Backstop Commitment	783
Issuance of Successor equity to holders of the ~~second lien notes,~~Second Lien Notes, incremental to the Rights Offering and Backstop Commitment	124
Issuance of Successor equity to holders of the unsecured senior notes	45
Issuance of Successor equity to holders of allowed general unsecured claims	8
Fair value of Class A warrants	93
Fair value of Class B warrants	94
Fair value of Class C warrants	68
Total change in Successor common stock and additional paid-in capital	3,586
Less: par value of Successor common stock	(1)
Change in Successor additional paid-in capital	$	3,585

(n) Reflects the cumulative net impact of the effects on accumulated deficit as follows:


Gain on settlement of liabilities subject to compromise	$	6,443
Accrual of professional service provider success fees	(38)
Accrual of professional service provider fees	(5)
Surrender of other receivable	(18)
Payment of FLLO alternative transaction fee	(12)
Total reorganization items, net	6,370
Cancellation of predecessor equity	18,571
Net impact on accumulated deficit	$	24,941

Fresh Start Adjustments

(o)Reflects fair value adjustments to our (i) proved oil and natural gas properties, (ii) unproved properties, (iii) other property and equipment (iv) property and equipment held for sale, and the elimination of accumulated depletion, depreciation and amortization.

(p)Reflects the fair value adjustment to record historical contracts at their fair values.

(q)Reflects the fair value adjustments to the 2026 Notes and 2029 Notes for $22 million and $30 million, respectively.

(r)Reflects the adjustment to our asset retirement obligations using assumptions as of the Effective Date, including an inflation factor of 2% and an average credit-adjusted risk-free rate of 5.18%.

(s)Reflects the fair value adjustment to eliminate the accumulated other comprehensive income of $9 million related to hedging settlements offset by the elimination of $57 million of income tax effects which has resulted in the recording of an income tax benefit of $57 million. See Note 9 for a discussion of income taxes.

2224

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

(t)Reflects the net cumulative impact of the fresh start adjustments on accumulated deficit as follows:


Fresh start adjustments to property and equipment	$	443
Fresh start adjustments to other long-term assets	(84)
Fresh start adjustments to long-term debt	(52)
Fresh start adjustments to long-term asset retirement obligations	(97)
Fresh start adjustments to accumulated other comprehensive income	(9)
Total fresh start adjustments impacting reorganizations items, net	201
Income tax effects on accumulated other comprehensive income	57
Net impact to accumulated deficit	$	258

Reorganization Items, Net

We have incurred significant expenses, gains and losses associated with the reorganization, primarily the gain on settlement of liabilities subject to compromise, write-off of unamortized debt issuance costs and related unamortized premiums and discounts, debt and equity financing fees, provision for allowed claims and legal and professional fees incurred subsequent to the Chapter 11 filings for the restructuring process. The accrual for allowed claims primarily represents damages from contract rejections and settlements attributable to the midstream savings requirement as stipulated in the Plan. While the claims reconciliation process is ongoing, we do not believe any existing unresolved claims will result in a material adjustment to the financial statements. The amount of these items, which were incurred in reorganization items, net within our accompanying unaudited condensed consolidated statements of operations, have significantly affected our statements of operations.

The following table summarizes the components in reorganization items, net included in our unaudited condensed consolidated statements of operations:


	~~Predecessor~~
	Period from January 1, 2021 through February 9, 2021
~~Gains on the settlement of liabilities subject to compromise~~	$	~~6,443~~
~~Accrual for allowed claims~~	~~(1,002)~~
~~Gain on fresh start adjustments~~	~~201~~
~~Gain from release of commitment liabilities~~	55
~~Professional service provider fees and other~~	~~(60)~~
~~Success fees for professional service providers~~	~~(38)~~
~~Surrender of other receivable~~	~~(18)~~
~~FLLO alternative transaction fee~~	~~(12)~~
~~Total reorganization items, net~~	$	~~5,569~~


	Successor		Predecessor
	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Write off of unamortized debt premiums (discounts) on Predecessor debt	$	0	$	518
Write off of unamortized debt issuance costs on Predecessor debt	0		(61)
DIP Facility financing costs	0		(63)
Total reorganization items, net	$	0	$	394

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Gains on the settlement of liabilities subject to compromise	$	0	$	6,443	$	0
Accrual for allowed claims	0		(1,002)		0
Write off of unamortized debt premiums (discounts) on Predecessor debt	0		0		518
Write off of unamortized debt issuance costs on Predecessor debt	0		0		(61)
Gain on fresh start adjustments	0		201		0
Gain from release of commitment liabilities	0		55		0
DIP Facility financing costs	0		0		(63)
Professional service provider fees and other	0		(60)		0
Success fees for professional service providers	0		(38)		0
Surrender of other receivable	0		(18)		0
FLLO alternative transaction fee	0		(12)		0
Total reorganization items, net	$	0	$	5,569	$	394

2326

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


4.			Earnings Per Share

Basic net income (loss) per common share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is calculated in the same manner, but includes the impact of potentially dilutive securities. Potentially dilutive securities during the Successor ~~period~~Period consist of issuable shares related to warrants and unvested restricted stock and during the Predecessor ~~period~~Period have historically consisted of unvested restricted stock, contingently issuable shares related to preferred stock and convertible senior notes unless their effect was antidilutive.

The reconciliations between basic and diluted earnings (loss) per share are as follows:


		Successor		Predecessor					Successor		Predecessor
		Period from February 10, 2021 through March 31, 2021		Period from January 1, 2021 through February 9, 2021		Three Months Ended March 31, 2020			Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Numerator	Numerator							Numerator

Net income (loss), basic and diluted		$	295	$	5,383	$	(8,319)
Net loss, basic and diluted								Net loss, basic and diluted	$	(439)	$	(276)

Denominator (in thousands)	Denominator (in thousands)							Denominator (in thousands)
Weighted average common shares outstanding, basic	Weighted average common shares outstanding, basic	97,907		9,781		9,753		Weighted average common shares outstanding, basic	97,931		9,779
Effect of potentially dilutive securities	Effect of potentially dilutive securities							Effect of potentially dilutive securities
Preferred stock	Preferred stock	0		290		0		Preferred stock	0		0
Warrants	Warrants	9,250		0		0		Warrants	0		0
Restricted stock	Restricted stock	2		0		0		Restricted stock	0		0
Weighted average common shares outstanding, diluted	Weighted average common shares outstanding, diluted	107,159		10,071		9,753		Weighted average common shares outstanding, diluted	97,931		9,779

Earnings (loss) per common share
Earnings (loss) per common share, basic		$	3.01	$	550.35	$	(852.97)
Earnings (loss) per common share, diluted		$	2.75	$	534.51	$	(852.97)
Loss per common share								Loss per common share
Loss per common share, basic								Loss per common share, basic	$	(4.48)	$	(28.22)
Loss per common share, diluted								Loss per common share, diluted	$	(4.48)	$	(28.22)

Successor

During the 2021 Successor ~~Period,~~Quarter, the diluted earnings (loss) per share calculation excludes the effect of 2,092,918 reserved shares of common stock and 3,948,893 reserved Class C warrants related to the settlement of general unsecured claims associated with the Chapter 11 Cases as all necessary conditions had not been met to be considered dilutive shares as of the 2021 Successor ~~Period.~~

~~Predecessor~~

~~The diluted earnings per share calculation for the 2020 Predecessor Period excludes the antidilutive effect of 290,618 shares of common stock equivalent of our preferred stock.~~Quarter. Additionally, the ~~2020 Predecessor Period~~2021 Successor Quarter had a net loss and therefore the diluted earnings (loss) per share calculation excludes the antidilutive effect of ~~4,095~~12,186,128 issuable shares related to warrants and 121,348 shares of restricted stock.

Predecessor

The diluted earnings (loss) per share calculation for the 2020 Predecessor Quarter excludes the antidilutive effect of 290,716 shares of common stock equivalent of our preferred stock.

We had the option to settle conversions of the 5.5% convertible senior notes due 2026 with cash, shares or common stock or any combination thereof. As the price of our common stock was below the conversion threshold level for any time during the conversion period, there was no impact to diluted earnings (loss) per share.

2427

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Numerator



Net income (loss), basic and diluted	$	(144)	$	5,383	$	(8,595)

Denominator (in thousands)
Weighted average common shares outstanding, basic	97,922		9,781		9,765
Effect of potentially dilutive securities
Preferred stock	0		290		0
Warrants	0		0		0
Restricted stock	0		0		0
Weighted average common shares outstanding, diluted	97,922		10,071		9,765

Earnings (loss) per common share
Earnings (loss) per common share, basic	$	(1.47)	$	550.35	$	(880.18)
Earnings (loss) per common share, diluted	$	(1.47)	$	534.51	$	(880.18)

Successor

During the 2021 Successor Period, the diluted earnings (loss) per share calculation excludes the effect of 2,092,918 reserved shares of common stock and 3,948,893 reserved Class C warrants related to the settlement of general unsecured claims associated with the Chapter 11 Cases as all necessary conditions had not been met to be considered dilutive shares as of the 2021 Successor Period. Additionally, the 2021 Successor Period had a net loss and therefore the diluted earnings (loss) per share calculation excludes the antidilutive effect of 11,275,229 issuable shares related to warrants and 66,817 shares of restricted stock.

Predecessor

The diluted earnings (loss) per share calculation for the 2020 Predecessor Period excludes the antidilutive effect of 290,716 shares of common stock equivalent of our preferred stock.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


5.			Debt

Our long-term debt consisted of the following as of ~~March 31,~~June 30, 2021 and December 31, 2020:


		Successor				Predecessor					Successor				Predecessor
		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
		Carrying Amount		Fair Value(a)		Carrying Amount		Fair Value(a)			Carrying Amount		Fair Value(a)		Carrying Amount		Fair Value(a)
Exit Credit Facility - Tranche A Loans	Exit Credit Facility - Tranche A Loans	$	0	$	0	$	0	$	0	Exit Credit Facility - Tranche A Loans	$	0	$	0	$	0	$	0
Exit Credit Facility - Tranche B Loans	Exit Credit Facility - Tranche B Loans	221		221		0		0		Exit Credit Facility - Tranche B Loans	221		221		0		0
5.5% senior notes due 2026	5.5% senior notes due 2026	500		521		0		0		5.5% senior notes due 2026	500		527		0		0
5.875% senior notes due 2029	5.875% senior notes due 2029	500		530		0		0		5.875% senior notes due 2029	500		541		0		0
DIP Facility	DIP Facility	0		0		0		0		DIP Facility	0		0		0		0
Pre-petition revolving credit facility	Pre-petition revolving credit facility	0		0		1,929		1,929		Pre-petition revolving credit facility	0		0		1,929		1,929
Term loan due 2024	Term loan due 2024	0		0		1,500		1,220		Term loan due 2024	0		0		1,500		1,220
11.5% senior secured second lien notes due 2025	11.5% senior secured second lien notes due 2025	0		0		2,330		373		11.5% senior secured second lien notes due 2025	0		0		2,330		373
6.625% senior notes due 2020	6.625% senior notes due 2020	0		0		176		8		6.625% senior notes due 2020	0		0		176		8
6.875% senior notes due 2020	6.875% senior notes due 2020	0		0		73		3		6.875% senior notes due 2020	0		0		73		3
6.125% senior notes due 2021	6.125% senior notes due 2021	0		0		167		7		6.125% senior notes due 2021	0		0		167		7
5.375% senior notes due 2021	5.375% senior notes due 2021	0		0		127		5		5.375% senior notes due 2021	0		0		127		5
4.875% senior notes due 2022	4.875% senior notes due 2022	0		0		272		12		4.875% senior notes due 2022	0		0		272		12
5.75% senior notes due 2023	5.75% senior notes due 2023	0		0		167		8		5.75% senior notes due 2023	0		0		167		8
7.00% senior notes due 2024	7.00% senior notes due 2024	0		0		624		29		7.00% senior notes due 2024	0		0		624		29
6.875% senior notes due 2025	6.875% senior notes due 2025	0		0		2		2		6.875% senior notes due 2025	0		0		2		2
8.00% senior notes due 2025	8.00% senior notes due 2025	0		0		246		10		8.00% senior notes due 2025	0		0		246		10
5.5% convertible senior notes due 2026	5.5% convertible senior notes due 2026	0		0		1,064		42		5.5% convertible senior notes due 2026	0		0		1,064		42
7.5% senior notes due 2026	7.5% senior notes due 2026	0		0		119		5		7.5% senior notes due 2026	0		0		119		5
8.00% senior notes due 2026	8.00% senior notes due 2026	0		0		46		2		8.00% senior notes due 2026	0		0		46		2
8.00% senior notes due 2027	8.00% senior notes due 2027	0		0		253		11		8.00% senior notes due 2027	0		0		253		11
Premiums on senior notes	Premiums on senior notes	51		—		0		—		Premiums on senior notes	50		—		0		—
Debt issuance costs	Debt issuance costs	(10)		—		0		—		Debt issuance costs	(10)		—		0		—
Total debt, net	Total debt, net	1,262		1,272		9,095		3,666		Total debt, net	1,261		1,289		9,095		3,666
Less current maturities of long-term debt	Less current maturities of long-term debt	0		0		(1,929)		(1,929)		Less current maturities of long-term debt	0		0		(1,929)		(1,929)
Less amounts reclassified to liabilities subject to compromise	Less amounts reclassified to liabilities subject to compromise	0		0		(7,166)		(1,737)		Less amounts reclassified to liabilities subject to compromise	0		0		(7,166)		(1,737)
Total long-term debt, net	Total long-term debt, net	$	1,262	$	1,272	$	0	$	0	Total long-term debt, net	$	1,261	$	1,289	$	0	$	0

(a)The carrying value of borrowings under our Exit Credit Facility approximate fair value as the interest rates are based on prevailing market rates; therefore, they are a Level 1 fair value measurement. For all other debt, a market approach, based upon quotes from major financial institutions, which are Level 2 inputs, is used to measure the fair value.

Successor Debt

Our post-emergence exit financing consists of the Exit Credit Facility, which includes a reserve-based revolving credit facility and a non-revolving loan facility, and the Notes.

Exit Credit Facility. On the Effective Date, pursuant to the terms of the Plan, the Company, as borrower, entered into a reserve-based credit agreement (the “Credit Agreement”) providing for a reserve-based credit facility

2529

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

with an initial borrowing base of $2.5 billion. The borrowing base will be redetermined semiannually on or around May 1 and November 1 of each year and the next scheduled redetermination will be on or about October 1, 2021. The aggregate initial elected commitments of the lenders under the Exit Credit Facility will be $1.75 billion of Tranche A Loans and $221 million of fully funded Tranche B Loans.

The Exit Credit Facility provides for a ~~$200.0~~$200 million sublimit of the aggregate commitments that are available for the issuance of letters of credit. The Exit Credit Facility bears interest at the ABR (alternate base rate) or LIBOR, at our election, plus an applicable margin (ranging from 2.25–3.25% per annum for ABR loans and 3.25–4.25% per annum for LIBOR loans, subject to a 1.00% LIBOR floor), depending on the percentage of the borrowing base then being utilized. The Tranche A Loans mature three years after the Effective Date and the Tranche B Loans mature four years after the Effective Date. The Tranche B Loans can be repaid if no Tranche A Loans are outstanding.

The Credit Agreement contains financial covenants that require the Company and its Guarantors, on a consolidated basis, to maintain (i) a first lien leverage ratio of not more than 2.75 to 1:00, (ii) a total leverage ratio of not more than 3.50 to 1:00, (iii) a current ratio of not less than 1.00 to 1:00 and (iv) at any time additional secured debt is outstanding, an asset coverage ratio of not less than 1.50 to 1:00, defined as PV10 of PDP reserves to total secured debt. The Company had no additional secured debt outstanding at emergence.

The Credit Agreement also contains customary affirmative and negative covenants, including, among other things, as to compliance with laws (including environmental laws and anti-corruption laws), delivery of quarterly and annual financial statements, conduct of business, maintenance of property, maintenance of insurance, restrictions on the incurrence of liens, indebtedness, asset dispositions, fundamental changes, restricted payments, and other customary covenants.

The Company is required to pay a commitment fee of 0.50% per annum on the average daily unused portion of the current aggregate commitments under the Tranche A Loans. The Company is also required to pay customary letter of credit and fronting fees.

Outstanding Senior Notes. On February 2, 2021, Chesapeake Escrow Issuer LLC (the “Escrow Issuer”) then an indirect wholly-owned subsidiary of the Company, issued $500 million aggregate principal amount of its 2026 Notes and $500 million aggregate principal amount of its 2029 Notes. The Notes included a $52 million premium to reflect fair value adjustments at the date of ~~Emergence.~~emergence.

The Notes are guaranteed on a senior unsecured basis by each of the Company’s subsidiaries that guarantee the Exit Credit Facility.

The Notes were issued pursuant to an indenture, dated as of February 5, 2021 (the “Indenture”), among the Issuer, the Guarantors and Deutsche Bank Trust Company Americas, as trustee.

Interest on the Notes is payable semi-annually, on February ~~1st~~1 and August ~~1st~~1 of each year, commencing on August 1, 2021, to holders of record on the immediately preceding January ~~15th~~15 and July ~~15th.~~15.

