filings.toolsItem 8. Financial Statements and Supplementary Data
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Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Expand Energy Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Expand Energy Corporation and its subsidiaries (the "Company") as of December 31, 2024 and 2023, and the related consolidated statements of operations, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Southwestern Energy from its assessment of internal control over financial reporting as of December 31, 2024, because it was acquired by the Company in a purchase business combination during 2024. We have also excluded Southwestern Energy from our audit of internal control over financial reporting. Southwestern Energy is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 56% and 35%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2024.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
The Impact of Proved Developed Natural Gas and Oil Reserves on Proved Natural Gas and Oil Properties, Net
As described in Note 1 to the consolidated financial statements, the Company's property and equipment, net balance was $24.3 billion as of December 31, 2024, and the related depreciation, depletion and amortization expense for the year ended December 31, 2024 was $1.7 billion, both of which substantially related to proved natural gas and oil properties. The Company follows the successful efforts method to account for its natural gas and oil properties. Under this method, all capitalized well costs and leasehold costs of proved natural gas and oil properties are depreciated using the unit-of-production depreciation method based on total estimated proved developed natural gas and oil reserves. As disclosed by management, estimates of natural gas and oil reserves and their values, future production rates, future development costs and commodity pricing differentials are the most significant of management’s estimates. The accuracy of any reserve estimate is a function of the quality of data available and of engineering and geological interpretation and judgment. In addition, estimates of reserves may be revised based on actual production, results of subsequent exploration and development activities, recent commodity prices, operating costs and other factors. The estimates of proved natural gas and oil reserves have been developed by specialists, specifically the Company’s reservoir engineers, and assessed by independent petroleum engineers (together “management’s specialists”).
The principal considerations for our determination that performing procedures relating to the impact of proved developed natural gas and oil reserves on proved natural gas and oil properties, net is a critical audit matter are (i) the significant judgment by management, including the use of management’s specialists, when developing the estimates of proved developed natural gas and oil reserves and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the data, methods, and assumptions used by management and its specialists in developing the estimates of proved developed natural gas and oil reserves.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s estimates of proved developed natural gas and oil reserves. The work of management’s specialists was used in performing the procedures to evaluate the reasonableness of the estimates of proved developed natural gas and oil reserves. As a basis for using this work, the specialists’ qualifications were understood and the Company’s relationship with the specialists was assessed. The procedures performed also included (i) evaluating the methods and assumptions used by the specialists; (ii) testing the completeness and accuracy of the underlying data used by the specialists related to historical production volumes; and (iii) evaluating the specialists’ findings related to future production volumes by comparing the future production volumes to relevant historical and current period production volumes, as applicable.
Southwestern Merger – Valuation of Proved Natural Gas and Oil Properties
As described in Note 2 to the consolidated financial statements, on October 1, 2024, the Company completed the merger with Southwestern (“Southwestern Merger”) and recorded estimated fair values of the acquired proved natural gas and oil properties of approximately $10.0 billion. As disclosed by management, management determines the fair value of acquired natural gas and oil properties based on the discounted future net cash flows expected to be generated from these assets. Discounted cash flow models by operating area are prepared using the estimated future revenues and operating costs for all proved developed properties. Significant inputs associated with the calculation of discounted future net cash flows include estimates of (i) future production volumes based on estimated reserves, (ii) future operating and development costs, (iii) future commodity prices escalated by an inflationary rate after three years, adjusted for differentials, and (iv) a market-based weighted average cost of capital by operating area.
The principal considerations for our determination that performing procedures relating to the valuation of proved natural gas and oil properties acquired in the Southwestern Merger is a critical audit matter are (i) the significant judgment by management, including the use of management’s specialists, when developing the fair value estimate of the proved natural gas and oil properties acquired; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to future production volumes based on estimated reserves, future operating costs; future commodity prices escalated by an inflationary rate after three years, adjusted for differentials, and a market-based weighted average cost of capital by operating area; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to acquisition accounting, including controls over the valuation of proved natural gas and oil properties acquired. These procedures also included, among others (i) reading the merger agreement; (ii) testing management’s process for developing the fair value estimate of proved natural gas and oil properties acquired; (iii) evaluating the appropriateness of the discounted cash flow model; (iv) testing the completeness and accuracy of underlying data used in the discounted cash flow model; and (v) evaluating the reasonableness of the significant assumptions used by management related to future production volumes based on estimated reserves, future operating costs, future commodity prices escalated by an inflationary rate after three years, adjusted for differentials, and a market-based weighted average cost of capital by operating area. Evaluating the reasonableness of management’s assumption related to future operating costs involved considering the reasonableness of the costs as compared to the past performance of the acquired business. Evaluating the reasonableness of management’s assumption related to future commodity prices, adjusted for differentials, involved comparing the prices against observable market data and evaluating the reasonableness of the differentials as compared to the past performance of the acquired business. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the discounted cash flow model; (ii) the reasonableness of the market-based weighted average cost of capital by operating area assumption; and (iii) the reasonableness of the inflationary rate after three years used to escalate commodity prices. The work of management’s specialists was used in performing procedures to evaluate the reasonableness of the future production volumes based on estimated reserves used in the discounted cash flow model. As a basis for using this work, the specialists’ qualifications were understood and the Company’s relationship with the specialists was assessed. The procedures performed also included evaluating the methods and assumptions used by the specialists, testing the completeness and accuracy of the data used by the specialists related to historical production volumes, and evaluating the specialists’ findings related to future production volumes by comparing the future production volumes to relevant historical and current period production volumes, as applicable.
/s/ PricewaterhouseCoopers LLP
Oklahoma City, Oklahoma
February 26, 2025
We have served as the Company’s auditor since 1992.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| ($ in millions, except per share data) | December 31, 2024 | December 31, 2023 | ||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 317 | $ | 1,079 | ||||||||||
| Restricted cash | 78 | 74 | ||||||||||||
| Accounts receivable, net | 1,226 | 593 | ||||||||||||
| Derivative assets | 84 | 637 | ||||||||||||
| Other current assets | 292 | 226 | ||||||||||||
| Total current assets | 1,997 | 2,609 | ||||||||||||
| Property and equipment: | ||||||||||||||
| Natural gas and oil properties, successful efforts method | ||||||||||||||
| Proved natural gas and oil properties | 23,093 | 11,468 | ||||||||||||
| Unproved properties | 5,897 | 1,806 | ||||||||||||
| Other property and equipment | 654 | 497 | ||||||||||||
| Total property and equipment | 29,644 | 13,771 | ||||||||||||
| Less: accumulated depreciation, depletion and amortization | (5,362) | (3,674) | ||||||||||||
| Total property and equipment, net | 24,282 | 10,097 | ||||||||||||
| Long-term derivative assets | 1 | 74 | ||||||||||||
| Deferred income tax assets | 589 | 933 | ||||||||||||
| Other long-term assets | 1,025 | 663 | ||||||||||||
| Total assets | $ | 27,894 | $ | 14,376 | ||||||||||
| Liabilities and stockholders' equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | 777 | $ | 425 | ||||||||||
| Current maturities of long-term debt, net | 389 | — | ||||||||||||
| Accrued interest | 100 | 39 | ||||||||||||
| Derivative liabilities | 71 | 3 | ||||||||||||
| Other current liabilities | 1,786 | 847 | ||||||||||||
| Total current liabilities | 3,123 | 1,314 | ||||||||||||
| Long-term debt, net | 5,291 | 2,028 | ||||||||||||
| Long-term derivative liabilities | 68 | 9 | ||||||||||||
| Asset retirement obligations, net of current portion | 499 | 265 | ||||||||||||
| Long-term contract liabilities | 1,227 | — | ||||||||||||
| Other long-term liabilities | 121 | 31 | ||||||||||||
| Total liabilities | 10,329 | 3,647 | ||||||||||||
| Contingencies and commitments (Note 5) | ||||||||||||||
| Stockholders' equity: | ||||||||||||||
| Common stock, $0.01 par value, 450,000,000 shares authorized: 231,769,886 and 130,789,936 shares issued | 2 | 1 | ||||||||||||
| Additional paid-in capital | 13,687 | 5,754 | ||||||||||||
| Retained earnings | 3,876 | 4,974 | ||||||||||||
| Total stockholders' equity | 17,565 | 10,729 | ||||||||||||
| Total liabilities and stockholders' equity | $ | 27,894 | $ | 14,376 |
The accompanying notes are an integral part of these consolidated financial statements.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| Years Ended December 31, | ||||||||||||||||||||
| ($ in millions, except per share data) | 2024 | 2023 | 2022 | |||||||||||||||||
| Revenues and other: | ||||||||||||||||||||
| Natural gas, oil and NGL | $ | 2,969 | $ | 3,547 | $ | 9,892 | ||||||||||||||
| Marketing | 1,290 | 2,500 | 4,231 | |||||||||||||||||
| Natural gas, oil and NGL derivatives | (38) | 1,728 | (2,680) | |||||||||||||||||
| Gains on sales of assets | 14 | 946 | 300 | |||||||||||||||||
| Total revenues and other | 4,235 | 8,721 | 11,743 | |||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Production | 316 | 356 | 475 | |||||||||||||||||
| Gathering, processing and transportation | 1,035 | 853 | 1,059 | |||||||||||||||||
| Severance and ad valorem taxes | 97 | 167 | 242 | |||||||||||||||||
| Exploration | 10 | 27 | 23 | |||||||||||||||||
| Marketing | 1,310 | 2,499 | 4,215 | |||||||||||||||||
| General and administrative | 186 | 127 | 142 | |||||||||||||||||
| Separation and other termination costs | 23 | 5 | 5 | |||||||||||||||||
| Depreciation, depletion and amortization | 1,729 | 1,527 | 1,753 | |||||||||||||||||
| Other operating expense, net | 332 | 18 | 49 | |||||||||||||||||
| Total operating expenses | 5,038 | 5,579 | 7,963 | |||||||||||||||||
| Income (loss) from operations | (803) | 3,142 | 3,780 | |||||||||||||||||
| Other income (expense): | ||||||||||||||||||||
| Interest expense | (123) | (104) | (160) | |||||||||||||||||
| Losses on purchases, exchanges or extinguishments of debt | (1) | — | (5) | |||||||||||||||||
| Other income, net | 86 | 79 | 36 | |||||||||||||||||
| Total other income (expense) | (38) | (25) | (129) | |||||||||||||||||
| Income (loss) before income taxes | (841) | 3,117 | 3,651 | |||||||||||||||||
| Income tax expense (benefit) | (127) | 698 | (1,285) | |||||||||||||||||
| Net income (loss) | (714) | 2,419 | 4,936 | |||||||||||||||||
| Deemed dividend on warrants | — | — | (67) | |||||||||||||||||
| Net income (loss) available to common stockholders | $ | (714) | $ | 2,419 | $ | 4,869 | ||||||||||||||
| Earnings (loss) per common share: | ||||||||||||||||||||
| Basic | $ | (4.55) | $ | 18.21 | $ | 38.71 | ||||||||||||||
| Diluted | $ | (4.55) | $ | 16.92 | $ | 33.36 | ||||||||||||||
| Weighted average common shares outstanding (in thousands): | ||||||||||||||||||||
| Basic | 156,989 | 132,840 | 125,785 | |||||||||||||||||
| Diluted | 156,989 | 142,976 | 145,961 |
The accompanying notes are an integral part of these consolidated financial statements.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years Ended December 31, | ||||||||||||||||||||
| ($ in millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||||||
| Net income (loss) | $ | (714) | $ | 2,419 | $ | 4,936 | ||||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||||
| Depreciation, depletion and amortization | 1,729 | 1,527 | 1,753 | |||||||||||||||||
| Deferred income tax expense (benefit) | (123) | 428 | (1,332) | |||||||||||||||||
| Derivative (gains) losses, net | 38 | (1,728) | 2,680 | |||||||||||||||||
| Cash receipts (payments) on derivative settlements, net | 947 | 354 | (3,561) | |||||||||||||||||
| Share-based compensation | 38 | 33 | 22 | |||||||||||||||||
| Gains on sales of assets | (14) | (946) | (300) | |||||||||||||||||
| Contract amortization | (57) | — | — | |||||||||||||||||
| Losses on purchases, exchanges or extinguishments of debt | 1 | — | 5 | |||||||||||||||||
| Other | 35 | 18 | 45 | |||||||||||||||||
| Changes in assets and liabilities | (315) | 275 | (123) | |||||||||||||||||
| Net cash provided by operating activities | 1,565 | 2,380 | 4,125 | |||||||||||||||||
| Cash flows from investing activities: | ||||||||||||||||||||
| Capital expenditures | (1,557) | (1,829) | (1,823) | |||||||||||||||||
| Receipts of deferred consideration | 166 | — | — | |||||||||||||||||
| Business combination, net | (459) | — | (1,967) | |||||||||||||||||
| Contributions to investments | (75) | (231) | (18) | |||||||||||||||||
| Proceeds from divestitures of property and equipment | 21 | 2,533 | 407 | |||||||||||||||||
| Net cash provided by (used in) investing activities | (1,904) | 473 | (3,401) | |||||||||||||||||
| Cash flows from financing activities: | ||||||||||||||||||||
| Proceeds from Credit Facility | 20 | 1,125 | 1,600 | |||||||||||||||||
| Payments on Credit Facility | (20) | (2,175) | (550) | |||||||||||||||||
| Proceeds from Exit Credit Facility | — | — | 9,583 | |||||||||||||||||
| Payments on Exit Credit Facility | — | — | (9,804) | |||||||||||||||||
| Proceeds from issuance of senior notes, net | 747 | — | — | |||||||||||||||||
| Proceeds from warrant exercise | 3 | — | 27 | |||||||||||||||||
| Debt issuance and other financing costs | (11) | — | (17) | |||||||||||||||||
| Cash paid to repurchase and retire common stock | — | (355) | (1,073) | |||||||||||||||||
| Cash paid to purchase debt | (767) | — | — | |||||||||||||||||
| Cash paid for common stock dividends | (388) | (487) | (1,212) | |||||||||||||||||
| Other | (3) | — | — | |||||||||||||||||
| Net cash used in financing activities | (419) | (1,892) | (1,446) | |||||||||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | (758) | 961 | (722) | |||||||||||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 1,153 | 192 | 914 | |||||||||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 395 | $ | 1,153 | $ | 192 | ||||||||||||||
| Cash and cash equivalents | $ | 317 | $ | 1,079 | $ | 130 | ||||||||||||||
| Restricted cash | 78 | 74 | 62 | |||||||||||||||||
| Total cash, cash equivalents and restricted cash | $ | 395 | $ | 1,153 | $ | 192 | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Common Stock | Additional Paid-in Capital | Retained Earnings | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||
| ($ in millions) | Shares | Amount | ||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | 117,917,349 | $ | 1 | $ | 4,845 | $ | 825 | $ | 5,671 | |||||||||||||||||||||||||||||
| Issuance of common stock for Marcellus Acquisition | 9,442,185 | — | 764 | — | 764 | |||||||||||||||||||||||||||||||||
| Share-based compensation | 174,740 | — | 21 | — | 21 | |||||||||||||||||||||||||||||||||
| Issuance of common stock for warrant exchange offer | 16,305,984 | — | 67 | — | 67 | |||||||||||||||||||||||||||||||||
| Issuance of common stock for warrant exercise | 2,102,244 | — | 27 | — | 27 | |||||||||||||||||||||||||||||||||
| Issuance of reserved common stock and warrants | 439,370 | — | — | — | — | |||||||||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (11,666,778) | — | — | (1,073) | (1,073) | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | 4,936 | 4,936 | |||||||||||||||||||||||||||||||||
| Dividends on common stock | — | — | — | (1,222) | (1,222) | |||||||||||||||||||||||||||||||||
| Deemed dividend on warrants | — | — | — | (67) | (67) | |||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | 134,715,094 | $ | 1 | $ | 5,724 | $ | 3,399 | $ | 9,124 | |||||||||||||||||||||||||||||
| Share-based compensation | 214,684 | — | 31 | — | 31 | |||||||||||||||||||||||||||||||||
| Issuance of common stock for warrant exercise | 221,952 | — | — | — | — | |||||||||||||||||||||||||||||||||
| Issuance of reserved common stock and warrants | 12,089 | — | — | — | — | |||||||||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (4,373,883) | — | (1) | (357) | (358) | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | 2,419 | 2,419 | |||||||||||||||||||||||||||||||||
| Dividends on common stock | — | — | — | (487) | (487) | |||||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | 130,789,936 | $ | 1 | $ | 5,754 | $ | 4,974 | $ | 10,729 | |||||||||||||||||||||||||||||
| Issuance of common stock for Southwestern Merger | 95,700,325 | 1 | 7,888 | — | 7,889 | |||||||||||||||||||||||||||||||||
| Share-based compensation | 727,799 | — | 42 | — | 42 | |||||||||||||||||||||||||||||||||
| Issuance of common stock for warrant exercise | 4,083,103 | — | 3 | — | 3 | |||||||||||||||||||||||||||||||||
| Issuance of reserved common stock and warrants | 468,723 | — | — | — | — | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (714) | (714) | |||||||||||||||||||||||||||||||||
| Dividends on common stock | — | — | — | (384) | (384) | |||||||||||||||||||||||||||||||||
| Balance as of December 31, 2024 | 231,769,886 | $ | 2 | $ | 13,687 | $ | 3,876 | $ | 17,565 |
The accompanying notes are an integral part of these consolidated financial statements.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Basis of Presentation and Summary of Significant Accounting Policies |
Description of Company
On October 1, 2024, Chesapeake Energy Corporation (“Chesapeake”) changed its name to Expand Energy Corporation ("Expand Energy," “we,” “our,” “us” or the "Company") in connection with the Southwestern Merger, further discussed in Note 2. Following the Southwestern Merger, Expand Energy is the largest natural gas producer in the U.S., based on net daily production, and is focused on responsibly developing an abundant supply of natural gas, oil and NGL to expand energy access for all. We have operations in Louisiana, Pennsylvania, West Virginia and Ohio, with all of our operations located onshore in the United States.
