Item 1. Condensed Consolidated Financial Statements

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Item 1. Condensed Consolidated Financial Statements

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

Successor
March 31, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$19$905
Restricted cash99
Accounts receivable, net1,3831,115
Short-term derivative assets15
Other current assets7569
Total current assets1,4872,103
Property and equipment:
Oil and natural gas properties, successful efforts method
Proved oil and natural gas properties10,2597,682
Unproved properties2,2631,530
Other property and equipment495495
Total property and equipment13,0179,707
Less: accumulated depreciation, depletion and amortization(1,300)(908)
Property and equipment held for sale, net33
Total property and equipment, net11,7208,802
Long-term derivative assets8—
Other long-term assets78104
Total assets$13,293$11,009

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

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS – (Continued)

(Unaudited)

Successor
March 31, 2022December 31, 2021
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$374$308
Accrued interest3938
Short-term derivative liabilities2,638899
Other current liabilities1,3411,202
Total current liabilities4,3922,447
Long-term debt, net2,7742,278
Long-term derivative liabilities393249
Asset retirement obligations, net of current portion334349
Other long-term liabilities1715
Total liabilities7,9105,338
Contingencies and commitments (Note 7)
Stockholders’ equity:
Successor common stock, $0.01 par value, 450,000,000 shares authorized: 127,052,372 and 117,917,349 shares issued11
Successor additional paid-in capital5,6154,845
Retained earnings (accumulated deficit)(233)825
Total stockholders’ equity5,3835,671
Total liabilities and stockholders’ equity$13,293$11,009

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

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

SuccessorPredecessor
Three Months Ended March 31, 2022Period from February 10, 2021 through March 31, 2021Period from January 1, 2021 through February 9, 2021
Revenues and other:
Oil, natural gas and NGL$1,914$553$398
Marketing867277239
Oil and natural gas derivatives(2,125)46(382)
Gains on sales of assets27945
Total revenues and other935880260
Operating expenses:
Production1104032
Gathering, processing and transportation242111102
Severance and ad valorem taxes632418
Exploration512
Marketing851280237
General and administrative261521
Separation and other termination costs——22
Depreciation, depletion and amortization40912272
Other operating expense (income), net232(12)
Total operating expenses1,729595494
Income (loss) from operations(794)285(234)
Other income (expense):
Interest expense(32)(12)(11)
Other income16222
Reorganization items, net——5,569
Total other income (expense)(16)105,560
Income (loss) before income taxes(810)2955,326
Income tax benefit(46)—(57)
Net income (loss) available to common stockholders$(764)$295$5,383
Earnings (loss) per common share:
Basic$(6.32)$3.01$550.35
Diluted$(6.32)$2.75$534.51
Weighted average common shares outstanding (in thousands):
Basic120,80597,9079,781
Diluted120,805107,15910,071

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

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

SuccessorPredecessor
Three Months Ended March 31, 2022Period from February 10, 2021 through March 31, 2021Period from January 1, 2021 through February 9, 2021
Net income (loss)$(764)$295$5,383
Other comprehensive income, net of income tax:
Reclassification of losses on settled derivative instruments——3
Other comprehensive income——3
Comprehensive income (loss)$(764)$295$5,386

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

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

SuccessorPredecessor
Three Months Ended March 31, 2022Period from February 10, 2021 through March 31, 2021Period from January 1, 2021 through February 9, 2021
Cash flows from operating activities:
Net income (loss)$(764)$295$5,383
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization40912272
Deferred income tax benefit——(57)
Derivative (gains) losses, net2,125(46)382
Cash payments on derivative settlements, net(568)(32)(17)
Share-based compensation4—3
Gains on sales of assets(279)(4)(5)
Non-cash reorganization items, net——(6,680)
Exploration4—2
Other(8)445
Changes in assets and liabilities(70)70851
Net cash provided by (used in) operating activities853409(21)
Cash flows from investing activities:
Capital expenditures(344)(77)(66)
Business combination, net(2,006)——
Proceeds from divestitures of property and equipment4034—
Net cash used in investing activities(1,947)(73)(66)
Cash flows from financing activities:
Proceeds from Exit Credit Facility - Tranche A Loans1,56530—
Payments on Exit Credit Facility - Tranche A Loans(1,065)(80)(479)
Payments on DIP Facility borrowings——(1,179)
Proceeds from issuance of senior notes, net——1,000
Proceeds from issuance of common stock——600
Proceeds from warrant exercise1——
Debt issuance and other financing costs—(3)(8)
Cash paid to repurchase and retire common stock(83)——
Cash paid for common stock dividends(210)——
Other—(1)—
Net cash provided by (used in) financing activities208(54)(66)
Net increase (decrease) in cash, cash equivalents and restricted cash(886)282(153)
Cash, cash equivalents and restricted cash, beginning of period914126279
Cash, cash equivalents and restricted cash, end of period$28$408$126
Cash and cash equivalents$19$340$40
Restricted cash96886
Total cash, cash equivalents and restricted cash$28$408$126