The Notes are the Company’s senior unsecured obligations. Accordingly, they rank (i) equal in right of payment to all existing and future senior indebtedness, including borrowings under the Exit Credit Facility, (ii) effectively subordinate in right of payment to all of existing and future secured indebtedness, including indebtedness under the Exit Credit Facility, to the extent of the value of the collateral securing such indebtedness, (iii) structurally subordinate in right of payment to all existing and future indebtedness and other liabilities of any future subsidiaries that do not guarantee the Notes and any entity that is not a subsidiary that does not guarantee the Notes and (iv) senior in right of payment to all future subordinated indebtedness. Each guarantee of the Notes by a guarantor is a general, unsecured, senior obligation of such guarantor. Accordingly, the guarantees (i) rank equally in right of payment with all existing and future senior indebtedness of such guarantor (including such guarantor’s guarantee of indebtedness under the Exit Credit Facility), (ii) are subordinated to all existing and future secured indebtedness of such guarantor, including such guarantor’s guarantee of indebtedness under our Exit Credit Facility, to the extent of the value of the collateral of such guarantor securing such secured indebtedness, (iii) are structurally subordinated to all indebtedness and other liabilities of any future subsidiaries of such guarantor that do not guarantee the notes and (iv) rank senior in right of payment to all future subordinated indebtedness of such guarantor.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Phase-Out of LIBOR

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The purpose of ASU 2020-04 is to provide optional guidance to ease the potential effects on financial reporting of the market-wide migration away from Interbank Offered Rates such as LIBOR, which is expected to be phased out at the end of calendar year 2021, to alternative reference rates. ASU 2020-04 applies only to contracts, hedging relationships, debt arrangements and other transactions that reference a benchmark reference rate expected to be discontinued because of reference rate reform. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements and related disclosures.

Chapter 11 Proceedings - Predecessor Debt

Filing of the Chapter 11 Cases constituted an event of default with respect to certain of our previous secured and unsecured debt obligations. As a result of the Chapter 11 Cases, the principal and interest due under these debt instruments became immediately due and payable. However, Section 362 of the Bankruptcy Code stayed the creditors from taking any action as a result of the default.

The principal amounts outstanding under the FLLO Term Loan, Second Lien Notes and all of our other unsecured senior and convertible senior notes were reclassified as liabilities subject to compromise on the accompanying condensed consolidated balance sheet as of December 31, 2020.

The agreements for our FLLO Term Loan, Second Lien Notes, and unsecured senior and convertible senior notes contain provisions regarding the calculation of interest upon default. Upon default, the interest rate on the FLLO Term Loan increased from LIBOR plus 8.00% to alternative base rate (ABR) (3.25% during the 2021 Predecessor Period) plus Applicable Margin (7.00% during the 2021 Predecessor Period) plus 2.00%. For the Second Lien Notes and all of our other unsecured senior and convertible senior notes, the interest rate remained the same upon default. However, interest accrued on the amount of unpaid interest in addition to the principal balance. We did not pay or recognize interest on the FLLO Term Loan, Second Lien Notes, or unsecured senior and convertible senior notes during the Chapter 11 process.

Debtor-in-Possession Credit Agreement

On June 28, 2020, prior to the commencement of Chapter 11 Cases, the Company entered into a commitment letter with certain of the lenders (“New Money Lenders”) under the pre-petition revolving credit facility and/or their affiliates to provide the Debtors with a debtor-in-possession credit agreement in an aggregate principal amount of up to approximately $2.104 billion in commitments and loans from the New Money Lenders. The DIP Facility consisted of a revolving loan facility of new money in an aggregate principal amount of up to $925 million, which included a sub-facility of up to $200 million for the issuance of letters of credit, and a $1.179 billion term loan that reflected the roll-up of a portion of outstanding borrowings under the pre-petition revolving credit facility: (i) a $925 million term loan reflected the roll-up of a portion of outstanding existing borrowings made by the New Money Lenders under the existing revolving credit agreement and (ii) an up to approximately $254 million term loan reflected the roll-up or a portion of outstanding existing borrowings made by certain other lenders under the pre-petition revolving credit facility agreement. The $750 million of outstanding borrowings under the pre-petition revolving credit facility that were not rolled up remained outstanding throughout the Chapter 11 Cases but accrued interest at a lower rate than the rolled-up loans. The proceeds of the DIP Facility were used for, among other things, post-petition working capital, permitted capital investments, general corporate purposes, letters of credit, administrative costs, premiums, expenses and fees for the transactions contemplated by the Chapter 11 Cases, payment of court approved adequate protection obligations and other such purposes consistent with the DIP Facility. On the Effective Date, the DIP Facility was terminated and the holders of obligations under the DIP Facility received payment in full in cash; provided that to the extent such lender under the DIP Facility was also a lender under the Exit Credit Facility, such lender’s allowed DIP claims were first reduced dollar-for-dollar and satisfied by the amount of its Exit RBL Loans provided as of the Effective Date.

Predecessor Senior Notes

In the 2020 Predecessor Period, we repurchased approximately ~~$156~~$160 million aggregate principal amount of certain senior notes for ~~$93~~$95 million and recorded an aggregate gain of approximately ~~$63~~$65 million.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


6.			Contingencies and Commitments

There have been no material developments in previously reported legal or environmental contingencies or commitments other than the items discussed below.

Contingencies

Chapter 11 Proceedings

Commencement of the Chapter 11 Cases automatically stayed the proceedings and actions against us that are described below, in addition to actions seeking to collect pre-petition indebtedness or to exercise control over the property of the Company’s bankruptcy estates. The Plan in the Chapter 11 Cases, which became effective on February 9, 2021, provided for the treatment of claims against the Company’s bankruptcy estates, including pre-petition liabilities that had not been satisfied or addressed during the Chapter 11 Cases. See Note 2 for additional information.

Litigation and Regulatory Proceedings

We were involved in a number of litigation and regulatory proceedings as of the Petition Date. Many of these proceedings were in early stages, and many of them sought damages and penalties, the amount of which is indeterminate. Our total accrued liability in respect of litigation and regulatory proceedings is determined on a case-by-case basis and represents an estimate of probable losses after considering, among other factors, the progress of each case or proceeding, our experience and the experience of others in similar cases or proceedings, and the opinions and views of legal counsel. Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different.

We are involved in, and expect to continue to be involved in, various lawsuits and disputes incidental to our business operations, including commercial disputes, personal injury claims, royalty claims, property damage claims and contract actions. The majority of the prepetition legal proceedings have been settled during the Chapter 11 Cases or will be resolved in connection with the claims reconciliation process before the Bankruptcy Court. Any allowed claim related to such prepetition litigation will be treated in accordance with the Plan.

Environmental Contingencies

The nature of the oil and gas business carries with it certain environmental risks for us and our subsidiaries. We have implemented various policies, programs, procedures, training and audits to reduce and mitigate such environmental risks. We conduct periodic reviews, on a company-wide basis, to assess changes in our environmental risk profile. Environmental reserves are established for environmental liabilities for which economic losses are probable and reasonably estimable. We manage our exposure to environmental liabilities in acquisitions by using an evaluation process that seeks to identify pre-existing contamination or compliance concerns and addressing the potential liability. Depending on the extent of an identified environmental concern, we may, among other things, exclude a property from the transaction, require the seller to remediate the property to our satisfaction in an acquisition or agree to assume liability for the remediation of the property.

We ~~are named~~were recently dismissed as a defendant infrom numerous lawsuits in Oklahoma alleging that we and other companies ~~have~~ engaged in activities that have caused earthquakes. ~~These~~The lawsuits ~~seek~~sought compensation for injury to real and personal property, diminution of property value, economic losses due to business interruption, interference with the use and enjoyment of property, annoyance and inconvenience, personal injury and emotional distress. In addition, they ~~seek~~sought the reimbursement of insurance premiums and the award of punitive damages, attorneys’ fees, costs, expenses and interest. ~~We are actively seeking dismissal of these claims.~~ Any allowed claim related to such prepetition litigation will be treated in accordance with the Plan.

We ~~are in discussions~~settled outstanding violations with the Pennsylvania Department of Environmental Protection (“PADEP”) regarding gas migration in the vicinity of certain of our wells in Wyoming County, Pennsylvania. ~~We believe we are close to identifying agreed-upon steps to resolve PADEP’s concerns regarding the issue. In addition to these steps,~~The resolution of the matter ~~may result~~resulted in monetary sanctions of more than ~~$300,000. Any allowed claim related~~$300,000, which were assessed pursuant to ~~such monetary sanctions~~a Proof of Claim filed by PADEP in the Chapter 11 proceedings. Chesapeake will ~~be treated~~allow the Proof of Claim as a General Unsecured Claim in accordance with the ~~Plan.~~Consent Order and Agreement executed by the parties and Chesapeake’s approved Plan of Reorganization.

Other Matters

Based on management’s current assessment, we are of the opinion that no pending or threatened lawsuit or dispute relating to our business operations is likely to have a material adverse effect on our future consolidated financial position, results of operations or cash flows. The final resolution of such matters could exceed amounts accrued, however, and actual results could differ materially from management’s estimates.

Commitments

Gathering, Processing and Transportation Agreements

We have contractual commitments with midstream service companies and pipeline carriers for future gathering, processing and transportation of oil, natural gas and NGL to move certain of our production to market. Working interest owners and royalty interest owners, where appropriate, will be responsible for their proportionate share of these costs. Commitments related to gathering, processing and transportation agreements are not recorded as obligations in the accompanying condensed consolidated balance sheets; however, they are reflected in our estimates of proved reserves.

The aggregate undiscounted commitments under our gathering, processing and transportation agreements, excluding any reimbursement from working interest and royalty interest owners, credits for third-party volumes or future costs under cost-of-service agreements, are presented below:


		Successor			Successor
		March 31, 2021			June 30, 2021
Remainder of 2021	Remainder of 2021	$	499	Remainder of 2021	$	330
2022	2022	569		2022	569
2023	2023	458		2023	458
2024	2024	390		2024	390
2025	2025	310		2025	310
2026 – 2034		1,539
2026 – 2033				2026 – 2033	1,539
Total	Total	$	3,765	Total	$	3,596

In addition, we have entered into long-term agreements for certain natural gas gathering and related services within specified acreage dedication areas in exchange for cost-of-service based fees redetermined annually, or tiered fees based on volumes delivered relative to scheduled volumes. Future gathering fees may vary with the applicable agreement.

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


7.			Other Current Liabilities

Other current liabilities as of ~~March 31,~~June 30, 2021 and December 31, 2020 are detailed below:


		Successor		Predecessor			Successor		Predecessor
		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Revenues and royalties due others	Revenues and royalties due others	$	418	$	236	Revenues and royalties due others	$	404	$	236
Accrued drilling and production costs	Accrued drilling and production costs	71		104		Accrued drilling and production costs	91		104
Other accrued taxes	Other accrued taxes	60		82		Other accrued taxes	62		82
Accrued compensation and benefits	Accrued compensation and benefits	39		59		Accrued compensation and benefits	48		59
Hedging						Hedging	45		7
Operating leases	Operating leases	27		24		Operating leases	18		24
Debt and equity financing fees	Debt and equity financing fees	0		69		Debt and equity financing fees	0		69
Joint interest prepayments received	Joint interest prepayments received	18		8		Joint interest prepayments received	13		8
Other	Other	148		141		Other	100		134
Total other current liabilities	Total other current liabilities	$	781	$	723	Total other current liabilities	$	781	$	723

2933

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


8.			Revenue

The following table shows revenue disaggregated by operating area and product type:

Successor
Period from
February 10, 2021 through March 31, 2021
Oil Natural Gas NGL Total
Appalachia $ 0 $ 163 $ 0 $ 163
Gulf Coast 0 70 0 70
South Texas 117 28 19 164
Brazos Valley 89 15 4 108
Powder River Basin 28 14 6 48
Oil, natural gas and NGL revenue $ 234 $ 290 $ 29 $ 553
Marketing revenue $ 162 $ 97 $ 18 $ 277
Predecessor
Period from
January 1, 2021 through February 9, 2021
Oil Natural Gas NGL Total
Appalachia $ 0 $ 119 $ 0 $ 119
Gulf Coast 0 53 0 53
South Texas 92 15 15 122
Brazos Valley 67 2 2 71
Powder River Basin 20 7 6 33
Oil, natural gas and NGL revenue $ 179 $ 196 $ 23 $ 398
Marketing revenue $ 141 $ 78 $ 20 $ 239
Predecessor
Three Months Ended March 31, 2020
Oil Natural Gas NGL Total
Appalachia $ 0 $ 175 $ 0 $ 175
Gulf Coast 0 85 0 85
South Texas 277 31 20 328
Brazos Valley 172 4 4 180
Powder River Basin 68 15 7 90
Mid-Continent 22 10 4 36
Oil, natural gas and NGL revenue $ 539 $ 320 $ 35 $ 894
Marketing revenue from contracts with customers $ 508 $ 124 $ 30 $ 662
Other marketing revenue 61 1 0 62
Marketing revenue $ 569 $ 125 $ 30 $ 724


	Successor
	Three months ended June 30, 2021
	Oil		Natural Gas		NGL		Total
Appalachia	$	0	$	226	$	0	$	226
Gulf Coast	0		124		0		124
South Texas	224		25		36		285
Brazos Valley	162		6		5		173
Powder River Basin	58		16		10		84
Oil, natural gas and NGL revenue	$	444	$	397	$	51	$	892

Marketing revenue	$	340	$	146	$	53	$	539

	Predecessor
	Three months ended June 30, 2020
	Oil		Natural Gas		NGL		Total
Appalachia	$	0	$	131	$	0	$	131
Gulf Coast	0		67		0		67
South Texas	73		21		14		108
Brazos Valley	76		3		1		80
Powder River Basin	29		7		3		39
Mid-Continent	8		5		2		15
Oil, natural gas and NGL revenue	$	186	$	234	$	20	$	440

Marketing revenue from contracts with customers	$	121	$	96	$	15	$	232
Other marketing revenue	6		2		0		8
Marketing revenue	$	127	$	98	$	15	$	240

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Table of ~~Con~~Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


	Successor
	Period from February 10, 2021 through June 30, 2021
	Oil		Natural Gas		NGL		Total
Appalachia	$	0	$	389	$	0	$	389
Gulf Coast	0		194		0		194
South Texas	341		53		55		449
Brazos Valley	251		21		9		281
Powder River Basin	86		30		16		132
Oil, natural gas and NGL revenue	$	678	$	687	$	80	$	1,445

Marketing revenue	$	502	$	243	$	71	$	816

	Predecessor
	Period from January 1, 2021 through February 9, 2021
	Oil		Natural Gas		NGL		Total
Appalachia	$	0	$	119	$	0	$	119
Gulf Coast	0		53		0		53
South Texas	92		15		15		122
Brazos Valley	67		2		2		71
Powder River Basin	20		7		6		33
Oil, natural gas and NGL revenue	$	179	$	196	$	23	$	398

Marketing revenue	$	141	$	78	$	20	$	239


	Predecessor
	Six Months Ended June 30, 2020
	Oil		Natural Gas		NGL		Total
Appalachia	$	0	$	306	$	0	$	306
Gulf Coast	0		151		0		151
South Texas	350		52		34		436
Brazos Valley	248		7		5		260
Powder River Basin	97		23		10		130
Mid-Continent	30		15		6		51
Oil, natural gas and NGL revenue	$	725	$	554	$	55	$	1,334

Marketing revenue from contracts with customers	$	629	$	220	$	45	$	894
Other marketing revenue	67		3		0		70
Marketing revenue	$	696	$	223	$	45	$	964

t e ~~nts~~Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Accounts Receivable

Our accounts receivable are primarily from purchasers of oil, natural gas 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 deemed to have sub-standard credit, unless the credit risk can otherwise be mitigated. We estimate expected credit losses using forecasts based on historical information and current information, in addition to specifically identifying receivables that may be uncollectible.

Accounts receivable as of ~~March 31,~~June 30, 2021 and December 31, 2020 are detailed below:


		Successor		Predecessor			Successor		Predecessor
		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Oil, natural gas and NGL sales	Oil, natural gas and NGL sales	$	575	$	589	Oil, natural gas and NGL sales	$	531	$	589
Joint interest	Joint interest	93		119		Joint interest	117		119
Other	Other	36		68		Other	27		68
Allowance for doubtful accounts	Allowance for doubtful accounts	0		(30)		Allowance for doubtful accounts	(1)		(30)
Total accounts receivable, net	Total accounts receivable, net	$	704	$	746	Total accounts receivable, net	$	674	$	746

~~Table of Con~~t e ~~nts~~

~~CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~


9.			Income Taxes

We estimate our annual effective tax rate (“AETR”) for continuing operations in recording our interim quarterly income tax provision for the various jurisdictions in which we operate. The tax effects of statutory rate changes, significant unusual or infrequently occurring items, and certain changes in the assessment of the realizability of deferred tax assets are excluded from the determination of our estimated AETR as such items are recognized as discrete items in the quarter in which they occur. Our estimated AETR for the 2021 Successor Period is 0.0% as a result of projecting a full valuation allowance against our anticipated net deferred asset position at December 31, 2021.

The income tax provision for the 2021 Predecessor Period was determined based on actual results for the period ended February 9, 2021, including those resulting from fresh start accounting. The effective tax rate for the 2021 Predecessor Period was (1.1%) which results from the elimination of the income tax effects associated with hedging settlements from accumulated other comprehensive income as part of fresh start accounting. We recorded an income tax benefit of $57 million in the 2021 Predecessor Period for the elimination of such income tax effects. Any changes to our deferred tax assets and liabilities for the 2021 Predecessor Period (whether resulting from Reorganization Adjustments, Fresh Start Adjustments or otherwise) were completely offset with a corresponding adjustment to our valuation allowance which results in the low effective tax rate. Accordingly, there are no balances shown for deferred tax assets or liabilities in the condensed consolidated balance sheet table shown in Note 3.

