Item 1. Condensed Consolidated Financial Statements

175K characters. Original on sec.gov · Markdown

Item 1. Condensed Consolidated Financial Statements

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	Successor		Predecessor
	September 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	849	$	279
Restricted cash	9		—
Accounts receivable, net	815		746
Short-term derivative assets	—		19
Other current assets	61		64
Total current assets	1,734		1,108
Property and equipment:
Oil and natural gas properties, successful efforts method
Proved oil and natural gas properties	5,163		25,734
Unproved properties	421		1,550
Other property and equipment	492		1,754
Total property and equipment	6,076		29,038
Less: accumulated depreciation, depletion and amortization	(571)		(23,806)
Property and equipment held for sale, net	3		10
Total property and equipment, net	5,508		5,242

Other long-term assets	84		234
Total assets	$	7,326	$	6,584

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS – (Continued)

(Unaudited)


	Successor		Predecessor
	September 30, 2021		December 31, 2020
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	257	$	346
Current maturities of long-term debt	—		1,929
Accrued interest	10		3
Short-term derivative liabilities	1,345		93
Other current liabilities	898		723
Total current liabilities	2,510		3,094
Long-term debt, net	1,259		—
Long-term derivative liabilities	265		44
Asset retirement obligations, net of current portion	244		139
Other long-term liabilities	10		5
Liabilities subject to compromise	—		8,643
Total liabilities	4,288		11,925
Contingencies and commitments (Note 6)
Stockholders’ equity (deficit):
Predecessor preferred stock, $0.01 par value, 20,000,000 shares authorized: 0 and 5,563,458 shares outstanding	—		1,631
Predecessor common stock, $0.01 par value, 22,500,000 shares authorized: 0 and 9,780,547 shares issued	—		—
Predecessor additional paid-in capital	—		16,937
Predecessor accumulated other comprehensive income	—		45
Successor common stock, $0.01 par value, 450,000,000 shares authorized: 98,286,731 and 0 shares issued	1		—
Successor additional paid-in capital	3,594		—
Accumulated deficit	(557)		(23,954)
Total stockholders’ equity (deficit)	3,038		(5,341)
Total liabilities and stockholders’ equity (deficit)	$	7,326	$	6,584

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

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


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

Revenues and other:
Oil, natural gas and NGL	$	1,170	$	672
Marketing	627		448
Oil and natural gas derivatives	(910)		(161)
Gains on sales of assets	3		1
Total revenues and other	890		960
Operating expenses:
Production	80		82
Gathering, processing and transportation	219		258
Severance and ad valorem taxes	41		37
Exploration	2		5
Marketing	625		450
General and administrative	30		52
Separation and other termination costs	—		16
Depreciation, depletion and amortization	228		170

Other operating expense, net	3		1
Total operating expenses	1,228		1,071
Loss from operations	(338)		(111)
Other income (expense):
Interest expense	(17)		(25)

Other income	—		2
Reorganization items, net	—		(611)
Total other expense	(17)		(634)
Loss before income taxes	(355)		(745)
Income tax benefit	(10)		—
Net loss	(345)		(745)
Net loss attributable to noncontrolling interests	—		—
Net loss attributable to Chesapeake	(345)		(745)
Preferred stock dividends	—		—

Net loss available to common stockholders	$	(345)	$	(745)
Loss per common share:
Basic	$	(3.51)	$	(76.18)
Diluted	$	(3.51)	$	(76.18)
Weighted average common shares outstanding (in thousands):
Basic	98,221		9,780
Diluted	98,221		9,780

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - (Continued)

(Unaudited)


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

Revenues and other:
Oil, natural gas and NGL	$	2,615	$	398	$	2,006
Marketing	1,443		239		1,412
Oil and natural gas derivatives	(1,604)		(382)		573
Gains on sales of assets	9		5		1
Total revenues and other	2,463		260		3,992
Operating expenses:
Production	194		32		295
Gathering, processing and transportation	541		102		813
Severance and ad valorem taxes	106		18		116
Exploration	4		2		417
Marketing	1,440		237		1,438
General and administrative	69		21		229
Separation and other termination costs	11		22		43
Depreciation, depletion and amortization	579		72		931
Impairments	1		—		8,522
Other operating expense (income), net	1		(12)		67
Total operating expenses	2,946		494		12,871
Loss from operations	(483)		(234)		(8,879)
Other income (expense):
Interest expense	(47)		(11)		(307)
Gains on purchases or exchanges of debt	—		—		65
Other income (expense)	31		2		(9)
Reorganization items, net	—		5,569		(217)
Total other income (expense)	(16)		5,560		(468)
Income (loss) before income taxes	(499)		5,326		(9,347)
Income tax benefit	(10)		(57)		(13)
Net income (loss)	(489)		5,383		(9,334)
Net loss attributable to noncontrolling interests	—		—		16
Net income (loss) attributable to Chesapeake	(489)		5,383		(9,318)
Preferred stock dividends	—		—		(22)

Net income (loss) available to common stockholders	$	(489)	$	5,383	$	(9,340)
Earnings (loss) per common share:
Basic	$	(4.99)	$	550.35	$	(955.99)
Diluted	$	(4.99)	$	534.51	$	(955.99)
Weighted average common shares outstanding (in thousands):
Basic	98,040		9,781		9,770
Diluted	98,040		10,071		9,770