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

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(Unaudited)

Supplemental disclosures to the condensed consolidated statements of cash flows are presented below:
SuccessorPredecessor
Three Months Ended March 31, 2022Period from February 10, 2021 through March 31, 2021Period from January 1, 2021 through February 9, 2021
Supplemental cash flow information:
Cash paid for reorganization items, net$—$18$66
Interest paid, net of capitalized interest$31$—$13
Income taxes paid, net of refunds received$(5)$(3)$—
Supplemental disclosure of significant non-cash investing and financing activities:
Change in accrued drilling and completion costs$6$(12)$(5)
Put option premium on equity backstop agreement$—$—$60
Common stock issued for business combination$764$—$—

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

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

Preferred StockCommon StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive IncomeTotal Stockholders’ Equity
SharesAmountSharesAmount
Balance as of December 31, 2021 (Successor)—$—117,917,349$1$4,845$825$—$5,671
Issuance of common stock for Marcellus Acquisition——9,442,185—764——764
Share-based compensation——23,169—5——5
Issuance of common stock for warrant exercise——669,669—1——1
Repurchase and retirement of common stock——(1,000,000)——(83)—(83)
Net loss—————(764)—(764)
Dividends on common stock—————(211)—(211)
Balance as of March 31, 2022 (Successor)—$—127,052,372$1$5,615$(233)$—$5,383
Preferred StockCommon StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive IncomeTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance as of December 31, 2020 (Predecessor)5,563,358$1,6319,780,547$—$16,937$(23,954)$45$(5,341)
Share-based compensation——67—3——3
Hedging activity——————33
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——97,907,08113,330——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$3,585$—$—$3,586
Net income—————295—295
Balance as of March 31, 2021 (Successor)—$—97,907,081$1$3,585$295$—$3,881

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

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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 our financial position as of March 31, 2022 and December 31, 2021, the three months ended March 31, 2022 (“2022 Successor Period”) and the periods of February 10, 2021 through March 31, 2021 (“2021 Successor Period”), and January 1, 2021 through February 9, 2021 (“2021 Predecessor Period”). Our annual report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”) should be read in conjunction with this Form 10-Q. There has been no material change in the information disclosed in the notes to the consolidated financial statements included in the 2021 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 March 31, 2022, 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 continued to operate in the ordinary course of business.

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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 operated our business 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 pay 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. See Note 3 for more information regarding reorganization items.

2.Chapter 11 Emergence

As described in Note 1, on the Petition Date, 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 the Effective Date. 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 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 and to provide registration rights thereunder, among other corporate governance actions. See Note 11 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.

  • 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.

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

  • 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 seven directors, including the Company’s Chief Executive Officer, Domenic J. Dell’Osso Jr., 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.

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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

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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 liabilities1,582
Plus: Asset retirement obligations (non-current portion)236
Plus: Other non-current liabilities97
Reorganization value of Successor assets$6,814

(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.

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 proved developed properties 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 5.50% 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.

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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 condensed 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.

PredecessorReorganization AdjustmentsFresh Start AdjustmentsSuccessor
Assets
Current assets:
Cash and cash equivalents$243$(203)(a)$—$40
Restricted cash—86(b)—86
Accounts receivable, net861(18)(c)—843
Short-term derivative assets————
Other current assets66(5)(d)—61
Total current assets1,170(140)—1,030
Property and equipment:
Oil and natural gas properties, successful efforts method
Proved oil and natural gas properties25,794—(21,108)(o)4,686
Unproved properties1,546—(1,063)(o)483
Other property and equipment1,755—(1,256)(o)499
Total property and equipment29,095—(23,427)(o)5,668
Less: accumulated depreciation, depletion and amortization(23,877)—23,877(o)—
Property and equipment held for sale, net9—(7)(o)2
Total property and equipment, net5,227—443(o)5,670
Other long-term assets198—(84)(p)114
Total assets$6,595$(140)$359$6,814

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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

PredecessorReorganization AdjustmentsFresh Start AdjustmentsSuccessor
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable$391$24(e)$—$415
Current maturities of long-term debt, net1,929(1,929)(f)——
Accrued interest4(4)(g)——
Short-term derivative liabilities398——398
Other current liabilities645124(h)—769
Total current liabilities3,367(1,785)—1,582
Long-term debt, net—1,261(i)52(q)1,313
Long-term derivative liabilities90——90
Asset retirement obligations, net of current portion139—97(r)236
Other long-term liabilities52(j)—7
Liabilities subject to compromise9,574(9,574)(k)——
Total liabilities13,175(10,096)1493,228
Contingencies and commitments (Note 7)
Stockholders’ equity (deficit):
Predecessor preferred stock1,631(1,631)(l)——
Predecessor common stock————
Predecessor additional paid-in capital16,940(16,940)(l)——
Successor common stock—1(m)—1
Successor additional paid-in-capital—3,585(m)—3,585
Accumulated other comprehensive income48—(48)(s)—
Accumulated deficit(25,199)24,941(n)258(t)—
Total stockholders’ equity (deficit)(6,580)9,9562103,586
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 Offering600
Proceeds from refunds of interest deposit for the Notes5
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 reserve10
Accrual of professional service provider fees5
Reinstatement of accounts payable from liabilities subject to compromise2
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 fees2
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

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

Issuance of the Notes$1,000
Issuance of Tranche A and Tranche B Loans750
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 Commitment600
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 canceled without any distribution.