For the 2020 Predecessor Period, we recorded an income tax benefit of $13 million, which included the reversal of substantially all of the deferred tax liability associated with Texas through the application of the estimated AETR as well as recording a receivable for amounts previously sequestered from refunds of corporate alternative minimum tax credits. This resulted in a 0.2% effective tax rate for the 2020 Predecessor Period.

As of the Effective Date, we were in a net deferred tax asset position and anticipate being in a net deferred tax asset position as of December 31, 2021. Based on all available positive and negative evidence, including projections of future taxable income, we believe it is more likely than not that some or all of our deferred tax assets will not be realized. Our deferred tax assets relate primarily to the excess tax basis over post emergence book value of oil and natural gas properties along with federal and state net operating loss (“NOL”) carryforwards. A significant piece of objectively verifiable negative evidence evaluated is the cumulative loss incurred over the rolling thirty-six-month period ended ~~March 31,~~June 30, 2021. Such evidence limits our ability to consider various forms of subjective positive evidence, such as any projections of future growth and earnings. However, should we begin to achieve a level of sustained profitability as a restructured entity, increased consideration will need to be given to projections of future taxable income to determine whether such projections provide an adequate source of taxable income for the

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

realization of our deferred tax assets. A full valuation allowance was recorded against our net deferred tax asset position for federal and state purposes as of ~~March 31,~~June 30, 2021 and December 31, 2020.

We have evaluated the income tax impact of the Plan, including the ownership change under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as a result of emergence from bankruptcy. Section 382(b) of the Code provides an annual limitation with respect to the ability of a corporation to utilize its tax attributes existing at the time of an ownership change against future taxable income. We did not qualify for the exception under Section 382(l)(5) of the Code, and therefore an annual limitation was determined under Section 382(l)(6) of the Code, which is based on the post-emergence value of the taxpayer’s equity multiplied by the adjusted federal long-term rate in effect for the month in which the ownership change occurred. The amount of the annual limitation has been computed to be $54 million and will be prorated for the current year based on the number of days attributable to the post-Effective Date portion of the year. The limitation applies to our NOL carryforwards, disallowed business interest carryforwards and general business credits until such attributes expire or are fully utilized. As we believe we were in an overall net unrealized built-in loss position at the Effective Date, the limitation also applies to any recognized built-in losses incurred for a period of five years but only to the extent of the overall net unrealized built-in loss. We estimate that this will occur during the current year such that no further limitation for recognized built-in losses will occur in subsequent years. Some states impose similar limitations on tax attribute utilization upon experiencing an ownership change.

In Chapter 11 bankruptcy cases, the cancellation of debt income (“CODI”) realized upon emergence from bankruptcy is excludible from taxable income but results in a reduction of tax attributes in accordance with the attribute reduction and ordering rules of Section 108 of the Code. The amount of our CODI is estimated to be

~~Table of Con~~t e ~~nts~~

~~CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

$5 $5 billion and will be taken completely against, and therefore will reduce, our NOL carryforwards. After taking into account the CODI and the impact of Section 382 of the Code, the remaining federal NOL carryforwards are estimated to be in the range of $2.5 billion to $3.0 billion. Approximately $900 million are NOL carryforwards which expire in 2037 and $1.6 billion to $2.1 billion are NOL carryforwards which do not expire. The reductions in NOL carryforwards for the CODI and expiring NOL carryforwards are expected to be fully offset by a corresponding decrease to our valuation allowance at December 31, 2021. Some states have similar rules for attribute reduction which will result in the reduction of certain of our state NOL carryforwards.


10.			Equity

New Common Stock. As discussed in Note 2, on the Effective Date, we issued an aggregate of approximately ~~97.9 million~~97,907,081 shares of New Common Stock, par value $0.01 per share, to the holders of allowed claims, and approximately ~~2.1 million~~2,092,918 shares of New Common Stock were reserved for future distributions under the Plan.

On August 10, 2021 we declared a quarterly dividend payable of $0.34375 per share, which will be paid on September 9, 2021 to stockholders of record at the close of business on August 24, 2021.

Warrants. As discussed in Note 2, on the Effective Date, we issued ~~approximately 11.1 million~~11,111,111 Class A Warrants, ~~12.3 million~~12,345,679 Class B Warrants and ~~13.7 million~~9,768,527 Class C Warrants, that are initially exercisable for one share of New Common Stock per Warrant at initial exercise prices of $27.63, $32.13 and $36.18 per share, respectively, subject to adjustments pursuant to the terms of the Warrants. Additionally, 3,948,893 Class C Warrants were reserved for future issuance. The Warrants are exercisable from the Effective Date until February 9, 2026. The Warrants contain customary anti-dilution adjustments in the event of any stock split, reverse stock split, reclassification, stock dividend or other distributions. The initial exercise prices of the Warrants were adjusted to prevent the dilution of rights for the effects of the quarterly dividend distribution on June 10, 2021, and the adjusted exercise prices are $27.44, $31.91, and $35.93 per share for the Class A, Class B and Class C Warrants, respectively. During the Successor Period, 9,068 Class A, 32,221 Class B, and 5,702 Class C Warrants were converted into 46,035 common shares.

Chapter 11 Proceedings

Upon emergence from Chapter 11 on February 9, 2021, as discussed in N ~~ote~~Note 2, Predecessor common stock and preferred stock were canceled and released under the Plan without receiving any recovery on account thereof.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


11.			Share-Based Compensation

As discussed in ~~Not~~e Note 2, on the Effective Date, our Predecessor common stock was canceled and New Common Stock was issued. Accordingly, our then existing share-based compensation awards were also canceled, which resulted in the recognition of any previously unamortized expense related to the canceled awards on the date of cancellation. ~~Share based~~Share-based compensation for the Predecessor and Successor ~~periods are~~Periods is not comparable.

Successor Share-Based Compensation

As of the Effective Date, the Board of Directors adopted the LTIP with a share reserve equal to 6,800,000 shares of New Common Stock. The LTIP provides for the grant of restricted stock units, restricted stock awards, stock options, stock appreciation rights, performance awards and other stock awards to the Company’s employees and non-employee directors.

Successor Restricted Stock

In the 2021 Successor Period, we granted restricted stock awards to employees and non-employee directors under the LTIP, which will vest over a ~~one-year period.~~three-year and one-year period, respectively. The fair value of restricted stock awards is based on the closing sales price of our common stock on the date of grant, and compensation expense is recognized ratably over the requisite service period. A summary of the changes in unvested restricted stock is presented below:


		Shares of Unvested Restricted Stock	Weighted Average Grant Date Fair Value Per Share			Shares of Unvested Restricted Stock	Weighted Average Grant Date Fair Value Per Share
		(in thousands)				(in thousands)
Unvested as of February 10, 2021	Unvested as of February 10, 2021	0	$	0	Unvested as of February 10, 2021	0	$	0
Granted	Granted	49	$	43.84	Granted	727	$	44.28
Vested	Vested	0	$	0	Vested	(1)	$	44.30
Forfeited/canceled	Forfeited/canceled	0	$	0	Forfeited/canceled	(18)	$	44.30
Unvested as of March 31, 2021		49	$	43.84
Unvested as of June 30, 2021					Unvested as of June 30, 2021	708	$	44.28

The aggregate intrinsic value of restricted stock that vested during the 2021 Successor Period was approximately $0.1 million based on the stock price at the time of vesting.

As of June 30, 2021, there was approximately $28 million of total unrecognized compensation expense related to unvested restricted stock. The expense is expected to be recognized over a weighted average period of approximately 2.67 years.

Successor Performance Share Units

In the 2021 Successor Period, we granted performance share units (“PSUs”) to senior management under the LTIP, which will generally vest over a three-year period and will be settled in shares. The performance criteria include share price hurdles, total shareholder return (“TSR”), and relative TSR (“rTSR”). The share price hurdle award could result in a payout between 0% - 100% of the target units, and the TSR and relative TSR awards could result in a total payout between 0% - 200% of the target units. The fair value of the PSUs was measured on the grant date using a Monte Carlo simulation and compensation expense is recognized ratably over the requisite service period because these awards depend on a combination of service and market criteria.

The following table presents the assumptions used in the valuation of the PSUs granted in 2021.


Assumption	Share Price Hurdle		TSR, rTSR
Risk-free interest rate	0.30	%	0.23	%
Volatility	68.4	%	71.4	%

3338

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

A summary of the changes in unvested PSUs is presented below:


	Unvested Performance Share Units	Weighted Average Grant Date Fair Value Per Share
	(in thousands)
Unvested as of February 10, 2021	0	$	0
Granted	142	$	54.23
Vested	0	$	0
Forfeited/canceled	0	$	0
Unvested as of June 30, 2021	142	$	54.23

As of June 30, 2021, there was approximately $7 million of total unrecognized compensation expense related to unvested PSU awards. The expense is expected to be recognized over a weighted average period of approximately 2.87 years.

Predecessor Share-Based Compensation

Our Predecessor share-based compensation program consisted of restricted stock, stock options, ~~performance share units (PSUs)~~PSUs and cash restricted stock units ~~(CRSUs)~~(“CRSUs”) granted to employees and restricted stock granted to non-employee directors under our long-term incentive plans. The restricted stock and stock options were equity-classified awards and the PSUs and CRSUs were liability-classified awards.

~~Predecessor Equity-Classified Awards~~

Restricted Stock. We granted restricted stock units to employees and non-employee directors. A summary of the changes in unvested restricted stock is presented below:


	Shares of Unvested Restricted Stock	Weighted Average Grant Date Fair Value Per Share
	(in thousands)
Unvested as of January 1, 2021	1	$	616.57
Granted	0	$	0
Vested	0	$	0
Forfeited/canceled	(1)	$	611.47
Unvested as of February 9, 2021	0	$	0

Stock Options. In the 2020 Predecessor Period, we granted members of management stock options that vested ratably over a three-year period. Each stock option award had an exercise price equal to the closing price of our common stock on the grant date. Outstanding options expired seven years to ten years from the date of grant.

We utilized the Black-Scholes option-pricing model to measure the fair value of stock options. The expected life of an option was determined using the simplified method. Volatility assumptions were estimated based on the average historical volatility of Chesapeake stock over the expected life of an option. The risk-free interest rate was based on the U.S. Treasury rate in effect at the time of the grant over the expected life of the option. The dividend yield was based on an annual dividend yield, taking into account our dividend policy, over the expected life of the option.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The following table provides information related to stock option activity:


	Number of Shares Underlying Options	Weighted Average Exercise Price Per Share		Weighted Average Contract Life in Years	Aggregate Intrinsic Value(a)
	(in thousands)
Outstanding as of January 1, 2021	20	$	1,429	4.27	$	0
Granted	0	$	0
Exercised	0	$	0		$	0
Expired	(1)	$	742
Forfeited/canceled	(19)	$	1,452
Outstanding as of February 9, 2021	0	$	0	—	$	0
Exercisable as of February 9, 2021	0	$	0	—	$	0

(a)The intrinsic value of a stock option is the amount by which the current market value or the market value upon exercise of the underlying stock exceeds the exercise price of the option.

~~Table~~Restricted Stock, Stock Option, and PSU Compensation. We recognized the following compensation costs, net of ~~Con~~t e ~~nts~~actual forfeitures, related to restricted stock, stock options, and PSUs for the Successor and Predecessor Periods:

~~CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES~~


	Successor		Predecessor
	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
General and administrative expenses	$	2	$	4
Oil and natural gas properties	1		0


Total restricted stock, stock option, and PSU compensation	$	3	$	4

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
General and administrative expenses	$	2	$	3	$	8
Oil and natural gas properties	1		0		1
Oil, natural gas and NGL production expenses	0		0		1

Total restricted stock, stock option, and PSU compensation	$	3	$	3	$	10

~~(Unaudited)~~


12.			Derivative and Hedging Activities

We use derivative instruments to reduce our exposure to fluctuations in future commodity prices and to protect our expected operating cash flow against significant market movements or volatility. These commodity derivative financial instruments include financial price swaps, basis protection swaps, ~~options, collars~~ and ~~call swaptions.~~collars. All of our oil and natural gas derivative instruments are net settled based on the difference between the fixed-price payment and the floating-price payment, resulting in a net amount due to or from the counterparty.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The estimated fair values of our oil, natural gas and NGL derivative instrument assets (liabilities) as of ~~March 31,~~June 30, 2021 and December 31, 2020 are provided below:


		Successor			Predecessor				Successor			Predecessor
		March 31, 2021			December 31, 2020				June 30, 2021			December 31, 2020
		Notional Volume	Fair Value		Notional Volume	Fair Value			Notional Volume	Fair Value		Notional Volume	Fair Value
Oil (MMBbl):	Oil (MMBbl):							Oil (MMBbl):
Fixed-price swaps	Fixed-price swaps	27	$	(333)	27	$	(136)	Fixed-price swaps	22	$	(524)	27	$	(136)
Basis protection swaps	Basis protection swaps	6	(2)		7	(1)		Basis protection swaps	13	(5)		7	(1)
Total oil	Total oil	33	(335)		34	(137)		Total oil	35	(529)		34	(137)
Natural gas (Bcf):	Natural gas (Bcf):							Natural gas (Bcf):
Fixed-price swaps	Fixed-price swaps	671	(41)		728	10		Fixed-price swaps	536	(410)		728	10
Collars	Collars	48	3		53	8		Collars	113	(46)		53	8
Basis protection swaps	Basis protection swaps	163	(2)		66	1		Basis protection swaps	179	(6)		66	1
Total natural gas	Total natural gas	882	(40)		847	19		Total natural gas	828	(462)		847	19
Total estimated fair value	Total estimated fair value		$	(375)		$	(118)	Total estimated fair value		$	(991)		$	(118)

We have terminated certain commodity derivative contracts that were previously designated as cash flow hedges for which the original contract months are yet to occur. See further discussion below under Effect of Derivative Instruments – Accumulated Other Comprehensive Income (Loss).

~~Table of Con~~t e ~~nts~~

~~CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

Effect of Derivative Instruments – Condensed Consolidated Balance Sheets

The following table presents the fair value and location of each classification of derivative instrument included in the condensed consolidated balance sheets as of ~~March 31,~~June 30, 2021 and December 31, 2020 on a gross basis and after same-counterparty netting:


		Gross Fair Value		Amounts Netted in the Consolidated Balance Sheets		Net Fair Value Presented in the Consolidated Balance Sheets			Gross Fair Value		Amounts Netted in the Consolidated Balance Sheets		Net Fair Value Presented in the Consolidated Balance Sheets
Successor	Successor							Successor
As of March 31, 2021
As of June 30, 2021								As of June 30, 2021
Commodity Contracts:	Commodity Contracts:							Commodity Contracts:
Short-term derivative asset	Short-term derivative asset	$	45	$	(41)	$	4	Short-term derivative asset	$	23	$	(23)	$	0
Long-term derivative asset	Long-term derivative asset	16		(14)		2		Long-term derivative asset	6		(6)		0
Short-term derivative liability	Short-term derivative liability	(346)		41		(305)		Short-term derivative liability	(803)		23		(780)
Long-term derivative liability	Long-term derivative liability	(90)		14		(76)		Long-term derivative liability	(217)		6		(211)
Total derivatives	Total derivatives	$	(375)	$	0	$	(375)	Total derivatives	$	(991)	$	0	$	(991)

Predecessor	Predecessor							Predecessor
As of December 31, 2020	As of December 31, 2020							As of December 31, 2020
Commodity Contracts:	Commodity Contracts:							Commodity Contracts:
Short-term derivative asset	Short-term derivative asset	$	84	$	(65)	$	19	Short-term derivative asset	$	84	$	(65)	$	19
Long-term derivative asset	Long-term derivative asset	5		(5)		0		Long-term derivative asset	5		(5)		0
Short-term derivative liability	Short-term derivative liability	(158)		65		(93)		Short-term derivative liability	(158)		65		(93)
Long-term derivative liability	Long-term derivative liability	(49)		5		(44)		Long-term derivative liability	(49)		5		(44)
Total derivatives	Total derivatives	$	(118)	$	0	$	(118)	Total derivatives	$	(118)	$	0	$	(118)

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Effect of Derivative Instruments – Condensed Consolidated Statements of Operations

The components of oil and natural gas derivatives are presented below:


		Successor		Predecessor					Successor		Predecessor
		Period from February 10, 2021 through March 31, 2021		Period from January 1, 2021 through February 9, 2021		Three Months Ended March 31, 2020			Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Gains (losses) on undesignated oil and natural gas derivatives		$	46	$	(379)	$	916
Losses on undesignated oil and natural gas derivatives								Losses on undesignated oil and natural gas derivatives	$	(740)	$	(165)
Losses on terminated cash flow hedges	Losses on terminated cash flow hedges	0		(3)		(9)		Losses on terminated cash flow hedges	0		(8)
Total oil and natural gas derivatives	Total oil and natural gas derivatives	$	46	$	(382)	$	907	Total oil and natural gas derivatives	$	(740)	$	(173)

~~Table of Con~~t e ~~nts~~

~~CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Gains (losses) on undesignated oil and natural gas derivatives	$	(694)	$	(379)	$	751
Losses on terminated cash flow hedges	0		(3)		(17)
Total oil and natural gas derivatives	$	(694)	$	(382)	$	734

Effect of Derivative Instruments – Accumulated Other Comprehensive Income (Loss)

A reconciliation of the changes in accumulated other comprehensive income (loss) in our condensed consolidated statements of stockholders’ equity related to our cash flow hedges is presented below:


		Successor				Predecessor									Successor				Predecessor
		Period from February 10, 2021 through March 31, 2021				Period from January 1, 2021 through February 9, 2021				Three Months Ended March 31, 2020					Three Months Ended June 30, 2021				Three Months Ended June 30, 2020
		Before Tax		After Tax		Before Tax		After Tax		Before Tax		After Tax			Before Tax		After Tax		Before Tax		After Tax
Balance, beginning of period	Balance, beginning of period	$	0	$	0	$	(12)	$	45	$	(45)	$	12	Balance, beginning of period	$	0	$	0	$	(36)	$	21
Losses reclassified to income	Losses reclassified to income	0		0		3		3		9		9		Losses reclassified to income	0		0		8		8
Fresh start adjustments		0		0		9		9		0		0
Elimination of tax effects		0		0		0		(57)		0		0

Balance, end of period	Balance, end of period	$	0	$	0	$	0	$	0	$	(36)	$	21	Balance, end of period	$	0	$	0	$	(28)	$	29


	Successor				Predecessor
	Period from February 10, 2021 through June 30, 2021				Period from January 1, 2021 through February 9, 2021				Six Months Ended June 30, 2020
	Before Tax		After Tax		Before Tax		After Tax		Before Tax		After Tax
Balance, beginning of period	$	0	$	0	$	(12)	$	45	$	(45)	$	12
Losses reclassified to income	0		0		3		3		17		17
Fresh start adjustments	0		0		9		9		0		0
Elimination of tax effects	0		0		0		(57)		0		0
Balance, end of period	$	0	$	0	$	0	$	0	$	(28)	$	29

Our accumulated other comprehensive loss balance represented the net deferred loss associated with commodity derivative contracts that were previously designated as cash flow hedges for which the original contract months were yet to occur. The remaining deferred gain or loss amounts were to be recognized in earnings in the

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

month for which the original contract months were to occur. In connection with our adoption of fresh start accounting we recorded a fair value adjustment to eliminate the accumulated other comprehensive income related to hedging settlements including the elimination of tax effects. See Note 3 for a discussion of fresh start accounting adjustments.