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


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

Net loss	$	(345)	$	(745)
Other comprehensive income, net of income tax:

Reclassification of losses on settled derivative instruments	—		7
Other comprehensive income	—		7
Comprehensive loss	(345)		(738)
Comprehensive loss attributable to noncontrolling interests	—		—
Comprehensive loss attributable to Chesapeake	$	(345)	$	(738)


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

Net income (loss)	$	(489)	$	5,383	$	(9,334)
Other comprehensive income, net of income tax:

Reclassification of losses on settled derivative instruments	—		3		24
Other comprehensive income	—		3		24
Comprehensive income (loss)	(489)		5,386		(9,310)
Comprehensive loss attributable to noncontrolling interests	—		—		16
Comprehensive income (loss) attributable to Chesapeake	$	(489)	$	5,386	$	(9,294)

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


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

Cash flows from operating activities:
Net income (loss)	$	(489)	$	5,383	$	(9,334)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization	579		72		931
Deferred income tax benefit	—		(57)		(10)
Derivative (gains) losses, net	1,604		382		(573)
Cash receipts (payments) on derivative settlements, net	(437)		(17)		890
Share-based compensation	5		3		16
Gains on sales of assets	(9)		(5)		(1)
Impairments	1		—		8,522
Non-cash reorganization items, net	—		(6,680)		(300)
Exploration	1		2		409
Gains on purchases or exchanges of debt	—		—		(65)
Other	10		45		(23)
Changes in assets and liabilities	(19)		851		693
Net cash provided by (used in) operating activities	1,246		(21)		1,155
Cash flows from investing activities:
Capital expenditures	(404)		(66)		(973)
Proceeds from divestitures of property and equipment	9		—		15
Net cash used in investing activities	(395)		(66)		(958)
Cash flows from financing activities:
Proceeds from Exit Credit Facility - Tranche A Loans	30		—		—
Payments on Exit Credit Facility - Tranche A Loans	(80)		(479)		—
Proceeds from pre-petition revolving credit facility borrowings	—		—		3,806
Payments on pre-petition revolving credit facility borrowings	—		—		(3,467)
Proceeds from DIP Facility borrowings	—		—		60
Payments on DIP Facility borrowings	—		(1,179)		(60)

Proceeds from issuance of senior notes, net	—		1,000		—
Proceeds from issuance of common stock	—		600		—
Proceeds from warrant exercise	2		—		—
Debt issuance and other financing costs	(3)		(8)		(109)
Cash paid to purchase debt	—		—		(95)
Cash paid for common stock dividends	(67)		—		—
Cash paid for preferred stock dividends	—		—		(22)

Other	(1)		—		(10)
Net cash provided by (used in) financing activities	(119)		(66)		103
Net increase (decrease) in cash, cash equivalents and restricted cash	732		(153)		300
Cash, cash equivalents and restricted cash, beginning of period	126		279		6
Cash, cash equivalents and restricted cash, end of period	$	858	$	126	$	306

Cash and cash equivalents	$	849	$	40	$	306
Restricted cash	9		86		—
Total cash, cash equivalents and restricted cash	$	858	$	126	$	306

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


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

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

Supplemental cash flow information:
Cash paid for reorganization items, net	$	65	$	66	$	118
Interest paid, net of capitalized interest	$	33	$	13	$	201
Income taxes paid, net of refunds received	$	(3)	$	—	$	1

Supplemental disclosure of significant non-cash investing and financing activities:
Change in accrued drilling and completion costs	$	25	$	(5)	$	(206)
Put option premium on equity backstop agreement	$	—	$	60	$	60
Operating lease obligations recognized	$	—	$	—	$	32

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


	Attributable to Chesapeake
	Preferred Stock				Common Stock				Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Treasury Stock		Non-controlling Interest		Total Stockholders’ Equity
	Shares	Amount		Shares		Amount
Balance as of June 30, 2021 (Successor)	—	$	—		97,954,037		$	1	$	3,590	$	(178)	$	—	$	—	$	—	$	3,413
Share-based compensation	—	—			761		—		4		—		—		—		—		4

Issuance of common stock for warrant exercise	—	—			6,218		—		—		—		—		—		—		—
Issuance of reserved common stock and warrants	—	—			325,715		—		—		—		—		—		—		—
Net loss	—	—			—		—		—		(345)		—		—		—		(345)
Dividends on common stock	—	—			—		—		—		(34)		—		—		—		(34)
Balance as of September 30, 2021 (Successor)	—	$	—		98,286,731		$	1	$	3,594	$	(557)	$	—	$	—	$	—	$	3,038


	Attributable to Chesapeake
	Preferred Stock				Common Stock				Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Treasury Stock		Non-controlling Interest		Total Stockholders’ Deficit
	Shares	Amount		Shares		Amount
Balance as of June 30, 2020 (Predecessor)	5,563,458	$	1,631		9,780,202		$	—	$	16,924	$	(22,793)	$	29	$	—	$	21	$	(4,188)
Share-based compensation	—	—			169		—		7		—		—		—		—		7
Net loss attributable to Chesapeake	—	—			—		—		—		(745)		—		—		—		(745)
Hedging activity	—	—			—		—		—		—		7		—		—		7
Balance as of September 30, 2020 (Predecessor)	5,563,458	$	1,631		9,780,371		$	—	$	16,931	$	(23,538)	$	36	$	—	$	21	$	(4,919)