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(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 Commitment783
Issuance of Successor equity to holders of the Second Lien Notes, incremental to the Rights Offering and Backstop Commitment124
Issuance of Successor equity to holders of the unsecured senior notes45
Issuance of Successor equity to holders of allowed general unsecured claims8
Fair value of Class A warrants93
Fair value of Class B warrants94
Fair value of Class C warrants68
Total change in Successor common stock and additional paid-in capital3,586
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, net6,370
Cancellation of predecessor equity18,571
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 and (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 10 for a discussion of income taxes.

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(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, net201
Income tax effects on accumulated other comprehensive income57
Net impact to accumulated deficit$258

Reorganization Items, Net

We 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:

SuccessorPredecessor
Three Months Ended March 31, 2022Period from February 10, 2021 through March 31, 2021Period from January 1, 2021 through February 9, 2021
Gains on the settlement of liabilities subject to compromise$—$—$6,443
Accrual for allowed claims——(1,002)
Gain on fresh start adjustments——201
Gain from release of commitment liabilities——55
Professional service provider fees and other——(60)
Success fees for professional service providers——(38)
Surrender of other receivable——(18)
FLLO alternative transaction fee——(12)
Total reorganization items, net$—$—$5,569

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4.Oil and Natural Gas Property Transactions

Marcellus Acquisition

On March 9, 2022, we completed the Marcellus Acquisition for total consideration of approximately $2.77 billion, consisting of approximately $2 billion in cash, including working capital adjustments and approximately 9.4 million shares of our common stock, to acquire high quality producing assets and a deep inventory of premium drilling locations in the prolific Marcellus Shale in Northeast Pennsylvania. The Marcellus Acquisition was cash and indebtedness free, effective as of January 1, 2022, subject to customary purchase price adjustments. We funded the cash portion of the consideration with cash on hand and $914 million of borrowings under the Company’s Exit Credit Facility. See Note 6 for further discussion of debt.

Preliminary Marcellus Acquisition Purchase Price Allocation

We have accounted for the Marcellus Acquisition as a business combination, using the acquisition method. The following table represents the preliminary allocation of the total purchase price to the identifiable assets acquired and the liabilities assumed based on the fair values as of the acquisition date. Certain data necessary to complete the purchase price allocation is not yet available, and includes, but is not limited to, valuation of pre-acquisition contingencies and final appraisals of assets acquired and liabilities assumed. We expect to complete the purchase price allocation during the 12-month period following the acquisition date, during which time the value of the assets and liabilities may be revised as appropriate.

Preliminary Purchase Price Allocation
Consideration:
Cash$2,000
Fair value of Chesapeake’s common stock issued in the merger764
Working capital adjustments6
Total consideration$2,770
Fair Value of Liabilities Assumed:
Current liabilities$420
Other long-term liabilities129
Amounts attributable to liabilities assumed$549
Fair Value of Assets Acquired:
Cash and cash equivalents$—
Other current assets218
Proved oil and natural gas properties2,309
Unproved properties788
Other property and equipment1
Other long-term assets3
Amounts attributable to assets acquired$3,319
Total identifiable net assets$2,770

Oil and Natural Gas Properties

For the Marcellus Acquisition, we applied applicable guidance, under which an acquirer should recognize the identifiable assets acquired and the liabilities assumed on the acquisition date at fair value. The fair value estimate of proved and unproved oil and natural gas properties as of the acquisition date was based on estimated oil and

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natural gas reserves and related future net cash flows discounted using a weighted average cost of capital, including estimates of future production rates and future development costs. We utilized NYMEX strip pricing adjusted for inflation to value the reserves. We then applied various discount rates depending on the classification of reserves and other risk characteristics. Management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired. Additionally, the fair value estimate of proved and unproved oil and natural gas properties was corroborated by utilizing a market approach, which considers recent comparable transactions for similar assets.

The inputs used to value oil and natural gas properties require significant judgment and estimates made by management and represent Level 3 inputs.

Marcellus Acquisition Revenues and Expenses Subsequent to Acquisition

We included in our condensed consolidated statements of operations oil, natural gas and NGL revenues of $59 million, net losses on oil and natural gas derivatives of $200 million, and direct operating expenses of $30 million, including depreciation, depletion and amortization related to the Marcellus Acquisition businesses for the period from March 10, 2022 to March 31, 2022.