Credit Risk Considerations

Our derivative instruments expose us to our counterparties’ credit risk. To mitigate this risk, we enter into derivative contracts only with counterparties that are highly rated or are deemed by us to have acceptable credit strength and deemed by management to be competent and competitive market-makers, and we attempt to limit our exposure to non-performance by any single counterparty. As of ~~March 31,~~June 30, 2021, our oil and natural gas derivative instruments were spread among ~~seven~~eight counterparties.

Hedging Arrangements

Certain of our hedging arrangements are with counterparties that are also lenders (or affiliates of lenders) under our Exit Credit Facility. The contracts entered into with these counterparties are secured by the same collateral that secures the Exit Credit Facility. The counterparties’ obligations must be secured by cash or letters of credit to the extent that any mark-to-market amounts owed to us exceed defined thresholds. As of ~~March 31,~~June 30, 2021, we did not have any cash or letters of credit posted as collateral for our commodity derivatives.

Fair Value

The fair value of our derivatives is based on third-party pricing models, which utilize inputs that are either readily available in the public market, such as oil, natural gas and NGL forward curves and discount rates, or can be corroborated from active markets or broker quotes. These values are compared to the values given by our counterparties for reasonableness. ~~Since~~As our oil, natural gas and NGL derivatives do not include optionality and therefore generally have no unobservable inputs, they are classified as Level 2. Derivatives are also subject to the risk that either party to a contract will be unable to meet its obligations. We factor non-performance risk into the valuation of our derivatives using current published credit default swap rates. To date, this has not had a material impact on the values of our derivatives.

~~Table of Con~~t e ~~nts~~

~~CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

The following table provides information for financial assets (liabilities) measured at fair value on a recurring basis as of ~~March 31,~~June 30, 2021 and December 31, 2020:


		Successor		Predecessor			Successor		Predecessor
Significant Other Observable Inputs (Level 2)	Significant Other Observable Inputs (Level 2)	March 31, 2021		December 31, 2020		Significant Other Observable Inputs (Level 2)	June 30, 2021		December 31, 2020
Derivative Assets (Liabilities):	Derivative Assets (Liabilities):					Derivative Assets (Liabilities):
Commodity assets	Commodity assets	$	61	$	88	Commodity assets	$	29	$	88
Commodity liabilities	Commodity liabilities	(436)		(206)		Commodity liabilities	(1,020)		(206)
Total derivatives	Total derivatives	$	(375)	$	(118)	Total derivatives	$	(991)	$	(118)


13.			Exploration Expense

A summary of our exploration expense is as follows:


		Successor		Predecessor					Successor		Predecessor
		Period from February 10, 2021 through March 31, 2021		Period from January 1, 2021 through February 9, 2021		Three Months Ended March 31, 2020			Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Impairments of unproved properties	Impairments of unproved properties	$	0	$	2	$	272	Impairments of unproved properties	$	0	$	127
Dry hole expense		0		0		7

Geological and geophysical expense and other	Geological and geophysical expense and other	1		0		3		Geological and geophysical expense and other	1		3
Exploration expense	Exploration expense	$	1	$	2	$	282	Exploration expense	$	1	$	130

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Impairments of unproved properties	$	0	$	2	$	399
Dry hole expense	0		0		7
Geological and geophysical expense and other	2		0		6
Exploration expense	$	2	$	2	$	412

Unproved oil and natural gas properties are periodically assessed for impairment by considering future drilling and exploration plans, results of exploration activities, commodity price outlooks, planned future sales and expiration of all or a portion of the projects. The exploration expense charges during the 2020 Predecessor Quarter are the result of non-cash impairment charges in unproved properties, primarily in our Gulf Coast operating area. The exploration expense charges during the 2020 Predecessor Period are primarily the result of non-cash impairment charges in unproved properties, primarily in our Brazos Valley, Gulf Coast, Powder River Basin and Mid-Continent operating areas.

~~Table of Con~~t e ~~nts~~

~~CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~


14.			Impairments

During the 2020 Predecessor Period, the decrease in demand for crude oil primarily due to the combined impacts of COVID-19 and the OPEC+ production increases resulted in decreases in current and expected long-term crude oil and NGL sale prices. These conditions resulted in reductions to the market capitalization of peer companies in the energy industry. We determined these adverse market conditions represented a triggering event to perform an impairment assessment of our long-lived assets used in, and in support of, our operations, including proved oil and gas properties, and our sand mine assets.

Proved Oil and Gas Properties

Our impairment test involved a Step 1 assessment to determine if the net book value of our proved oil and natural gas properties is expected to be recovered from the estimated undiscounted future cash flows.

•We calculated the expected undiscounted future net cash flows of our long-lived assets using management’s assumptions and expectations of (i) commodity prices, which are based on the NYMEX strip pricing escalated by an inflationary rate, (ii) pricing adjustments for differentials, (iii) operating costs, (iv) capital investment plans, (v) future production volumes, and (vi) estimated proved reserves.

•Unprecedented volatility in the price of oil due to the decrease in demand has led us to rely on NYMEX strip pricing, which represents a Level 1 input.

Certain oil and gas properties in our South Texas, Brazos Valley, Powder River Basin, and Mid-Continent and other non-core operating areas failed the Step 1 assessment. For these assets, we used a discounted cash flow analysis to estimate fair value. The expected future net cash flows were discounted using a rate of 11%, which we believe represents the estimated weighted average cost of capital of a theoretical market participant. Based on Step 2 of our long-lived assets impairment test, we recognized an $8.446 billion impairment because the carrying value exceeded estimated fair market value as of March 31, 2020.

•Significant inputs associated with the calculation of discounted future net cash flows include estimates of (i) recoverable reserves, (ii) production rates, (iii) future operating and development costs, (iv) future commodity prices escalated by an inflationary rate, adjusted for differentials, and (v) a market-based weighted average cost of capital. We utilized NYMEX strip pricing, adjusted for differentials, to value the reserves. The NYMEX strip pricing inputs used are classified as Level 1 fair value assumptions and all other inputs are classified as Level 3 fair value assumptions.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Sand Mine

Our in-field sand mine assets predominately service the oil and gas properties in our Brazos Valley operating area. Based on management’s assumptions and expectations of (i) future commodity prices, (ii) capital investment plans in the Brazos Valley operating area, and (iii) future operating cost of the sand mine, management expects the market for sand to significantly decrease for the foreseeable future. As a result, we recognized a $76 million impairment related to our sand mine assets for the difference between fair value and the carrying value as of March 31, 2020. The inputs used are classified as Level 3 fair value assumptions.

~~Table of Con~~t e ~~nts~~

~~CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~


15.			~~Capitalized Exploratory Costs~~

~~A summary of the changes in our capitalized well costs is detailed below.~~

Successor Predecessor
Period from February 10, 2021 through March 31, 2021 Period from January 1, 2021 through February 9, 2021 Three Months Ended
March 31, 2020
Beginning balance $ 0 $ 0 $ 7
Charges to exploration expense 0 0 (7)
Ending balance $ 0 $ 0 $ 0

~~As of March 31, 2021, there were 0 drilling and completion costs on exploratory wells pending determination of proved reserves capitalized for greater than one year.~~


~~16.~~			Other Operating Expense (Income), Net

In the 2020 Predecessor Period, we terminated certain gathering, processing and transportation contracts and recognized a non-recurring ~~$79~~$80 million expense related to the contract terminations. The contract terminations removed approximately $169 million of future commitments related to gathering, processing and transportation agreements. See Note 6 for further discussion of contingencies and commitments. The 2020 Predecessor Period contract termination expense is partially offset by $28 million of income from the amortization of volumetric production payment deferred revenue.


~~17.~~16.			Separation and Other Termination Costs

In the 2021 Successor Period, 2021 Predecessor Period and the 2020 Predecessor Period, we incurred charges of approximately $11 million, $22 million and $5$27 million, respectively, related to one-time termination benefits for certain employees.


~~18.~~			~~Subsequent Events~~

On May 11, 2021, we announced that the Board of Directors intends to pay an annual dividend on our common shares of $1.375 per share. The dividend will be paid quarterly, with the first such payment to be payable on June 10, 2021 to stockholders of record at the close of business on May 24, 2021.

On April 27, 2021, we announced the departure of Doug Lawler from his positions as Chief Executive Officer and Director of Chesapeake, effective April 30, 2021. Michael Wichterich, the Chairman of our Board of Directors, will serve as Interim Chief Executive Officer while the Board of Directors conducts a search for a new Chief Executive Officer, which it expects to complete over the coming months.

Mr. Wichterich intends to continue in his role as Chair of the Board of Directors following the appointment of Chesapeake's new Chief Executive Officer. During the period that Mr. Wichterich is both the Chair of the Board of Directors and Interim Chief Executive Officer, Matt Gallagher, the Chair of Chesapeake's Nominating and Governance Committee, will serve as Lead Independent Director.

4045

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Oil, Natural Gas and NGL Reserve Quantities

Presented below is a summary of changes in estimated reserves through March 31, 2021:


	Oil	Natural Gas	NGL	Total
	(MMBbl)	(Bcf)	(MMBbl)	(MMBoe)
March 31, 2021
Proved reserves, beginning of period	161	3,530	52	802
Extensions, discoveries and other additions	5	1,691	6	292
Revisions of previous estimates	10	160	7	44
Production	(7)	(180)	(2)	(39)
Proved reserves, end of period	169	5,201	63	1,099
Proved developed reserves:
Beginning of period	158	3,196	51	742
End of period	164	3,373	57	783
Proved undeveloped reserves:
Beginning of period	3	334	1	60
End of period	5	1,828	6	316

Reflected above represents material changes to estimated reserves from December 31, 2020 through March 31, 2021. There were no material changes to estimated reserves in the 2021 Successor Quarter. During the quarter ended March 31, 2021, extensions, discoveries and other additions increased primarily due to updates to our five-year development plan in contemplation of emergence from bankruptcy on February 9, 2021 and certainty regarding our ability to finance the development of our proved reserves over a five-year period.

4146

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

SUPPLEMENTARY INFORMATION


ITEM 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations


Introduction

The following discussion should be read together with the condensed consolidated financial statements included in Item 1 of Part I of this report and in Item 8 of our 2020 Form 10-K.

We are an independent exploration and production company engaged in the acquisition, exploration and development of properties to produce oil, natural gas and NGL from underground reservoirs. We own a large and geographically diverse portfolio of onshore U.S. unconventional natural gas and liquids assets, including interests in approximately ~~7,400~~7,500 gross oil and natural gas wells. Our natural gas resource plays are the Marcellus Shale in the northern Appalachian Basin in Pennsylvania (“Appalachia”) and the Haynesville/Bossier Shales in northwestern Louisiana (“Gulf Coast”). Our liquids-rich resource plays are the Eagle Ford Shale in South Texas (“South Texas” and “Brazos Valley”) and the stacked pay in the Powder River Basin in Wyoming (“Powder River Basin”).

Our strategy is to create shareholder value by generating sustainable free cash flow from our oil and natural gas development and production activities. We continue to focus on improving margins through operating efficiencies and financial discipline and improving our Environmental and Social Governance (ESG) performance. To accomplish these goals, we intend to allocate our human resources and capital expenditures to projects we believe offer the highest cash return on capital invested, to deploy leading drilling and completion technology throughout our portfolio, and to take advantage of acquisition and divestiture opportunities to strengthen our portfolio. We also intend to continue to dedicate capital to projects that reduce the environmental impact of our oil and natural gas producing activities. We continue to seek opportunities to reduce cash costs (production, gathering, processing and transportation and general and administrative) per barrel of oil equivalent production through operational efficiencies by, among other things, improving our production volumes from existing wells.

Leading a responsible energy future is foundational to Chesapeake's success. Our core values and culture demand we continuously evaluate the environmental impact of our operations and work diligently to improve our ESG performance across all facets of our company. Our path to leading a responsible energy future begins with our initiative to achieve net-zero direct greenhouse gas emissions by 2035, which we announced in February 2021. To meet this challenge, we have set meaningful initial goals including:

•Eliminate routine flaring from all new wells completed from 2021 forward, and enterprise-wide by 2025;

•Reduce our methane intensity to 0.09% by 2025; and

•Reduce our GHG intensity to 5.5 by 2025.

In July 2021, we announced our plan to receive independent certification of our natural gas production under the MiQ methane standard and EO100 Standard for Responsible Energy Development. We anticipate that certified natural gas will be available in our Gulf Coast basin by the end of 2021 and in our Appalachia basin by the second quarter of 2022. The MiQ certification will provide a verified approach to tracking our commitment to reduce our methane intensity to 0.09% by 2025, as well as support our overall objective of achieving net-zero direct greenhouse gas emissions by 2035.

Our results of operations as reported in our condensed consolidated financial statements for the 2021 Successor, 2021 Predecessor and 2020 Predecessor Periods are in accordance with GAAP. Although GAAP requires that we report on our results for the periods January 1, 2021 through February 9, 2021 and February 10, 2021 through ~~March 31,~~June 30, 2021 separately, management views our operating results for the ~~three~~six months ended ~~March 31,~~June 30, 2021 by combining the results of the 2021 Predecessor and 2021 Successor Periods because management believes such presentation provides the most meaningful comparison of our results to prior periods. We are not able to compare the 40 days from January 1, 2021 through February 9, 2021 operating results to any of the previous periods reported in the condensed consolidated financial statements and do not believe reviewing this period in isolation would be useful in identifying any trends in or reaching any conclusions regarding our overall operating performance. We believe the key performance indicators such as operating revenues and expenses for the 2021 Successor Period combined with the 2021 Predecessor Period provide more meaningful comparisons to other periods and are useful in understanding operational trends. Additionally, there were no changes in policies between the periods and any material impacts as a result of fresh start accounting were included within the discussion of these changes. These combined results do not comply with GAAP and have not been prepared as pro forma results

under applicable regulations, but are presented because we believe they provide the most meaningful comparison of our results to prior periods.


Recent Developments

Emergence from Bankruptcy

On the Petition Date the Debtors filed the Chapter 11 Cases under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. On June 29, 2020, the Bankruptcy Court entered an order authorizing the joint administration of the Chapter 11 Cases under the caption In re Chesapeake Energy Corporation, Case No. 20-33233. Subsidiaries with noncontrolling interests, consolidated variable interest entities and certain de minimis subsidiaries (collectively, the “Non-Filing Entities”) were not part of the Bankruptcy Filing. The Non-Filing Entities have continued to operate in the ordinary course of business.

The Bankruptcy Court confirmed the Plan and the Debtors entered the Confirmation Order on January 16, 2021. The Debtors emerged from bankruptcy on the Effective Date. In connection with our exit from bankruptcy, we ~~agreed to file~~filed a registration statement with the SEC to facilitate future sales of our equity by certain holders of our New Common Stock and warrants. Sales of a substantial number of the New Common Stock in the public markets, or the perception that these sales might occur, could reduce the value of our equity and impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity. See Note 2 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for a complete discussion of the Chapter 11 Cases.

Chief Executive Officer

On April 27, 2021, we announced the departure of Doug Lawler from his positions as Chief Executive Officer and Director of Chesapeake, effective April 30, 2021. Michael Wichterich, the Chairman of our Board of Directors, ~~will serve~~serves as Interim Chief Executive Officer while the Board of Directors conducts a search for a new Chief Executive Officer, which it expects to complete over the coming months.

COVID-19 Pandemic and Impact on Global Demand for Oil and Natural Gas

The global spread of COVID-19 created significant volatility, uncertainty, and economic disruption during 2020 and into 2021. The pandemic has reached more than 200 countries and territories and has resulted in widespread adverse impacts on the global economy and on our customers and other parties with whom we have business relations. To date, we have experienced limited operational impacts as a result of COVID-19 or related governmental restrictions. While we cannot predict the full impact that COVID-19 or the current significant disruption and volatility in the oil and natural gas markets will have on our business, cash flows, liquidity, financial condition and results of operations, we believe demand is recovering and prices will continue to be positively impacted. For additional discussion regarding risks associated with the COVID-19 pandemic, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Form 10-K and Item 1A “Risk Factors” in our 2020 Form ~~10-K and in this report.~~10-K.