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - (Continued)

(Unaudited)


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


Balance as of February 10, 2021 (Successor)	—	$	—		97,907,081		$	1	$	3,585	$	—	$	—	$	—	$	—	$	3,586
Share-based compensation	—	—			1,682		—		7		—		—		—		—		7
Issuance of common stock for warrant exercise	—	—			52,253		—		2		—		—		—		—		2
Issuance of reserved common stock and warrants	—	—			325,715		—		—		—		—		—		—		—
Net loss	—	—			—		—		—		(489)		—		—		—		(489)
Dividends on common stock	—	—			—		—		—		(68)		—		—		—		(68)
Balance as of September 30, 2021 (Successor)	—	$	—		98,286,731		$	1	$	3,594	$	(557)	$	—	$	—	$	—	$	3,038

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - (Continued)

(Unaudited)


	Attributable to Chesapeake
	Preferred Stock				Common Stock				Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Treasury Stock		Non-controlling Interest		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares		Amount
Balance as of December 31, 2019 (Predecessor)	5,563,458	$	1,631		9,772,793		$	—	$	16,973	$	(14,220)	$	12	$	(32)	$	37	$	4,401
Share-based compensation	—	—			7,578		—		(20)		—		—		—		—		(20)
Dividends on preferred stock	—	—			—		—		(22)		—		—		—		—		(22)
Hedging activity	—	—			—		—		—		—		24		—		—		24
Net loss attributable to Chesapeake	—	—			—		—		—		(9,318)		—		—		—		(9,318)
Purchase of shares for company benefit plans	—	—			—		—		—		—		—		(2)		—		(2)
Release of shares for company benefit plans	—	—			—		—		—		—		—		34		—		34
Net loss attributable to noncontrolling interests	—	—			—		—		—		—		—		—		(16)		(16)
Balance as of September 30, 2020 (Predecessor)	5,563,458	$	1,631		9,780,371		$	—	16,931		$	(23,538)	$	36	$	—	$	21	$	(4,919)

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.			Basis of Presentation and Summary of Significant Accounting Policies

Description of Company

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

Basis of Presentation

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

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

Segments

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

Restricted Cash

As of September 30, 2021, we had restricted cash of $9 million. The restricted funds are maintained primarily to pay certain convenience class unsecured claims following our emergence from bankruptcy.

Voluntary Filing under Chapter 11 Bankruptcy

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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

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

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

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


2.			Chapter 11 Emergence

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

Plan of Reorganization

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

On the Effective Date, we issued approximately 97,907,081 shares of New Common Stock, reserved 2,092,918 shares of New Common Stock for future issuance to eligible holders of Allowed Unsecured Notes Claims and Allowed General Unsecured Claims and reserved 37,174,210 shares of New Common Stock for issuance upon exercise of the Warrants, which were the result of the transactions described below. We also entered into a registration rights agreement, warrant agreements and amended our articles of incorporation and bylaws for the authorization of the New Common Stock among other corporate governance actions. See Note 10 for further discussion of our post-emergence equity.
Each holder of an equity interest in the Predecessor, including Predecessor’s common and preferred stock, had such interest canceled, released, and extinguished without any distribution.

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Each holder of obligations under the pre-petition revolving credit facility received, at such holder's prior determined allocation, its pro rata share of either Tranche A Loans or Tranche B Loans, on a dollar for dollar basis.
Each holder of obligations under the FLLO Term Loan Facility received its pro rata share of 23,022,420 shares of New Common Stock.
Each holder of an Allowed Second Lien Notes Claim received its pro rata share of 3,635,118 shares of New Common Stock, 11,111,111 Class A Warrants to purchase 11,111,111 shares of New Common Stock, 12,345,679 Class B Warrants to purchase 12,345,679 shares of New Common Stock, and 6,858,710 Class C Warrants to purchase 6,858,710 shares of New Common Stock.
Each holder of an Allowed Unsecured Notes Claim received its pro rata share of 1,311,089 shares of New Common Stock and 2,473,757 Class C Warrants to purchase 2,473,757 shares of New Common Stock.
Each holder of an Allowed General Unsecured Claim received its pro rata share of 231,112 shares of New Common Stock and 436,060 Class C Warrants to purchase 436,060 shares of New Common Stock; provided that to the extent such Allowed General Unsecured Claim is a Convenience Claim, such holder instead received its pro rata share of $10 million, which pro rata share shall not exceed five percent of such Convenience Claim.
Participants in the Rights Offering extending to the applicable classes under the Plan received 62,927,320 shares of New Common Stock.
In connection with the Rights Offering described above, the Backstop Parties under the Backstop Commitment Agreement received 6,337,031 shares of New Common Stock in respect to the Put Option Premium, and 442,991 shares of New Common Stock were issued in connection with the backstop obligation thereunder to purchase unsubscribed shares of the New Common Stock.
2,092,918 shares of New Common Stock and 3,948,893 Class C Warrants were reserved for future issuance to eligible holders of Allowed Unsecured Notes Claims and Allowed General Unsecured Claims. The reserved New Common Stock and Class C Warrants will be issued on a pro rata basis upon the determination of the allowed portion of all disputed General Unsecured Claims and Unsecured Notes Claims.
The 2021 Long Term Incentive Plan (the “LTIP”) was approved with a share reserve equal to 6,800,000 shares of New Common Stock.
Each holder of an Allowed Other Secured Claim will receive, at the Company's option and in consultation with the Required Consenting Stakeholders (as defined in the Plan): (a) payment in full in cash; (b) the collateral securing its secured claim; (c) reinstatement of its secured claim; or (d) such other treatment that renders its secured claim unimpaired in accordance with Section 1124 of the Bankruptcy Code.
Each holder of an Allowed Other Priority Claim will receive cash up to the allowed amount of its claim.

