Supplemental Oil and Gas Disclosures | SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED) The Company’s operating natural gas and oil properties are located solely in the United States. The Company also has licenses to properties in Canada, the development of which is subject to an indefinite moratorium. See “Our Operations – Other – New Brunswick, Canada” in Item 1 of Part 1 of this Annual Report. Net Capitalized Costs The following table shows the capitalized costs of natural gas and oil properties and the related accumulated depreciation, depletion and amortization as of December 31, 2019 and 2018: (in millions) 2019 2018 Proved properties $ 23,744 $ 22,425 Unproved properties 1,506 1,755 Total capitalized costs 25,250 24,180 Less: Accumulated depreciation, depletion and amortization (20,203) (19,761) Net capitalized costs $ 5,047 $ 4,419 Natural gas and oil properties not subject to amortization represent investments in unproved properties and major development projects in which the Company owns an interest. These unproved property costs include unevaluated costs associated with leasehold or drilling interests and unevaluated costs associated with wells in progress. The table below sets forth the composition of net unevaluated costs excluded from amortization as of December 31, 2019: (in millions) 2019 2018 2017 Prior Total Property acquisition costs $ 45 $ 40 $ 32 $ 1,106 $ 1,223 Exploration and development costs 53 23 16 12 104 Capitalized interest 67 47 27 38 179 $ 165 $ 110 $ 75 $ 1,156 $ 1,506 Of the total net unevaluated costs excluded from amortization as of December 31, 2019, approximately $1.2 billion is related to undeveloped properties in Southwest Appalachia (acquired in 2014 and 2015) and approximately $10 million is related to the acquisition of undeveloped properties in Northeast Appalachia. Additionally, the Company has approximately $179 million of unevaluated capitalized interest and $95 million of unevaluated costs related to wells in progress. The remaining costs excluded from amortization are related to properties which are not individually significant and on which the evaluation process has not been completed. The timing and amount of property acquisition and seismic costs included in the amortization computation will depend on the location and timing of drilling wells, results of drilling and other assessments. The Company is, therefore, unable to estimate when these costs will be included in the amortization computation. Costs Incurred in Natural Gas and Oil Exploration and Development The table below sets forth capitalized costs incurred in natural gas and oil property acquisition, exploration and development activities: (in millions, except per Mcfe amounts) 2019 2018 2017 Unproved property acquisition costs $ 162 $ 164 $ 194 Exploration costs 2 5 22 Development costs 936 1,014 1,024 Capitalized costs incurred $ 1,100 $ 1,183 $ 1,240 Full cost pool amortization per Mcfe $ 0.56 $ 0.51 $ 0.45 Capitalized interest is included as part of the cost of natural gas and oil properties. The Company capitalized $109 million, $115 million and $113 million during 2019, 2018 and 2017, respectively, based on the Company’s weighted average cost of borrowings used to finance expenditures. In addition to capitalized interest, the Company capitalized internal costs totaling $77 million, $90 million and $99 million during 2019, 2018 and 2017, respectively, which were directly related to the acquisition, exploration and development of the Company’s natural gas and oil properties. Results of Operations from Natural Gas and Oil Producing Activities The table below sets forth the results of operations from natural gas and oil producing activities: (in millions) 2019 2018 2017 Sales $ 1,703 $ 2,525 $ 2,086 Production (lifting) costs (781) (974) (891) Depreciation, depletion and amortization (462) (514) (440) 460 1,037 755 Provision for income taxes (1) 110 — — Results of operations (2) $ 350 $ 1,037 $ 755 (1) Prior to the recognition of a valuation allowance, in 2018 and 2017 the Company recognized income tax provisions of $254 million and $287 million, respectively. (2) Results of operations exclude the gain (loss) on unsettled commodity derivative instruments. See Note 6 . The results of operations shown above exclude general and administrative expenses and interest expense and are not necessarily indicative of the contribution made by the Company’s natural gas and oil operations to its consolidated operating results. Income tax expense is calculated by applying the statutory tax rates to the revenues less costs, including depreciation, depletion and amortization, and after giving effect to permanent differences and tax credits. Natural Gas and Oil Reserve Quantities The Company engaged the services of Netherland, Sewell & Associates, Inc., or NSAI, an independent petroleum engineering firm, to audit the reserves estimated by the Company’s reservoir engineers. In conducting its audit, the engineers and geologists of NSAI studied the Company’s major properties in detail and independently developed reserve estimates. NSAI’s audit consists primarily of substantive testing, which includes a detailed review of the Company’s major properties, and accounted for