Liquidity and Capital Resources

Liquidity Overview

For the 2021 Successor Period, our primary sources of capital resources and liquidity have consisted of internally generated cash flows from operations, and our primary uses of cash have been for the development of our oil and gas ~~properties.~~properties and return of value to shareholders through our dividend. Historically, our primary sources of capital resources and liquidity have consisted of internally generated cash flows from operations, borrowings under certain credit agreements and dispositions of non-core assets. Our ability to issue additional indebtedness, dispose of assets or access the capital markets was substantially limited during the Chapter 11 Cases and required court approval in most instances. Accordingly, our liquidity in the Predecessor Periods depended mainly on cash

generated from ~~operating activities~~operations and available funds under certain credit agreements including the DIP Facility in the 2021 Predecessor Period and revolving credit facility in the 2020 Predecessor Period.

We believe we have emerged from the Chapter 11 Cases as a fundamentally stronger company, built to generate sustainable free cash flow with a strengthened balance sheet, geographically diverse asset base and continuously improving ESG performance. As a result of the Chapter 11 Cases, we reduced our total indebtedness by $9.4 billion by issuing equity in a reorganized entity to the holders of our FLLO Term Loan, ~~second lien notes,~~Second Lien Notes, unsecured notes and allowed general unsecured claimants.

We believe our cash flow from operations, cash on hand and borrowing capacity under the Exit Credit Facility, as discussed below, will provide sufficient liquidity during the next 12 months and the foreseeable future. As of ~~March 31,~~June 30, 2021, we had ~~$2.064~~$2.346 billion of liquidity available, including ~~$340~~$612 million of cash on hand and ~~$1.724~~$1.734 billion of aggregate unused borrowing capacity available under the Exit Credit Facility. As of ~~March 31,~~June 30, 2021, we had no outstanding borrowings under our Exit Credit Facility – Tranche A Loans and $221 million in borrowings under our Exit Credit Facility – Tranche B Loans. See Note 5 of the notes to our condensed consolidated financial statements included in Item 1 of this report for further discussion of our debt obligations, including carrying and fair value of our senior notes.

~~Fixed~~ Dividend

With our strong liquidity position, we initiated a new dividend strategy. We expect the annual dividend on our common shares of $1.375 per share will be paid quarterly ~~with~~and made the first payment ~~to be payable~~ on June 10, 2021 to stockholders of record at the close of business on May 24, 2021. The second payment will be payable on September 9, 2021 to stockholders of record at the close of business on August 24, 2021.

Derivative and Hedging Activities

Our results of operations and cash flows are impacted by changes in market prices for oil and natural gas. We enter into various derivative instruments to mitigate a portion of our exposure to oil and natural gas price declines, but these transactions may also limit our cash flows in periods of rising oil and natural gas prices. Our oil, natural gas and NGL derivative activities, when combined with our sales of oil, natural gas and NGL, allow us to better predict the total revenue we expect to receive. See Item 3. Quantitative and Qualitative Disclosures About Market Risk included in Item 1 of the report for further discussion on the impact of commodity price risk on our financial position.

Contractual Obligations and Off-Balance Sheet Arrangements

As of ~~March 31,~~June 30, 2021, our material contractual obligations included repayment of senior notes, outstanding borrowings and interest payment obligations under the Exit Credit Facility, asset retirement obligations, lease obligations, undrawn letters of credit and various other commitments we enter into in the ordinary course of business that could result in future cash obligations. In addition, we have contractual commitments with midstream companies and pipeline carriers for future gathering, processing and transportation of oil, natural gas and NGL to move certain of our production to market. The estimated gross undiscounted future commitments under these agreements were approximately ~~$3.8~~$3.6 billion as of ~~March 31,~~June 30, 2021. As discussed above, we estimate the sources of our capital will continue to be adequate to fund our near and long-term contractual obligations.

Post-Emergence Debt

On the Effective Date, pursuant to the terms of the Plan, the Company, as borrower, entered into a reserve-based credit agreement (the “Credit Agreement”) providing for the Exit Credit Facility which features an initial borrowing base of $2.5 billion. The borrowing base will be redetermined semiannually on or around May 1 and November 1 of each year and the next scheduled redetermination will be on or about October 1, 2021. The aggregate initial elected commitments of the lenders under the Exit Credit Facility will be $1.75 billion of revolving Tranche A Loans and $221 million of fully funded Tranche B Loans.

The Exit Credit Facility provides for a $200 million sublimit of the aggregate commitments that are available for the issuance of letters of credit. The Exit Credit Facility bears interest at the ABR (alternate base rate) or LIBOR, at our election, plus an applicable margin (ranging from 2.25–3.25% per annum for ABR loans and 3.25–4.25% per annum for LIBOR loans, subject to a 1.00% LIBOR floor), depending on the percentage of the borrowing base then being utilized. The Tranche A Loans mature 3 years after the Effective Date and the Tranche B Loans mature 4 years after the Effective Date. The Tranche B Loans can be repaid if no Tranche A Loans are outstanding

On February 2, 2021, the Company issued $500 million aggregate principal amount of its 2026 Notes and $500 million aggregate principal amount of its 2029 Notes. The offering of the Notes was part of a series of exit

financing transactions being undertaken in connection with the Debtors’ Chapter 11 Cases and meant to provide the exit financing originally intended to be provided by the Exit Term Loan Facility pursuant to the Commitment Letter.

Based upon the business plan approved by the Court and our hedging activities we expect to generate adequate cash flows from operating activities to fully fund all investing activities without incremental borrowings under our Exit Credit Facility.

Capital Expenditures

For the year ending December 31, 2021, we currently expect to bring or have online approximately 120 to 135 gross wells by investing approximately $670 – $740 million in capital expenditures while operating five to seven rigs. We expect that approximately 80% of our 2021 capital expenditures will be directed toward our natural gas assets. We currently plan to fund our 2021 capital program through cash on hand and expected cash flow from our operations. We may alter or change our plans with respect to our capital program and expected capital expenditures based on developments in our business, our financial position, our industry or any of the markets in which we operate.

Sources of Funds

The following table presents the sources of our cash and cash equivalents for the Successor and Predecessor periods.


		Successor		Predecessor					Successor		Predecessor
		Period from February 10, 2021 through March 31, 2021		Period from January 1, 2021 through February 9, 2021		Three Months Ended March 31, 2020			Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Cash provided by (used in) operating activities	Cash provided by (used in) operating activities	$	409	$	(21)	$	397	Cash provided by (used in) operating activities	$	803	$	(21)	$	773
Proceeds from issuance of senior notes	Proceeds from issuance of senior notes	—		1,000		—		Proceeds from issuance of senior notes	—		1,000		—
Proceeds from issuance of common stock	Proceeds from issuance of common stock	—		600		—		Proceeds from issuance of common stock	—		600		—
Proceeds from warrant exercise								Proceeds from warrant exercise	2		—		—
Proceeds from divestitures of property and equipment	Proceeds from divestitures of property and equipment	4		—		7		Proceeds from divestitures of property and equipment	6		—		11
Proceeds from revolving pre-petition credit facility borrowings, net	Proceeds from revolving pre-petition credit facility borrowings, net	—		—		310		Proceeds from revolving pre-petition credit facility borrowings, net	—		—		339
Total sources of cash and cash equivalents	Total sources of cash and cash equivalents	$	413	$	1,579	$	714	Total sources of cash and cash equivalents	$	811	$	1,579	$	1,123

Cash Flows from Operating Activities

Cash provided by operating activities was ~~$409~~$803 million in the 2021 Successor Period, cash used in operating activities was $21 million in the 2021 Predecessor Period, and cash provided by operating activities was ~~$397~~$773 million in the 2020 Predecessor Period. The increase in the 2021 Successor Period is primarily due to higher prices for the oil, natural gas and NGL we sold partially offset by lower volumes of oil, natural gas and NGL sold. The cash used in the 2021 Predecessor Period was primarily due to payment of professional fees related to the Chapter 11 Cases. Cash flows from operations are largely affected by the same factors that affect our net income, excluding various non-cash items, such as depreciation, depletion and amortization, certain impairments, gains or losses on sales of assets, deferred income taxes and mark-to-market changes in our open derivative instruments. See further discussion below under Results of Operations.

Proceeds from Issuance of Common Stock and Senior Notes

In the 2021 Predecessor Period, we issued $500 million aggregate principal amount of 5.5% 2026 Notes and $500 million aggregate principal amount of 5.875% 2029 Notes for total proceeds of $1.0 billion. Additionally, upon emergence from Chapter 11 we issued 62,927,320 shares of New Common Stock in exchange for $600 million of cash as agreed upon in the Plan.

4550

Uses of Funds

The following table presents the uses of our cash and cash equivalents for the Successor and Predecessor periods:


		Successor		Predecessor					Successor		Predecessor
		Period from February 10, 2021 through March 31, 2021		Period from January 1, 2021 through February 9, 2021		Three Months Ended March 31, 2020			Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Oil and Natural Gas Expenditures:	Oil and Natural Gas Expenditures:							Oil and Natural Gas Expenditures:
Capital expenditures	Capital expenditures	$	77	$	66	$	518	Capital expenditures	$	226	$	66	$	867
Other Uses of Cash and Cash Equivalents:	Other Uses of Cash and Cash Equivalents:							Other Uses of Cash and Cash Equivalents:
Payments on Exit Credit Facility - Tranche A Loans, net	Payments on Exit Credit Facility - Tranche A Loans, net	50		479		—		Payments on Exit Credit Facility - Tranche A Loans, net	50		479		—
Payments on DIP Facility borrowings	Payments on DIP Facility borrowings	—		1,179		—		Payments on DIP Facility borrowings	—		1,179		—
Payments on pre-petition credit facility borrowings		—		—		—

Cash paid to purchase debt	Cash paid to purchase debt	—		—		93		Cash paid to purchase debt	—		—		95

Debt issuance and other financing costs								Debt issuance and other financing costs	3		8		55
Common stock dividends paid								Common stock dividends paid	34		—		—
Preferred stock dividends paid	Preferred stock dividends paid	—		—		22		Preferred stock dividends paid	—		—		22
Other	Other	3		9		5		Other	2		—		8
Total other uses of cash and cash equivalents	Total other uses of cash and cash equivalents	53		1,667		120		Total other uses of cash and cash equivalents	89		1,666		180
Total uses of cash and cash equivalents	Total uses of cash and cash equivalents	$	130	$	1,733	$	638	Total uses of cash and cash equivalents	$	315	$	1,732	$	1,047

Capital Expenditures

Our capital expenditures significantly decreased in the combined 2021 Successor and Predecessor Periods primarily as a result of decreased drilling and completion activity mainly in our liquids-rich plays.

Payments on DIP Facility Borrowings

On the Effective Date, the DIP Facility was terminated and the holders of obligations under the DIP Facility received payment in full in cash; provided that to the extent such lender under the DIP Facility was also a lender under the Exit Credit Facility, such lender’s allowed DIP claims were first reduced dollar-for-dollar and satisfied by the amount of its Exit RBL Loans provided as of the Effective Date.

Cash Paid to Purchase Debt

In the 2020 Predecessor ~~period,~~Period, we repurchased approximately ~~$156~~$160 million aggregate principal amount of our senior notes for ~~$93~~$95 million.

Common Stock Dividends

As part of our dividend program, we paid dividends of $34 million on our common stock in the 2021 Successor Period.

Preferred Stock Dividends

We paid dividends of $22 million on our preferred stock in the 2020 Predecessor Period. On April 17, 2020, we announced that we were suspending payment of dividends on each series of our outstanding convertible preferred stock. On the Effective Date of the Chapter 11 Cases, each holder of an equity interest in Chesapeake had their interest canceled, released, and extinguished without any distribution. See Note 2 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for additional information about the Chapter 11 Cases.

4651


Results of Operations

Oil, Natural Gas and NGL Production and Average Sales Prices
Successor
Period from February 10, 2021 through March 31, 2021
Oil Natural Gas NGL Total
MBbl
per day $/Bbl MMcf
per day $/Mcf MBbl
per day $/Bbl MBoe
per day $/Boe
Appalachia — — 1,283 2.53 — — 214 15.21
Gulf Coast — — 524 2.68 — — 87 16.09
South Texas 37 62.10 109 5.12 14 28.51 69 47.24
Brazos Valley 29 60.76 34 8.99 4 16.49 38 55.09
Powder River Basin 10 58.95 57 4.82 3 34.75 23 42.57
Total 76 61.19 2,007 2.89 21 27.20 431 25.57
Predecessor
Period from January 1, 2021 through February 9, 2021
Oil Natural Gas NGL Total
MBbl
per day $/Bbl MMcf
per day $/Mcf MBbl
per day $/Bbl MBoe
per day $/Boe
Appalachia — — 1,233 2.42 — — 206 14.49
Gulf Coast — — 543 2.44 — — 90 14.62
South Texas 42 54.12 127 3.00 14 26.04 78 39.20
Brazos Valley 32 52.37 38 1.14 4 16.09 42 42.23
Powder River Basin 10 51.96 61 2.92 4 34.31 24 34.25
Total 84 53.21 2,002 2.45 22 25.92 440 22.63
Predecessor
Three Months Ended March 31, 2020
Oil Natural Gas NGL Total
MBbl
per day $/Bbl MMcf
per day $/Mcf MBbl
per day $/Bbl MBoe
per day $/Boe
Appalachia — — 976 1.97 — — 163 11.85
Gulf Coast — — 556 1.68 — — 93 10.10
South Texas 63 48.53 159 2.18 19 11.71 108 33.38
Brazos Valley 41 46.30 69 0.60 9 5.26 61 32.55
Powder River Basin 17 43.23 89 1.84 6 13.30 38 26.01
Mid-Continent 5 44.75 49 2.24 3 14.06 16 23.38
Total 126 46.93 1,898 1.86 37 10.71 479 20.53


	Successor
	Three Months Ended June 30, 2021
	Oil		Natural Gas		NGL		Total
	MBbl per day	$/Bbl	MMcf per day	$/Mcf	MBbl per day	$/Bbl	MBoe per day	$/Boe
Appalachia	—	—	1,279	1.94	—	—	213	11.67
Gulf Coast	—	—	531	2.57	—	—	88	15.40
South Texas	37	66.13	108	2.55	16	23.86	72	43.73
Brazos Valley	27	64.83	35	1.81	4	17.95	37	51.63
Powder River Basin	10	64.27	57	3.10	3	30.39	23	40.13
Total	74	65.41	2,010	2.17	23	23.90	433	22.64

	Predecessor
	Three Months Ended June 30, 2020
	Oil		Natural Gas		NGL		Total
	MBbl per day	$/Bbl	MMcf per day	$/Mcf	MBbl per day	$/Bbl	MBoe per day	$/Boe
Appalachia	—	—	1,051	1.38	—	—	175	8.26
Gulf Coast	—	—	502	1.46	—	—	84	8.75
South Texas	40	20.15	117	1.95	16	9.68	75	15.76
Brazos Valley	36	23.42	49	0.69	6	1.93	50	17.58
Powder River Basin	13	23.80	52	1.44	3	10.59	25	16.96
Mid-Continent	4	24.41	35	1.50	3	8.03	12	13.39
Total	93	22.06	1,806	1.42	28	7.86	421	11.46


	Successor
	Period from February 10, 2021 through June 30, 2021
	Oil		Natural Gas		NGL		Total
	MBbl per day	$/Bbl	MMcf per day	$/Mcf	MBbl per day	$/Bbl	MBoe per day	$/Boe
Appalachia	—	—	1,280	2.15	—	—	213	12.93
Gulf Coast	—	—	529	2.61	—	—	88	15.65
South Texas	37	64.70	108	3.46	15	25.29	71	44.93
Brazos Valley	28	63.32	35	4.32	4	17.44	37	52.92
Powder River Basin	10	62.42	57	3.71	4	31.98	23	41.00
Total	75	63.89	2,009	2.43	23	24.99	432	23.68

	Predecessor
	Period from January 1, 2021 through February 9, 2021
	Oil		Natural Gas		NGL		Total
	MBbl per day	$/Bbl	MMcf per day	$/Mcf	MBbl per day	$/Bbl	MBoe per day	$/Boe
Appalachia	—	—	1,233	2.42	—	—	206	14.49
Gulf Coast	—	—	543	2.44	—	—	90	14.62
South Texas	42	54.12	127	3.00	14	26.04	78	39.20
Brazos Valley	32	52.37	38	1.14	4	16.09	42	42.23
Powder River Basin	10	51.96	61	2.92	4	34.31	24	34.25
Total	84	53.21	2,002	2.45	22	25.92	440	22.63

	Predecessor
	Six Months Ended June 30, 2020
	Oil		Natural Gas		NGL		Total
	MBbl per day	$/Bbl	MMcf per day	$/Mcf	MBbl per day	$/Bbl	MBoe per day	$/Boe
Appalachia	—	—	1,013	1.66	—	—	168	9.99
Gulf Coast	—	—	529	1.58	—	—	88	9.46
South Texas	52	37.49	138	2.08	18	10.79	92	26.17
Brazos Valley	38	35.62	59	0.63	7	3.82	56	25.77
Powder River Basin	15	34.71	71	1.69	4	12.37	32	22.40
Mid-Continent	4	36.35	42	1.93	3	11.37	14	19.14
Total	109	36.39	1,852	1.64	32	9.48	450	16.28