Basis of Presentation
The accompanying consolidated financial statements of Expand Energy were prepared in accordance with GAAP and include the accounts of our direct and indirect wholly owned subsidiaries and entities in which Expand Energy has a controlling financial interest. Intercompany accounts and balances have been eliminated. All monetary values, other than per unit and per share amounts, are stated in millions of U.S. dollars unless otherwise specified.
This Annual Report on Form 10-K (this “Form 10-K”) relates to our financial position as of December 31, 2024 and as of December 31, 2023, and our results of operations for the year ended December 31, 2024, the year ended December 31, 2023 and the year ended December 31, 2022. For the time periods covered by this Form 10-K, we did not have any changes or items impacting other comprehensive income.
Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosures in the financial statements. Management evaluates its estimates and related assumptions regularly, including those related to the impairment of natural gas and oil properties, natural gas and oil reserves, derivatives, income taxes, impairment of other property and equipment, environmental remediation costs, asset retirement obligations, litigation and regulatory proceedings and fair values. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ significantly from these estimates.
Consolidation
We consolidate entities in which we have a controlling financial interest and variable interest entities in which we are the primary beneficiary. We consolidate subsidiaries in which we hold, directly or indirectly, more than 50% of the voting rights. We use the equity method of accounting to record our net interests where we have the ability to exercise significant influence through our investment but lack a controlling financial interest. Under the equity method, our share of net income (loss) is included in our consolidated statements of operations according to our equity ownership or according to the terms of the applicable governing instrument. See Note 15 for further discussion of our investments. Undivided interests in natural gas and oil properties are consolidated on a proportionate basis.
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 (“CODM”), who is our Chief Executive Officer, for the purpose of allocating an enterprise’s resources and assessing its operating performance. We have concluded that we have one reportable segment, due to the similar nature of the exploration and production business across Expand Energy and its consolidated subsidiaries and the fact that our marketing activities are ancillary to our operations. See Note 18 for additional information.
Cash and Cash Equivalents
For purposes of the consolidated financial statements, we consider investments in all highly liquid instruments with original maturities of three months or less at the date of purchase to be cash equivalents.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Restricted Cash
As of December 31, 2024, we had restricted cash of $78 million. Our restricted cash represents funds legally restricted for future payment of certain royalties, as well as for payment of certain convenience class unsecured claims.
Accounts Receivable
Our accounts receivable are primarily from purchasers of natural gas, oil and NGL and from exploration and production companies that own interests in properties we operate. This industry concentration could affect our overall exposure to credit risk, either positively or negatively, because our purchasers and joint working interest owners may be similarly affected by changes in economic, industry or other conditions. We monitor the creditworthiness of all our counterparties and we generally require letters of credit or parent guarantees for receivables from parties deemed to have sub-standard credit, unless the credit risk can otherwise be mitigated. We utilize an allowance method in accounting for bad debt based on historical trends in addition to specifically identifying receivables that we believe may be uncollectible. See Note 8 for additional information regarding our accounts receivable.
Natural Gas and Oil Properties
We follow the successful efforts method of accounting for our natural gas and oil properties. Under this method, exploration costs such as exploratory geological and geophysical costs, expiration of unproved leasehold, delay rentals and exploration overhead are expensed as incurred. All costs related to production, general corporate overhead and similar activities are also expensed as incurred. All property acquisition costs and development costs are capitalized when incurred.
Exploratory drilling costs are initially capitalized, or suspended, pending the determination of proved reserves. If proved reserves are found, drilling costs remain capitalized and are classified as proved properties. Costs of unsuccessful wells are charged to exploration expense. For exploratory wells that find reserves that cannot be classified as proved when drilling is completed, costs continue to be capitalized as suspended exploratory drilling costs if there have been sufficient reserves found to justify completion as a producing well and sufficient progress is being made in assessing the reserves and the economic and operational viability of the project. If we determine that future appraisal drilling or development activities are unlikely to occur, associated suspended exploratory well costs are expensed. In some instances, this determination may take longer than one year. We review the status of all suspended exploratory drilling costs quarterly. Costs to develop proved reserves, including the costs of all development wells and related equipment used in the production of natural gas and oil are capitalized.
Costs of drilling and equipping successful wells, costs to construct or acquire facilities, and associated asset retirement costs are depreciated using the unit-of-production (“UOP”) method based on total estimated proved developed gas and oil reserves. Costs of acquiring proved properties, including leasehold acquisition costs transferred from unproved properties, are depleted using the UOP method based on total estimated proved developed and undeveloped reserves.
Proceeds from the sales of individual natural gas and oil properties and the capitalized costs of individual properties sold or abandoned are credited and charged, respectively, to accumulated depreciation, depletion and amortization, if doing so does not materially impact the depletion rate of an amortization base. Generally, no gain or loss is recognized until an entire amortization base is sold. However, a gain or loss is recognized from the sale of less than an entire amortization base if the disposition is significant enough to materially impact the depletion rate of the remaining properties in the amortization base.
When circumstances indicate that the carrying value of proved natural gas and oil properties may not be recoverable, we compare unamortized capitalized costs to the expected undiscounted pre-tax future cash flows for the associated assets grouped at the lowest level for which identifiable cash flows are independent of cash flows of other assets. If the expected undiscounted pre-tax future cash flows, based on our estimate of future natural gas and crude oil prices, operating costs, anticipated production from proved reserves and other relevant data, are lower than the unamortized capitalized costs, the capitalized costs are reduced to fair value. Fair value is generally estimated using the income approach described in the ASC 820, Fair Value Measurements. If applicable, we utilize prices and other relevant information generated by market transactions involving assets and liabilities that are identical or comparable to the item being measured as the basis for determining fair value. The expected future cash flows used for impairment reviews and related fair value measurements are typically based on judgmental
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
assessments of commodity prices, pricing adjustments for differentials, operating costs, capital investment plans, future production volumes, and estimated proved reserves, considering all available information at the date of review. These assumptions are applied to develop future cash flow projections that are then discounted to estimated fair value, using a market-based weighted average cost of capital. We have classified these fair value measurements as Level 3 in the fair value hierarchy.
Other Property and Equipment
Other property and equipment consists primarily of buildings and improvements, computers and office equipment, gathering and water systems, land and other assets that support our operations. Major renewals and betterments are capitalized while the costs of repairs and maintenance are charged to expense as incurred. Other property and equipment costs, excluding land, are depreciated on a straight-line basis and recorded within depreciation, depletion and amortization in the consolidated statement of operations.
Realization of the carrying value of other property and equipment is reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets are determined to be impaired if a forecast of undiscounted estimated future net operating cash flows directly related to the asset, including any disposal value, is less than the carrying amount of the asset. If any asset is determined to be impaired, the loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. An estimate of fair value is based on the best information available, including prices for similar assets and discounted cash flow. See Note 14 for further discussion of other property and equipment.
Assets Held for Sale
We may market certain non-core natural gas and oil assets or other properties for sale. At the end of each reporting period, we evaluate if these assets should be classified as held for sale. The held for sale criteria includes the following: management commits to a plan to sell, the asset is available for immediate sale, an active program to locate a buyer exists, the sale of the asset is probable and expected to be completed within a year, the asset is actively being marketed for sale and that it is unlikely that significant changes to the plan will be made. If each of the criteria are met, then the assets and associated liabilities are classified as held for sale. Additionally, once assets are classified as held for sale, we cease depreciation on those related assets.
Capitalized Interest
Interest from external borrowings is capitalized on significant investments in major development projects until the asset is ready for service using the weighted average borrowing rate of outstanding borrowings. Capitalized interest is determined by multiplying our weighted average borrowing cost on debt by the average amount of qualifying costs incurred. Capitalized interest is depreciated over the useful lives of the assets in the same manner as the depreciation of the underlying asset.
Accounts Payable
Included in accounts payable as of December 31, 2024 are liabilities of approximately $64 million, representing the amount by which checks issued, but not yet presented to our banks for collection, exceeded balances in applicable bank accounts.
Debt Issuance Costs
Costs associated with the arrangement of our credit facility are included in other long-term assets and are amortized over the life of the facility using the straight-line method. As of December 31, 2024, these costs were $17 million. Costs associated with the issuance of the senior notes are included in long-term debt and the remaining unamortized issuance costs are amortized over the life of the senior notes using the straight-line method. Unamortized issuance costs associated with our senior notes as of December 31, 2024 totaled $10 million.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Litigation Contingencies
We are subject to litigation and regulatory proceedings, claims and liabilities that arise in the ordinary course of business. We accrue losses associated with litigation and regulatory claims when such losses are probable and reasonably estimable. If we determine that a loss is probable and cannot estimate a specific amount for that loss but can estimate a range of loss, our best estimate within the range is accrued. Estimates are adjusted as additional information becomes available or circumstances change. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or third-party recoveries. Legal defense costs associated with loss contingencies are expensed in the period incurred. See Note 5 for further discussion of litigation contingencies.
Environmental Remediation Costs
We record environmental reserves for estimated remediation costs related to existing conditions from past operations when the responsibility to remediate is probable and the costs can be reasonably estimated. Expenditures that create future benefits or contribute to future revenue generation are capitalized. See Note 5 for discussion of environmental contingencies.
Asset Retirement Obligations
We recognize liabilities for obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction and development of the assets. We recognize the fair value of a liability for a retirement obligation in the period in which the liability is incurred. For natural gas and oil properties, this is the period in which a natural gas or oil well is acquired or drilled. The liability is then accreted each period until the liability is settled or the well is sold, at which time the liability is removed. The related asset retirement cost is capitalized as part of the carrying amount of our natural gas and oil properties. See Note 16 for further discussion of asset retirement obligations.
Revenue Recognition
Revenue from the sale of natural gas, oil and NGL is recognized upon the transfer of control of the products, which is typically when the products are delivered to customers. Revenue is recognized net of royalties due to third parties in an amount that reflects the consideration we expect to receive in exchange for those products. We follow the sales method of accounting for our natural gas revenue whereby we recognize sales revenue on all natural gas sold to our purchasers, regardless of whether the sales are proportionate to our ownership in the property.
Revenue from contracts with customers includes the sale of our natural gas, oil and NGL production (recorded as natural gas, oil and NGL revenues in the consolidated statements of operations) as well as the sale of certain of our joint interest holders’ production which we purchase under joint operating arrangements (recorded in marketing revenues in the consolidated statements of operations). In connection with the marketing of these products, we obtain control of the natural gas, oil and NGL we purchase from other interest owners at defined delivery points and deliver the product to third parties, at which time revenues are recorded. See Note 8 for a presentation of the disaggregation of revenue.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. There are no significant judgments that significantly affect the amount or timing of revenue from contracts with customers.
We also generate revenue from other sources, including from a variety of derivative and hedging activities to reduce our exposure to fluctuations in future commodity prices and to protect our expected operating cash flow against significant market movements or volatility, as well as a variety of natural gas, oil and NGL purchase and sale contracts with third parties for various commercial purposes, including credit risk mitigation and satisfaction of our pipeline delivery commitments (recorded within marketing revenues in the consolidated statements of operations). In circumstances where we act as an agent rather than a principal, our results of operations related to natural gas, oil and NGL marketing activities are presented on a net basis.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Fair Value Measurements
Certain financial instruments are reported on a recurring basis at fair value on our consolidated balance sheets. We also use fair value measurements on a nonrecurring basis when a qualitative assessment of our assets indicates a potential impairment. Under fair value measurement accounting guidance, fair value is defined as the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants (i.e., an exit price). To estimate an exit price, a three-level hierarchy is used. The fair value hierarchy prioritizes the inputs, which refer broadly to assumptions market participants would use in pricing an asset or a liability, into three levels. Level 1 inputs are unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority. Level 2 inputs are inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability and have the lowest priority.
The valuation techniques that may be used to measure fair value include a market approach, an income approach and a cost approach. A market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. An income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectations, including present value techniques, option-pricing models and the excess earnings method. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
The carrying values of financial instruments comprising cash and cash equivalents, accounts payable and accounts receivable approximate fair values due to the short-term maturities of these instruments. See Notes 4 and 13 for further discussion of fair value measurements.
Derivatives
Derivative instruments are recorded at fair value, and changes in fair value are recognized currently in earnings unless specific hedge accounting criteria are followed. As of December 31, 2024, none of our open derivative instruments were designated as cash flow hedges.
Derivative instruments reflected as current in the consolidated balance sheets represent the estimated fair value of derivatives scheduled to settle over the next 12 months based on market prices/rates as of the respective balance sheet dates. Cash settlements of our derivative instruments are generally classified as operating cash flows unless the derivatives are deemed to contain, for accounting purposes, a significant financing element at contract inception, in which case these cash settlements are classified as financing cash flows in the accompanying consolidated statements of cash flows. All of our commodity derivative instruments are subject to master netting arrangements by contract type which provide for the offsetting of asset and liability positions within each contract type, as well as related cash collateral if applicable, by counterparty. Therefore, we net the value of our derivative instruments by contract type with the same counterparty in the accompanying consolidated balance sheets.
We have established the fair value of our derivative instruments using established index prices, volatility curves and discount factors. These estimates are compared to our counterparty values for reasonableness. The values we report in our financial statements are as of a point in time and subsequently change as these estimates are revised to reflect actual results, changes in market conditions and other factors. Derivative transactions are subject to the risk that counterparties will be unable to meet their obligations. 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. See Note 13 for further discussion of our derivative instruments.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Income Taxes
We are subject to current income taxes assessed by the federal and various state jurisdictions in the U.S. and account for current income taxes based on amounts paid or estimated to be payable net of amounts refunded or estimated to be refunded. Additionally, we account for deferred income taxes using the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the estimated future tax consequences attributable to the differences between the financial carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the tax rate expected to be in effect for the year in which those temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change. Deferred income taxes are provided to recognize the income tax effect of reporting certain transactions in different years for income tax and financial reporting purposes. A valuation allowance for deferred tax assets, including net operating losses, is recognized when it is more likely than not that some or all of the benefit from the deferred tax assets will not be realized.
We are required to make judgments, including estimating reserves for potential adverse outcomes regarding tax positions that we have taken. We account for uncertainty in income taxes using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return. The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination by taxing authorities based on technical merits of the position. The amount of the tax benefit recognized is the largest amount of the benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The effective tax rate and the tax basis of assets and liabilities reflect management’s estimates of the ultimate outcome of various tax uncertainties. We recognize accrued interest related to uncertain tax positions in interest expense and accrued penalties related to such positions in general and administrative expense in the consolidated statements of operations. See Note 9 for further discussion of income taxes.
Share-Based Compensation
Our share-based compensation program consists of restricted stock units and performance share units granted to employees and restricted stock units granted to non-employee directors under our Long Term Incentive Plan. We recognize the cost of services received in exchange for restricted stock units based on the fair value of the equity instruments as of the grant date. This value is amortized over the vesting period, which is generally three years from the grant date. Forfeitures on our share-based compensation awards are recognized as they occur. Because performance share units are settled in shares, they are classified as equity and are measured at fair value as of the grant date.
To the extent compensation expense relates to employees directly involved in the acquisition of natural gas and oil leasehold and development activities, these amounts are capitalized to natural gas and oil properties. Amounts not capitalized to natural gas and oil properties are generally recognized as general and administrative expense, production expense, or exploration expense, based on the employees involved in those activities. See Note 11 for further discussion of share-based compensation.