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


3.			Fresh Start Accounting

Fresh Start Accounting

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

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

Reorganization Value

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

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

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


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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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

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


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

Valuation Process

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

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

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

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

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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

Condensed Consolidated Balance Sheet

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


	Predecessor		Reorganization Adjustments			Fresh Start Adjustments			Successor

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


	Predecessor		Reorganization Adjustments			Fresh Start Adjustments			Successor


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

Reorganization Adjustments

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


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

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

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

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

(e)Changes in accounts payable include the following:


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

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

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

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


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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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


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

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

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


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

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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


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

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


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

Fresh Start Adjustments

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

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

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

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

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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


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

Reorganization Items, Net

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

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


	Successor		Predecessor
	Three Months Ended September 30, 2021		Three Months Ended September 30, 2020
Accrual for allowed claims	$	—	$	(465)
Debt and equity financing fees	—		(115)
Professional service provider fees and other	—		(40)
Gains on the settlement of liabilities subject to compromise	—		9
Total reorganization items, net	$	—	$	(611)

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


	Successor		Predecessor
	Period from February 10, 2021 through September 30, 2021		Period from January 1, 2021 through February 9, 2021		Nine Months Ended September 30, 2020
Gains on the settlement of liabilities subject to compromise	$	—	$	6,443	$	9
Accrual for allowed claims	—		(1,002)		(465)
Write off of unamortized debt premiums (discounts) on Predecessor debt	—		—		518
Write off of unamortized debt issuance costs on Predecessor debt	—		—		(61)
Gain on fresh start adjustments	—		201		—
Gain from release of commitment liabilities	—		55		—
Debt and equity financing fees	—		—		(178)
Professional service provider fees and other	—		(60)		(40)
Success fees for professional service providers	—		(38)		—
Surrender of other receivable	—		(18)		—
FLLO alternative transaction fee	—		(12)		—
Total reorganization items, net	$	—	$	5,569	$	(217)

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


4.			Earnings Per Share

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

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


	Successor		Predecessor
	Three Months Ended September 30, 2021		Three Months Ended September 30, 2020
Numerator



Net loss, basic and diluted	$	(345)	$	(745)

Denominator (in thousands)
Weighted average common shares outstanding, basic	98,221		9,780
Effect of potentially dilutive securities
Preferred stock	—		—
Warrants	—		—
Restricted stock	—		—
Performance share units	—		—
Weighted average common shares outstanding, diluted	98,221		9,780

Loss per common share
Loss per common share, basic	$	(3.51)	$	(76.18)
Loss per common share, diluted	$	(3.51)	$	(76.18)

Successor

During the 2021 Successor Quarter, the diluted earnings (loss) per share calculation excludes the effect of 1,767,203 reserved shares of common stock and 3,334,277 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 as of the 2021 Successor Quarter. Additionally, as the 2021 Successor Quarter had a net loss, the diluted earnings (loss) per share calculation excludes the antidilutive effect, calculated using the treasury stock method, of 14,774,330 issuable shares related to warrants, 247,220 shares of restricted stock, and 5,479 shares related to performance share units.

Predecessor

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

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


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



Net income (loss), basic and diluted	$	(489)	$	5,383	$	(9,340)

Denominator (in thousands)
Weighted average common shares outstanding, basic	98,040		9,781		9,770
Effect of potentially dilutive securities
Preferred stock	—		290		—
Warrants	—		—		—
Restricted stock	—		—		—
Performance share units	—		—		—
Weighted average common shares outstanding, diluted	98,040		10,071		9,770

Earnings (loss) per common share
Earnings (loss) per common share, basic	$	(4.99)	$	550.35	$	(955.99)
Earnings (loss) per common share, diluted	$	(4.99)	$	534.51	$	(955.99)

Successor

During the 2021 Successor Period, the diluted earnings (loss) per share calculation excludes the effect of 1,767,203 reserved shares of common stock and 3,334,277 reserved Class C Warrants related to the settlement of General Unsecured Claims associated with the Chapter 11 Cases as all necessary conditions had not been met to be considered dilutive shares as of the 2021 Successor Period. Additionally, as the 2021 Successor Period had a net loss the diluted earnings (loss) per share calculation excludes the antidilutive effect, calculated using the treasury stock method, of 12,851,577 issuable shares related to warrants, 135,350 shares of restricted stock, and 3,508 shares related to performance share units.