4752

Oil, Natural Gas and NGL Sales


		Successor									Successor
		Period from February 10, 2021 through March 31, 2021									Three months ended June 30, 2021
		Oil		Natural Gas		NGL		Total			Oil		Natural Gas		NGL		Total
Appalachia	Appalachia	$	—	$	163	$	—	$	163	Appalachia	$	—	$	226	$	—	$	226
Gulf Coast	Gulf Coast	—		70		—		70		Gulf Coast	—		124		—		124
South Texas	South Texas	117		28		19		164		South Texas	224		25		36		285
Brazos Valley	Brazos Valley	89		15		4		108		Brazos Valley	162		6		5		173
Powder River Basin	Powder River Basin	28		14		6		48		Powder River Basin	58		16		10		84
Total oil, natural gas and NGL sales		$	234	$	290	$	29	$	553

		Predecessor
		Period from January 1, 2021 through February 9, 2021
		Oil		Natural Gas		NGL		Total
Appalachia		$	—	$	119	$	—	$	119
Gulf Coast		—		53		—		53
South Texas		92		15		15		122
Brazos Valley		67		2		2		71
Powder River Basin		20		7		6		33
Total oil, natural gas and NGL sales		$	179	$	196	$	23	$	398

		Non-GAAP Combined
		Three Months Ended March 31, 2021
		Oil		Natural Gas		NGL		Total
Appalachia		$	—	$	282	$	—	$	282
Gulf Coast		—		123		—		123
South Texas		209		43		34		286
Brazos Valley		156		17		6		179
Powder River Basin		48		21		12		81
Total oil, natural gas and NGL sales		$	413	$	486	$	52	$	951
Oil, natural gas and NGL revenue										Oil, natural gas and NGL revenue	$	444	$	397	$	51	$	892

		Predecessor									Predecessor
		Three Months Ended March 31, 2020									Three months ended June 30, 2020
		Oil		Natural Gas		NGL		Total			Oil		Natural Gas		NGL		Total
Appalachia	Appalachia	$	—	$	175	$	—	$	175	Appalachia	$	—	$	131	$	—	$	131
Gulf Coast	Gulf Coast	—		85		—		85		Gulf Coast	—		67		—		67
South Texas	South Texas	277		31		20		328		South Texas	73		21		14		108
Brazos Valley	Brazos Valley	172		4		4		180		Brazos Valley	76		3		1		80
Powder River Basin	Powder River Basin	68		15		7		90		Powder River Basin	29		7		3		39
Mid-Continent	Mid-Continent	22		10		4		36		Mid-Continent	8		5		2		15
Total oil, natural gas and NGL sales		$	539	$	320	$	35	$	894

Oil, natural gas and NGL revenue										Oil, natural gas and NGL revenue	$	186	$	234	$	20	$	440


	Successor
	Period from February 10, 2021 through June 30, 2021
	Oil		Natural Gas		NGL		Total
Appalachia	$	—	$	389	$	—	$	389
Gulf Coast	—		194		—		194
South Texas	341		53		55		449
Brazos Valley	251		21		9		281
Powder River Basin	86		30		16		132
Total oil, natural gas and NGL sales	$	678	$	687	$	80	$	1,445

	Predecessor
	Period from January 1, 2021 through February 9, 2021
	Oil		Natural Gas		NGL		Total
Appalachia	$	—	$	119	$	—	$	119
Gulf Coast	—		53		—		53
South Texas	92		15		15		122
Brazos Valley	67		2		2		71
Powder River Basin	20		7		6		33
Total oil, natural gas and NGL sales	$	179	$	196	$	23	$	398

	Non-GAAP Combined
	Six Months Ended June 30, 2021
	Oil		Natural Gas		NGL		Total
Appalachia	$	—	$	508	$	—	$	508
Gulf Coast	—		247		—		247
South Texas	433		68		70		571
Brazos Valley	318		23		11		352
Powder River Basin	106		37		22		165
Total oil, natural gas and NGL sales	$	857	$	883	$	103	$	1,843

	Predecessor
	Six Months Ended June 30, 2020
	Oil		Natural Gas		NGL		Total
Appalachia	$	—	$	306	$	—	$	306
Gulf Coast	—		151		—		151
South Texas	350		52		34		436
Brazos Valley	248		7		5		260
Powder River Basin	97		23		10		130
Mid-Continent	30		15		6		51
Total oil, natural gas and NGL sales	$	725	$	554	$	55	$	1,334

Oil, natural gas and NGL sales in the 2021 Successor Quarter increased $452 million compared to the 2020 Predecessor Quarter. The ~~net~~increase is primarily attributable to a $440 million increase in ~~oil,~~revenues from higher average prices received coupled with a $12 million increase in revenues due to slightly higher sales volumes. The higher average prices received are consistent with the upward trend in index prices for all products seen throughout the 2021 Successor Quarter.

Oil, natural gas and NGL sales in the combined 2021 Successor and Predecessor Periods ~~of $57~~increased $509 million compared to the 2020 Predecessor Period. The increase is primarily attributable to a ~~$248~~$562 million increase in revenues from higher average prices received, partially offset by a ~~$191~~$53 million decrease in revenues due to lower sales volumes from reduced capital allocation, ~~and~~ temporary well ~~shut-ins.~~shut-ins, and the sale of Mid-Continent properties in 2020. Average daily production sold decreased in the combined 2021 Successor and Predecessor Periods as compared to the 2020 Predecessor Period due to a reduction in South Texas, ~~and~~ Brazos Valley, and Powder River Basin wells turned-in-line, partially offset by an increase in new well completions in Appalachia.

Production Expenses


	Successor			Predecessor
	Three Months Ended June 30, 2021			Three Months Ended June 30, 2020
			$/Boe			$/Boe
Appalachia	$	9	0.44	$	7	0.46
Gulf Coast	11		1.30	11		1.41
South Texas	29		4.46	25		3.72
Brazos Valley	18		5.41	22		4.91
Powder River Basin	7		3.61	10		4.13
Mid-Continent	—		—	16		13.94
Total production expenses	$	74	1.87	$	91	2.37


	Successor			Predecessor			Non-GAAP Combined			Predecessor
	Period from February 10, 2021 through June 30, 2021			Period from January 1, 2021 through February 9, 2021			Six Months Ended June 30, 2021			Six Months Ended June 30, 2020
			$/Boe			$/Boe			$/Boe			$/Boe
Appalachia	$	14	0.46	$	4	0.50	$	18	0.47	$	16	0.52
Gulf Coast	17		1.37	4		1.12	21		1.31	22		1.36
South Texas	43		4.32	12		3.90	55		4.22	61		3.66
Brazos Valley	28		5.26	9		4.85	37		5.16	50		4.95
Powder River Basin	12		3.88	3		3.37	15		3.76	28		4.81
Mid-Continent	—		—	—		—	—		—	36		13.94
Total production expenses	$	114	1.88	$	32	1.80	$	146	1.86	$	213	2.60

Production ~~Expenses~~

Successor Predecessor Non-GAAP Combined Predecessor
Period from February 10, 2021 through
March 31, 2021 Period from
January 1, 2021 through
February 9, 2021 Three Months Ended
March 31, 2021 Three Months Ended
March 31, 2020
$/Boe $/Boe $/Boe $/Boe
Appalachia $ 5 $ 0.50 $ 4 $ 0.50 $ 9 $ 0.50 $ 9 $ 0.58
Gulf Coast 6 $ 1.50 4 $ 1.12 10 $ 1.32 11 $ 1.30
South Texas 14 $ 4.07 12 $ 3.90 26 $ 3.99 36 $ 3.62
Brazos Valley 10 $ 4.99 9 $ 4.85 19 $ 4.93 27 $ 4.98
Powder River Basin 5 $ 4.37 3 $ 3.37 8 $ 3.91 18 $ 5.28
Mid-Continent — $ — — $ — — $ — 21 $ 13.95
Total production expenses $ 40 $ 1.88 $ 32 $ 1.80 $ 72 $ 1.85 $ 122 $ 2.80
expenses in the 2021 Successor Quarter decreased $17 million as compared to the 2020 Predecessor Quarter. The decrease was primarily due to a $16 million reduction from the sale of Mid-Continent properties in 2020.

Production expenses in the combined 2021 Successor and Predecessor Periods decreased ~~$50~~$67 million as compared to the 2020 Predecessor Period. The decrease was primarily due to a ~~$28~~$36 million reduction from the sale of Mid-Continent properties in 2020 and $31 million reduction in variable expense categories in our liquids-rich operating areas due to lower production volumes from reduced capital allocation.

Gathering, Processing and Transportation Expenses


	Successor			Predecessor
	Three Months Ended June 30, 2021			Three Months Ended June 30, 2020
			$/Boe			$/Boe
Appalachia	$	79	4.07	$	73	4.61
Gulf Coast	25		3.15	40		5.20
South Texas	79		12.11	123		17.94
Brazos Valley	3		1.06	5		1.13
Powder River Basin	25		11.69	23		10.05
Mid-Continent	—		—	6		5.70
Total gathering, processing and transportation expenses	$	211	5.36	$	270	7.04


	Successor			Predecessor			Non-GAAP Combined			Predecessor
	Period from February 10, 2021 through June 30, 2021			Period from January 1, 2021 through February 9, 2021			Six Months Ended June 30, 2021			Six Months Ended June 30, 2020
			$/Boe			$/Boe			$/Boe			$/Boe
Appalachia	$	121	4.02	$	34	4.17	$	155	4.06	$	144	4.72
Gulf Coast	36		2.90	11		2.93	47		2.91	91		5.68
South Texas	121		12.06	42		13.35	163		12.37	232		13.90
Brazos Valley	5		1.06	3		1.92	8		1.26	14		1.37
Powder River Basin	39		12.03	12		12.53	51		12.15	58		10.05
Mid-Continent	—		—	—		—	—		—	16		6.14
Total gathering, processing and transportation expenses	$	322	5.28	$	102	5.78	$	424	5.39	$	555	6.78

Gathering, processing and transportation expenses in the 2021 Successor Quarter decreased $59 million as compared to the 2020 Predecessor Quarter. Gulf Coast and South Texas decreased $15 million and $44 million, respectively, as a ~~planned reduction~~result of contract negotiations in ~~capital expenditures and a $21 million reduction from~~the Chapter 11 Cases. Additionally, the sale of Mid-Continent properties in ~~2020.~~

~~Gathering, Processing and Transportation Expenses~~

Successor Predecessor Non-GAAP Combined Predecessor
Period from February 10, 2021 through
March 31, 2021 Period from
January 1, 2021 through
February 9, 2021 Three Months Ended
March 31, 2021 Three Months Ended
March 31, 2020
$/Boe $/Boe $/Boe $/Boe
Appalachia $ 42 $ 3.94 $ 34 $ 4.17 $ 76 $ 4.04 $ 71 $ 4.83
Gulf Coast 11 $ 2.45 11 $ 2.93 22 $ 2.67 51 $ 6.10
South Texas 42 $ 11.99 42 $ 13.35 84 $ 12.63 109 $ 11.11
Brazos Valley 2 $ 1.05 3 $ 1.92 5 $ 1.45 9 $ 1.56
Powder River Basin 14 $ 12.65 12 $ 12.53 26 $ 12.59 35 $ 10.02
Mid-Continent — $ — — $ — — $ — 10 $ 6.45
Total gathering, processing and transportation expenses $ 111 $ 5.12 $ 102 $ 5.78 $ 213 $ 5.42 $ 285 $ 6.55
2020 resulted in a $6 million reduction. These decreases were partially offset by a $6 million increase in Appalachia as a result of increased production.

Gathering, processing and transportation expenses in the combined 2021 Successor and Predecessor Periods decreased ~~$72~~$131 million as compared to the 2020 Predecessor Period. Gulf Coast and South Texas decreased ~~$29~~$44 million and ~~$25~~$69 million, respectively, as a result of contract negotiations in the Chapter 11 Cases. Additionally, ~~Powder River decreased $9 million as a result of lower volumes and~~ the sale of Mid-Continent properties in 2020 resulted in a ~~$10~~$16 million reduction.

4956

Severance and Ad Valorem Taxes


		Successor				Predecessor				Non-GAAP Combined									Successor			Predecessor
		Period from February 10, 2021 through March 31, 2021				Period from January 1, 2021 through February 9, 2021				Three Months Ended March 31, 2021				Three Months Ended March 31, 2020					Three Months Ended June 30, 2021			Three Months Ended June 30, 2020
				$/Boe				$/Boe				$/Boe				$/Boe					$/Boe			$/Boe
Appalachia	Appalachia	$	1	$	0.09	$	1	$	0.07	$	2	$	0.08	$	2	$	0.12	Appalachia	$	3	0.14	$	1	0.07
Gulf Coast	Gulf Coast	2		$	0.56	2		$	0.54	4		$	0.55	6		$	0.66	Gulf Coast	5		0.54	4		0.63
South Texas	South Texas	9		$	2.61	8		$	2.53	17		$	2.57	19		$	1.94	South Texas	16		2.38	8		1.15
Brazos Valley	Brazos Valley	7		$	3.71	5		$	2.99	12		$	3.38	16		$	2.99	Brazos Valley	10		3.01	7		1.49
Powder River Basin	Powder River Basin	5		$	3.92	2		$	2.88	7		$	3.44	9		$	2.76	Powder River Basin	7		3.86	4		1.56
Mid-Continent	Mid-Continent	—		$	—	—		$	—	—		$	—	2		$	1.01	Mid-Continent	—		—	1		1.10
Total severance and ad valorem taxes	Total severance and ad valorem taxes	$	24	$	1.11	$	18	$	1.03	$	42	$	1.08	$	54	$	1.24	Total severance and ad valorem taxes	$	41	1.03	$	25	0.66


	Successor			Predecessor			Non-GAAP Combined			Predecessor
	Period from February 10, 2021 through June 30, 2021			Period from January 1, 2021 through February 9, 2021			Six Months Ended June 30, 2021			Six Months Ended June 30, 2020
			$/Boe			$/Boe			$/Boe			$/Boe
Appalachia	$	4	0.12	$	1	0.07	$	5	0.11	$	3	0.09
Gulf Coast	7		0.55	2		0.54	9		0.54	10		0.65
South Texas	25		2.46	8		2.53	33		2.48	27		1.61
Brazos Valley	17		3.27	5		2.99	22		3.20	23		2.31
Powder River Basin	12		3.88	2		2.88	14		3.64	13		2.27
Mid-Continent	—		—	—		—	—		—	3		1.06
Total severance and ad valorem taxes	$	65	1.06	$	18	1.03	$	83	1.06	$	79	0.97

Severance and ad valorem taxes in the 2021 Successor Quarter increased $16 million as compared to the 2020 Predecessor Quarter. The severance tax increase of $14 million was primarily driven by increased revenue as a result of improved pricing.

Severance and ad valorem taxes in the combined 2021 Successor and Predecessor Periods ~~decreased $12~~increased $4 million as compared to the 2020 Predecessor Period. The severance tax ~~decrease~~increase of $6$8 million was primarily driven by ~~decreased oil volumes in South Texas,~~increased revenue as a ~~lower statutory rate in Louisiana, and the Mid-Continent divestiture.~~result of improved pricing. The ad valorem decrease of $6$4 million was primarily driven by lower assessed property values in the 2021 Predecessor Period for Brazos ~~Valley.~~Valley and South Texas.

Gross Margin by Operating Area

The table below presents the gross margin for each of our operating areas. Gross margin by operating area is defined as oil, natural gas and NGL sales less production expenses, gathering, processing and transportation expenses, and severance and ad valorem taxes.