Vine Acquisition

On November 1, 2021, we acquired 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, for total consideration of approximately $1.5 billion, consisting of approximately 18.7 million shares of our common stock and $90 million in cash. 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. See Note 6 for additional discussion of the assumed debt. We funded the cash portion of the consideration with cash on hand.

Preliminary Vine Purchase Price Allocation

We have accounted for the Vine Acquisition as a business combination, using the acquisition method. The following table represents the preliminary allocation of the total purchase price of Vine to the identifiable assets acquired and the liabilities assumed based on the fair values as of the acquisition date. Certain data necessary to complete the purchase price allocation is not yet available, and includes, but is not limited to, valuation of pre-acquisition contingencies, and final appraisals of assets acquired and liabilities assumed. We expect to complete the purchase price allocation during the 12-month period following the acquisition date, during which time the value of the assets and liabilities may be revised as appropriate.

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Preliminary Purchase Price Allocation
Consideration:
Cash$253
Fair value of Chesapeake’s common stock issued in the merger1,231
Restricted stock unit replacement awards6
Total consideration$1,490
Fair Value of Liabilities Assumed:
Current liabilities$765
Long-term debt1,021
Deferred tax liabilities49
Other long-term liabilities272
Amounts attributable to liabilities assumed$2,107
Fair Value of Assets Acquired:
Cash and cash equivalents$59
Other current assets206
Proved oil and natural gas properties2,181
Unproved properties1,118
Other property and equipment1
Other long-term assets32
Amounts attributable to assets acquired$3,597
Total identifiable net assets$1,490

Oil and Natural Gas Properties

For the Vine Acquisition, we applied applicable guidance, under which an acquirer should recognize the identifiable assets acquired and the liabilities assumed on the acquisition date at fair value. The fair value estimate of proved and unproved oil and natural gas properties as of the acquisition date was based on estimated oil and natural gas reserves and related future net cash flows discounted using a weighted average cost of capital, including estimates of future production rates and future development costs. We utilized NYMEX strip pricing adjusted for inflation to value the reserves. We then applied various discount rates depending on the classification of reserves and other risk characteristics. Management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired. Additionally, the fair value estimate of proved and unproved oil and natural gas properties was corroborated by utilizing a market approach, which considers recent comparable transactions for similar assets.

The inputs used to value oil and natural gas properties require significant judgment and estimates made by management and represent Level 3 inputs.

Financial Instruments and Other

The fair value measurements of long-term debt were estimated based on a market approach using estimates provided by an independent investment data services firm and represent Level 2 inputs.

Restricted Stock Unit Replacement Awards

Included in consideration for the Vine Acquisition is approximately $6 million related to pre-combination service recognized on Vine’s restricted stock unit awards. For restricted stock units that were accelerated or transitioned at

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the time of the merger, we recognized expense for the portion of the award that was accelerated and included in consideration the portion of the award related to pre-combination service.

Vine Revenues and Expenses Subsequent to Acquisition

We included in our condensed consolidated statements of operations oil, natural gas and NGL revenues of $349 million, net losses on oil and natural gas derivatives of $507 million, direct operating expenses of $199 million, including depreciation, depletion and amortization, and other expense of $11 million related to the Vine business for the period from January 1, 2022 to March 31, 2022.

Combined Pro Forma Financial Information

As the Vine Acquisition closed on November 1, 2021, all activity in 2022 is included in Chesapeake’s condensed consolidated statements of operations for the period ended March 31, 2022. The following unaudited pro forma financial information is based on our historical condensed consolidated financial statements adjusted to reflect as if the Marcellus Acquisition and Vine Acquisition had each occurred on February 10, 2021, the date Chesapeake emerged from bankruptcy. See Note 2 for additional information on the bankruptcy. The information below reflects pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including the estimated tax impact of the pro forma adjustments.

Successor
Period from January 1, 2022 through March 31, 2022Period from February 10, 2021 through March 31, 2021
Revenues$935$1,076
Net income (loss) available to common stockholders$(868)$319
Earnings per common share:
Basic$(6.83)$2.53
Diluted$(6.83)$2.35

Powder River Divestiture

On January 24, 2022, Chesapeake signed an agreement to sell its Powder River Basin assets in Wyoming to Continental Resources, Inc. (NYSE: CLR) for approximately $450 million, subject to customary closing adjustments. The divestiture, which closed on March 25, 2022, resulted in the recognition of a gain of approximately $279 million based on the difference between the carrying value of the assets and the cash received.