Predecessor

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


5.			Debt

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


	Successor				Predecessor
	September 30, 2021				December 31, 2020
	Carrying Amount		Fair Value(a)		Carrying Amount		Fair Value(a)
Exit Credit Facility - Tranche A Loans	$	—	$	—	$	—	$	—
Exit Credit Facility - Tranche B Loans	221		221		—		—
5.5% senior notes due 2026	500		524		—		—
5.875% senior notes due 2029	500		534		—		—
DIP Facility	—		—		—		—
Pre-petition revolving credit facility	—		—		1,929		1,929
Term loan due 2024	—		—		1,500		1,220
11.5% senior secured second lien notes due 2025	—		—		2,330		373
6.625% senior notes due 2020	—		—		176		8
6.875% senior notes due 2020	—		—		73		3
6.125% senior notes due 2021	—		—		167		7
5.375% senior notes due 2021	—		—		127		5
4.875% senior notes due 2022	—		—		272		12
5.75% senior notes due 2023	—		—		167		8
7.00% senior notes due 2024	—		—		624		29
6.875% senior notes due 2025	—		—		2		2
8.00% senior notes due 2025	—		—		246		10
5.5% convertible senior notes due 2026	—		—		1,064		42
7.5% senior notes due 2026	—		—		119		5
8.00% senior notes due 2026	—		—		46		2
8.00% senior notes due 2027	—		—		253		11
Premiums on senior notes	48		—		—		—
Debt issuance costs	(10)		—		—		—
Total debt, net	1,259		1,279		9,095		3,666
Less current maturities of long-term debt	—		—		(1,929)		(1,929)
Less amounts reclassified to liabilities subject to compromise	—		—		(7,166)		(1,737)
Total long-term debt, net	$	1,259	$	1,279	$	—	$	—

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

Successor Debt

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

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

with an initial borrowing base of $2.5 billion. The borrowing base will be redetermined semiannually on or around May 1 and November 1 of each year. Our borrowing base was reaffirmed in October 2021, and the next scheduled redetermination will be on or about May 1, 2022. The aggregate initial elected commitments of the lenders under the Exit Credit Facility will be $1.75 billion of Tranche A Loans and $221 million of fully funded Tranche B Loans.

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

The Credit Agreement contains financial covenants that require the Company and its Guarantors, on a consolidated basis, to maintain (i) a first lien leverage ratio of not more than 2.75 to 1:00, (ii) a total leverage ratio of not more than 3.50 to 1:00, (iii) a current ratio of not less than 1.00 to 1:00 and (iv) at any time additional secured debt is outstanding, an asset coverage ratio of not less than 1.50 to 1:00, defined as PV10 of PDP reserves to total secured debt. The Company has no additional secured debt outstanding as of September 30, 2021.

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

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

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

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

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

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

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Phase-Out of LIBOR

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

Chapter 11 Proceedings - Predecessor Debt

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

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

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

Debtor-in-Possession Credit Agreement

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

Predecessor Senior Notes

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


6.			Contingencies and Commitments

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

Contingencies

Chapter 11 Proceedings

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

Litigation and Regulatory Proceedings

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

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

Environmental Contingencies

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

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

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.

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Commitments

Gathering, Processing and Transportation Agreements

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

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


	Successor
	September 30, 2021
Remainder of 2021	$	151
2022	547
2023	481
2024	412
2025	316
2026 – 2033	1,539
Total	$	3,446

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


7.			Other Current Liabilities

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


	Successor		Predecessor
	September 30, 2021		December 31, 2020
Revenues and royalties due others	$	454	$	236
Accrued drilling and production costs	96		104
Other accrued taxes	105		82
Accrued compensation and benefits	68		59
Hedging	44		7
Operating leases	11		24
Debt and equity financing fees	—		69
Joint interest prepayments received	11		8
Other	109		134
Total other current liabilities	$	898	$	723

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


8.			Revenue

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


	Successor
	Three Months Ended September 30, 2021
	Oil		Natural Gas		NGL		Total
Appalachia	$	—	$	383	$	—	$	383
Gulf Coast	—		207		—		207
South Texas	221		44		47		312
Brazos Valley	158		9		8		175
Powder River Basin	58		21		14		93
Oil, natural gas and NGL revenue	$	437	$	664	$	69	$	1,170

Marketing revenue	$	326	$	240	$	61	$	627

	Predecessor
	Three Months Ended September 30, 2020
	Oil		Natural Gas		NGL		Total
Appalachia	$	—	$	137	$	—	$	137
Gulf Coast	—		92		—		92
South Texas	189		26		26		241
Brazos Valley	127		3		3		133
Powder River Basin	36		7		4		47
Mid-Continent	14		5		3		22
Oil, natural gas and NGL revenue	$	366	$	270	$	36	$	672



Marketing revenue	$	301	$	116	$	31	$	448

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


	Successor
	Period from February 10, 2021 through September 30, 2021
	Oil		Natural Gas		NGL		Total
Appalachia	$	—	$	772	$	—	$	772
Gulf Coast	—		401		—		401
South Texas	562		97		102		761
Brazos Valley	409		30		17		456
Powder River Basin	144		51		30		225
Oil, natural gas and NGL revenue	$	1,115	$	1,351	$	149	$	2,615

Marketing revenue	$	828	$	483	$	132	$	1,443

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

Marketing revenue	$	141	$	78	$	20	$	239


	Predecessor
	Nine Months Ended September 30, 2020
	Oil		Natural Gas		NGL		Total
Appalachia	$	—	$	445	$	—	$	445
Gulf Coast	—		245		—		245
South Texas	539		77		59		675
Brazos Valley	375		10		9		394
Powder River Basin	133		28		14		175
Mid-Continent	44		19		9		72
Oil, natural gas and NGL revenue	$	1,091	$	824	$	91	$	2,006