		Successor				Predecessor				Non-GAAP Combined				Predecessor					Successor			Predecessor
		Period from February 10, 2021 through March 31, 2021				Period from January 1, 2021 through February 9, 2021				Three Months Ended March 31, 2021				Three Months Ended March 31, 2020					Three Months Ended June 30, 2021			Three Months Ended June 30, 2020
				$/Boe				$/Boe				$/Boe				$/Boe					$/Boe			$/Boe
Appalachia	Appalachia	$	115	$	10.68	$	80	$	9.75	$	195	$	10.28	$	93	$	6.32	Appalachia	$	135	7.02	$	50	3.12
Gulf Coast	Gulf Coast	51		$	11.58	36		$	10.03	87		$	10.88	17		$	2.04	Gulf Coast	83		10.41	12		1.51
South Texas	South Texas	99		$	28.57	60		$	19.42	159		$	24.25	164		$	16.71	South Texas	161		24.78	(48)		(7.04)
Brazos Valley	Brazos Valley	89		$	45.34	54		$	32.47	143		$	39.37	128		$	23.02	Brazos Valley	142		42.15	46		9.98
Powder River Basin	Powder River Basin	24		$	21.63	16		$	15.47	40		$	18.81	28		$	7.95	Powder River Basin	45		20.97	2		1.17
Mid-Continent	Mid-Continent	—		$	—	—		$	—	—		$	—	3		$	1.97	Mid-Continent	—		—	(8)		(7.39)
Gross margin by operating area	Gross margin by operating area	$	378	$	17.46	$	246	$	14.02	$	624	$	15.90	$	433	$	9.94	Gross margin by operating area	$	566	14.38	$	54	1.39


	Successor			Predecessor			Non-GAAP Combined			Predecessor
	Period from February 10, 2021 through June 30, 2021			Period from January 1, 2021 through February 9, 2021			Six Months Ended June 30, 2021			Six Months Ended June 30, 2020
			$/Boe			$/Boe			$/Boe			$/Boe
Appalachia	$	250	8.33	$	80	9.75	$	330	8.62	$	143	4.66
Gulf Coast	134		10.83	36		10.03	170		10.65	28		1.77
South Texas	260		26.09	60		19.42	320		24.50	116		7.00
Brazos Valley	231		43.33	54		32.47	285		40.71	173		17.11
Powder River Basin	69		21.21	16		15.47	85		19.89	31		5.25
Mid-Continent	—		—	—		—	—		—	(4)		(1.87)
Gross margin by operating area	$	944	15.46	$	246	14.02	$	1,190	15.13	$	487	5.93

Oil and Natural Gas Derivatives


	Successor		Predecessor
	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Oil derivatives – realized gains (losses)	$	(113)	$	569
Oil derivatives – unrealized losses	(194)		(717)
Total losses on oil derivatives	(307)		(148)

Natural gas derivatives – realized gains (losses)	(11)		123
Natural gas derivatives – unrealized losses	(422)		(148)
Total losses on natural gas derivatives	(433)		(25)
Total losses on oil and natural gas derivatives	$	(740)	$	(173)

5058

~~Oil and Natural Gas Derivatives~~


		Successor		Predecessor					Successor		Predecessor
		Period from February 10, 2021 through March 31, 2021		Period from January 1, 2021 through February 9, 2021		Three Months Ended March 31, 2020			Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Oil derivatives – realized gains (losses)	Oil derivatives – realized gains (losses)	$	(62)	$	(19)	$	127	Oil derivatives – realized gains (losses)	$	(174)	$	(19)	$	696
Oil derivatives – unrealized gains (losses)		(6)		(190)		712
Oil derivatives – unrealized losses								Oil derivatives – unrealized losses	(200)		(190)		(5)
Total gains (losses) on oil derivatives	Total gains (losses) on oil derivatives	(68)		(209)		839		Total gains (losses) on oil derivatives	(374)		(209)		691

Natural gas derivatives – realized gains (losses)	Natural gas derivatives – realized gains (losses)	(6)		6		51		Natural gas derivatives – realized gains (losses)	(16)		6		174
Natural gas derivatives – unrealized gains (losses)		120		(179)		17
Natural gas derivatives – unrealized losses								Natural gas derivatives – unrealized losses	(304)		(179)		(131)
Total gains (losses) on natural gas derivatives	Total gains (losses) on natural gas derivatives	114		(173)		68		Total gains (losses) on natural gas derivatives	(320)		(173)		43
Total gains (losses) on oil and natural gas derivatives	Total gains (losses) on oil and natural gas derivatives	$	46	$	(382)	$	907	Total gains (losses) on oil and natural gas derivatives	$	(694)	$	(382)	$	734

See Note 12 of the notes to our condensed consolidated financial statements included in Item 1 of this report for a discussion of our derivative activity.

Marketing Revenues and Expenses


		Successor		Predecessor					Successor		Predecessor
		Period from February 10, 2021 through March 31, 2021		Period from January 1, 2021 through February 9, 2021		Three Months Ended March 31, 2020			Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Marketing revenues	Marketing revenues	$	277	$	239	$	724	Marketing revenues	$	539	$	240
Marketing expenses	Marketing expenses	280		237		746		Marketing expenses	535		242
Marketing margin	Marketing margin	$	(3)	$	2	$	(22)	Marketing margin	$	4	$	(2)


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Marketing revenues	$	816	$	239	$	964
Marketing expenses	815		237		988
Marketing margin	$	1	$	2	$	(24)

Marketing margin increased in the ~~Predecessor~~ 2021 Successor Quarter primarily due to increased profit on third-party marketing as a result of improved pricing.

Marketing margin increased in the 2021 Successor Period primarily due to the significant drop in oil prices during the 2020 Predecessor Period that resulted in an unfavorable inventory valuation adjustment.

Exploration Expense


		Successor		Predecessor					Successor		Predecessor
		Period from February 10, 2021 through March 31, 2021		Period from January 1, 2021 through February 9, 2021		Three Months Ended March 31, 2020			Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Impairments of unproved properties	Impairments of unproved properties	$	—	$	2	$	272	Impairments of unproved properties	$	—	$	127
Dry hole expense		—		—		7

Geological and geophysical expense and other	Geological and geophysical expense and other	1		—		3		Geological and geophysical expense and other	1		3
Exploration expense		$	1	$	2	$	282
Total exploration expense								Total exploration expense	$	1	$	130


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Impairments of unproved properties	$	—	$	2	$	399
Dry hole expense	—		—		7
Geological and geophysical expense and other	2		—		6
Total exploration expense	$	2	$	2	$	412

The 2020 Predecessor Quarter exploration expense is the result of non-cash impairment charges in unproved properties, primarily in our Gulf Coast operating area. The 2020 Predecessor Period exploration expense is the result of non-cash impairment charges in unproved properties, primarily in our Brazos Valley, Gulf Coast, Powder River Basin and Mid-Continent operating areas. See Note 13 of the notes to our condensed consolidated financial statements included in Item 1 of this report for further discussion.

General and Administrative Expenses


	Successor		Predecessor
	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Gross compensation and benefits	$	59	$	104
Non-labor	24		85
Allocations and reimbursements	(59)		(77)
Total general and administrative expenses, net	$	24	$	112

General and administrative expenses, net per Boe	$	0.61	$	2.91


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Gross compensation and benefits	$	94	$	32	$	212
Non-labor	36		12		138
Allocations and reimbursements	(91)		(23)		(173)
Total general and administrative expenses, net	$	39	$	21	$	177

General and administrative expenses, net per Boe	$	0.98	$	1.19	$	2.16

Compensation and benefits before reimbursements and allocations during the 2021 Successor Quarter decreased $45 million compared to the 2020 Predecessor Quarter due to reductions in workforce in the Predecessor Periods. Non-labor before reimbursements and allocations during the 2021 Successor Quarter decreased $61 million compared to the 2020 Predecessor Quarter due to cost reduction initiatives for professional services as well as $42 million in fees for legal, financial and restructuring advisors incurred in preparation for the Chapter 11 cases in the 2020 Predecessor Quarter. The decrease in allocations and reimbursements was the result of reduced drilling, staffing reductions and the 2020 Mid-Continent divestiture.

~~General and Administrative Expenses~~

Successor Predecessor
Period from February 10, 2021 through March 31, 2021 Period from January 1, 2021 through February 9, 2021 Three Months Ended
March 31, 2020
Gross compensation and benefits $ 35 $ 32 $ 108
Non-labor 12 12 53
Allocations and reimbursements (32) (23) (96)
General and administrative expenses, net $ 15 $ 21 $ 65
General and administrative expenses, net per Boe $ 0.68 $ 1.19 $ 1.50

Compensation and benefits before reimbursements and allocations during the 2021 Predecessor and Successor Periods decreased ~~$41~~$86 million compared to the 2020 Predecessor Period due to reductions in workforce in the Predecessor Periods. Non-labor before reimbursements and allocations during the 2021 Predecessor and Successor Periods decreased ~~$29~~$90 million compared to the 2020 Predecessor Period due to cost reduction initiatives for professional ~~services.~~services as well as $42 million in fees for legal, financial and restructuring advisors incurred in preparation for the Chapter 11 cases in the 2020 Predecessor Period. The decrease in allocations and reimbursements was the result of reduced drilling, staffing reductions and the 2020 Mid-Continent divestiture.

Separation and Other Termination Costs

Successor Predecessor
Period from February 10, 2021 through March 31, 2021 Period from January 1, 2021 through February 9, 2021 Three Months Ended
March 31, 2020
Separation and other termination costs $ — $ 22 $ 5


	Successor		Predecessor
	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Separation and other termination costs	$	11	$	22


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Separation and other termination costs	$	11	$	22	$	27

~~In the 2021 Predecessor Period~~Separation and ~~the 2020 Predecessor Period, we incurred charges of approximately $22 million and $5 million, respectively, related~~other termination costs relate to one-time termination benefits for certain employees.

Depreciation, Depletion and Amortization


		Successor		Predecessor					Successor		Predecessor
		Period from February 10, 2021 through March 31, 2021		Period from January 1, 2021 through February 9, 2021		Three Months Ended March 31, 2020			Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Depreciation, depletion and amortization	Depreciation, depletion and amortization	$	122	$	72	$	603	Depreciation, depletion and amortization	$	229	$	158
Depreciation, depletion and amortization per Boe	Depreciation, depletion and amortization per Boe	$	5.64	$	4.11	$	13.83	Depreciation, depletion and amortization per Boe	$	5.81	$	4.12


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Depreciation, depletion and amortization	$	351	$	72	$	761
Depreciation, depletion and amortization per Boe	$	5.75	$	4.11	$	9.28

The absolute and per unit increase in depreciation, depletion and amortization for the 2021 Successor ~~Period~~Quarter compared to the ~~2021~~2020 Predecessor ~~Period~~Quarter was primarily the result of the revaluation of the depletable asset base occurring in connection with our emergence from bankruptcy. Fresh start accounting requires that new fair values be established for our assets as of the emergence date. See Note 3 for additional information on revaluation of oil and gas properties.

The per unit decrease in the 2021 Predecessor Period compared to the 2020 Predecessor Period was attributable to an $8.4 billion impairment to the Predecessor’s proved oil and natural gas properties recognized at March 31, 2020.

Impairments


	Successor		Predecessor
	~~Period from February 10, 2021 through March 31,~~Three Months Ended June 30, 2021		~~Period from January 1, 2021 through February 9, 2021~~		Three Months Ended ~~March 31,~~June 30, 2020
Impairments of proved oil and natural gas properties	$	—	$	—	$	~~8,446~~
Impairments of other fixed assets and other	—1		—		76
Total impairments	$	—1	$	—	$	~~8,522~~


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Impairments of proved oil and natural gas properties	$	—	$	—	$	8,446
Impairments of other fixed assets and other	1		—		76
Total impairments	$	1	$	—	$	8,522

In the 2020 Predecessor Period, we recorded impairments of proved oil and natural gas properties related to South Texas, Brazos Valley, Powder River Basin, Mid-Continent and other non-core assets, all of which ~~are~~were due to lower forecasted commodity prices. Additionally, in the 2020 Predecessor Period, we recorded a $76 million impairment of our sand mine assets that support our Brazos Valley operating area for the difference between fair value and the carrying value of the assets. See Note 14 of the notes to our condensed consolidated financial statements included in Item 1 of this report for further discussion.

Other Operating Expense (Income), Net

Successor Predecessor
Period from February 10, 2021 through March 31, 2021 Period from January 1, 2021 through February 9, 2021 Three Months Ended
March 31, 2020
Other operating expense (income), net $ 2 $ (12) $ 68


	Successor		Predecessor
	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Other operating income, net	$	(4)	$	(2)


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Other operating expense (income), net	$	(2)	$	(12)	$	66

In the 2020 Predecessor Period, we terminated certain gathering, processing and transportation contracts and recognized a non-recurring ~~$79~~$80 million expense related to the contract terminations as well as $14 million of other operating expense offset by ~~$14~~$28 million of income from the amortization of volumetric production payment deferred revenue.

5362

Interest Expense


		Successor		Predecessor					Successor		Predecessor
		Period from February 10, 2021 through March 31, 2021		Period from January 1, 2021 through February 9, 2021		Three Months Ended March 31, 2020			Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Interest expense on debt	Interest expense on debt	$	12	$	11	$	189	Interest expense on debt	$	19	$	170
Amortization of premium, discount, issuance costs and other	Amortization of premium, discount, issuance costs and other	1		—		(37)		Amortization of premium, discount, issuance costs and other	2		(29)
Capitalized interest	Capitalized interest	(1)		—		(7)		Capitalized interest	(3)		(4)
Total interest expense	Total interest expense	$	12	$	11	$	145	Total interest expense	$	18	$	137


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Interest expense on debt	$	31	$	11	$	352
Amortization of premium, discount, issuance costs and other	3		—		(59)
Capitalized interest	(4)		—		(11)
Total interest expense	$	30	$	11	$	282

The decrease in total interest expense ~~on debt~~ in the 2021 ~~Predecessor~~Successor Quarter and 2021 Successor Period compared to the 2020 Predecessor ~~Period was attributable to lower interest costs incurred on our DIP Facility as compared to the~~Quarter and 2020 Predecessor ~~debt. Upon filing of~~Period resulted from the ~~Chapter 11 Cases on June 28, 2020, we discontinued accruing interest on our senior notes and term loan, which resulted in a $167 million~~ decrease in ~~interest expense on~~outstanding debt and a decrease in borrowings under the DIP Facility resulted in an $11 million decrease in interest expense. Additionally, the unamortized debt issuance costs, premiums and discounts associated with the Predecessor debt were written off to reorganization items, net, resulting in a $37 million increase in amortizationobligations between periods. Upon emergence from the Chapter 11 Cases, all outstanding obligations under our predecessor senior notes and term loan were cancelled in exchange for shares of Successor common stock and warrants. See N ~~ote~~Note 3 and N ~~ote~~Note 5 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for a discussion of the Chapter 11 Cases.

Gains on Purchases or Exchanges of Debt

In the 2020 Predecessor Period, we repurchased approximately ~~$156~~$160 million aggregate principal amount of senior notes for ~~$93~~$95 million and recorded an aggregate gain of approximately ~~$63~~$65 million.

~~Reorganization Items, Net~~


	~~Predecessor~~
	Period from January 1, 2021 through February 9, 2021
~~Gains on the settlement of liabilities subject to compromise~~	$	~~6,443~~
~~Accrual for allowed claims~~	~~(1,002)~~
~~Gain on fresh start adjustments~~	~~201~~
~~Gain from release of commitment liabilities~~	55
~~Professional service provider fees and other~~	~~(60)~~
~~Success fees for professional service providers~~	~~(38)~~
~~Surrender of other receivable~~	~~(18)~~
~~FLLO alternative transaction fee~~	~~(12)~~
~~Reorganization items, net~~	$	~~5,569~~

~~In the 2021 Predecessor Period, we recorded a net $5.569 billion gain in reorganization items, net related to the Chapter 11 Cases. See~~ ~~Note~~ 2 ~~and~~ ~~Note~~ 3 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for a discussion of the Chapter 11 Cases and for discussion of adoption of fresh start accounting.

Table of ~~$6 million were recorded in~~Contents

Other Income (Expense)

Successor Predecessor
Period from February 10, 2021 through March 31, 2021 Period from January 1, 2021 through February 9, 2021 Three Months Ended
March 31, 2020
Other income (expense) $ 22 $ 2 $ (17)


	Successor		Predecessor
	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Other income	$	9	$	6


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Other income (expense)	$	31	$	2	$	(11)

In the 2021 Successor Period, we recorded a gain of $22 million for a refund from a midstream provider. In the 2020 Predecessor Period, the hydraulic fracturing industry experienced challenging operating conditions resulting in the current fair value of our investment in FTS International, Inc. (“FTSI”) falling below book value of $23 million and remaining below that value as of the end of the 2020 Predecessor period. Based on FTSI’s operating results, we determined that the reduction in fair value was other-than-temporary and recognized an impairment of our entire investment in FTSI of $23 million. ~~Additional non-operational other income adjustments~~

Reorganization Items, Net


	Successor		Predecessor
	Three Months Ended June 30, 2021		Three Months Ended June 30, 2020
Write off of unamortized debt premiums (discounts) on Predecessor debt	$	—	$	518
Write off of unamortized debt issuance costs on Predecessor debt	—		(61)
DIP Facility financing costs	—		(63)
Total reorganization items, net	$	—	$	394


	Successor		Predecessor
	Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021		Six Months Ended June 30, 2020
Gains on the settlement of liabilities subject to compromise	$	—	$	6,443	$	—
Accrual for allowed claims	—		(1,002)		—
Write off of unamortized debt premiums (discounts) on Predecessor debt	—		—		518
Write off of unamortized debt issuance costs on Predecessor debt	—		—		(61)
Gain on fresh start adjustments	—		201		—
Gain from release of commitment liabilities	—		55		—
DIP Facility financing costs	—		—		(63)
Professional service provider fees and other	—		(60)		—
Success fees for professional service providers	—		(38)		—
Surrender of other receivable	—		(18)		—
FLLO alternative transaction fee	—		(12)		—
Total reorganization items, net	$	—	$	5,569	$	394

In the 2021 and 2020 Predecessor ~~Period.~~Periods, we recorded net gains of $5.569 billion and $394 million, respectively, in reorganization items, net related to the Chapter 11 Cases. See Note 2 and Note 3 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for a discussion of the Chapter 11 Cases and for discussion of adoption of fresh start accounting.

Income Taxes

An income tax benefit of $57 million was recorded for the 2021 Predecessor Period and a $13 million income tax benefit was recorded for the 2020 Predecessor Period. No income tax was recorded for the 2021 Successor Period as a result of projecting a full valuation allowance against our anticipated net deferred asset position as of December 31, 2021. Our effective income tax rate was (1.1%) for the 2021 Predecessor Period and 0.2% for the 2020 Predecessor Period. Our effective tax rate can fluctuate as a result of the impact of discrete items, state income taxes and permanent differences. See Note 9 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for a discussion of income taxes.

5564


Forward-Looking Statements

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. Forward-looking statements include our current expectations or forecasts of future events, including matters relating to the continuing effects of the COVID-19 pandemic and the impact thereof on our business, financial condition, results of operations and cash flows, the potential effects of the Restructuring on our operations, management, and employees, actions by, or disputes among or between, members of OPEC+ and other foreign oil-exporting countries, market factors, market prices, our ability to meet debt service requirements, our ability to continue to pay cash dividends, and the amount and timing of any cash dividends, and our ESG initiatives. In this context, forward-looking statements often address our expected future business, financial performance and financial condition, and often contain words such as "expect," “could,” “may,” "anticipate," "intend," "plan," “ability,” "believe," "seek," "see," "will," "would," “estimate,” “forecast,” "target," “guidance,” “outlook,” “opportunity” or “strategy.”