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5.Earnings Per Share

Basic earnings (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 earnings (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 units, and unvested performance share units and during the Predecessor Period have historically consisted of unvested restricted stock units, 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:

SuccessorPredecessor
Three Months Ended March 31, 2022Period from February 10, 2021 through March 31, 2021Period from January 1, 2021 through February 9, 2021
Numerator
Net income (loss), basic and diluted$(764)$295$5,383
Denominator (in thousands)
Weighted average common shares outstanding, basic120,80597,9079,781
Effect of potentially dilutive securities
Preferred stock——290
Warrants—9,250—
Restricted stock units—2—
Performance share units———
Weighted average common shares outstanding, diluted120,805107,15910,071
Earnings (loss) per common share
Earnings (loss) per common share, basic$(6.32)$3.01$550.35
Earnings (loss) per common share, diluted$(6.32)$2.75$534.51

Successor

During the 2022 Successor Period, the diluted loss per share calculation excludes the effect of 1,228,828 reserved shares of common stock and 2,318,446 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 2022 Successor Period. Additionally, as the 2022 Successor Period had a net loss, the diluted earnings (loss) per share calculation excludes the antidilutive effect, calculated using the treasury stock method, of 19,621,344 issuable shares related to warrants, 457,680 shares of restricted stock units, and 47,458 shares related to performance share units.

During the 2021 Successor Period, the dilutive earnings per share calculation excludes the effect of 2,092,918 reserved shares of common stock and 3,948,893 reserved Class C warrants related to the settlement of General Unsecured Claims associated with the Chapter 11 Cases as all necessary conditions had not been met to be considered dilutive shares as of the 2021 Successor Period.

Predecessor

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We had the option to settle conversions of the 5.50% 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 per share.

6.Debt

Our long-term debt consisted of the following as of March 31, 2022 and December 31, 2021:

Successor
March 31, 2022December 31, 2021
Carrying AmountFair Value**(a)**Carrying AmountFair Value**(a)**
Exit Credit Facility - Tranche A Loans$500$500$—$—
Exit Credit Facility - Tranche B Loans221221221221
5.50% senior notes due 2026500510500526
5.875% senior notes due 2029500514500535
6.75% senior notes due 20299501,0089501,031
Premiums on senior notes112—116—
Debt issuance costs(9)—(9)—
Total long-term debt, net$2,774$2,753$2,278$2,313

(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 and the Vine Notes (as defined below).

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 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 April 2022, and the next scheduled redetermination will be on or about October 1, 2022. The aggregate initial elected commitments of the lenders under the Exit Credit Facility were $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 the guarantors party thereto, 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 PV-10 of proved developed producing reserves to total secured debt. The Company has no additional secured debt outstanding as of March 31, 2022.

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

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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 party thereto 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 to holders of record on the immediately preceding January 15 and July 15.

Vine Senior Notes. As a result of the completion of the Vine Acquisition, the Company and certain of its subsidiaries entered into a supplemental indenture pursuant to which the Company assumed the obligations under Vine’s $950 million aggregate principal amount of 6.75% senior notes due 2029 (the “Vine Notes”) issued under the indenture dated April 7, 2021 with Wilmington Trust, National Association, as Trustee (the “Vine Indenture”). The Vine Notes included a $71 million premium to reflect fair value adjustments at the date of acquisition.

The Company and certain of its subsidiaries have agreed to guarantee such obligations under the Vine Indenture. Additionally, certain subsidiaries of Vine entered into a supplemental indenture to the Company’s existing indenture, dated February 5, 2021 with Deutsche Bank Trust Company Americas as trustee (the “CHK Indenture”), pursuant to which such subsidiaries of Vine have agreed to guarantee obligations under the CHK Indenture.

Interest on the Vine Notes is payable semi-annually, on April 15 and October 15 of each year to holders of record on the immediately preceding April 1 and October 1.

The Notes and the Vine 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.

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 for most US dollar settings on June 30, 2023, 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

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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 condensed consolidated financial statements and related disclosures.

7.Contingencies and Commitments

Contingencies

Chapter 11 Proceedings

Commencement of the Chapter 11 Cases automatically stayed the proceedings and actions against us that are referenced 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 were 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 address the potential liability. Depending on the extent of an identified environmental concern, we may, among other things, exclude a property from the transaction, require the seller to remediate the property to our satisfaction in an acquisition or agree to assume liability for the remediation of the property.

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.

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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
March 31, 2022
Remainder of 2022$445
2023536
2024497
2025426
2026386
2027 – 20362,066
Total$4,356

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.

Other Commitments

As part of our normal course of business, we enter into various agreements providing, or otherwise arranging for, financial or performance assurances to third parties on behalf of our wholly owned guarantor subsidiaries. These agreements may include future payment obligations or commitments regarding operational performance that effectively guarantee our subsidiaries’ future performance.

In connection with acquisitions and divestitures, our purchase and sale agreements generally provide indemnification to the counterparty for liabilities incurred as a result of a breach of a representation or warranty by the indemnifying party and/or other specified matters. These indemnifications generally have a discrete term and are intended to protect the parties against risks that are difficult to predict or cannot be quantified at the time of entering into or consummating a particular transaction. For divestitures of oil and natural gas properties, our purchase and sale agreements may require the return of a portion of the proceeds we receive as a result of uncured title or environmental defects.

While executing our strategic priorities, we have incurred certain cash charges, including contract termination charges, financing extinguishment costs and charges for unused natural gas transportation and gathering capacity.

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8.Other Current Liabilities

Other current liabilities as of March 31, 2022 and December 31, 2021 are detailed below:

Successor
March 31, 2022December 31, 2021
Revenues and royalties due others$733$617
Accrued drilling and production costs196142
Accrued hedging costs116113
Accrued compensation and benefits3791
Other accrued taxes9086
Operating leases2929
Joint interest prepayments received1914
Other121110
Total other current liabilities$1,341$1,202
9.Revenue

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

Successor
Three Months Ended March 31, 2022
OilNatural GasNGLTotal
Marcellus$—$609$—$609
Haynesville—652—652
Eagle Ford4504757554
Powder River Basin66201399
Oil, natural gas and NGL revenue$516$1,328$70$1,914
Marketing revenue$395$408$64$867

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Successor
Period from February 10, 2021 through March 31, 2021
OilNatural GasNGLTotal
Marcellus$—$163$—$163
Haynesville—70—70
Eagle Ford2064323272
Powder River Basin2814648
Oil, natural gas and NGL revenue$234$290$29$553
Marketing revenue$162$97$18$277
Predecessor
Period from January 1, 2021 through February 9, 2021
OilNatural GasNGLTotal
Marcellus$—$119$—$119
Haynesville—53—53
Eagle Ford1591717193
Powder River Basin207633
Oil, natural gas and NGL revenue$179$196$23$398
Marketing revenue$141$78$20$239

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 utilize an allowance method in accounting for bad debt based on historical trends in addition to specifically identifying receivables that we believe may be uncollectible.

Accounts receivable as of March 31, 2022 and December 31, 2021 are detailed below:

Successor
March 31, 2022December 31, 2021
Oil, natural gas and NGL sales$1,082$922
Joint interest209158
Other9538
Allowance for doubtful accounts(3)(3)
Total accounts receivable, net$1,383$1,115

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10.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 2022 Successor Period is 5.7% as a result of projecting current federal and state income taxes and a full valuation allowance against our anticipated net deferred asset position at December 31, 2022. Although we are projecting a current federal and state tax liability, a benefit has been recorded in the 2022 Successor Period due to the application of the AETR to the 2022 Successor Period book net loss before income taxes.

Our estimated AETR for the 2021 Successor Period was 0.0% as a result of maintaining a full valuation allowance against our net deferred asset position. 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 resulted 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 resulted 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.

As of December 31, 2021, we were in a net deferred tax asset position and anticipate being in a net deferred tax asset position as of December 31, 2022. Based on all available positive and negative evidence, including projections of future taxable income, we believe it is more likely than not that 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 March 31, 2022 and December 31, 2021. A significant piece of objectively verifiable negative evidence evaluated is the losses incurred in recent quarters. Should future results of operations demonstrate a trend of profitability, additional weight may be placed upon other evidence, such as forecasts of future taxable income. Additionally, future events and new evidence, such as the integration and realization of profit from recently acquired assets, could lead to increased weight being placed upon 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.

Our ability to utilize net operating loss (“NOL”) carryforwards, disallowed business interest carryforwards, tax credits and possibly other tax attributes to reduce future taxable income and federal income tax is subject to various limitations under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). The utilization of such attributes may be subject to an annual limitation under Section 382 of the Code should transactions involving our equity result in a cumulative shift of more than 50% in the beneficial ownership of our stock during any three-year testing period (an “Ownership Change”).

As a result of emergence from bankruptcy on February 9, 2021, the Company did experience an Ownership Change. 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 our 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. The limitation applies to our NOL carryforwards, disallowed business interest carryforwards and general business credits until such attributes expire or are fully utilized. As we believe we were in an overall net unrealized built-in loss position at the Effective Date, the limitation also applies to any recognized built-in losses incurred for a period of five years but only to the extent of the overall net unrealized built-in loss. Recognized built-in losses include a portion of our tax depreciation, depletion, and amortization deductions along with a portion of our realized hedging losses. We incurred sufficient recognized built-in losses during the 2021 tax year such that we have no further restriction on the company’s deductions for such items. Some states impose similar limitations on tax attribute utilization upon experiencing an ownership change.

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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 was $5 billion, all of which reduced our NOL carryforwards. As a result of the Section 382 limitation, $593 million of federal NOLs remaining after the CODI reduction were estimated to expire before they would become utilizable and as such were removed from our deferred tax assets. The states we operate in generally have similar rules for attribute reduction and Section 382 limitation which resulted in the reduction of certain of our state NOL carryforwards.

11.Equity

New Common Stock

As discussed in Note 2, on the Effective Date, we issued an aggregate of 97,907,081 shares of New Common Stock, par value $0.01 per share, to the holders of allowed claims, and 2,092,918 shares of New Common Stock were reserved for future distributions under the Plan. During the 2021 Successor Period, 864,090 reserved shares were issued to resolve allowed unsecured claims.

On November 1, 2021 we completed the Vine Acquisition and issued 18,709,399 shares of New Common Stock. On March 9, 2022, we completed the Marcellus Acquisition and issued 9,442,185 shares of New Common Stock. See further discussion of both acquisitions in Note 4.

Dividends

In May 2021, we initiated a new annual dividend on our shares of common stock, expected to be paid quarterly. The following table summarizes our dividend payments in the 2022 Successor Period.

Payment DateStockholders of Record DateDividend PaymentRate Per Share
March 22, 2022March 7, 2022$210$1.7675

On May 4, 2022, we declared a quarterly dividend payable of $2.34 per share, which will be paid on June 2, 2022 to stockholders of record at the close of business on May 19, 2022. The dividend consists of a base quarterly dividend in the amount of $0.50 per share and a variable quarterly dividend in the amount of $1.84 per share.

Share Repurchase Program

As of December 2, 2021 the Company was authorized to purchase up to $1 billion of the Company’s common stock under a share repurchase program. In March 2022, we commenced our share repurchase program and repurchased 1 million shares of common stock for an aggregate price of $83 million. The repurchased shares of common stock were retired and recorded as a reduction to common stock and retained earnings.

Warrants

Class A WarrantsClass B WarrantsClass C Warrants**(a)**
Outstanding as of December 31, 202110,856,85212,313,27311,388,371
Converted into New Common Stock(b)(1,036,606)(22,392)(13,845)
Outstanding as of March 31, 20229,820,24612,290,88111,374,526

(a)As of March 31, 2022, we had 2,318,446 of reserved Class C Warrants.

(b)During the 2022 Successor Period, we issued 669,669 shares of common stock as a result of Warrant exercises.

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. 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,

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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 March 22, 2022, and the adjusted exercise prices are $26.43, $30.73, and $34.61 per share for the Class A, Class B and Class C Warrants, respectively.

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.

12.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 2021 Long Term Incentive Plan (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 and 2022 Successor Periods, we granted restricted stock units to employees and non-employee directors under the LTIP, which will vest over a three-year period. 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 UnitsWeighted Average Grant Date Fair Value Per Share
(in thousands)
Unvested as of December 31, 2021775$46.77
Granted484$74.84
Vested(31)$65.42
Forfeited(42)$44.42
Unvested as of March 31, 20221,186$57.81

The aggregate intrinsic value of restricted stock units that vested during the 2022 Successor Period was approximately $2 million based on the stock price at the time of vesting.

As of March 31, 2022, there was approximately $57 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 2.62 years.

Performance Share Units. In the 2021 and 2022 Successor Periods, we granted performance share units (“PSUs”) to senior management under the LTIP, which will generally vest over a three-year period and will be settled in shares. The performance criteria include total shareholder return (“TSR”) and relative TSR (“rTSR”), and could result in a total payout between 0% - 200% of the target units. For the PSUs granted in 2021, the performance criteria also include share price hurdles which could result in a total payout out between 0% - 100% 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 2022.

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AssumptionTSR, rTSR
Risk-free interest rate2.00%
Volatility70.2%

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

Unvested Performance Share UnitsWeighted Average Grant Date Fair Value Per Share
(in thousands)
Unvested as of December 31, 2021183$66.12
Granted133$109.65
Vested—$—
Forfeited(20)$54.03
Unvested as of March 31, 2022296$86.47

As of March 31, 2022, there was approximately $23 million of total unrecognized compensation expense related to unvested PSUs. The expense is expected to be recognized over a weighted average period of approximately 2.68 years.

Predecessor Share-Based Compensation

Our Predecessor share-based compensation program consisted of restricted stock units, stock options, PSUs and cash restricted stock units (“CRSUs”) granted to employees and restricted stock units granted to non-employee directors under our long-term incentive plans. The restricted stock units 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 UnitsWeighted Average Grant Date Fair Value Per Share
(in thousands)
Unvested as of December 31, 20201$616.57
Granted—$—
Vested—$—
Forfeited/canceled(1)$611.47
Unvested as of February 9, 2021—$—

Stock Options. In the year ended December 31, 2020, 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.

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The following table provides information related to stock option activity:

Number of Shares Underlying OptionsWeighted Average Exercise Price Per ShareWeighted Average Contract Life in YearsAggregate Intrinsic Value**(a)**
(in thousands)
Outstanding as of December 31, 202020$1,429.114.27$—
Granted—$—
Exercised—$—$—
Expired(1)$741.86
Forfeited/canceled(19)$1,452.40
Outstanding as of February 9, 2021—$——$—
Exercisable as of February 9, 2021—$——$—

(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 Units, Stock Option, and PSU Compensation. We recognized the following compensation costs, net of actual forfeitures, related to restricted stock units, stock options, and PSUs for the periods presented:

SuccessorPredecessor
Three Months Ended March 31, 2022Period from February 10, 2021 through March 31, 2021Period from January 1, 2021 through February 9, 2021
General and administrative expenses$3$—$3
Oil and natural gas properties1——
Total restricted stock units, stock option, and PSU compensation$4$—$3
13.Derivative and Hedging Activities

We use derivative instruments to reduce our exposure to fluctuations in future commodity prices and to protect our expected operating cash flow against significant market movements or volatility. These commodity derivative financial instruments include financial price swaps, basis protection swaps, collars, three-way collars, options and swaptions. 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.

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The estimated fair values of our oil and natural gas derivative instrument assets (liabilities) as of March 31, 2022 and December 31, 2021 are provided below:

Successor
March 31, 2022December 31, 2021
Notional VolumeFair ValueNotional VolumeFair Value
Oil (MMBbls):
Fixed-price swaps10$(469)13$(356)
Collars5(40)——
Basis protection swaps17(14)9(2)
Total oil32(523)22(358)
Natural gas (Bcf):
Fixed-price swaps700(1,784)637(675)
Collars572(610)205(82)
Three-way collars23(47)——
Call options18(46)18(17)
Swaptions7(12)——
Basis protection swaps396—252(11)
Total natural gas1,716(2,499)1,112(785)
Total estimated fair value$(3,022)$(1,143)

Effect of Derivative Instruments – Condensed Consolidated Balance Sheets

The following table presents the fair value and location of each classification of derivative instrument included in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021 on a gross basis and after same-counterparty netting:

Gross Fair ValueAmounts Netted in the Consolidated Balance SheetsNet Fair Value Presented in the Consolidated Balance Sheets
Successor
As of March 31, 2022
Commodity Contracts:
Short-term derivative asset$34$(33)$1
Long-term derivative asset22(14)8
Short-term derivative liability(2,671)33(2,638)
Long-term derivative liability(407)14(393)
Total derivatives$(3,022)$—$(3,022)
As of December 31, 2021
Commodity Contracts:
Short-term derivative asset$56$(51)$5
Short-term derivative liability(950)51(899)
Long-term derivative liability(249)—(249)
Total derivatives$(1,143)$—$(1,143)

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Effect of Derivative Instruments – Condensed Consolidated Statements of Operations

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

SuccessorPredecessor
Three Months Ended March 31, 2022Period from February 10, 2021 through March 31, 2021Period from January 1, 2021 through February 9, 2021
Gains (losses) on undesignated oil and natural gas derivatives$(2,125)$46$(379)
Losses on terminated cash flow hedges——(3)
Total oil and natural gas derivatives$(2,125)$46$(382)

Effect of Derivative Instruments – Accumulated Other Comprehensive Income

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

SuccessorPredecessor
Three Months Ended March 31, 2022Period from February 10, 2021 through March 31, 2021Period from January 1, 2021 through February 9, 2021
Before TaxAfter TaxBefore TaxAfter TaxBefore TaxAfter Tax
Balance, beginning of period$—$—$—$—$(12)$45
Losses reclassified to income————33
Fresh start adjustments————99
Elimination of tax effects—————(57)
Balance, end of period$—$—$—$—$—$—

Our accumulated other comprehensive loss balance represented the net deferred loss associated with commodity derivative contracts that were previously designated as cash flow hedges for which the original contract months were yet to occur. The remaining deferred gain or loss amounts were to be recognized in earnings in the 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 deemed by us to have acceptable credit strength and deemed by management to be competent and competitive market-makers, and we attempt to limit our exposure to non-performance by any single counterparty. As of March 31, 2022, our oil and natural gas derivative instruments were spread among 14 counterparties.

Hedging Arrangements

Certain of our hedging arrangements are with counterparties that are also lenders (or affiliates of lenders) under our Exit Credit Facility. The contracts entered into with these counterparties are secured by the same collateral that secures the Exit Credit Facility. The counterparties’ obligations must be secured by cash or letters of credit to the extent that any mark-to-market amounts owed to us exceed defined thresholds. As of March 31, 2022, 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

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corroborated from active markets or broker quotes, and as such are classified as Level 2. These values are compared to the values given by our counterparties for reasonableness. Derivatives are also subject to the risk that either party to a contract will be unable to meet its obligations. We factor non-performance risk into the valuation of our derivatives using current published credit default swap rates. To date, this has not had a material impact on the values of our derivatives.

The following table provides information for financial assets (liabilities) measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021:

Successor
Significant Other Observable Inputs (Level 2)March 31, 2022December 31, 2021
Derivative Assets (Liabilities):
Commodity assets$56$56
Commodity liabilities(3,078)(1,199)
Total derivatives$(3,022)$(1,143)
14.Other Operating Expense (Income), Net

In the 2022 Successor Period, we recognized approximately $23 million of costs related to our Marcellus Acquisition, which included consulting fees, financial advisory fees, legal fees and change in control expense in accordance with Chief’s existing employment agreements.

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