Recently Issued Accounting Standards
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU 2024-03 expands disclosures about specific costs and expenses presented on the face of the income statement. This ASU is effective for annual reporting periods beginning after December 15, 2026 and for interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. We are evaluating the impact this ASU will have on our disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 intends to provide investors with additional information about an entity’s income taxes by requiring disclosure of items such as disaggregation of the effective tax rate reconciliation as well as information regarding income taxes paid. This ASU is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued or made available for issuance. We are evaluating the impact this ASU will have on our disclosures.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segments Disclosures. Under ASU 2023-07, the scope and frequency of segment disclosures is increased to provide investors with additional detail about information utilized by an entity’s CODM, including information about significant segment expenses. This ASU is effective beginning with this annual report on Form 10-K and interim periods beginning in 2025. See Note 18 for further discussion on our segment reporting.
| 2. | Natural Gas and Oil Property Transactions |
Southwestern Merger
On January 10, 2024, Chesapeake and Southwestern entered into an all-stock agreement and plan of merger (the “Merger Agreement”). Southwestern was an independent energy company engaged in development, exploration and production activities, including related marketing activities, within its operating areas in the Appalachia and Haynesville shale plays. Our Board of Directors and the Board of Directors of Southwestern both approved the Merger Agreement. At separate special meetings each held on June 18, 2024, Chesapeake’s stockholders approved the issuance of Chesapeake’s common stock to the stockholders of Southwestern in connection with the Southwestern Merger, and Southwestern’s stockholders approved the Merger Agreement.
On October 1, 2024, the Southwestern Merger was completed, and we issued approximately 95.7 million shares of our common stock to Southwestern’s shareholders in connection with the Merger Agreement. Under the terms of the Merger Agreement, subject to certain exceptions, each share of Southwestern common stock was converted into the right to receive 0.0867 of a share of the Company’s common stock. Based on the closing price of our common stock, the total value of the shares of our common stock issued to Southwestern’s shareholders was approximately $7.9 billion. During 2024, we recognized approximately $312 million of costs related to the Southwestern Merger, which included $148 million related to employee expenses and the remainder of the costs relating to transaction fees, consulting and legal fees and other fees related to the transaction. These acquisition-related costs are included within other operating expense, net within our consolidated statements of operations. The Southwestern Merger was structured as a tax-free reorganization for United States federal income tax purposes.
Preliminary Southwestern Merger Purchase Price Allocation
We have accounted for the Southwestern Merger as a business combination, using the acquisition method, with Expand Energy (formerly Chesapeake) treated as the accounting acquirer. The following table represents the preliminary allocation of the total purchase price of Southwestern to the identifiable assets acquired and the liabilities assumed based on the fair values as of the acquisition date. Certain data necessary to complete the purchase price allocation is not yet available, and includes, but is not limited to, final tax returns that provide the underlying tax basis of Southwestern’s assets and liabilities and final appraisals of assets acquired and liabilities assumed. We expect to complete the purchase price allocation during the 12-month period following the acquisition date, during which time the value of the assets and liabilities may be revised as appropriate.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Preliminary Purchase Price Allocation | |||||||||||
| Consideration: | |||||||||||
| Cash(a) | $ | 585 | |||||||||
| Fair value of Expand Energy common stock issued(b) | 7,871 | ||||||||||
| Restricted stock unit and performance stock unit replacement awards | 17 | ||||||||||
| Total consideration | $ | 8,473 | |||||||||
| Fair Value of Assets Acquired: | |||||||||||
| Cash and cash equivalents and restricted cash | $ | 126 | |||||||||
| Other current assets | 828 | ||||||||||
| Proved natural gas and oil properties | 10,002 | ||||||||||
| Unproved properties | 4,270 | ||||||||||
| Other property and equipment | 128 | ||||||||||
| Other long-term assets | 496 | ||||||||||
| Amounts attributable to assets acquired | $ | 15,850 | |||||||||
| Fair Value of Liabilities Assumed: | |||||||||||
| Current liabilities | $ | 1,955 | |||||||||
| Long-term debt | 3,305 | ||||||||||
| Deferred tax liabilities | 479 | ||||||||||
| Long-term contract liabilities | 1,287 | ||||||||||
| Other long-term liabilities | 351 | ||||||||||
| Amounts attributable to liabilities assumed | 7,377 | ||||||||||
| Total identifiable net assets | $ | 8,473 |
(a)Reflects the repayment of $585 million outstanding on Southwestern's 2022 revolving credit facility including $2 million of accrued interest and fees, as the facility was repaid and retired upon close of the Southwestern Merger.
(b)The fair value of our common stock is a Level 1 input, as our stock price is a quoted price in an active market as of the acquisition date.
Natural Gas and Oil Properties
For the Southwestern Merger, we applied the business combination guidance, under which an acquirer should recognize the identifiable assets acquired and the liabilities assumed on the acquisition date at fair value. The fair value estimate of proved and unproved natural gas and oil properties as of the acquisition date was based on estimated natural gas and oil reserves and related future net cash flows discounted using a weighted average cost of capital, including estimates of future production rates and future development costs. We utilized NYMEX strip pricing adjusted for inflation to value the reserves. We then applied various discount rates depending on the classification of reserves and other risk characteristics. Management utilized the assistance of a third-party valuation expert to estimate the value of the natural gas and oil properties acquired. Additionally, the fair value estimate of proved and unproved natural gas and oil properties was corroborated by utilizing a market approach, which considers recent comparable transactions for similar assets.
The inputs used to value natural gas and oil properties require significant judgment and estimates made by management and represent Level 3 inputs.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As part of the Southwestern Merger, we assumed gathering, processing and transportation contracts, certain of which were deemed to be above or below current market rates. We recognized assets and liabilities for the difference in the contractual and market rates of these contracts, as of the date of the Merger. The terms of the contracts extend through 2035.
Southwestern Merger Revenues and Expenses Subsequent to Acquisition
We included in our consolidated statements of operations natural gas, oil and NGL revenues of $1,021 million, marketing revenues of $482 million, net losses on natural gas, oil and NGL derivatives of $34 million, and direct operating expenses of $1,384 million, including depreciation, depletion and amortization, and net earnings of $36 million, related to the Southwestern Merger businesses for the period from October 1, 2024 through December 31, 2024.
Marcellus Acquisition
On March 9, 2022, we completed the acquisition of Chief and associated non-operated interests held by affiliates of Tug Hill, of premium drilling locations in the Marcellus Shale in Northeast Pennsylvania (“Marcellus Acquisition”) for total consideration of approximately $2.77 billion, consisting of approximately $2 billion in cash, including working capital adjustments and approximately 9.4 million shares of our common stock, to acquire high quality producing assets and a deep inventory of premium drilling locations in the prolific Marcellus Shale in Northeast Pennsylvania. The Marcellus Acquisition was indebtedness free, effective as of January 1, 2022 and was subject to customary purchase price adjustments. We funded the cash portion of the consideration with cash on hand and $914 million of borrowings under the Company’s Exit Credit Facility. During 2022, we recognized approximately $41 million of costs related to our Marcellus Acquisition, which included integration costs, consulting fees, financial advisory fees, legal fees and change in control expense in accordance with Chief’s existing employment agreements. These acquisition-related costs are included within other operating expense, net within our consolidated statements of operations.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Marcellus Acquisition Purchase Price Allocation
We have accounted for the Marcellus Acquisition as a business combination, using the acquisition method. The following table represents the allocation of the total purchase price to the identifiable assets acquired and the liabilities assumed based on the fair values as of the acquisition date.
| Purchase Price Allocation | |||||
| Consideration: | |||||
| Cash | $ | 2,000 | |||
| Fair value of common stock issued in the merger (a) | 764 | ||||
| Working capital adjustments | 6 | ||||
| Total consideration | $ | 2,770 | |||
| Fair Value of Liabilities Assumed: | |||||
| Current liabilities | $ | 459 | |||
| Other long-term liabilities | 129 | ||||
| Amounts attributable to liabilities assumed | $ | 588 | |||
| Fair Value of Assets Acquired: | |||||
| Cash, cash equivalents and restricted cash | $ | 39 | |||
| Other current assets | 218 | ||||
| Proved natural gas and oil properties | 2,309 | ||||
| Unproved properties | 788 | ||||
| Other property and equipment | 1 | ||||
| Other long-term assets | 3 | ||||
| Amounts attributable to assets acquired | $ | 3,358 | |||
| Total identifiable net assets | $ | 2,770 |
(a)The fair value of our common stock is a Level 1 input, as our stock price is a quoted price in an active market as of the acquisition date.
Natural Gas and Oil Properties
For the Marcellus Acquisition, we applied the business combination guidance, under which an acquirer should recognize the identifiable assets acquired and the liabilities assumed on the acquisition date at fair value. The fair value estimate of proved and unproved natural gas and oil properties as of the acquisition date was based on estimated natural gas and oil reserves and related future net cash flows discounted using a weighted average cost of capital, including estimates of future production rates and future development costs. We utilized NYMEX strip pricing adjusted for inflation to value the reserves. We then applied various discount rates depending on the classification of reserves and other risk characteristics. Management utilized the assistance of a third-party valuation expert to estimate the value of the natural gas and oil properties acquired. Additionally, the fair value estimate of proved and unproved natural gas and oil properties was corroborated by utilizing a market approach, which considers recent comparable transactions for similar assets.
The inputs used to value natural gas and oil properties require significant judgment and estimates made by management and represent Level 3 inputs.
Marcellus Acquisition Revenues and Expenses Subsequent to Acquisition
We included in our consolidated statements of operations natural gas, oil and NGL revenues of $1,331 million, marketing revenues of $20 million, net losses on natural gas, oil and NGL derivatives of $379 million, and direct operating expenses of $483 million, including depreciation, depletion and amortization, and net earnings of
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
$381 million, related to the Marcellus Acquisition businesses for the period from March 10, 2022 (the date immediately following the completion of the Marcellus Acquisition) through December 31, 2022.
Combined Pro Forma Financial Information
The following unaudited pro forma financial information is based on our historical consolidated financial statements adjusted to reflect as if the Southwestern Merger and the divestiture of our Eagle Ford assets had each occurred on January 1, 2023. The information below reflects pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including the estimated tax impact of the pro forma adjustments.
| Years Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Revenues | $ | 8,193 | $ | 14,247 | ||||||||||
| Net income (loss) available to common stockholders | $ | (607) | $ | 3,852 | ||||||||||
| Earnings (loss) per common share: | ||||||||||||||
| Basic | $ | (2.65) | $ | 16.86 | ||||||||||
| Diluted | $ | (2.65) | $ | 16.14 |
Eagle Ford Divestitures
In January 2023, we entered into an agreement to sell a portion of our Eagle Ford assets to WildFire Energy I LLC for approximately $1.425 billion, subject to customary post-closing adjustments. Approximately $225 million of the purchase price was recorded as deferred consideration and treated as a non-interest-bearing note to be paid in installments of $60 million per year for the first three years following the transaction close date, with $45 million to be paid in the fourth year following the transaction close date. During 2024, we received the first installment payment related to this transaction. The deferred consideration is recorded at fair value with an imputed rate of interest as a Level 2 input, and approximately $59 million and $58 million of the deferred consideration is reflected within other current assets and approximately $89 million and $135 million is reflected within other long-term assets on the consolidated balance sheets as of December 31, 2024 and December 31, 2023, respectively. The divestiture, which closed on March 20, 2023 (with an effective date of October 1, 2022), resulted in a gain of approximately $337 million, inclusive of post-closing adjustments, based on the difference between the carrying value of the assets and consideration received.
In February 2023, we entered into an agreement to sell a portion of our remaining Eagle Ford assets to INEOS Upstream Holdings Limited (“INEOS Energy”) for approximately $1.4 billion, subject to customary post-closing adjustments. Approximately $225 million of the purchase price was recorded as deferred consideration and treated as a non-interest-bearing note to be paid in installments of approximately $56 million per year for four years following the transaction close date. During 2024, we received the first installment payment related to this transaction. The deferred consideration is recorded at fair value with an imputed rate of interest as a Level 2 input, and approximately $55 million and $55 million of the deferred consideration is reflected within other current assets and approximately $99 million and $144 million is reflected within other long-term assets on the consolidated balance sheets as of December 31, 2024 and December 31, 2023, respectively. The divestiture, which closed on April 28, 2023 (with an effective date of October 1, 2022), resulted in a gain of approximately $470 million, based on the difference between the carrying value of the assets and consideration received. Included within the liabilities assumed by INEOS Energy was approximately $53 million of asset retirement obligations.
In August 2023, we entered into an agreement to sell the final portion of our remaining Eagle Ford assets to SilverBow Resources, Inc. (“SilverBow”) for approximately $700 million, subject to customary post-closing adjustments. Approximately $50 million of the purchase price was recorded as deferred consideration and treated as a non-interest-bearing note to be paid one year from the closing date. The deferred consideration is recorded at fair value with an imputed rate of interest as a Level 2 input, and approximately $46 million of the deferred consideration is reflected within other current assets on the consolidated balance sheets as of December 31, 2023. During 2024, we received the deferred consideration. Additionally, SilverBow agreed to pay us an additional contingent payment of $25 million should WTI NYMEX prices average between $75 and $80 per barrel or $50 million should WTI NYMEX prices average above $80 per barrel during the year following the close of the
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
transaction. On July 30, 2024, Crescent Energy Company (“Crescent”) acquired SilverBow. The fair value of the contingent consideration as of December 31, 2023 of $12 million is reflected within short-term derivative assets within our consolidated balance sheets. See Note 13 for additional information. During 2024, we received the contingent payment of $25 million from Crescent based upon the average NYMEX prices during the year following the close of the transaction. The divestiture, which closed on November 30, 2023 (with an effective date of February 1, 2023), resulted in a gain of approximately $140 million, based on the difference between the carrying value of the assets and consideration received. Included within the liabilities assumed by SilverBow was approximately $11 million of asset retirement obligations.
During the years ended December 31, 2024 and 2023, we amortized approximately $31 million and $24 million related to the deferred consideration from the Eagle Ford divestiture transactions described above. The deferred consideration amortization is recorded within other income, net, in our consolidated statements of operations.
Powder River Divestiture
In January 2022, we signed an agreement to sell our Powder River Basin assets in Wyoming to Continental Resources, Inc. for approximately $450 million, subject to customary post-closing adjustments. The divestiture, which closed on March 25, 2022, resulted in the recognition of a gain of approximately $293 million, which included $13 million of post-close adjustments, based on the difference between the carrying value of the assets and the cash received.
| 3. | Earnings Per Share |
Basic earnings (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per common share is calculated in the same manner but includes the impact of potentially dilutive securities utilizing the treasury stock method. Potentially dilutive securities consists of issuable shares related to warrants, unvested restricted stock units (“RSUs”), and unvested performance share units (“PSUs”).
The reconciliations between basic and diluted earnings (loss) per share are as follows:
| Years Ended December 31, | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Numerator | ||||||||||||||||||||
| Net income (loss) available to common stockholders, basic and diluted | $ | (714) | $ | 2,419 | $ | 4,869 | ||||||||||||||
| Denominator (in thousands) | ||||||||||||||||||||
| Weighted average common shares outstanding, basic | 156,989 | 132,840 | 125,785 | |||||||||||||||||
| Effect of potentially dilutive securities | ||||||||||||||||||||
| Warrants | — | 9,750 | 19,734 | |||||||||||||||||
| Restricted stock units | — | 338 | 395 | |||||||||||||||||
| Performance share units | — | 48 | 47 | |||||||||||||||||
| Weighted average common shares outstanding, diluted | 156,989 | 142,976 | 145,961 | |||||||||||||||||
| Earnings per common share: | ||||||||||||||||||||
| Basic | $ | (4.55) | $ | 18.21 | $ | 38.71 | ||||||||||||||
| Diluted | $ | (4.55) | $ | 16.92 | $ | 33.36 |
During the years ended December 31, 2024, 2023 and 2022, the diluted earnings per share calculation excludes the effect of 308,646, 777,369 and 789,458 reserved shares of common stock and 582,109, 1,466,502 and 1,489,337 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 for such shares to be considered dilutive shares during the years ended December 31, 2024, 2023 and 2022, respectively. Additionally, the diluted loss per
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
share calculation during the year ended December 31, 2024 excludes the antidilutive effect of 9,058,361 Warrants, 315,318 RSUs and 86,421 PSUs.
| 4. | Debt |
Our long-term debt consisted of the following as of December 31, 2024 and 2023:
| December 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Carrying Amount | Fair Value**(a)** | Carrying Amount | Fair Value**(a)** | ||||||||||||||||||||
| Credit Facility | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
| 4.95% senior notes due 2025(b) | 389 | 389 | — | — | |||||||||||||||||||
| 5.50% senior notes due 2026 | 47 | 47 | 500 | 496 | |||||||||||||||||||
| 5.375% senior notes due 2029(b) | 700 | 684 | — | — | |||||||||||||||||||
| 5.875% senior notes due 2029 | 500 | 494 | 500 | 489 | |||||||||||||||||||
| 6.75% senior notes due 2029 | 950 | 959 | 950 | 958 | |||||||||||||||||||
| 5.375% senior notes due 2030(b) | 1,200 | 1,174 | — | — | |||||||||||||||||||
| 4.75% senior notes due 2032(b) | 1,150 | 1,067 | — | — | |||||||||||||||||||
| 5.70% senior notes due 2035(c) | 750 | 734 | — | — | |||||||||||||||||||
| Premiums on senior notes, net | 4 | — | 83 | — | |||||||||||||||||||
| Debt issuance costs | (10) | — | (5) | — | |||||||||||||||||||
| Total debt, net | 5,680 | 5,548 | 2,028 | 1,943 | |||||||||||||||||||
| Less current maturities of long-term debt, net | (389) | (389) | — | — | |||||||||||||||||||
| Total long-term debt, net | $ | 5,291 | $ | 5,159 | $ | 2,028 | $ | 1,943 |
(a)The carrying value of borrowings under our Credit Facility approximates 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.