Although we believe the expectations and forecasts reflected in our forward-looking statements are reasonable, they are inherently subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. No assurance can be given that such forward-looking statements will be correct or achieved or that the assumptions are accurate or will not change over time. Particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:

•the ability to execute on our business strategy following emergence from bankruptcy;

•the impact of the COVID-19 pandemic and its effect on our business, financial condition, employees, contractors, vendors and the global demand for oil and natural gas and U.S. and world financial markets;

•our ability to comply with the covenants under our Exit Credit Facility and other indebtedness;

•our ability to realize anticipated cash cost reductions;

•the volatility of oil, natural gas and NGL prices, which are affected by general economic and business conditions, as well as increased demand for (and availability of) alternative fuels and electric vehicles;

•uncertainties inherent in estimating quantities of oil, natural gas and NGL reserves and projecting future rates of production and the amount and timing of development expenditures;

•our ability to replace reserves and sustain production;

•drilling and operating risks and resulting liabilities;

•our ability to generate profits or achieve targeted results in drilling and well operations;

•the limitations our level of indebtedness may have on our financial flexibility;

•our inability to access the capital markets on favorable terms;

•the availability of cash flows from operations and other funds to fund cash dividends, finance reserve replacement costs or satisfy our debt obligations;

•adverse developments or losses from pending or future litigation and regulatory proceedings, including royalty claims;

•legislative, regulatory and ESG initiatives, including as a result of the change in the U.S. presidential administration, addressing environmental concerns, including initiatives addressing the impact of global climate change or further regulating hydraulic fracturing, methane emissions, flaring or water disposal;

•terrorist activities and/or cyber-attacks adversely impacting our operations;

•effects of purchase price adjustments and indemnity obligations; and

•other factors that are described under Risk Factors in Item 1A of our 2020 Form 10-K ~~and this Form 10-Q.~~.

We caution you not to place undue reliance on the forward-looking statements contained in this report, which speak only as of the filing date, and we undertake no obligation to update this information. We urge you to carefully review and consider the disclosures in this report and our other filings with the SEC that attempt to advise interested parties of the risks and factors that may affect our business.

5665


Information About Us

Investors should note that we make available, free of charge on our website at chk.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also furnish quarterly, annual, and current reports for certain of our subsidiaries free of charge on our website at chk.com. We also post announcements, updates, events, investor information and presentations on our website in addition to copies of all recent news releases. We may use the Investors section of our website to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. Documents and information on our website are not incorporated by reference herein.

The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including Chesapeake, that file electronically with the SEC.

5766


ITEM 3.			Quantitative and Qualitative Disclosures About Market Risk

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our exposure to market risk. The term market risk relates to our risk of loss arising from adverse changes in oil, natural gas, and NGL prices and interest rates. These disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. The forward-looking information provides indicators of how we view and manage our ongoing market risk exposures.

Commodity Price Risk

Our results of operations and cash flows are impacted by changes in market prices for oil, natural gas and NGL, which have been historically volatile. To mitigate a portion of our exposure to adverse price changes, we enter into various derivative instruments. Our oil, natural gas and NGL derivative activities, when combined with our sales of oil, natural gas and NGL, allow us to predict with greater certainty the revenue we will receive. We believe our derivative instruments continue to be highly effective in achieving our risk management objectives.

We determine the fair value of our derivative instruments utilizing established index prices, volatility curves and discount factors. These estimates are compared to counterparty valuations for reasonableness. Derivative transactions are also subject to the risk that counterparties will be unable to meet their obligations. This 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. Future risk related to counterparties not being able to meet their obligations has been partially mitigated under our commodity hedging arrangements that require counterparties to post collateral if their obligations to us are in excess of defined thresholds. 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. See Note 12 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion of the fair value measurements associated with our derivatives.

For the combined 2021 Successor and Predecessor Periods, oil, natural gas, and NGL revenue, excluding any effect of our derivative instruments, were ~~$413~~$857 million, ~~$486~~$883 million and ~~$52~~$103 million, respectively. Based on production, oil, natural gas, and NGL revenue for the 2021 Successor and Predecessor Periods would have increased or decreased by approximately ~~$41~~$85 million, ~~$49~~$89 million, and $5$11 million, respectively, for each 10% increase or decrease in prices. As of ~~March 31,~~June 30, 2021, the fair values of our oil and natural gas derivatives were net liabilities of ~~$335~~$529 million and ~~$40~~$462 million, respectively. A 10% increase or decrease in forward oil prices would decrease or increase the valuation of oil derivatives by approximately ~~$151~~$150 million. A 10% increase orin forward natural gas prices would decrease the valuation of natural gas derivatives by approximately $197 million. A 10% decrease in forward natural gas prices would ~~decrease or~~ increase the valuation of natural gas derivatives by approximately ~~$172~~$195 million. See Note 1 212 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further information on our open derivative positions.

Interest Rate Risk

Our exposure to interest rate changes relates primarily to borrowings under our Exit Credit Facility for the 2021 Successor Period and pre-petition revolving credit facility and DIP Facility for the Predecessor Periods. Interest is payable on borrowings under the Exit Credit Facility, pre-petition revolving credit facility and DIP Facility based on floating rates. See Note 5 for additional information. As of ~~March 31,~~June 30, 2021, we had no outstanding borrowings under our Exit Credit Facility - Tranche A Loans and $221 million under our Exit Credit Facility - Tranche B Loans. A 1.0% increase in interest rates based on the variable borrowings as of ~~March 31,~~June 30, 2021 would result in an increase in our interest expense of approximately $2 million per year.

5867


ITEM 4.			Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of ~~March 31,~~June 30, 2021 that our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

5968

PART II. OTHER INFORMATION


ITEM 1.			Legal Proceedings

Chapter 11 Proceedings

Litigation and Regulatory Proceedings

We were involved in a number of litigation and regulatory proceedings as of the Petition Date. Many of these proceedings were in early stages, and many of them sought damages and penalties, the amount of which is currently indeterminate. See Note 6 of the notes to our condensed consolidated financial statements included in Item 1 of this report for information regarding our estimation and provision for potential losses related to litigation and regulatory proceedings.

Business Operations. We are involved in various lawsuits and disputes incidental to our business operations, including commercial disputes, personal injury claims, royalty claims, property damage claims and contract actions. The majority of these prepetition legal proceedings, including the matters below, have been settled during the Chapter 11 Cases or will be resolved in connection with the claims reconciliation process before the Bankruptcy Court. Any allowed claim related to such prepetition litigation will be treated in accordance with the Plan.

Environmental Contingencies

We ~~are in discussions~~settled outstanding violations with the ~~PADEP~~Pennsylvania Department of Environmental Protection (“PADEP”) regarding gas migration in the vicinity of certain of our wells in Wyoming County, Pennsylvania. ~~We believe we are close to identifying agreed-upon steps to resolve PADEP’s concerns regarding the issue. In addition to these steps,~~The resolution of the matter ~~may result~~resulted in monetary sanctions of more than ~~$300,000. Any allowed claim related~~$300,000, which were assessed pursuant to ~~such monetary sanctions~~a Proof of Claim filed by PADEP in the Chapter 11 proceedings. Chesapeake will ~~be treated~~allow the Proof of Claim as a General Unsecured Claim in accordance with the ~~Plan.~~Consent Order and Agreement executed by the parties and Chesapeake’s approved Plan of Reorganization.

Other Matters

6069


ITEM 1A.			Risk Factors

Our business has many risks. Factors that could materially adversely affect our business, financial condition, operating results or liquidity and the trading price of our common stock are described under “Risk Factors” in Item 1A of our 2020 Form 10-K. This information should be considered carefully, together with other information in this report and other reports and materials we file with the SEC.


ITEM 2.			Unregistered Sales of Equity Securities and Use of Proceeds

There were no repurchases of our common stock during the quarter ended ~~March 31,~~June 30, 2021.


ITEM 3.			Defaults Upon Senior Securities

Our Bankruptcy Filing described above constituted an event of default that accelerated our obligations under our senior credit facility, our senior secured notes and our unsecured notes. Under the Bankruptcy Code, the creditors under these debt agreements were stayed from taking any action against us as a result of an event of default. See Note 5 and Note 2 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional details about the principal and interest amounts of debt included in liabilities subject to compromise on the accompanying unaudited condensed consolidated balance sheet as of December 31, 2020 and our Bankruptcy Filing and the Chapter 11 Cases.

Under the terms of our 5.75% Cumulative Convertible Preferred Stock, 5.75% Cumulative Convertible Preferred Stock (Series A), 4.50% Cumulative Convertible Preferred Stock and 5.00% (Series 2005B) Cumulative Convertible Preferred Stock, we may suspend payments of our cumulative quarterly dividends. We exercised our contractual right to suspend regularly scheduled quarterly payments of dividends on each series of our preferred stock beginning with the quarterly dividend payment for the second quarter of 2020, and were therefore in arrears with the dividend payments. No dividends were accrued on our convertible preferred stock subsequent to the Petition Date. Pursuant to the Plan, each holder of an equity interest in Chesapeake had such interest canceled, released, and extinguished without any distribution. See Note 2 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for additional information about the Chapter 11 Cases.


ITEM 4.			Mine Safety Disclosures

The information concerning mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17CFR 229.104) is included in Exhibit 95.1 to this Form 10-Q.


ITEM 5.			Other Information

Not applicable.

6170

Fifth Amended Joint Plan of Reorganization of Chesapeake Energy Corporation and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (Exhibit A of the Confirmation Order).


ITEM 6.			Exhibits

The exhibits listed below in the Index of Exhibits are filed, furnished or incorporated by reference pursuant to the requirements of Item 601 of Regulation S-K.

INDEX OF EXHIBITS

Incorporated by Reference
Exhibit
Number
Exhibit Description Form
SEC File
Number
Exhibit Filing Date
Filed or
Furnished
Herewith
2.1
Fifth Amended Joint Plan of Reorganization of Chesapeake Energy Corporation and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (Exhibit A of the Confirmation Order).
8-K 001-13726 2.1 1/19/2021
3.1
Second Amended and Restated Certificate of Incorporation of Chesapeake Energy Corporation.
8-K 001-13726 3.1 2/9/2021
3.2
Second Amended and Restated Bylaws of Chesapeake Energy Corporation.
8-K 001-13726 3.2 2/9/2021
3.3
Certificate of Elimination of Series B Preferred Stock of Chesapeake Energy.
10-K 001-13726 3.3 3/1/2021
10.1
Credit Agreement, dated as of February 9, 2021, by and among Chesapeake Energy Corporation, as borrower, MUFG Union Bank, N.A., as administrative agent, and the lenders and other parties thereto.
8-K 001-13726 10.1 2/9/2021
10.2
Registration Rights Agreement, dated as of February 9, 2021, by and among Chesapeake Energy Corporation and the other parties signatory thereto.
8-K 001-13726 10.2 2/9/2021
10.3
Class A Warrant Agreement, dated as of February 9, 2021, between Chesapeake Energy Corporation and Equiniti Trust Company.
8-K 001-13726 10.3 2/9/2021
10.4
Class B Warrant Agreement, dated as of February 9, 2021, between Chesapeake Energy Corporation and Equiniti Trust Company.
8-K 001-13726 10.4 2/9/2021
10.5
Class C Warrant Agreement, dated as of February 9, 2021, between Chesapeake Energy Corporation and Equiniti Trust Company.
8-K 001-13726 10.5 2/9/2021
10.6
Form of Indemnity Agreement.
8-K 001-13726 10.6 2/9/2021
10.7†
Chesapeake Energy Corporation 2021 Long Term Incentive Plan.
8-K 001-13726 10.7 2/9/2021
10.8†
Amendment to the Chesapeake Energy Corporation 2021 Long Term Incentive Plan.
8-K 001-13726 10.3 4/27/2021
10.9†
Form of Non-Employee Director Restricted Stock Unit Award Agreement for 2021 Long Term Incentive Plan.
X
10.10
Purchase Agreement, dated as of February 2, 2021, by and among Chesapeake Escrow Issuer LLC, and Goldman Sachs & Co. LLC, RBC Capital Markets, LLC, as representatives of the purchasers signatory thereto, with respect to 5.5% Senior Notes due 2026 and 5.875% Senior Notes due 2029.
10-K 001-13726 10.10 3/1/2021
10.11
Indenture dated as of February 5, 2021, among Chesapeake Escrow Issuer LLC, as issuer, the guarantors signatory thereto, and Deutsche Bank Trust Company Americas, as Trustee, with respect to 5.5% Senior Notes due 2026 and 5.875% Senior Notes due 2029.
10-K 001-13726 10.11 3/1/2021
10.12*
Joinder Agreement, dated as of February 9, 2021, by and among Chesapeake Energy Corporation and the Guarantors party thereto, with respect to 5.5% Senior Notes due 2026 and 5.875% Senior Notes due 2029.
10-K 001-13726 10.12 3/1/2021

Incorporated by Reference

Exhibit

Number

Exhibit Description

Form

SEC File

Number

Exhibit

Filing Date

Filed or

Furnished

Herewith

2.1

8-K

001-13726

2.1

1/19/2021

3.1

Second Amended and Restated Certificate of Incorporation of Chesapeake Energy Corporation.

8-K

001-13726

3.1

2/9/2021

3.2

Second Amended and Restated Bylaws of Chesapeake Energy Corporation.

8-K

001-13726

3.2

2/9/2021

3.3

Certificate of Elimination of Series B Preferred Stock of Chesapeake Energy.

10-K

001-13726

3.3

3/1/2021

10.1†

Amendment to the Chesapeake Energy Corporation 2021 Long Term Incentive Plan.

8-K

001-13726

10.3

4/27/2021

10.2†

Form of Non-Employee Director Restricted Stock Unit Award Agreement for 2021 Long Term Incentive Plan.

10-Q

001-13726

10.9

5/13/2021

10.3†

Agreement by and between Robert D. Lawler and Chesapeake Energy Corporation, dated April 27, 2021.

8-K

001-13726

10.1

4/27/2021

10.4†

Interim CEO Agreement by and between Michael Wichterich and Chesapeake Energy Corporation, dated April 27, 2021.

8-K

001-13726

10.2

4/27/2021

10.5†

Performance Share Unit Award Agreement with Michael A. Wichterich, Interim Chief Executive Officer, dated April 30, 2021.

10.6†

Agreement by and between Frank J. Patterson and the Company, dated June 11, 2021.

8-K

001-13726

10.1

6/11/2021

10.7†

Agreement by and between James R. Webb and the Company, dated June 11, 2021.

8-K

001-13726

10.2

6/11/2021

10.8†

Agreement by and between William M. Buergler and the Company, dated June 11, 2021.

8-K

001-13726

10.3

6/11/2021

10.9

First Amendment to Credit Agreement, dated as of June 11, 2021, among Chesapeake Energy Corporation, as borrower, MUFG Bank, Ltd., as administrative agent, MUFG Union Bank, N.A., as collateral agent, and the lenders and other parties party thereto.

8-K

001-13726

10.1

6/14/2021

10.10†

Form of Performance Share Unit Award (Absolute TSR) for 2021 Long Term Incentive Plan

10.11†

Form of Performance Share Unit Award (Relative TSR) for 2021 Long Term Incentive Plan

31.1

Michael Wichterich, Interim Chief Executive Officer, Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

6271

Domenic J. Dell’Osso, Jr., Executive Vice President and Chief Financial Officer, Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Incorporated by Reference
Exhibit
Number
Exhibit Description Form
SEC File
Number
Exhibit Filing Date
Filed or
Furnished
Herewith
10.13
First Supplemental Indenture, dated as of February 9, 2021, by and among Chesapeake Energy Corporation, the Guarantors signatory thereto, and Deutsche Bank Trust Company Americas, as Trustee, with respect to 5.5% Senior Notes due 2026 and 5.875% Senior Notes due 2029.
10-K 001-13726 10.13 3/1/2021
10.14
Agreement by and between Robert D. Lawler and Chesapeake Energy Corporation, dated April 27, 2021.
8-K 001-13726 10.1 4/27/2021
10.15
Interim CEO Agreement by and between Michael Wichterich and Chesapeake Energy Corporation, dated April 27, 2021.
8-K 001-13726 10.2 4/27/2021
31.1
Michael Wichterich, Interim Chief Executive Officer, Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
31.2
Domenic J. Dell’Osso, Jr., Executive Vice President and Chief Financial Officer, Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
32.1
Michael Wichterich, Interim Chief Executive Officer, Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
32.2
Domenic J. Dell’Osso, Jr., Executive Vice President and Chief Financial Officer, Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
95.1
Mine Safety Disclosure
X
101 INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. X
101 SCH Inline XBRL Taxonomy Extension Schema Document. X
101 CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. X
101 DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. X
101 LAB Inline XBRL Taxonomy Extension Labels Linkbase Document. X
101 PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. X
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). X
* Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC.
† Management contract or compensatory plan or arrangement

Incorporated by Reference

Exhibit

Number

Exhibit Description

Form

SEC File

Number

Exhibit

Filing Date

Filed or

Furnished

Herewith

31.2

32.1

Michael Wichterich, Interim Chief Executive Officer, Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Domenic J. Dell’Osso, Jr., Executive Vice President and Chief Financial Officer, Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

95.1

Mine Safety Disclosure

101 INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101 SCH

Inline XBRL Taxonomy Extension Schema Document.

101 CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101 DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101 LAB

Inline XBRL Taxonomy Extension Labels Linkbase Document.

101 PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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Management contract or compensatory plan or arrangement

6372