Marketing revenue from contracts with customers	$	930	$	338	$	76	$	1,344
Other marketing revenue	67		1		—		68
Marketing revenue	$	997	$	339	$	76	$	1,412

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Accounts Receivable

Our accounts receivable are primarily from purchasers of oil, natural gas and NGL and from exploration and production companies that own interests in properties we operate. This industry concentration could affect our overall exposure to credit risk, either positively or negatively, because our purchasers and joint working interest owners may be similarly affected by changes in economic, industry or other conditions. We monitor the creditworthiness of all our counterparties and we generally require letters of credit or parent guarantees for receivables from parties deemed to have sub-standard credit, unless the credit risk can otherwise be mitigated. We estimate expected credit losses using forecasts based on historical information and current information, in addition to specifically identifying receivables that may be uncollectible.

Accounts receivable as of September 30, 2021 and December 31, 2020 are detailed below:


	Successor		Predecessor
	September 30, 2021		December 31, 2020
Oil, natural gas and NGL sales	$	670	$	589
Joint interest	105		119
Other	41		68
Allowance for doubtful accounts	(1)		(30)
Total accounts receivable, net	$	815	$	746


9.			Income Taxes

We estimate our annual effective tax rate (“AETR”) for continuing operations in recording our interim quarterly income tax provision for the various jurisdictions in which we operate. The tax effects of statutory rate changes, significant unusual or infrequently occurring items, and certain changes in the assessment of the realizability of deferred tax assets are excluded from the determination of our estimated AETR as such items are recognized as discrete items in the quarter in which they occur. Our estimated AETR for the 2021 Successor Period is 2.0% as a result of projecting current state income taxes and a full valuation allowance against our anticipated net deferred asset position at December 31, 2021. Although we are projecting a current state tax liability, a benefit has been recorded in the 2021 Successor Period due to the application of the AETR to the 2021 Successor Period book net loss before income taxes.

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

For the 2020 Predecessor Period, we recorded an income tax benefit of $13 million, which included the reversal of substantially all of the deferred tax liability associated with Texas through the application of the estimated AETR as well as recording a receivable for amounts previously sequestered from refunds of corporate alternative minimum tax credits. This resulted in a 0.1% effective tax rate for the 2020 Predecessor Period.

As of the Effective Date, we were in a net deferred tax asset position and anticipate being in a net deferred tax asset position as of December 31, 2021. Based on all available positive and negative evidence, including projections of future taxable income, we believe it is more likely than not that some or all of our deferred tax assets will not be realized. As such, a full valuation allowance was recorded against our net deferred tax asset position for federal and state purposes as of September 30, 2021 and December 31, 2020. A significant piece of objectively verifiable negative evidence evaluated is the losses incurred in recent quarters. Should future results of operations demonstrate profitability, additional weight may be placed upon other evidence, such as future forecasts of taxable income. Additionally, future events and new evidence, such as tax law changes, increased commodity pricing, and

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

the integration of profit generating assets, could lead to a fresh evaluation of future forecasts and the conclusion that some or all of the deferred tax assets are more likely than not to be realizable. Therefore, we believe that there is a possibility that some or all of the valuation allowance could be released in the foreseeable future.

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

In Chapter 11 bankruptcy cases, the cancellation of debt income (“CODI”) realized upon emergence from bankruptcy is excludible from taxable income but results in a reduction of tax attributes in accordance with the attribute reduction and ordering rules of Section 108 of the Code. The amount of our CODI is estimated to be $5 billion and will be taken completely against, and therefore will reduce, our NOL carryforwards. After taking into account the CODI and the impact of Section 382 of the Code, the remaining federal NOL carryforwards are estimated to be in the range of $2.5 billion to $3.0 billion. Approximately $900 million are NOL carryforwards which expire in 2037 and $1.6 billion to $2.1 billion are NOL carryforwards which do not expire. The reductions in NOL carryforwards for the CODI and expiring NOL carryforwards are expected to be fully offset by a corresponding decrease to our valuation allowance at December 31, 2021. Some states have similar rules for attribute reduction which will result in the reduction of certain of our state NOL carryforwards.


10.			Equity

New Common Stock. As discussed in Note 2, on the Effective Date, we issued an aggregate of approximately 97,907,081 shares of New Common Stock, par value $0.01 per share, to the holders of allowed claims, and approximately 2,092,918 shares of New Common Stock were reserved for future distributions under the Plan. During the 2021 Successor Period, 325,715 reserved shares were issued to resolve allowed unsecured claims.

On November 2, 2021, we declared a quarterly dividend payable of $0.4375 per share, which will be paid on December 9, 2021 to stockholders of record at the close of business on November 24, 2021.

Warrants. As discussed in Note 2, on the Effective Date, we issued 11,111,111 Class A Warrants, 12,345,679 Class B Warrants and 9,768,527 Class C Warrants, that are initially exercisable for one share of New Common Stock per Warrant at initial exercise prices of $27.63, $32.13 and $36.18 per share, respectively, subject to adjustments pursuant to the terms of the Warrants. Additionally, 3,948,893 Class C Warrants were reserved for future issuance. During the 2021 Successor Period, 614,616 reserved Class C Warrants were issued to resolve allowed unsecured claims. The Warrants are exercisable from the Effective Date until February 9, 2026. The Warrants contain customary anti-dilution adjustments in the event of any stock split, reverse stock split, reclassification, stock dividend or other distributions. The exercise prices of the Warrants were adjusted to prevent the dilution of rights for the effects of the quarterly dividend distribution on September 9, 2021, and the adjusted exercise prices are $27.27, $31.71, and $35.71 per share for the Class A, Class B and Class C Warrants, respectively. During the 2021 Successor Period, 19,068 Class A, 32,221 Class B and 6,859 Class C Warrants were converted into 52,253 common shares.