(b)On October 1, 2024, we assumed the debt of Southwestern in connection with the Southwestern Merger, which primarily consisted of these senior notes. See Note 2 for additional discussion on the Southwestern Merger and further discussion of these senior notes below.
(c)On December 2, 2024, we issued $750 million of 5.70% senior notes. See further discussion below.
The table below presents debt maturities as of December 31, 2024, excluding debt issuance costs, discounts and premiums:
| Total | ||||||||
| 2025 | $ | 389 | ||||||
| 2026 | 47 | |||||||
| 2027 | — | |||||||
| 2028 | — | |||||||
| 2029 | 2,150 | |||||||
| Thereafter | 3,100 | |||||||
| Total debt | $ | 5,686 |
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Credit Facility. In December 2022, we entered into a senior secured reserve-based credit agreement, as amended pursuant to the Amendment No. 1 and Borrowing Base Agreement, dated April 29, 2024 (the “Initial Credit Agreement Amendment”) and as automatically amended on October 28, 2024 by the Investment Grade Credit Agreement Amendment (as defined below), with the lenders and issuing banks party thereto from time to time (the “Lenders”), and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (in such capacity, the “Administrative Agent”) (such credit agreement as amended by the Initial Credit Agreement Amendment, the “Pre-IG Credit Agreement”, and as further amended by the Investment Grade Credit Agreement Amendment, the “Credit Agreement”), providing for a revolving credit facility (such facility as amended pursuant to the Initial Credit Agreement Amendment, the “Pre-IG Credit Facility”, and as further amended pursuant to the Investment Grade Credit Agreement Amendment, the “Credit Facility”) maturing in December 2027. The Initial Credit Agreement Amendment, among other things, increased the aggregate commitments under the Pre-IG Credit Facility from $2.0 billion to $2.5 billion and increased the sublimit available for the issuance of letters of credit from $200 million to $500 million. The Credit Facility continues to provide for a $50 million sublimit available for swingline loans. As of December 31, 2024, we had approximately $2.5 billion available for borrowings under the Credit Facility.
The obligations under the Pre-IG Credit Facility were guaranteed by certain of Expand Energy’s subsidiaries (the “Guarantors”), and the Pre-IG Credit Facility was secured by substantially all of the assets owned by the Company and the Guarantors (subject to customary exceptions), including mortgages on not less than 85% of the total PV-9 of the borrowing base properties evaluated in the most recent reserve report (where PV-9 is the net present value, discounted at 9% per annum, of the estimated future net revenues). Since the effectiveness of the Investment Grade Credit Agreement Amendment, the Credit Facility is no longer guaranteed or secured, or subject to a borrowing base.
The Pre-IG Credit Agreement contained restrictive covenants, subject to customary exceptions for reserve-based credit facilities, that limited Expand Energy and its subsidiaries’ ability to, among other things: (i) incur additional indebtedness, (ii) make investments, (iii) enter into mergers; (iv) make or declare dividends; (v) repurchase or redeem certain indebtedness; (vi) enter into certain hedges; (vii) incur liens; (viii) sell assets; and (ix) engage in certain transactions with affiliates. Since the effectiveness of the Investment Grade Credit Agreement Amendment on October 28, 2024, the Credit Agreement contains restrictive covenants that, subject to exceptions customary to investment grade credit facilities, limit Expand Energy and its subsidiaries’ ability to, among other things: (i) incur priority indebtedness, (ii) enter into mergers; (iii) make or declare dividends; (iv) incur liens; (v) sell all or substantially all of their assets; and (vi) engage in certain transactions with affiliates. The Pre-IG Credit Agreement required Expand Energy to maintain compliance with the following financial ratios: (A) a current ratio, which was the ratio of Expand Energy’s and its restricted subsidiaries’ consolidated current assets (including unused commitments under the Pre-IG Credit Facility but excluding certain non-cash assets) to their consolidated current liabilities (excluding the current portion of long-term debt and certain non-cash liabilities), of not less than 1.00 to 1.00; (B) a net leverage ratio, which was the ratio of total indebtedness (less unrestricted cash up to a specified threshold) to Consolidated EBITDAX (as defined in the Pre-IG Credit Agreement) for the prior four fiscal quarters, of not greater than 3.50 to 1.00 and (C) a PV-9 coverage ratio of the net present value, discounted at 9% per annum, of the estimated future net revenues expected in the proved reserves to Expand Energy’s and its restricted subsidiaries’ total indebtedness of not less than 1.50 to 1.00. The Investment Grade Credit Agreement Amendment, among other things, (i) removed the current ratio, net leverage ratio and PV-9 coverage ratio previously contained in the Pre-IG Credit Agreement and (ii) provides for our compliance with an indebtedness to capitalization ratio, which is the ratio of the Company’s total indebtedness to the sum of total indebtedness plus stockholders’ equity (the “Debt to Capitalization Ratio”), not to exceed 65%. As of December 31, 2024, we were in compliance with the Debt to Capitalization Ratio.
Borrowings under the Credit Agreement may be alternate base rate loans or term SOFR loans, at our election. Interest is payable quarterly for alternate base rate loans and at the end of the applicable interest period for term SOFR loans. Term SOFR loans bear interest at term SOFR plus an applicable rate ranging from 125 to 187.5 basis points per annum, depending on the Company’s unsecured debt ratings (which rate under the Pre-IG Credit Agreement previously ranged from 175 to 275 basis points per annum, depending on the percentage of the commitments utilized), plus an additional 10 basis points per annum credit spread adjustment. Alternate base rate loans bear interest at a rate per annum equal to the greatest of: (i) the prime rate; (ii) the federal funds effective rate plus 50 basis points; and (iii) the adjusted term SOFR rate for a one-month interest period plus 100 basis points, plus an applicable margin ranging from 25 to 87.5 basis points per annum, depending on the Company’s unsecured debt ratings (which applicable margin under the Pre-IG Credit Agreement previously ranged from 75 to 175 basis
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
points per annum, depending on the percentage of the commitments utilized). Expand Energy also pays a commitment fee on unused commitment amounts under the Credit Facility ranging from 15 to 27.5 basis points per annum, depending on the Company’s unsecured debt ratings (which commitment fee rate under the Pre-IG Credit Agreement previously ranged from 37.5 to 50 basis points per annum, depending on the percentage of the commitments utilized).
The Credit Facility is subject to customary events of default, remedies, and cure rights for investment grade credit facilities of this nature.
Investment Grade Rating.
On October 1, 2024, we received an investment grade rating from S&P Global Ratings (“S&P”). S&P assigned an issuer-level rating of ‘BBB-’ on our unsecured debt and raised our issuer credit rating to ‘BBB-’, with a stable outlook. Additionally, on October 2, 2024, we received an investment grade rating from Fitch Ratings (“Fitch”). Fitch affirmed our revolver credit rating at ‘BBB-’ and upgraded the rating on our senior notes to ‘BBB-’, with a stable outlook. As a result of these investment grade ratings and the satisfaction of certain other conditions, (i) the Pre-IG Credit Agreement was automatically amended in its entirety as set forth in an exhibit to the Pre-IG Credit Agreement (such automatic amendment, the “Investment Grade Credit Agreement Amendment”, and the Pre-IG Credit Agreement as amended by such amendment, the “Credit Agreement”), (ii) all liens and guarantees previously provided by the Company and its subsidiaries in connection with the Pre-IG Credit Agreement were released and (iii) all guarantees previously provided in connection with the Company’s senior notes were released. Such Investment Grade Credit Agreement Amendment, among other things, removed the application of the borrowing base provided for in the Pre-IG Credit Agreement and modified the pricing and covenants as described above.
Assumption of Southwestern’s Senior Notes and Southwestern Credit Facility Extinguishment.
On October 1, 2024, the Southwestern Merger was completed, and we became the successor issuer in respect to Southwestern’s (i) $389 million aggregate principal amount of 4.950% Senior Notes due 2025 (the “SWN 2025 Notes”), (ii) $304 million aggregate principal amount of 8.375% Senior Notes due 2028 (the “SWN 2028 Notes”), (iii) $700 million aggregate principal amount of 5.375% Senior Notes due 2029 (the “SWN 2029 Notes”), (iv) $1,200 million aggregate principal amount of 5.375% Senior Notes due 2030 (the “SWN 2030 Notes”) and (v) $1,150 million aggregate principal amount of 4.750% Senior Notes due 2032 (the “SWN 2032 Notes” and together with the SWN 2025 Notes, the SWN 2028 Notes, the SWN 2029 Notes and the SWN 2030 Notes, the “SWN Notes”). We assumed the obligations under (i) the SWN 2025 Notes pursuant to Supplemental Indenture No. 9 (“SWN 2025 Notes Supplemental Indenture No. 9”) to a base indenture dated January 23, 2015, by and among Southwestern and U.S. Bank National Association, as Trustee, (ii) the SWN 2028 Notes pursuant to Supplemental Indenture No. 9 (“SWN 2028 Notes Supplemental Indenture No. 9”) to a base indenture dated September 25, 2017, by and among Southwestern and U.S. Bank National Association, as Trustee, (iii) the SWN 2029 Notes pursuant to Supplemental Indenture No. 6 (“Supplemental Indenture No. 6”) to a base indenture dated August 30, 2021 (the “2021 Base Indenture”) by and among Southwestern and Regions Bank, as Trustee, (iv) the 2030 Notes pursuant to Supplemental Indenture No. 7 (“Supplemental Indenture No. 7”) to the 2021 Base Indenture and (v) the 2032 Notes pursuant to Supplemental Indenture No. 8 (“Supplemental Indenture No. 8” and, together with SWN 2025 Notes Supplemental Indenture No. 9, SWN 2028 Notes Supplemental Indenture No. 9, Supplemental Indenture No. 6 and Supplemental Indenture No. 7, the “SWN Supplemental Indentures”) to the 2021 Base Indenture. In addition, pursuant to each SWN Supplemental Indenture, existing subsidiaries of the Company that guarantee our notes provided guarantees of the SWN Notes. As a result of the investment grade ratings we received on October 1 and October 2, 2024, and the satisfaction of certain other conditions, all guarantees previously provided in connection with the Company’s outstanding senior notes, including the SWN Notes, were released.
The SWN 2025 Notes matured on January 23, 2025 and bore interest at a rate of 4.950% per annum, with interest that was payable on January 23 and July 23 of each year. The SWN 2029 Notes mature on February 1, 2029 and bear interest at a rate of 5.375% per annum, with interest payable on February 1 and August 1 of each year. The SWN 2030 Notes mature on March 15, 2030 and bear interest at a rate of 5.375% per annum, with interest payable on March 15 and September 15 of each year. The SWN 2032 Notes mature on February 1, 2032 and bear interest at a rate of 4.750% per annum, with interest payable on February 1 and August 1 of each year.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
On October 1, 2024, Southwestern’s existing credit facility was terminated, with all loan amounts and other obligations outstanding thereunder repaid in full and all commitments thereunder extinguished, for approximately $585 million, which included all outstanding borrowings, accrued interest and transaction fees.
Issuance of 5.70% Senior Notes
On December 2, 2024, we completed our underwritten public offering of $750 million aggregate principal amount of our 5.70% Senior Notes due 2035 (the “2035 Notes”). The 2035 Notes were issued pursuant to the Indenture (the “Base Indenture”), dated as of December 2, 2024, between the Company and Regions Bank (the “Trustee”), as trustee, as supplemented by the First Supplemental Indenture, dated as of December 2, 2024 (the “First Supplemental Indenture” and, together with the Base Indenture, the “Indenture”), between the Company and the Trustee, setting forth specific terms applicable to the 2035 Notes.
The 2035 Notes are the Company’s senior unsecured obligations and rank equally in right to payment of the holders of the Company’s other current and future unsecured senior debt, including debt under the Company’s revolving credit facility and the Company’s existing senior notes, and senior in right of payment to any future subordinated debt that the Company may incur. The 2035 Notes are not guaranteed by any of the Company’s subsidiaries and are therefore structurally subordinated to any indebtedness incurred by any of the Company’s subsidiaries.
The 2035 Notes mature on January 15, 2035 and interest on the 2035 Notes is payable semi-annually, on January 15 and July 15 of each year to holders of record on the immediately preceding January 1 and July 1. The first interest payment date will commence on July 15, 2025 to holders of record on July 1, 2025.
Outstanding Senior Notes. On October 28, 2024, the Company satisfied the “Investment Grade Date” conditions set forth under the Credit Facility (the “Investment Grade Date Event”) and, as a result, entered into supplemental indentures pursuant to which each subsidiary guarantor party thereto was released of all of its obligations under its guarantee of the Company’s obligations under the indenture, dated as of February 5, 2021, among the Issuer, the guarantor party thereto and Deutsche Bank Trust Company Americas, as trustee, that issued the $500 million aggregate principal amount of 5.50% Senior Notes due 2026 (“the 2026 Notes”) and the $500 million aggregate principal amount of 5.875% Senior Notes due 2029 (the “2029 Notes”). Additionally, as a result of receiving such investment grade rating, pursuant to the indenture governing the 2026 Notes and the 2029 Notes, certain restrictive covenants under such indentures are no longer in effect upon the Company.
Interest on the 2026 Notes and 2029 Notes is payable semi-annually, on February 1 and August 1 of each year to holders of record on the immediately preceding January 15 and July 15.
The Company and certain of its subsidiaries previously agreed to guarantee such obligations under the indenture dated April 7, 2021 with Wilmington Trust, National Association, as Trustee (the “Vine Indenture”) under which the Company assumed the obligations under Vine’s $950 million aggregate principal amount of 6.75% Senior Notes due 2029 (the “Vine Notes”). Additionally, certain subsidiaries of Vine entered into a supplemental indenture to the Company’s existing indenture, dated February 5, 2021, with Deutsche Bank Trust Company Americas as trustee (the “CHK Indenture”), pursuant to which such subsidiaries of Vine have agreed to guarantee obligations under the CHK Indenture. On October 28, 2024, in connection with the Investment Grade Date Event, the Company entered into a supplemental indenture to the CHK Indenture pursuant to which each subsidiary guarantor party thereto was released of all its obligations under its guarantee of the Company’s obligations under the CHK Indenture.
Interest on the Vine Notes is payable semi-annually, on April 15 and October 15 of each year to holders of record on the immediately preceding April 1 and October 1.
In connection with the completion of the Southwestern Merger, on October 1, 2024, the Company entered into (i) Supplemental Indenture No. 3 to the Indenture dated February 5, 2021, by and among Chesapeake Escrow LLC, as issuer, the guarantors signatory thereto and Deutsche Bank Trust Company, as Trustee governing the 2026 Notes and 2029 Notes and (ii) Supplemental Indenture No. 5 to the Indenture dated April 7, 2021, by and among Vine Energy Holdings LLC, the guarantors signatory thereto and Wilmington Trust, National Association, as Trustee governing the Company’s existing 6.75% Senior Notes due 2029 (the “Vine Notes” and together with the 2026 Notes and the 2029 Notes, the “Existing Notes”), in each case to add as guarantors of the Existing Notes, the subsidiaries of Southwestern that guarantee SWN Notes that are described above. As discussed above, on October
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
28, 2024, each Southwestern subsidiary guarantor was released of all its obligations under its guarantee of the Company’s obligations under each of the indentures governing the Existing Notes in connection with the Investment Grade Date Event.
The Credit Facility, the SWN Notes and the Existing Notes are the Company’s senior unsecured obligations. Accordingly, they rank (i) equal in right of payment to all existing and future senior unsecured indebtedness, (ii) effectively subordinate in right of payment to all existing and future secured indebtedness, 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 Credit Facility, the SWN Notes and/or Existing Notes and any entity that is not a subsidiary that does not guarantee the Credit Facility, the SWN Notes and/or Existing Notes and (iv) senior in right of payment to all future subordinated indebtedness.
The Company had no secured debt as of December 31, 2024.
Tender Offer and Early Redemption of Senior Notes
During the fourth quarter of 2024, we announced an offer to purchase for cash, any and all of our outstanding 2026 Notes, the “Tender Offer”. Upon expiration of the Tender Offer, approximately 91%, or $453 million, of the 2026 Notes were validly tendered and not validly withdrawn. In a separate transaction during the fourth quarter of 2024, we redeemed all of the $304 million aggregate principal of the SWN 2028 Notes for approximately $312 million, which included an $8 million premium to call the notes. We utilized the proceeds from the 2035 Notes to fund the Tender Offer for the 2026 Notes and the early redemption of the SWN 2028 Notes.
Subsequent Event - Maturity and Repayment of the SWN 2025 Notes
On January 23, 2025, the $389 million aggregate principal of SWN 2025 Notes was repaid and terminated with cash on hand and borrowings on the Credit Facility.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 5. | Contingencies and Commitments |
Contingencies
Business Operations and Litigation and Regulatory Proceedings
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. We are also party to the consolidated Chapter 11 Cases pending for the Debtors in the Bankruptcy Court.
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. While it is not possible at this time to estimate the amount of any additional loss, or range of loss that is reasonably possible, based on the nature of the claims, management believes that current litigation, claims and proceedings, individually or in aggregate and after taking into account insurance, are not likely to have a material adverse impact on our financial position, results of operations or cash flows. Many of these matters are in early stages and are all subject to inherent uncertainties. Therefore, management’s view may change in the future. If an unfavorable final outcome were to occur, there exists the possibility of our final liabilities being materially different.
The majority of Chesapeake’s pre-petition legal proceedings were settled during the Chapter 11 Cases or will be resolved in connection with the claims reconciliation process before the Bankruptcy Court, together with actions seeking to collect pre-petition indebtedness or to exercise control over the property of Chesapeake’s bankruptcy estates. Any allowed claim related to such litigation will be treated in accordance with the Plan. The Plan in the Chapter 11 Cases, which became effective on February 9, 2021, provided for the treatment of claims against Chesapeake’s bankruptcy estates, including pre-petition liabilities that had not been satisfied or addressed during the Chapter 11 Cases. Many of these proceedings were in early stages as of the Petition Date, and many of them sought damages and penalties, the amount of which is indeterminate. Any legal proceeding pending against Southwestern and assumed by us in connection with the Southwestern Merger is not subject to discharge or resolution as part of the Chapter 11 Cases.
Environmental Contingencies
The nature of the natural gas and oil 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 address 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.
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.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Commitments
Gathering, Processing and Transportation Agreements
We have contractual commitments with midstream service companies and pipeline carriers for future gathering, processing and transportation of natural gas, oil 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 consolidated balance sheets.
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:
| December 31, 2024 | ||||||||
| 2025 | $ | 1,377 | ||||||
| 2026 | 1,300 | |||||||
| 2027 | 1,189 | |||||||
| 2028 | 1,134 | |||||||
| 2029 | 943 | |||||||
| Thereafter | 3,937 | |||||||
| Total | $ | 9,880 |
As a result of the Southwestern Merger, during the year ended December 31, 2024, we acquired certain gathering, processing and transportation agreements from Southwestern and have reflected these agreements within the table above. In addition, we have 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.
Other Commitments
As part of our normal course of business, we enter into various agreements providing, or otherwise arranging for, financial or performance assurances to third parties on behalf of our wholly owned guarantor subsidiaries. These agreements may include future payment obligations or commitments regarding operational performance that effectively guarantee our subsidiaries’ future performance.
In connection with acquisitions and divestitures, our purchase and sale agreements generally provide indemnification to the counterparty for liabilities incurred as a result of a breach of a representation or warranty by the indemnifying party and/or other specified matters. These indemnifications generally have a discrete term and are intended to protect the parties against risks that are difficult to predict or cannot be quantified at the time of entering into or consummating a particular transaction. For divestitures of natural gas and oil properties, our purchase and sale agreements may require the return of a portion of the proceeds we receive as a result of uncured title or environmental defects.
While executing our strategic priorities, we have incurred certain cash charges, including contract termination charges, financing extinguishment costs and charges for unused natural gas transportation and gathering capacity.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 6. | Other Liabilities |
Other current liabilities as of December 31, 2024 and 2023 are detailed below:
| December 31, 2024 | December 31, 2023 | |||||||||||||
| Revenues and royalties due to others | $ | 734 | $ | 360 | ||||||||||
| Accrued drilling and production costs | 296 | 211 | ||||||||||||
| Contract liabilities | 284 | — | ||||||||||||
| Accrued compensation and benefits | 124 | 64 | ||||||||||||
| Taxes payable | 142 | 84 | ||||||||||||
| Operating leases | 71 | 84 | ||||||||||||
| Joint interest prepayments received | 13 | 8 | ||||||||||||
| Accrued hedging costs | 9 | 2 | ||||||||||||
| Other | 113 | 34 | ||||||||||||
| Total other current liabilities | $ | 1,786 | $ | 847 |
| 7. | Leases |
We are a lessee under various agreements for drilling rigs, pressure pumping equipment, vehicles, office space, compressors, certain water transportation lines and other equipment under non-cancelable operating leases expiring through 2036. Certain of our lease agreements include options to renew the lease, terminate the lease early or purchase the underlying asset at the end of the lease. We determine the lease term at the lease commencement date as the non-cancelable period of the lease, including options to extend or terminate the lease when we are reasonably certain to exercise the option. The Company’s vehicles are the only leases with renewal options that we are reasonably certain to exercise. The renewals are reflected in the right of use (“ROU”) asset and lease liability balances.
On October 1, 2024, we completed the Southwestern Merger. As part of the purchase price allocation, we recognized additional operating lease liabilities of $134 million and a related ROU asset of $134 million related to drilling rigs, pressure pumping equipment, vehicles, office space, compressors, certain water transportation lines and other equipment. Regarding our drilling rigs and pressure pumping equipment, our policy is to treat both lease and non-lease components as a single lease component. See Note 2 for additional information about the Southwestern Merger.
Our operating ROU assets are included in other long-term assets while operating lease liabilities are included in other current and other long-term liabilities on the consolidated balance sheet.
The following table presents our ROU assets and lease liabilities as of December 31, 2024 and 2023. As of December 31, 2024 and 2023, we did not have any finance leases.
| Operating Leases | ||||||||||||||
| December 31, 2024 | December 31, 2023 | |||||||||||||
| ROU assets | $ | 145 | $ | 99 | ||||||||||
| Lease liabilities: | ||||||||||||||
| Current lease liabilities | $ | 71 | $ | 84 | ||||||||||
| Long-term lease liabilities | 74 | 15 | ||||||||||||
| Total lease liabilities, net | $ | 145 | $ | 99 |
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Additional information for the Company’s operating leases is presented below:
| Years Ended December 31, | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Lease cost: | ||||||||||||||||||||
| Operating lease cost | $ | 88 | $ | 107 | $ | 51 | ||||||||||||||
| Short-term lease cost | 62 | 40 | 74 | |||||||||||||||||
| Total lease cost | $ | 150 | $ | 147 | $ | 125 | ||||||||||||||
| Other information: | ||||||||||||||||||||
| Operating cash outflows from operating leases | $ | 13 | $ | 10 | $ | 15 | ||||||||||||||
| Investing cash outflows from operating leases | $ | 137 | $ | 137 | $ | 110 | ||||||||||||||
| December 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| Weighted average remaining lease term - operating leases | 3.03 years | 1.24 years | ||||||||||||||||||||||||
| Weighted average discount rate - operating leases | 5.99 | % | 7.02 | % |
Maturity analysis of operating lease liabilities is presented below:
| December 31, 2024 | ||||||||
| 2025 | $ | 71 | ||||||
| 2026 | 37 | |||||||
| 2027 | 30 | |||||||
| 2028 | 14 | |||||||
| 2029 | 6 | |||||||
| Thereafter | 1 | |||||||
| Total lease payments | 159 | |||||||
| Less imputed interest | (14) | |||||||
| Present value of lease liabilities | 145 | |||||||
| Less current maturities | (71) | |||||||
| Present value of lease liabilities, less current maturities | $ | 74 |
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 8. | Revenue |
The following tables show revenue disaggregated by operating area and product type, for the periods presented:
| Year Ended December 31, 2024 | ||||||||||||||||||||||||||
| Natural Gas | Oil | NGL | Total | |||||||||||||||||||||||
| Haynesville | $ | 1,205 | $ | — | $ | — | $ | 1,205 | ||||||||||||||||||
| Northeast Appalachia | 1,242 | — | — | 1,242 | ||||||||||||||||||||||
| Southwest Appalachia | 239 | 69 | 214 | 522 | ||||||||||||||||||||||
| Natural gas, oil and NGL revenue | $ | 2,686 | $ | 69 | $ | 214 | $ | 2,969 | ||||||||||||||||||
| Marketing revenue | $ | 1,095 | $ | 116 | $ | 79 | $ | 1,290 |
| Year Ended December 31, 2023 | ||||||||||||||||||||||||||
| Natural Gas | Oil | NGL | Total | |||||||||||||||||||||||
| Haynesville | $ | 1,300 | $ | — | $ | — | $ | 1,300 | ||||||||||||||||||
| Northeast Appalachia | 1,483 | — | — | 1,483 | ||||||||||||||||||||||
| Eagle Ford | 70 | 596 | 98 | 764 | ||||||||||||||||||||||
| Natural gas, oil and NGL revenue | $ | 2,853 | $ | 596 | $ | 98 | $ | 3,547 | ||||||||||||||||||
| Marketing revenue | $ | 989 | $ | 1,332 | $ | 179 | $ | 2,500 |
| Year Ended December 31, 2022 | ||||||||||||||||||||||||||
| Natural Gas | Oil | NGL | Total | |||||||||||||||||||||||
| Haynesville | $ | 3,481 | $ | — | $ | — | $ | 3,481 | ||||||||||||||||||
| Northeast Appalachia | 4,041 | — | — | 4,041 | ||||||||||||||||||||||
| Eagle Ford | 261 | 1,798 | 212 | 2,271 | ||||||||||||||||||||||
| Powder River Basin | 20 | 66 | 13 | 99 | ||||||||||||||||||||||
| Natural gas, oil and NGL revenue | $ | 7,803 | $ | 1,864 | $ | 225 | $ | 9,892 | ||||||||||||||||||
| Marketing revenue | $ | 2,455 | $ | 1,547 | $ | 229 | $ | 4,231 |
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Major Customers
For the year ended December 31, 2024, we had no purchaser that accounted for 10% or greater of our total revenues (before the effects of hedging). For the year ended December 31, 2023, we had sales to two purchasers that accounted for approximately 17% and 10% of total revenues (before the effects of hedging). For the year ended December 31, 2022, was had sales to two purchasers that accounted for approximately 13% and 10% of total revenues (before the effects of hedging). No other purchasers accounted for more than 10% of our total revenues during the years ended December 31, 2023 or 2022.
Accounts Receivable
Accounts receivable as of December 31, 2024 and 2023 are detailed below:
| December 31, 2024 | December 31, 2023 | |||||||||||||
| Natural gas, oil and NGL sales | $ | 1,028 | $ | 406 | ||||||||||
| Joint interest | 191 | 180 | ||||||||||||
| Other | 18 | 8 | ||||||||||||
| Allowance for doubtful accounts | (11) | (1) | ||||||||||||
| Total accounts receivable, net | $ | 1,226 | $ | 593 |
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 9. | Income Taxes |
The components of the income tax expense (benefit) for each of the periods presented below are as follows:
| Years Ended December 31, | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Current | ||||||||||||||||||||
| Federal | $ | (1) | $ | 264 | $ | 37 | ||||||||||||||
| State | (3) | 6 | 10 | |||||||||||||||||
| Current Income Taxes | (4) | 270 | 47 | |||||||||||||||||
| Deferred | ||||||||||||||||||||
| Federal | (178) | 381 | (1,112) | |||||||||||||||||
| State | 55 | 47 | (220) | |||||||||||||||||
| Deferred Income Taxes | (123) | 428 | (1,332) | |||||||||||||||||
| Total | $ | (127) | $ | 698 | $ | (1,285) |
The income tax expense (benefit) reported in our consolidated statement of operations is different from the federal income tax expense (benefit) computed using the federal statutory rate for the following reasons:
| Years Ended December 31, | |||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||||||||||||||
| Income tax expense (benefit) at the federal statutory rate of 21% | $ | (177) | 21.0 | % | $ | 655 | 21.0 | % | $ | 767 | 21.0 | % | |||||||||||||||||
| State income taxes (net of federal income tax benefit) | (5) | 0.6 | % | 76 | 2.5 | % | 45 | 1.2 | % | ||||||||||||||||||||
| Deferred remeasurement due to state rate changes | 47 | (5.6) | % | (20) | (0.6) | % | 30 | 0.8 | % | ||||||||||||||||||||
| Change in valuation allowance due to acquisitions | 14 | (1.7) | % | — | — | % | 19 | 0.5 | % | ||||||||||||||||||||
| Change in valuation allowance excluding impact of acquisitions | (18) | 2.1 | % | (33) | (1.1) | % | (2,147) | (58.8) | % | ||||||||||||||||||||
| Research and development tax credits | (31) | 3.7 | % | (3) | (0.1) | % | (19) | (0.5) | % | ||||||||||||||||||||
| Transaction costs | 22 | (2.6) | % | — | — | % | 2 | 0.1 | % | ||||||||||||||||||||
| Compensation costs related to acquired company | 11 | (1.2) | % | — | — | % | — | — | % | ||||||||||||||||||||
| Other | 10 | (1.2) | % | 23 | 0.7 | % | 18 | 0.5 | % | ||||||||||||||||||||
| Total | $ | (127) | 15.1 | % | $ | 698 | 22.4 | % | $ | (1,285) | (35.2) | % |
In 2024, the Company’s overall effective tax rate decreased compared to 2023 due to the revaluation of state deferred taxes as a result of Louisiana’s recent enactment of a tax rate decrease and as a result of permanent differences for transaction and compensation costs associated with the Southwestern Merger. The Company’s effective tax rate in 2023 increased from 2022 due to the release of the valuation allowance in 2022 which resulted in that year being a net benefit.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Deferred income taxes are provided to reflect temporary differences in the tax basis of assets and liabilities and their reported amounts in the financial statements. The tax-effected temporary differences, net operating loss (“NOL”) carryforwards and excess business interest expense carryforwards that comprise our deferred income taxes are as follows:
| December 31, 2024 | December 31, 2023 | |||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Property, plant and equipment | $ | (1,730) | $ | (295) | ||||||||||
| Derivative instruments | — | (166) | ||||||||||||
| Right of use lease asset | (36) | (25) | ||||||||||||
| Other | (3) | (4) | ||||||||||||
| Deferred tax liabilities | (1,769) | (490) | ||||||||||||
| Deferred tax assets: | ||||||||||||||
| Net operating loss carryforwards | 1,258 | 848 | ||||||||||||
| Carrying value of debt | 4 | 25 | ||||||||||||
| Excess business interest expense carryforward | 777 | 646 | ||||||||||||
| Capital loss carryforwards | 103 | 78 | ||||||||||||
| Tax credit carryforwards | 53 | 15 | ||||||||||||
| Contract liabilities | 261 | — | ||||||||||||
| Asset retirement obligations | 123 | 65 | ||||||||||||
| Investments | — | 1 | ||||||||||||
| Future lease payments | 36 | 25 | ||||||||||||
| Accrued liabilities | 39 | 15 | ||||||||||||
| Derivative instruments | 13 | — | ||||||||||||
| Other | 24 | 17 | ||||||||||||
| Deferred tax assets | 2,691 | 1,735 | ||||||||||||
| Valuation allowance | (343) | (312) | ||||||||||||
| Deferred tax assets after valuation allowance | 2,348 | 1,423 | ||||||||||||
| Net deferred tax asset | $ | 579 | $ | 933 | ||||||||||
| Reflected in the accompanying balance sheets as: | ||||||||||||||
| Deferred income tax assets | $ | 589 | $ | 933 | ||||||||||
| Deferred income tax liabilities | (10) | — | ||||||||||||
| Total | $ | 579 | $ | 933 |
As of December 31, 2024 and 2023, we had deferred tax assets of $2.691 billion and $1.735 billion, respectively, upon which we had a valuation allowance of $343 million and $312 million, respectively. The net change in the valuation allowance of $31 million is primarily due to the additional valuation allowance recorded related to the acquisition of Southwestern tax attributes partially offset by the expiration of a capital loss carryforward and state net operating loss carryforwards. Of this $31 million net change in the valuation allowance, $35 million is reflected in components of stockholders’ equity which is partially offset by $4 million reflected as a component of income tax benefit in the consolidated statements of operations.