approximately 99% of the present worth of the Company’s total proved reserves as of December 31 of 2019, 2018 and 2017. A reserve audit is not the same as a financial audit, and a reserve audit is less rigorous in nature than a reserve report prepared by an independent petroleum engineering firm containing its own estimate of reserves. Reserve estimates are inherently imprecise, and the Company’s reserve estimates are generally based upon extrapolation of historical production trends, historical prices of natural gas and crude oil and analogy to similar properties and volumetric calculations. Accordingly, the Company’s estimates are expected to change, and such changes could be material and occur in the near term as future information becomes available. For more information over reserves, refer to the table titled “Changes in Proved Undeveloped Reserves (Bcfe)” in “Business – Exploration and Production” in Item 1 of this Annual Report. The following table summarizes the changes in the Company’s proved natural gas, oil and NGL reserves for 2019, 2018 and 2017, all of which were located in the United States: Natural Gas (Bcf) Oil (MBbls) NGL (MBbls) Total (Bcfe) December 31, 2016 4,866 10,523 53,931 5,253 Revisions of previous estimates due to price 1,327 3,197 57,447 1,691 Revisions of previous estimates other than price 571 (1,529) 13,102 641 Extensions, discoveries and other additions (1) 5,159 55,772 432,220 8,087 Production (797) (2,327) (14,245) (897) Acquisition of reserves in place — — — — Disposition of reserves in place — — — — December 31, 2017 11,126 65,636 542,455 14,775 Revisions of previous estimates due to price 96 788 8,912 154 Revisions of previous estimates other than price 316 410 8,855 372 Extensions, discoveries and other additions 753 5,830 36,823 1,009 Production (807) (3,407) (19,706) (946) Acquisition of reserves in place — — — — Disposition of reserves in place (2) (3,440) (250) (276) (3,443) December 31, 2018 8,044 69,007 577,063 11,921 Revisions of previous estimates due to price (480) (2,041) (37,492) (717) Revisions of previous estimates other than price (3) 685 3,707 65,869 1,102 Extensions, discoveries and other additions 992 6,948 26,941 1,195 Production (609) (4,696) (23,620) (778) Acquisition of reserves in place — — — — Disposition of reserves in place (2) — — (2) December 31, 2019 8,630 72,925 608,761 12,721 (1) The 2017 PUD additions are primarily associated with the increase in commodity prices. (2) The 2018 disposition is primarily associated with the Fayetteville Shale sale. (3) Revisions of previous estimates other than price includes 109 Bcfe of proved undeveloped reserves reclassified to unproved due to changes in the drilling plan, in accordance with the SEC five-year rule. Natural Gas (Bcf) Oil (MBbls) NGL (MBbls) Total (Bcfe) Proved developed reserves as of: December 31, 2017 6,979 14,513 142,213 7,920 December 31, 2018 4,395 18,037 175,480 5,557 December 31, 2019 4,906 26,124 226,271 6,421 Proved undeveloped reserves as of: December 31, 2017 4,147 51,123 400,242 6,855 December 31, 2018 3,649 50,970 401,583 6,364 December 31, 2019 3,724 46,801 382,490 6,300 The Company’s estimated proved natural gas, oil and NGL reserves were 12,721 Bcfe at December 31, 2019, compared to 11,921 Bcfe at December 31, 2018. The Company’s reserves increased in 2019, compared to 2018, as positive extensions, discoveries, other additions and non-price revisions in Appalachia were only partially offset by negative price revisions. The decrease in the Company’s reserves in 2018 primarily resulted from the disposition of the reserves related to the Fayetteville Shale and was only partially offset by positive extensions, discoveries, other additions and revisions in Appalachia. The increase in the Company’s reserves in 2017 was primarily due to extensions, discoveries and other additions in Appalachia along with increases in both price and performance revisions across the portfolio. The following table summarizes the changes in reserves for 2017, 2018 and 2019: Appalachia Fayetteville (in Bcfe) Northeast Southwest Shale (1) Other (2) Total December 31, 2016 1,574 677 2,997 5 5,253 Net revisions Price revisions 903 738 49 1 1,691 Performance and production revisions 154 125 358 4 641 Total net revisions 1,057 863 407 5 2,332 Extensions, discoveries and other additions Proved developed 790 419 48 1 1,258 Proved undeveloped 1,100 5,186 543 — 6,829 Total reserve additions 1,890 5,605 591 1 8,087 Production (395) (183) (316) (3) (897) Acquisition of reserves in place — — — — — Disposition of reserves in place — — — — — December 31, 2017 4,126 6,962 3,679 8 14,775 Net revisions Price revisions 41 106 6 1 154 Performance and production revisions 107 272 (6) (1) 372 Total net revisions 148 378 — — 526 Extensions, discoveries and other additions Proved developed 154 22 1 — 177 Proved undeveloped 397 435 — — 832 Total reserve additions 551 457 1 — 1,009 Production (459) (243) (243) (1) (946) Acquisition of reserves in place — — — — — Disposition of reserves in place — — (3,437) (6) (3,443) December 31, 2018 4,366 7,554 — 1 11,921 Net revisions Price revisions (57) (660) — — (717) Performance and production revisions (3) 127 975 — — 1,102 Total net revisions 70 315 — — 385 