Chapter 11 Proceedings

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


11.			Share-Based Compensation

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

Successor Share-Based Compensation

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

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


	Unvested Restricted Stock Units	Weighted Average Grant Date Fair Value Per Share
	(in thousands)
Unvested as of February 10, 2021	—	$	—
Granted	727	$	44.28
Vested	(2)	$	44.30
Forfeited/canceled	(38)	$	44.30
Unvested as of September 30, 2021	687	$	44.28

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

As of September 30, 2021, there was approximately $25 million of total unrecognized compensation expense related to unvested restricted stock units. The expense is expected to be recognized over a weighted average period of approximately 2.44 years.

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

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


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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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


	Unvested Performance Share Units	Weighted Average Grant Date Fair Value Per Share
	(in thousands)
Unvested as of February 10, 2021	—	$	—
Granted	142	$	54.23
Vested	(9)	$	38.95
Forfeited/canceled	(2)	$	45.76
Unvested as of September 30, 2021	131	$	55.41

As of September 30, 2021, there was approximately $6 million of total unrecognized compensation expense related to unvested PSUs. The expense is expected to be recognized over a weighted average period of approximately 2.67 years.

Predecessor Share-Based Compensation

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

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


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

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

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The following table provides information related to stock option activity:


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

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

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


	Successor		Predecessor
	Three Months Ended September 30, 2021		Three Months Ended September 30, 2020
General and administrative expenses	$	2	$	7
Oil and natural gas properties	1		—
Oil, natural gas and NGL production expenses	1		—

Total restricted stock, stock option, and PSU compensation	$	4	$	7


	Successor		Predecessor
	Period from February 10, 2021 through September 30, 2021		Period from January 1, 2021 through February 9, 2021		Nine Months Ended September 30, 2020
General and administrative expenses	$	4	$	3	$	15
Oil and natural gas properties	2		—		1
Oil, natural gas and NGL production expenses	1		—		1

Total restricted stock, stock option, and PSU compensation	$	7	$	3	$	17


12.			Derivative and Hedging Activities

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

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


	Successor			Predecessor
	September 30, 2021			December 31, 2020
	Notional Volume	Fair Value		Notional Volume	Fair Value
Oil (MMBbl):
Fixed-price swaps	18	$	(464)	27	$	(136)
Basis protection swaps	9	(3)		7	(1)
Total oil	27	(467)		34	(137)
Natural gas (Bcf):
Fixed-price swaps	429	(926)		728	10
Collars	207	(171)		53	8
Basis protection swaps	126	(46)		66	1
Total natural gas	762	(1,143)		847	19
Total estimated fair value		$	(1,610)		$	(118)

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

Effect of Derivative Instruments – Condensed Consolidated Balance Sheets

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


	Gross Fair Value		Amounts Netted in the Consolidated Balance Sheets		Net Fair Value Presented in the Consolidated Balance Sheets
Successor
As of September 30, 2021
Commodity Contracts:
Short-term derivative asset	$	14	$	(14)	$	—
Long-term derivative asset	7		(7)		—
Short-term derivative liability	(1,359)		14		(1,345)
Long-term derivative liability	(272)		7		(265)
Total derivatives	$	(1,610)	$	—	$	(1,610)

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Effect of Derivative Instruments – Condensed Consolidated Statements of Operations

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


	Successor		Predecessor
	Three Months Ended September 30, 2021		Three Months Ended September 30, 2020
Losses on undesignated oil and natural gas derivatives	$	(910)	$	(154)
Losses on terminated cash flow hedges	—		(7)
Total oil and natural gas derivatives	$	(910)	$	(161)


	Successor		Predecessor
	Period from February 10, 2021 through September 30, 2021		Period from January 1, 2021 through February 9, 2021		Nine Months Ended September 30, 2020
Gains (losses) on undesignated oil and natural gas derivatives	$	(1,604)	$	(379)	$	597
Losses on terminated cash flow hedges	—		(3)		(24)
Total oil and natural gas derivatives	$	(1,604)	$	(382)	$	573

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

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


	Successor				Predecessor
	Three Months Ended September 30, 2021				Three Months Ended September 30, 2020
	Before Tax		After Tax		Before Tax		After Tax
Balance, beginning of period	$	—	$	—	$	(28)	$	29
Losses reclassified to income	—		—		7		7


Balance, end of period	$	—	$	—	$	(21)	$	36


	Successor				Predecessor
	Period from February 10, 2021 through September 30, 2021				Period from January 1, 2021 through February 9, 2021				Nine Months Ended September 30, 2020
	Before Tax		After Tax		Before Tax		After Tax		Before Tax		After Tax
Balance, beginning of period	$	—	$	—	$	(12)	$	45	$	(45)	$	12
Losses reclassified to income	—		—		3		3		24		24
Fresh start adjustments	—		—		9		9		—		—
Elimination of tax effects	—		—		—		(57)		—		—
Balance, end of period	$	—	$	—	$	—	$	—	$	(21)	$	36

Our accumulated other comprehensive loss balance represented the net deferred loss associated with commodity derivative contracts that were previously designated as cash flow hedges for which the original contract

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

months were yet to occur. The remaining deferred gain or loss amounts were to be recognized in earnings in the month for which the original contract months were to occur. In connection with our adoption of fresh start accounting we recorded a fair value adjustment to eliminate the accumulated other comprehensive income related to hedging settlements including the elimination of tax effects. See Note 3 for a discussion of fresh start accounting adjustments.