We maintain a partial valuation allowance of $343 million against a portion of our federal and state deferred tax assets such as NOLs, credit carryovers, and capital losses, which may expire before we are able to utilize them due to the application of the limitations under Section 382 and the ordering in which such attributes may be applied.
Our ability to utilize NOL carryforwards, disallowed business interest carryforwards, tax credits and possibly other tax attributes to reduce future taxable income and federal income tax is subject to various limitations under Section 382 of the Code. The utilization of such attributes may be subject to an annual limitation under Section 382 of the Code should transactions involving our equity result in a cumulative shift of more than 50% in the beneficial ownership of our stock during any three-year testing period (an “Ownership Change”).
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Company experienced an Ownership Change in 2021 (“First Ownership Change”). The amount of the annual limitation due to the First Ownership Change is $54 million. This limitation applies to our NOL carryforwards, disallowed business interest carryforwards and general business tax credits that existed at the time of the First Ownership Change until such attributes expire or are fully utilized. As a result of the Southwestern Merger on October 1, 2024, the Company experienced another Ownership Change (“Second Ownership Change”). The base amount of the annual limitation due to the Second Ownership Change has been estimated to be $380 million. This limitation applies to our NOL carryforwards, disallowed business interest carryforwards and general business credits generated subsequent to the First Ownership Change until such attributes expire or are fully utilized. We believe that we are in a net unrealized built-in gain position at the time of the Second Ownership Change, which may result in increases to the annual limitation amount for a 5-year period. Some states impose similar limitations on tax attribute utilization upon experiencing an Ownership Change.
On October 1, 2024, we completed the Southwestern Merger. For federal income tax purposes, the transaction qualified as a tax-free merger under Section 368 of the Code and, as a result, we acquired carryover tax basis in Southwestern’s assets and liabilities. We recorded a $479 million net deferred tax liability determined through business combination accounting. Additionally, we acquired NOL and interest expense carryforwards which were previously subject to base annual Section 382 limitations of $2 million and $48 million. The acquired NOL and interest expense carryforwards that were not previously subject to a base annual Section 382 limitation are now subject to a base annual Section 382 limitation of approximately $269 million as a result of the merger. The base annual limitation is estimated to be increased over the first five years for recognized built-in gains.
The Marcellus Acquisition during 2022 was treated as a taxable asset acquisition with no tax carryovers acquired.
As of December 31, 2024, and after taking into account each of the foregoing matters, the federal NOLs are as follows:
| Net operating losses, by year of expiration: | ||||||||
| 2031 | $ | 5 | ||||||
| 2032 | 8 | |||||||
| 2033 | 2 | |||||||
| 2034 | 2 | |||||||
| 2035 | 50 | |||||||
| 2036 | 618 | |||||||
| 2037 | 832 | |||||||
| Indefinitely lived | 3,640 | |||||||
| Total federal net operating losses | $ | 5,157 |
We had state NOL carryforwards of approximately $4.296 billion. Several states adopt the federal NOL carryforward period such that our more recent state NOLs do not expire. The state NOL carryforwards are subject to apportioned amounts of the federal Section 382 limitations.
As of December 31, 2024 and 2023, we have an income tax receivable of $32 million and $33 million included in other current assets within our consolidated balance sheets, respectively.
On August 16, 2022, the President of the United States signed into law the Inflation Reduction Act of 2022 (“IRA”) which, among other things, includes provisions for a 15% corporate alternative minimum tax on book income for companies whose average book income exceeds $1 billion for any three consecutive years preceding the tax year. We believe that we are an applicable corporation beginning in 2024 for purposes of this alternative tax. We estimate no tax due to this as a result of the book loss.
Accounting guidance for recognizing and measuring uncertain tax positions requires a more likely than not threshold condition be met on a tax position, based solely on the technical merits of being sustained, before any benefit of the tax position can be recognized in the financial statements. Guidance is also provided regarding recognition, classification and disclosure of uncertain tax positions. As of December 31, 2024 and 2023, the amount of unrecognized tax benefits related to NOL carryforwards, tax credit carryforwards, and tax liabilities associated with uncertain tax positions was $80 million and $68 million, respectively. As of December 31, 2024, $24 million is related to
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
state tax receivables not expected to be recovered, $14 million is related to a liability for tax credits taken, $9 million is related to tax credit carryforwards, and the remainder is related to NOL carryforwards. As of December 31, 2023, $24 million is related to state tax receivables not expected to be recovered, $10 million is related to a liability for tax credits taken, and the remainder is related to NOL carryforwards. If recognized, $47 million of the uncertain tax positions identified would have an effect on the effective tax rate. As of December 31, 2024, we had $1 million accrued for interest related to these uncertain tax positions. As of December 31, 2023, we had no amounts accrued for interest related to these uncertain tax positions. We recognize interest related to uncertain tax positions as a component of interest expense. Penalties, if any, related to uncertain tax positions would be recorded in other expenses.
A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:
| Years Ended December 31, | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Unrecognized tax benefits at beginning of period | $ | 68 | $ | 69 | $ | 74 | ||||||||||||||
| Additions based on tax positions related to the current year | 3 | 3 | 2 | |||||||||||||||||
| Additions to tax positions of prior years | 1 | 3 | 2 | |||||||||||||||||
| Additions to tax positions related to acquisitions | 9 | — | — | |||||||||||||||||
| Settlements | — | (5) | — | |||||||||||||||||
| Expiration of the applicable statute of limitations | — | — | — | |||||||||||||||||
| Reductions to tax positions of prior years | (1) | (2) | (9) | |||||||||||||||||
| Unrecognized tax benefits at end of period | $ | 80 | $ | 68 | $ | 69 |
Our federal and state income tax returns are subject to examination by federal and state tax authorities. Our tax years 2021 through 2024 remain open for all purposes of examination by the IRS as well as the Southwestern 2021 through 2023 returns, the Southwestern short period return for January 1, 2024 through October 1, 2024, and the Vine short period return for January 1, 2021 through November 1, 2021. However, certain earlier tax years remain open for adjustment to the extent of their NOL carryforwards available for future utilization.
In addition, tax years 2021 through 2024 as well as certain earlier years remain open for examination by state tax authorities. We do not anticipate that the outcome of any federal or state audit will have a significant impact on our financial position or results of operations.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 10. | Equity |
Common Stock
On March 9, 2022, we completed the Marcellus Acquisition and issued 9,442,185 shares of common stock. On October 1, 2024, we issued 95,700,325 shares of our common stock to Southwestern’s shareholders in connection with the closing of the Southwestern Merger. See further discussion of both transactions in Note 2.
During the years ended December 31, 2024, 2023 and 2022, 468,723, 12,089 and 439,370 reserved shares, respectively, were issued to resolve allowed General Unsecured Claims.
Dividends
In May 2021, we initiated an annual base dividend on our shares of common stock, expected to be paid quarterly. In March 2022, we adopted a variable return program that resulted in the payment of an additional variable dividend equal to the sum of Adjusted Free Cash Flow from the prior quarter less the base quarterly dividend, multiplied by 50%. The following table summarizes our dividend payments during the years ended December 31, 2024, 2023 and 2022:
| Base | Variable | Rate Per Share | Total | |||||||||||||||||||||||
| 2024: | ||||||||||||||||||||||||||
| First Quarter | $ | 0.575 | $ | — | $ | 0.575 | $ | 77 | ||||||||||||||||||
| Second Quarter | $ | 0.575 | $ | 0.14 | $ | 0.715 | $ | 95 | ||||||||||||||||||
| Third Quarter | $ | 0.575 | $ | — | $ | 0.575 | $ | 78 | ||||||||||||||||||
| Fourth Quarter | $ | 0.575 | $ | — | $ | 0.575 | $ | 134 | ||||||||||||||||||
| 2023: | ||||||||||||||||||||||||||
| First Quarter | $ | 0.55 | $ | 0.74 | $ | 1.29 | $ | 175 | ||||||||||||||||||
| Second Quarter | $ | 0.55 | $ | 0.63 | $ | 1.18 | $ | 160 | ||||||||||||||||||
| Third Quarter | $ | 0.575 | $ | — | $ | 0.575 | $ | 77 | ||||||||||||||||||
| Fourth Quarter | $ | 0.575 | $ | — | $ | 0.575 | $ | 75 | ||||||||||||||||||
| 2022: | ||||||||||||||||||||||||||
| First Quarter | $ | 0.4375 | $ | 1.33 | $ | 1.7675 | $ | 210 | ||||||||||||||||||
| Second Quarter | $ | 0.50 | $ | 1.84 | $ | 2.34 | $ | 298 | ||||||||||||||||||
| Third Quarter | $ | 0.55 | $ | 1.77 | $ | 2.32 | $ | 280 | ||||||||||||||||||
| Fourth Quarter | $ | 0.55 | $ | 2.61 | $ | 3.16 | $ | 424 |
On February 26, 2025, we declared a base quarterly dividend payable of $0.575 per share, which will be paid on March 27, 2025 to stockholders of record at the close of business on March 11, 2025.
Share Repurchase Programs
As of December 2, 2021, the Company was authorized to purchase up to $1.0 billion of the Company’s common stock and/or warrants under a share repurchase program, and in March 2022, we commenced our share repurchase program. In June 2022, our Board of Directors authorized an expansion of the share repurchase program by $1.0 billion, bringing the total authorized share repurchase amount to $2.0 billion for common stock and/or warrants. The $2.0 billion share repurchase program expired on December 31, 2023.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The table below presents the shares purchased under the $2.0 billion share repurchase program.
| Shares Purchased (thousands) | Dollar Value of Shares Purchased | Average Price Per Share | ||||||||||||||||||
| 2022 | ||||||||||||||||||||
| First Quarter | 1,000 | $ | 83 | $ | 82.98 | |||||||||||||||
| Second Quarter | 5,812 | $ | 515 | $ | 88.67 | |||||||||||||||
| Third Quarter | 750 | $ | 69 | $ | 92.14 | |||||||||||||||
| Fourth Quarter | 4,105 | $ | 406 | $ | 98.90 | |||||||||||||||
| 2023 | ||||||||||||||||||||
| First Quarter | 793 | $ | 60 | $ | 74.95 | |||||||||||||||
| Second Quarter | 1,444 | $ | 115 | $ | 78.77 | |||||||||||||||
| Third Quarter | 1,509 | $ | 130 | $ | 86.16 | |||||||||||||||
| Fourth Quarter | 627 | $ | 52 | $ | 82.03 | |||||||||||||||
| Total | 16,040 | $ | 1,430 |
The repurchased shares of common stock were retired and recorded as a reduction to common stock and retained earnings. All share repurchases made after January 1, 2023 are subject to a 1% excise tax on share repurchases, as enacted under the Inflation Reduction Act of 2022. We are able to net this 1% excise tax on share repurchases against certain issuance of shares of our common stock. The impact of this 1% excise tax was immaterial during the year ended December 31, 2023.
On October 22, 2024, our Board of Directors authorized the Company to repurchase up to $1.0 billion, in aggregate, of the Company’s common stock and/or warrants under a new share repurchase program.
Enhanced Returns Framework
In October 2024, we announced our enhanced capital returns framework which is designed to more effectively return cash to shareholders and reduce net debt. The plan became effective January 1, 2025, and prioritizes the base dividend of $2.30 per share and a targeted $500 million of annual net debt reduction in 2025, which target will be redetermined annually. Once both have been funded, it is anticipated that 75% of remaining free cash flow will be distributed as market conditions warrant, between share repurchases and additional dividend payments. The remaining free cash flow will be maintained on the balance sheet.
Warrants
| Class A Warrants | Class B Warrants | Class C Warrants**(a)** | |||||||||||||||
| Outstanding as of December 31, 2021 | 10,856,852 | 12,313,273 | 11,388,371 | ||||||||||||||
| Converted into common stock(b) | (1,609,641) | (29,679) | (959,247) | ||||||||||||||
| Converted in warrant exchange offer(b) | (4,752,207) | (7,879,030) | (7,252,004) | ||||||||||||||
| Issued for General Unsecured Claims | — | — | 829,109 | ||||||||||||||
| Outstanding as of December 31, 2022 | 4,495,004 | 4,404,564 | 4,006,229 | ||||||||||||||
| Converted into common stock(b) | (247,389) | (1,500) | (5,581) | ||||||||||||||
| Issued for General Unsecured Claims | — | — | 22,835 | ||||||||||||||
| Outstanding as of December 31, 2023 | 4,247,615 | 4,403,064 | 4,023,483 | ||||||||||||||
| Converted into common stock(b) | (2,993,136) | (1,329,870) | (524,242) | ||||||||||||||
| Issued for General Unsecured Claims | — | — | 884,393 | ||||||||||||||
| Outstanding as of December 31, 2024 | 1,254,479 | 3,073,194 | 4,383,634 |
(a)As of December 31, 2024, we had 582,109 of reserved Class C Warrants.
(b)During the years ended December 31, 2024 and December 31, 2023, we issued 4,083,103 and 221,952 common shares, respectively, as a result of Warrant exercises. During the year ended December 31, 2022, we
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
issued 18,408,228 common shares as a result of Warrant exercises, inclusive of the shares issued as part of the Warrant exchange offers described below.
Our Class A, Class B and Class C Warrants were initially exercisable for one share of 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. The Warrants are exercisable 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 exercise prices of the Warrants were adjusted to prevent the dilution of rights for the effects of the quarterly dividend distribution on December 4, 2024, and the adjusted exercise prices are $22.58, $26.25, and $29.56 per share for the Class A, Class B and Class C Warrants, respectively. Additionally, we have recalculated the number of shares of common stock issuable upon the exercise of each of the Class A, Class B and Class C Warrants, respectively, and as a result, 1.22 shares are issuable upon the exercise of a Class A, Class B or Class C Warrant.
On August 18, 2022, we announced exchange offers relating to our outstanding Class A Warrants, Class B Warrants and Class C Warrants. The exchange offers expired on October 7, 2022 and resulted in the issuance of 16,305,984 shares of our common stock in exchange for the cancellation of (i) 4,752,207 Class A Warrants, (ii) 7,879,030 Class B Warrants and (iii) 7,252,004 Class C Warrants. Under the exchange offers, the Warrants were exchanged in a cashless transaction and were converted to shares of our common stock at a ratio of 0.8636 for Class A Warrants, 0.8224 for Class B Warrants and 0.7890 for Class C Warrants, respectively. As the fair value of the common stock issued was greater than the fair value of the Warrants tendered in the exchange offers due to stated exchange premiums, we recorded a non-cash deemed dividend of $67 million. Such fair values were determined using our stock price that is considered a Level 1 input.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 11. | Share-Based Compensation |
Our long-term incentive plan, as amended and adopted by our Board of Directors (the “LTIP”), provides for the grant of restricted stock units (“RSUs”), restricted stock awards, stock options, stock appreciation rights, performance awards and other stock awards to the Company’s employees and non-employee directors and has a share reserve equal to 6,800,000 shares of common stock.
Restricted Stock Units. During the years ended December 31, 2024, 2023 and 2022, we granted RSUs to employees and non-employee directors under the LTIP, which will vest over a three-year to five-year period and one-year period, respectively. The fair value of RSUs 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 RSUs is presented below:
| Unvested Restricted Stock Units | Weighted Average Grant Date Fair Value Per Share | |||||||||||||
| (in thousands) | ||||||||||||||
| Unvested as of December 31, 2021 | 775 | $ | 46.77 | |||||||||||
| Granted | 666 | $ | 81.87 | |||||||||||
| Vested | (300) | $ | 48.11 | |||||||||||
| Forfeited | (184) | $ | 56.54 | |||||||||||
| Unvested as of December 31, 2022 | 957 | $ | 68.91 | |||||||||||
| Granted | 440 | $ | 72.25 | |||||||||||
| Vested | (329) | $ | 61.66 | |||||||||||
| Forfeited | (128) | $ | 68.42 | |||||||||||
| Unvested as of December 31, 2023 | 940 | $ | 73.08 | |||||||||||
| Granted (a) | 962 | $ | 83.09 | |||||||||||
| Vested (a) | (925) | $ | 74.18 | |||||||||||
| Forfeited | (20) | $ | 77.71 | |||||||||||
| Unvested as of December 31, 2024 | 957 | $ | 81.99 |
(a)Approximately 5.2 million Southwestern RSUs were converted to 478 thousand Company RSUs, of which approximately 384 thousand RSUs were accelerated. We recognized the accelerated share-based compensation expense related to these awards in other operating expense, net on our consolidated statements of operations. Additionally, approximately 105 thousand RSUs were accelerated related to one-time termination benefits for certain employees.
The aggregate intrinsic value of RSUs that vested during the years ended December 31, 2024, 2023 and 2022 was approximately $77 million, $25 million and $26 million, respectively, based on the stock price at the time of vesting.
As of December 31, 2024, there was approximately $46 million of total unrecognized compensation expense related to unvested RSUs. The expense is expected to be recognized over a weighted average period of approximately 2.04 years.
Performance Share Units. During the years ended December 31, 2024, 2023 and 2022, 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 total shareholder return (“TSR”) and relative TSR (“rTSR”) and 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.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents the assumptions used in the valuation of the PSUs granted during the years ended December 31, 2024, 2023 and 2022.
| Assumption - TSR, rTSR | 2024 PSU Awards | 2023 PSU Awards | 2022 PSU Awards | |||||||||||||||||
| Risk-free interest rate | 4.55 | % | 3.85 | % | 2.00 | % | ||||||||||||||
| Volatility | 39.36 | % | 64.4 | % | 70.2 | % |
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 December 31, 2021 | 183 | $ | 66.12 | |||||||||||
| Granted | 133 | $ | 109.65 | |||||||||||
| Vested | — | $ | — | |||||||||||
| Forfeited | (40) | $ | 57.48 | |||||||||||
| Unvested as of December 31, 2022 | 276 | $ | 88.28 | |||||||||||
| Granted | 131 | $ | 78.78 | |||||||||||
| Vested | — | $ | — | |||||||||||
| Forfeited | (13) | $ | 68.77 | |||||||||||
| Unvested as of December 31, 2023 | 394 | $ | 85.78 | |||||||||||
| Granted | 133 | $ | 95.33 | |||||||||||
| Vested | (151) | $ | 71.29 | |||||||||||
| Forfeited | — | $ | — | |||||||||||
| Unvested as of December 31, 2024 | 376 | $ | 94.67 |
The aggregate intrinsic value of PSUs that vested during the year ended December 31, 2024 was approximately $19 million based on the stock price at the time of vesting.
As of December 31, 2024, there was approximately $14 million of total unrecognized compensation expense related to unvested PSUs. The expense is expected to be recognized over a weighted average period of approximately 1.84 years.
RSU and PSU Compensation.
We recognized the following compensation costs, net of actual forfeitures, related to RSUs and PSUs for the periods presented:
| Years Ended December 31, | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| General and administrative expenses | $ | 33 | $ | 29 | $ | 19 | ||||||||||||||
| Natural gas and oil properties | 7 | 6 | 4 | |||||||||||||||||
| Production expense | 4 | 4 | 3 | |||||||||||||||||
| Separation and other termination costs | 9 | — | — | |||||||||||||||||
| Other operating expense, net | 28 | — | — | |||||||||||||||||
| Total RSU and PSU compensation | $ | 81 | $ | 39 | $ | 26 | ||||||||||||||
| Related income tax benefit | $ | 13 | $ | 7 | $ | 6 |
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 12. | Employee Benefit Plans |
Our qualified 401(k) profit sharing plan (“401(k) Plan”) is the Expand Energy Corporation 401(k) Plan, which is open to employees of Expand Energy and all our subsidiaries. Eligible employees may elect to defer compensation through voluntary contributions to their 401(k) Plan accounts, subject to plan limits and those set by the IRS. We match employee contributions dollar for dollar (subject to a maximum contribution of 6% of an employee's base salary and performance bonus) in cash. In addition to our employer match contributions, in 2022 we commenced a discretionary fixed dollar contribution benefit for all employees, paid quarterly, which is based upon a calculation of 1% of Adjusted Free Cash Flow less the base quarterly dividend. This discretionary fixed dollar contribution is subject to an annual maximum contribution of $15,000 per employee. We contributed $8 million, $13 million and $22 million to the 401(k) Plan during the years ended December 31, 2024, 2023 and 2022, respectively.
| 13. | 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. All of our natural gas, oil and NGL 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. None of our open natural gas, oil and NGL derivative instruments were designated for hedge accounting as of December 31, 2024 and 2023.
Natural Gas, Oil and NGL Derivatives
As of December 31, 2024 and 2023, our natural gas, oil and NGL derivative instruments consisted of the following types of instruments:
*•*Swaps: We receive a fixed price and pay a floating market price to the counterparty for the hedged commodity. In exchange for higher fixed prices on certain of our swap trades, we may sell call options and swap options.
-
Options: We have bought and sold call options in exchange for a premium. At the time of settlement, if the market price exceeded the fixed price of the call option, we paid the counterparty the excess on sold call options and received the excess on bought call options. If the market price settled below the fixed price of the call option, no payment was due from either party.
-
Collars: These instruments contain a fixed floor price (put) and ceiling price (call). If the market price exceeds the call strike price or falls below the put strike price, we receive the fixed price and pay the market price. If the market price is between the put and the call strike prices, no payments are due from either party. Three-way collars included the sale by us of an additional put option in exchange for a more favorable strike price on the call option. This eliminated the counterparty’s downside exposure below the second put option strike price.
*•*Basis Protection Swaps: These instruments are arrangements that guarantee a fixed price differential to NYMEX from a specified delivery point. We receive the fixed price differential and pay the floating market price differential to the counterparty for the hedged commodity.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Contingent Consideration Arrangement
In November 2023, we sold the final portion of our Eagle Ford assets to SilverBow. As part of the divestiture agreement, SilverBow agreed to pay the Company an additional contingent payment of $25 million should WTI NYMEX prices average between $75 and $80 per barrel or $50 million should WTI NYMEX prices average above $80 per barrel during the year following the close of the transaction. On July 30, 2024, Crescent acquired SilverBow. The changes in fair value, and the realized gains were recognized as a gain or loss in earnings in the period they occurred within natural gas, oil and NGL derivatives in our consolidated statements of operations. During 2024, we received the contingent payment of $25 million from Crescent based upon the average NYMEX prices during the year following the close of the transaction.
The estimated fair values of our natural gas, oil and NGL derivative instrument assets (liabilities) as of December 31, 2024 and 2023 are provided below:
| December 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| Notional Volume | Fair Value | Notional Volume | Fair Value | |||||||||||||||||||||||
| Natural gas (Bcf): | ||||||||||||||||||||||||||
| Fixed-price swaps | 369 | $ | (28) | 343 | $ | 188 | ||||||||||||||||||||
| Collars | 1,098 | (27) | 558 | 497 | ||||||||||||||||||||||
| Three-way collars | 161 | 60 | — | — | ||||||||||||||||||||||
| Call options (purchased) | 73 | 1 | — | — | ||||||||||||||||||||||
| Call options (sold) | 219 | (16) | — | — | ||||||||||||||||||||||
| Basis protection swaps | 279 | (39) | 578 | 2 | ||||||||||||||||||||||
| Total natural gas | 2,199 | (49) | 1,479 | 687 | ||||||||||||||||||||||
| Oil (MMBbls): | ||||||||||||||||||||||||||
| Three-way collars | 2 | $ | 4 | — | $ | — | ||||||||||||||||||||
| Total oil | 2 | 4 | — | — | ||||||||||||||||||||||
| NGLs (MMBbls): | ||||||||||||||||||||||||||
| Fixed-price swaps | 7 | $ | (9) | — | $ | — | ||||||||||||||||||||
| Total NGL | 7 | (9) | — | — | ||||||||||||||||||||||
| Contingent Consideration: | ||||||||||||||||||||||||||
| Eagle Ford divestiture | — | 12 | ||||||||||||||||||||||||
| Total estimated fair value | $ | (54) | $ | 699 |
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Effect of Derivative Instruments – Consolidated Balance Sheets
The following table presents the fair value and location of each classification of derivative instrument included in the consolidated balance sheets as of December 31, 2024 and 2023 on a gross basis and after same-counterparty netting:
| Gross Fair Value**(a)** | Amounts Netted in the Consolidated Balance Sheets | Net Fair Value Presented in the Consolidated Balance Sheets | ||||||||||||||||||
| As of December 31, 2024 | ||||||||||||||||||||
| Commodity Contracts: | ||||||||||||||||||||
| Short-term derivative asset | $ | 191 | $ | (107) | $ | 84 | ||||||||||||||
| Long-term derivative asset | 6 | (5) | 1 | |||||||||||||||||
| Short-term derivative liability | (178) | 107 | (71) | |||||||||||||||||
| Long-term derivative liability | (73) | 5 | (68) | |||||||||||||||||
| Contingent Consideration: | ||||||||||||||||||||
| Short-term derivative asset | — | — | — | |||||||||||||||||
| Total derivatives | $ | (54) | $ | — | $ | (54) | ||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||
| Commodity Contracts: | ||||||||||||||||||||
| Short-term derivative asset | $ | 661 | $ | (36) | $ | 625 | ||||||||||||||
| Long-term derivative asset | 101 | (27) | 74 | |||||||||||||||||
| Short-term derivative liability | (39) | 36 | (3) | |||||||||||||||||
| Long-term derivative liability | (36) | 27 | (9) | |||||||||||||||||
| Contingent Consideration: | ||||||||||||||||||||
| Short-term derivative asset | 12 | — | 12 | |||||||||||||||||
| Total derivatives | $ | 699 | $ | — | $ | 699 |
(a)These financial assets (liabilities) are measured at fair value on a recurring basis utilizing significant other observable inputs; see further discussion on fair value measurements below.
Fair Value
The fair value of our commodity derivatives is based on third-party pricing models, which utilize inputs that are either readily available in the public market, such as natural gas, oil and NGL forward curves and discount rates, or can be corroborated from active markets or broker quotes, and, as such, are classified as Level 2. These values are compared to the values given by our counterparties for reasonableness. 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. The valuation of the contingent consideration is based on an option pricing model using significant Level 2 inputs that include quoted future commodity prices based on active markets.
Credit Risk Considerations
Our derivative instruments expose us to our counterparties’ credit risk. To mitigate this risk, we only enter into commodity contracts derivatives with counterparties that are highly rated or 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 December 31, 2024, our commodity contracts derivative instruments were spread among 20 counterparties.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Hedging Arrangements
Certain of our hedging arrangements are with counterparties that are also Lenders (or affiliates of Lenders) under our Credit Facility. The contracts entered into with these counterparties were previously secured by the same collateral that secured the Pre-IG Credit Facility, but such collateral was released on October 28, 2024 in connection with the Investment Grade Credit Agreement Amendment. We do not expect to post cash or letters of credit to secure our obligations under such contracts while we have the investment grade ratings described in Note 4. The obligations under these contracts must be secured by cash or letters of credit to the extent that any mark-to-market amounts exceed defined thresholds. As of December 31, 2024, we did not have any cash or letters of credit posted as collateral for our commodity derivatives.
| 14. | Other Property and Equipment |
A summary of other property and equipment held for use and the estimated useful lives thereof is as follows:
| Estimated Useful Life | ||||||||||||||||||||
| December 31, 2024 | December 31, 2023 | |||||||||||||||||||
| (in years) | ||||||||||||||||||||
| Buildings and improvements | $ | 329 | $ | 316 | 10 - 39 | |||||||||||||||
| Computer equipment | 110 | 94 | 5 | |||||||||||||||||
| Gathering and water systems(a) | 78 | — | 7 - 20 | |||||||||||||||||
| Machinery and equipment | 40 | 19 | 7 - 10 | |||||||||||||||||
| Land | 29 | 28 | ||||||||||||||||||
| Other | 68 | 40 | 3 - 30 | |||||||||||||||||
| Total other property and equipment, at cost | 654 | 497 | ||||||||||||||||||
| Less: accumulated depreciation | (127) | (90) | ||||||||||||||||||
| Total other property and equipment, net | $ | 527 | $ | 407 |
(a)These assets were acquired as a result of the Southwestern Merger. See Note 2 for further discussion of this transaction.
| 15. | Investments |
Momentum Sustainable Ventures LLC. During the fourth quarter of 2022, the Company entered into an agreement with Momentum Sustainable Ventures LLC to build a new natural gas gathering pipeline and carbon capture project, which will gather and treat natural gas produced in the Haynesville Shale for re-delivery to Gulf Coast markets, including LNG export. The pipeline is expected to have an initial capacity of 1.7 Bcf/d expandable to 2.2 Bcf/d. The carbon capture portion of the project anticipates capturing approximately 1.0 million tons per annum of CO2 and delivering the CO2 to ExxonMobil Low Carbon Solutions Onshore Storage, LLC for additional transportation and storage. The natural gas gathering pipeline is projected for a potential in-service date in the fourth quarter of 2025. We have a 35% interest in the joint venture entity. We have accounted for this investment as an equity method investment, and its carrying value, which is reflected within other long-term assets on the consolidated balance sheets, was $307 million and $238 million as of December 31, 2024 and December 31, 2023, respectively. As of December 31, 2024, the carrying value of our investment included approximately $17 million of capitalized interest related to the project.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 16. | Asset Retirement Obligations |
The components of the change in our asset retirement obligations are shown below:
| Years Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Asset retirement obligations, beginning of period | $ | 276 | $ | 335 | ||||||||||
| Additions(a) | 263 | 9 | ||||||||||||
| Revisions(b) | (21) | (9) | ||||||||||||
| Settlements and disposals(c) | (5) | (75) | ||||||||||||
| Accretion expense | 18 | 16 | ||||||||||||
| Asset retirement obligations, end of period | 531 | 276 | ||||||||||||
| Less current portion | 32 | 11 | ||||||||||||
| Asset retirement obligations, long-term | $ | 499 | $ | 265 |
(a) During the year ended December 31, 2024, approximately $251 million of additions relate to the Southwestern Merger. See Note 2 for further discussion of this transaction.
(b) Revisions primarily represent changes in the present value of liabilities resulting from changes in estimated costs and economic lives of producing properties.
(c) During the year ended December 31, 2023, approximately $64 million of disposals related to the divestitures of our Eagle Ford assets. See Note 2 for further discussion of these transactions.
| 17. | Supplemental Cash Flow Information |
Supplemental disclosures to the consolidated statements of cash flows are presented below.
| Years Ended December 31, | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Changes in assets and liabilities | ||||||||||||||||||||
| Accounts receivable | $ | (168) | $ | 857 | $ | (106) | ||||||||||||||
| Accounts payable | (62) | (152) | 49 | |||||||||||||||||
| Other current assets | 3 | 143 | (182) | |||||||||||||||||
| Other current liabilities | (88) | (573) | 116 | |||||||||||||||||
| Total | $ | (315) | $ | 275 | $ | (123) | ||||||||||||||
| Supplemental cash flow information: | ||||||||||||||||||||
| Interest paid, net of capitalized interest | $ | 93 | $ | 117 | $ | 146 | ||||||||||||||
| Income taxes paid (refunds received), net | $ | (3) | $ | 132 | $ | 193 | ||||||||||||||
| Supplemental disclosure of significant non-cash investing and financing activities: | ||||||||||||||||||||
| Change in accrued drilling and completion costs | $ | (49) | $ | (31) | $ | 148 | ||||||||||||||
| Common stock issued for business combination | $ | 7,888 | $ | — | $ | 764 | ||||||||||||||
| Operating lease obligations recognized | $ | 137 | $ | 96 | $ | 120 |
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 18. | Segment Information |
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 CODM, who is our Chief Executive Officer, for the purpose of allocating an enterprise’s resources and assessing its operating performance. Our revenues are derived from the production, marketing and sale of natural gas, oil and NGL. Additional information on our revenues, including the disaggregation of our revenues and major customers, is found in Note 8. As of December 31, 2024, we considered each of our operating areas as operating segments, however, we have aggregated those operating segments into one reportable segment due to the similar nature of the exploration and production business across Expand Energy and its consolidated subsidiaries and the fact that our marketing activities are ancillary to our operations.
Our CODM uses consolidated net income (loss), for purposes of allocating resources and in assessing Expand Energy’s operating performance. Additionally, our CODM is regularly provided information on production expense, gathering, processing and transportation expense, severance and ad valorem taxes and general and administrative expense, which are our significant segment expenses. Other segment items primarily consist of depreciation, depletion and amortization, marketing expense, interest expense and income tax expense (benefit). Our significant segment expenses and other segment items are derived from, and can be found within the consolidated statements of operations.
The measure of segment assets is total assets as reported on our consolidated balance sheets, and as of December 31, 2024 and 2023 our total assets were $27,894 million and $14,376 million, respectively. Additionally, in analyzing company performance, our CODM reviews capital expenditures. During the years ended December 31, 2024, 2023 and 2022, our capital expenditures were $1,529 million, $1,782 million and $1,936 million, respectively. During the years ended December 31, 2024, 2023 and 2022, we contributed approximately $58 million, $220 million and $18 million, respectively, to equity method investments, which primarily consisted of our investment with Momentum Sustainable Ventures LLC. Additional discussion around our investment with Momentum Sustainable Ventures LLC is in Note 15. Our interest revenue during the years ended December 31, 2024, 2023 and 2022 was $45 million, $29 million and $1 million, respectively.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
| Supplemental Disclosures About Natural Gas, Oil and NGL Producing Activities (unaudited) |
Net Capitalized Costs
Capitalized costs related to our natural gas, oil and NGL producing activities are summarized as follows:
| December 31, 2024 | December 31, 2023 | |||||||||||||
| Natural gas and oil properties: | ||||||||||||||
| Proved | $ | 23,093 | $ | 11,468 | ||||||||||
| Unproved | 5,897 | 1,806 | ||||||||||||
| Total | 28,990 | 13,274 | ||||||||||||
| Less accumulated depreciation, depletion and amortization | (5,235) | (3,584) | ||||||||||||
| Net capitalized costs | $ | 23,755 | $ | 9,690 |
Unproved properties as of December 31, 2024 consisted mainly of leasehold acquired through our Southwestern Merger in 2024 and Marcellus Acquisition in 2022 and unproved properties as of December 31, 2023, consisted mainly of leasehold acquired through our Marcellus Acquisition in 2022. We will continue to evaluate our unproved properties, and although the timing of the ultimate evaluation or disposition of the properties cannot be determined, we can expect the majority of our unproved properties not held by production to be transferred into the amortization base over the next five years.
Costs Incurred in Natural Gas and Oil Property Acquisition, Exploration and Development
Costs incurred in natural gas and oil property acquisition, exploration and development, including capitalized interest and asset retirement costs, are summarized as follows:
| Years Ended December 31, | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Acquisition of properties(a): | ||||||||||||||||||||
| Proved properties | $ | 10,010 | $ | 10 | $ | 2,321 | ||||||||||||||
| Unproved properties | 4,393 | 52 | 795 | |||||||||||||||||
| Exploratory costs | 17 | 15 | 15 | |||||||||||||||||
| Development costs | 1,420 | 1,721 | 1,918 | |||||||||||||||||
| Costs incurred | $ | 15,840 | $ | 1,798 | $ | 5,049 |
(a) Includes $10.0 billion and $4.3 billion of proved and unproved property acquisitions, respectively, related to the Southwestern Merger in 2024. Includes $2.3 billion and $0.8 billion of proved and unproved property acquisitions, respectively, related to our Marcellus Acquisition in 2022.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION - (Continued)
Results of Operations from Natural Gas, Oil and NGL Producing Activities
The following table includes revenues and expenses associated directly with our natural gas, oil and NGL producing activities for the periods presented. It does not include any derivative activity, interest costs or indirect general and administrative costs and, therefore, is not necessarily indicative of the contribution to consolidated net operating results of our natural gas, oil and NGL operations.
| Years Ended December 31, | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Natural gas, oil and NGL sales | $ | 2,969 | $ | 3,547 | $ | 9,892 | ||||||||||||||
| Production expenses | (316) | (356) | (475) | |||||||||||||||||
| Gathering, processing and transportation expenses | (1,035) | (853) | (1,059) | |||||||||||||||||
| Severance and ad valorem taxes | (97) | (167) | (242) | |||||||||||||||||
| Exploration | (10) | (27) | (23) | |||||||||||||||||
| Depletion and depreciation | (1,673) | (1,478) | (1,703) | |||||||||||||||||
| Accretion of asset retirement obligations | (18) | (16) | (17) | |||||||||||||||||
| Imputed income tax provision(a) | 42 | (152) | (1,440) | |||||||||||||||||
| Results of operations from natural gas, oil and NGL producing activities | $ | (138) | $ | 498 | $ | 4,933 |
(a) The imputed income tax provision is hypothetical (at the statutory tax rate) and determined without regard to our deduction for general and administrative expenses, interest costs and other income tax credits and deductions, nor whether the hypothetical tax provision (benefit) will be payable (receivable).
Natural Gas, Oil and NGL Reserve Quantities
Our petroleum engineers estimated all of our proved reserves as of December 31, 2024, 2023 and 2022. Independent petroleum engineering firm Netherland, Sewell & Associates, Inc. audited our total proved reserves as of December 31, 2024.
Proved natural gas, oil and NGL reserves are those quantities of natural gas, oil and NGL which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations – prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. Based on reserve reporting rules, the price is calculated using the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within the period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions. A project to extract hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. The area of the reservoir considered as proved includes: (i) the area identified by drilling and limited by fluid contacts, if any, and (ii) adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible natural gas or oil on the basis of available geoscience and engineering data. In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons as seen in a well penetration unless geoscience, engineering or performance data and reliable technology establish a lower contact with reasonable certainty. Where direct observation from well penetrations has defined a highest known oil elevation and the potential exists for an associated natural gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering or performance data and reliable technology establish the higher contact with reasonable certainty. Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when: (i) successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION - (Continued)
was based; and (ii) the project has been approved for development by all necessary parties and entities, including governmental entities.
The information provided below on our natural gas, oil and NGL reserves is presented in accordance with regulations prescribed by the SEC. Our reserve estimates are generally based upon extrapolation of historical production trends, analogy to similar properties and volumetric calculations. Accordingly, these estimates will change as future information becomes available and as commodity prices change. These changes could be material and could occur in the near term.
Presented below is a summary of changes in estimated proved reserves for the periods presented:
| Natural Gas | Oil | NGL | Total | |||||||||||||||||||||||
| (Bcf) | (MMBbl) | (MMBbl) | (Bcfe) | |||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||
| Proved reserves, beginning of period | 9,688 | — | — | 9,688 | ||||||||||||||||||||||
| Extensions, discoveries and other additions | 124 | — | — | 124 | ||||||||||||||||||||||
| Revisions of previous estimates | (1,654) | — | — | (1,654) | ||||||||||||||||||||||
| Production | (1,321) | (1.2) | (7.8) | (1,375) | ||||||||||||||||||||||
| Sale of reserves-in-place | — | — | — | — | ||||||||||||||||||||||
| Purchase of reserves-in-place | 10,087 | 69.1 | 585.9 | 14,017 | ||||||||||||||||||||||
| Proved reserves, end of period | 16,924 | 67.9 | 578.1 | 20,800 | ||||||||||||||||||||||
| Proved developed reserves: | ||||||||||||||||||||||||||
| Beginning of period | 6,363 | — | — | 6,363 | ||||||||||||||||||||||
| End of period | 14,418 | 40.3 | 383.0 | 16,958 | ||||||||||||||||||||||
| Proved undeveloped reserves: | ||||||||||||||||||||||||||
| Beginning of period | 3,325 | — | — | 3,325 | ||||||||||||||||||||||
| End of period(a) | 2,506 | 27.6 | 195.1 | 3,842 | ||||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||
| Proved reserves, beginning of period | 11,369 | 198.4 | 73.9 | 13,002 | ||||||||||||||||||||||
| Extensions, discoveries and other additions | 415 | — | — | 415 | ||||||||||||||||||||||
| Revisions of previous estimates | (325) | — | — | (325) | ||||||||||||||||||||||
| Production | (1,266) | (7.7) | (3.8) | (1,335) | ||||||||||||||||||||||
| Sale of reserves-in-place | (563) | (190.7) | (70.1) | (2,127) | ||||||||||||||||||||||
| Purchase of reserves-in-place | 58 | — | — | 58 | ||||||||||||||||||||||
| Proved reserves, end of period | 9,688 | — | — | 9,688 | ||||||||||||||||||||||
| Proved developed reserves: | ||||||||||||||||||||||||||
| Beginning of period | 7,385 | 157.2 | 58.9 | 8,681 | ||||||||||||||||||||||
| End of period | 6,363 | — | — | 6,363 | ||||||||||||||||||||||
| Proved undeveloped reserves: | ||||||||||||||||||||||||||
| Beginning of period | 3,984 | 41.2 | 15.0 | 4,321 | ||||||||||||||||||||||
| End of period(a) | 3,325 | — | — | 3,325 | ||||||||||||||||||||||
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION - (Continued)
| Natural Gas | Oil | NGL | Total | |||||||||||||||||||||||
| (Bcf) | (MMBbl) | (MMBbl) | (Bcfe) | |||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||
| Proved reserves, beginning of period | 7,824 | 209.7 | 82.0 | 9,573 | ||||||||||||||||||||||
| Extensions, discoveries and other additions | 60 | 2.1 | 1.5 | 82 | ||||||||||||||||||||||
| Revisions of previous estimates | 1,989 | 22.5 | 5.0 | 2,155 | ||||||||||||||||||||||
| Production | (1,308) | (19.4) | (6.0) | (1,461) | ||||||||||||||||||||||
| Sale of reserves-in-place | (122) | (16.5) | (8.6) | (273) | ||||||||||||||||||||||
| Purchase of reserves-in-place | 2,926 | — | — | 2,926 | ||||||||||||||||||||||
| Proved reserves, end of period | 11,369 | 198.4 | 73.9 | 13,002 | ||||||||||||||||||||||
| Proved developed reserves: | ||||||||||||||||||||||||||
| Beginning of period | 4,246 | 165.7 | 61.7 | 5,610 | ||||||||||||||||||||||
| End of period | 7,385 | 157.2 | 58.9 | 8,681 | ||||||||||||||||||||||
| Proved undeveloped reserves: | ||||||||||||||||||||||||||
| Beginning of period | 3,578 | 44.0 | 20.3 | 3,963 | ||||||||||||||||||||||
| End of period(a) | 3,984 | 41.2 | 15.0 | 4,321 |
(a) As of December 31, 2024, 2023 and 2022, there were no PUDs that had remained undeveloped for five years or more.
During 2024, we acquired 14,017 Bcfe, primarily related to the Southwestern Merger. We recorded extensions and discoveries of 124 Bcfe, primarily related to new PUDs in Northeast Appalachia and previously unproved producing wells in both Northeast Appalachia and Haynesville. We recorded 1,654 Bcfe of downward revisions of previous estimates, with 2,395 Bcfe of downward revisions due to lower natural gas, oil and NGL prices in 2024, partially offset by 741 Bcfe of non-price related positive revisions. The non-price revisions primarily consisted of 750 Bcfe of reserves increases on existing proved properties, related to increases in PUD forecasts and aligning forecasts for proved developed wells with latest production trends, increased ownership interests in some of the locations, and improved differentials in Haynesville. Also included within the non-price revisions were 174 Bcfe of new PUDs and producing wells in areas previously classified as proved, and 183 Bcfe of downward revisions due to development plan and other changes in Northeast Appalachia and Haynesville. The natural gas, oil and NGL prices used in computing our reserves as of December 31, 2024, were $2.13 per Mcf, $75.48 per Bbl and $75.48 per Bbl, respectively, before basis differential adjustments.
During 2023, we divested 2,127 Bcfe, primarily related to our Eagle Ford divestitures. We recorded extensions and discoveries of 415 Bcfe, primarily related to new PUDs and previously unproved producing wells in the Upper Marcellus and Bossier Shales. We recorded 325 Bcfe of downward revisions of previous estimates, with 1,623 Bcfe of downward revisions due to lower natural gas, oil and NGL prices in 2023, partially offset by 1,298 Bcfe of non-price related positive revisions. The non-price revisions primarily consisted of 1,517 Bcfe from new PUDs and producing wells added in previously proved areas, 469 Bcfe of positive revisions to previously recorded PUD reserves primarily due to expected longer laterals in both Northeast Appalachia and Haynesville, partially offset by downward revisions of 451 Bcfe due to development plan and other changes in Northeast Appalachia and Haynesville, and a downward revision of 237 Bcfe on proved developed reserves related to aligning forecasts with latest production trends. The natural gas, oil and NGL prices used in computing our reserves as of December 31, 2023, were $2.64 per Mcf, $78.22 per Bbl and $28.61 per Bbl, respectively, before basis differential adjustments.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION - (Continued)
During 2022, we acquired 2,926 Bcfe, primarily related to the Marcellus Acquisition. We recorded extensions and discoveries of 82 Bcfe, primarily related to new PUDs and previously unproved producing wells in emerging plays. We recorded 2,155 Bcfe of upward revisions of previous estimates, which consisted of 866 Bcfe of revisions to PUDs, primarily due to development plan optimization through prioritizing longer laterals and multi-well pad development in the Haynesville, 1,156 Bcfe of revisions to existing or new proved developed properties, primarily due to performance and 133 Bcfe of revisions due to higher natural gas, oil and NGL prices in 2022. The natural gas, oil and NGL prices used in computing our reserves as of December 31, 2022, were $6.36 per Mcf, $93.67 per Bbl and $43.58 per Bbl, respectively, before basis differential adjustments.
Standardized Measure of Discounted Future Net Cash Flows
Accounting Standards Codification Topic 932 prescribes guidelines for computing a standardized measure of future net cash flows and changes therein relating to estimated proved reserves. Expand Energy has followed these guidelines which are briefly discussed below.
Future cash inflows and future production and development costs as of December 31, 2024, 2023 and 2022 were determined by applying the average of the first-day-of-the-month prices for the 12 months of the year and year-end costs to the estimated quantities of natural gas, oil and NGL to be produced. Actual future prices and costs may be materially higher or lower than the prices and costs used. For each year, estimates are made of quantities of proved reserves and the future periods during which they are expected to be produced based on continuation of the economic conditions applied for that year. Estimated future income taxes are computed using current statutory income tax rates including consideration of the current tax basis of the properties and related carryforwards, giving effect to permanent differences and tax credits. The resulting future net cash flows are reduced to present value amounts by applying a 10% annual discount factor.
The assumptions used to compute the standardized measure are those prescribed by the Financial Accounting Standards Board and do not necessarily reflect our expectations of actual revenue to be derived from those reserves nor their present worth. The limitations inherent in the reserve quantity estimation process, as discussed previously, are equally applicable to the standardized measure computations since these estimates reflect the valuation process.
The following summary sets forth our future net cash flows relating to proved natural gas, oil and NGL reserves based on the standardized measure:
| Years Ended December 31, | |||||||||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||||||||
| Future cash inflows | $ | 24,213 | (a) | $ | 14,659 | (b) | $ | 76,626 | (c) | ||||||||||||||
| Future production costs | (7,007) | (3,326) | (10,177) | ||||||||||||||||||||
| Future development costs | (3,537) | (d) | (2,779) | (e) | (5,343) | (f) | |||||||||||||||||
| Future income tax provisions | (119) | (174) | (10,440) | ||||||||||||||||||||
| Future net cash flows | 13,550 | 8,380 | 50,666 | ||||||||||||||||||||
| Less effect of a 10% discount factor | (6,019) | (3,903) | (24,361) | ||||||||||||||||||||
| Standardized measure of discounted future net cash flows | $ | 7,531 | $ | 4,477 | $ | 26,305 |
(a) Calculated using prices of $2.13 per Mcf of natural gas, $75.48 per Bbl of oil and $75.48 per Bbl of NGL, before basis differential adjustments.
(b) Calculated using prices of $2.64 per Mcf of natural gas, before basis differential adjustments.
(c) Calculated using prices of $6.36 per Mcf of natural gas, $93.67 per Bbl of oil and $43.58 per Bbl of NGL, before basis differential adjustments.
(d) Included approximately $1,625 million of future plugging and abandonment costs as of December 31, 2024.
(e) Included approximately $730 million of future plugging and abandonment costs as of December 31, 2023.
(f) Included approximately $979 million of future plugging and abandonment costs as of December 31, 2022.
EXPAND ENERGY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION - (Continued)
The principal sources of change in the standardized measure of discounted future net cash flows are as follows:
| Years Ended December 31, | ||||||||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||||||||
| Standardized measure, beginning of period | $ | 4,477 | $ | 26,305 | $ | 12,287 | ||||||||||||||
| Sales of natural gas and oil produced, net of production costs and gathering, processing and transportation(a) | (1,521) | (2,171) | (8,116) | |||||||||||||||||
| Net changes in prices and production costs | (2,266) | (23,535) | 14,256 | |||||||||||||||||
| Extensions and discoveries, net of production and development costs | 50 | 182 | 251 | |||||||||||||||||
| Changes in estimated future development costs | 652 | 346 | (1,512) | |||||||||||||||||
| Previously estimated development costs incurred during the period | 396 | 818 | 690 | |||||||||||||||||
| Revisions of previous quantity estimates | (922) | (205) | 6,697 | |||||||||||||||||
| Purchase of reserves-in-place | 5,409 | 77 | 7,047 | |||||||||||||||||
| Sales of reserves-in-place | — | (7,158) | (402) | |||||||||||||||||
| Accretion of discount | 457 | 3,270 | 1,371 | |||||||||||||||||
| Net change in income taxes | 58 | 6,301 | (4,972) | |||||||||||||||||
| Changes in production rates and other | 741 | 247 | (1,292) | |||||||||||||||||
| Standardized measure, end of period(a) | $ | 7,531 | $ | 4,477 | $ | 26,305 |
(a) Excludes gains and losses on derivatives. Production costs includes severance and ad valorem taxes.
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