Extensions, discoveries and other additions Proved developed 185 6 — — 191 Proved undeveloped 677 327 — — 1,004 Total reserve additions 862 333 — — 1,195 Production (459) (319) — — (778) Acquisition of reserves in place — — — — — Disposition of reserves in place (2) — — — (2) December 31, 2019 4,837 7,883 — 1 12,721 (1) The Fayetteville Shale E&P assets and associated reserves were divested in December 2018. (2) Other includes properties outside of Appalachia and Fayetteville Shale. (3) Performance and production revisions includes 109 Bcfe of proved undeveloped reserves reclassified to unproved due to changes in the drilling plan, in accordance with the SEC five-year rule. The Company’s December 31, 2019 proved reserves included 929 Bcfe of proved undeveloped reserves from 90 locations that had a positive present value on an undiscounted basis in compliance with proved reserve requirements, but do not have a positive present value when discounted at 10%. These properties had a negative present value of $50 million when discounted at 10%. The Company made a final investment decision and is committed to developing these reserves within the next five The Company’s December 31, 2018 proved reserves included 190 Bcfe of proved undeveloped reserves from 30 locations that had a positive present value on an undiscounted basis in compliance with proved reserve requirements, but that have a negative $24 million present value when discounted at 10%. The Company’s December 31, 2017 proved reserves included 1,375 Bcfe of proved undeveloped reserves from 330 locations that had a positive present value on an undiscounted basis in compliance with proved reserve requirements, but that have a negative $124 million present value when discounted at 10%. The Company has no reserves from synthetic gas, synthetic oil or nonrenewable natural resources intended to be upgraded into synthetic gas or oil. The Company used standard engineering and geoscience methods, or a combination of methodologies in determining estimates of material properties, including performance and test date analysis, offset statistical analogy of performance data, volumetric evaluation, including analysis of petrophysical parameters (including porosity, net pay, fluid saturations (i.e., water, oil and gas) and permeability) in combination with estimated reservoir parameters (including reservoir temperature and pressure, formation depth and formation volume factors), geological analysis, including structure and isopach maps and seismic analysis, including review of 2-D and 3-D data to ascertain faults, closure and other factors. Standardized Measure of Discounted Future Net Cash Flows The following standardized measures of discounted future net cash flows relating to proved natural gas, oil and NGL reserves as of December 31, 2019, 2018 and 2017 are calculated after income taxes, discounted using a 10% annual discount rate and do not purport to present the fair market value of the Company’s proved gas, oil and NGL reserves: (in millions) 2019 2018 2017 Future cash inflows $ 27,003 $ 34,523 $ 36,576 Future production costs (14,981) (15,347) (18,390) Future development costs (1) (3,246) (4,095) (4,676) Future income tax expense (476) (2,079) (1,342) Future net cash flows 8,300 13,002 12,168 10% annual discount for estimated timing of cash flows (4,600) (7,003) (6,606) Standardized measure of discounted future net cash flows $ 3,700 $ 5,999 $ 5,562 (1) Includes abandonment costs. Under the standardized measure, future cash inflows were estimated by applying an average price from the first day of each month from the previous 12 months, adjusted for known contractual changes, to the estimated future production of year-end proved reserves. Prices used for the standardized measure above were as follows: (in millions) 2019 2018 2017 Natural gas (per MMBtu) $ 2.58 $ 3.10 $ 2.98 Oil (per Bbl) 55.69 65.56 47.79 NGLs (per Bbl) 11.58 17.64 14.41 Future cash inflows were reduced by estimated future production and development costs based on year-end costs to determine pre-tax cash inflows. Future income taxes were computed by applying the year-end statutory rate to the excess of pre-tax cash inflows over the Company’s tax basis in the associated proved gas and oil properties after giving effect to permanent differences and tax credits. Following is an analysis of changes in the standardized measure during 2019, 2018 and 2017: (in millions) 2019 2018 2017 Standardized measure, beginning of year $ 5,999 $ 5,562 $ 1,665 Sales and transfers of natural gas and oil produced, net of production costs (923) (1,564) (1,191) Net changes in prices and production costs (3,510) 2,162 1,963 Extensions, discoveries, and other additions, net of future production and development costs 234 335 1,715 Acquisition of reserves in place — — — Sales of reserves in place (2) (2,022) — Revisions of previous quantity estimates 152 361 1,721 Net change in income taxes 491 (304) (222) Changes in estimated future development costs 621 (166) (6) Previously estimated development costs incurred during the year 704 536 55 Changes in production rates (timing) and other (718) 521 (304) Accretion of discount 652 578 166 Standardized measure, end of year $ 3,700 $ 5,999 $ 5,562 |