Credit Risk Considerations

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

Hedging Arrangements

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

Fair Value

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

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


	Successor		Predecessor
Significant Other Observable Inputs (Level 2)	September 30, 2021		December 31, 2020
Derivative Assets (Liabilities):
Commodity assets	$	21	$	88
Commodity liabilities	(1,631)		(206)
Total derivatives	$	(1,610)	$	(118)


13.			Exploration Expense

A summary of our exploration expense is as follows:


	Successor		Predecessor
	Three Months Ended September 30, 2021		Three Months Ended September 30, 2020
Impairments of unproved properties	$	1	$	3

Geological and geophysical expense and other	1		2
Exploration expense	$	2	$	5

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)


	Successor		Predecessor
	Period from February 10, 2021 through September 30, 2021		Period from January 1, 2021 through February 9, 2021		Nine Months Ended September 30, 2020
Impairments of unproved properties	$	1	$	2	$	402
Dry hole expense	—		—		7
Geological and geophysical expense and other	3		—		8
Exploration expense	$	4	$	2	$	417

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


14.			Impairments

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

Proved Oil and Gas Properties

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

We calculated the expected undiscounted future net cash flows of our long-lived assets using management’s assumptions and expectations of (i) commodity prices, which are based on the NYMEX strip pricing escalated by an inflationary rate, (ii) pricing adjustments for differentials, (iii) operating costs, (iv) capital investment plans, (v) future production volumes, and (vi) estimated proved reserves.
Unprecedented volatility in the price of oil due to the decrease in demand led us to rely on NYMEX strip pricing, which represents a Level 1 input.

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

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

Sand Mine

Our in-field sand mine assets predominately service the oil and gas properties in our Brazos Valley operating area. Based on management’s assumptions and expectations of (i) future commodity prices, (ii) capital investment plans in the Brazos Valley operating area, and (iii) future operating cost of the sand mine, management expects the

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

market for sand to significantly decrease for the foreseeable future. As a result, we recognized a $76 million impairment related to our sand mine assets for the difference between fair value and the carrying value as of March 31, 2020. The inputs used are classified as Level 3 fair value assumptions.


15.			Other Operating Expense (Income), Net

In the 2020 Predecessor Period, we terminated certain gathering, processing and transportation contracts and recognized a non-recurring $80 million expense related to the contract terminations. The contract terminations removed approximately $169 million of future commitments related to gathering, processing and transportation agreements. See Note 6 for further discussion of contingencies and commitments. The 2020 Predecessor Period contract termination expense and $29 million of other operating expense primarily related to royalty settlements is partially offset by $42 million of income from the amortization of volumetric production payment deferred revenue.


16.			Separation and Other Termination Costs

In the 2021 Successor Period, 2021 Predecessor Period and the 2020 Predecessor Period, we incurred charges of approximately $11 million, $22 million and $43 million, respectively, related to one-time termination benefits for certain employees.


17.			Subsequent Events

On November 1, 2021, we acquired Vine Energy, Inc. (“Vine”), an energy company focused on the development of natural gas properties in the over-pressured stacked Haynesville and Mid-Bossier shale plays in Northwest Louisiana pursuant to a definitive agreement with Vine dated August 10, 2021 (“Vine Acquisition”) for total consideration of approximately $1.3 billion, consisting of approximately 19.0 million shares of our common stock and $92 million in cash. We funded the cash portion of the consideration with cash on hand.

In conjunction with the Vine Acquisition, Vine’s Second Lien Term Loan was repaid and terminated for $163 million inclusive of a $13 million make whole premium with cash on hand due to the agreement containing a change in control provision making the term loan callable upon closing. Vine’s reserve based loan facility, which had no borrowings as of November 1, 2021, was terminated at the time of the acquisition. Additionally, Vine’s 6.75% Senior Notes with a principal amount of $950 million were assumed by the Company.

The Vine Acquisition will be accounted for as a business combination, with the fair value of consideration allocated to the acquisition date fair value of assets and liabilities acquired. Vine’s post-acquisition date results of operations will be included in the Company’s interim consolidated financial statements beginning in November 2021.

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Oil, Natural Gas and NGL Reserve Quantities

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


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

Reflected above represents material changes to estimated reserves from December 31, 2020 through March 31, 2021. There were no material changes to estimated reserves from March 31, 2021 through September 30, 2021. During the quarter ended March 31, 2021, extensions, discoveries and other additions increased primarily due to updates to our five-year development plan in contemplation of emergence from bankruptcy on February 9, 2021 and certainty regarding our ability to finance the development of our proved reserves over a five-year period.

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

SUPPLEMENTARY INFORMATION

Previous: Cover and table of contents · Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations