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

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


Introduction

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with management’s perspective on our financial condition, liquidity, results of operations and certain other factors that may affect our future results. The following discussion should be read together with the condensed consolidated financial statements included in Item 1 of Part I of this report and the consolidated financial statements included in Item 8 of our 2021 Form 10-K.

We are an independent exploration and production company engaged in the acquisition, exploration and development of properties to produce natural gas, oil and NGL from underground reservoirs. We own a large and geographically diverse portfolio of onshore U.S. unconventional natural gas and liquids assets, including interests in approximately 8,300 gross natural gas and oil wells as of June 30, 2022. Our natural gas resource plays are the Marcellus Shale in the northern Appalachian Basin in Pennsylvania (“Marcellus”) and the Haynesville/Bossier Shales in northwestern Louisiana (“Haynesville”). Our liquids-rich resource play is the Eagle Ford Shale in South Texas (“Eagle Ford”).

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

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

Eliminate routine flaring from all new wells completed from 2021 forward, and enterprise-wide by 2025;
Reduce our methane intensity to 0.09% by 2025; and
Reduce our GHG intensity to 5.5 by 2025.

We achieved our interim goals for both intensity measures by exiting 2021 with a 0.07% methane intensity and a 4.5 GHG intensity, respectively. In July 2021, we announced our plan to receive independent certification of our natural gas production under the MiQ methane standard and EO100™ Standard for Responsible Energy Development. Our Haynesville assets were certified as responsibly sourced gas at the end of 2021, and our legacy Marcellus assets (excluding assets acquired in the Marcellus Acquisition) received dual certification as responsibly sourced gas at the end of the second quarter of 2022. We anticipate that the remaining Marcellus assets will receive dual certification by the end of 2022. The MiQ certification will provide a verified approach to tracking our commitment to reduce our methane intensity, as well as support our overall objective of achieving net-zero direct greenhouse gas emissions by 2035.

Our results of operations as reported in our condensed consolidated financial statements for the 2022 Successor Quarter, 2022 Successor Period, 2021 Successor Quarter, 2021 Successor Period and 2021 Predecessor Period are in accordance with GAAP. Although GAAP requires that we report on our results for the periods January 1, 2021 through February 9, 2021 (the 2021 Predecessor Period) and February 10, 2021 through June 30, 2021 (the 2021 Successor Period) separately, management views our operating results for the six months ended June 30, 2021 by combining the results of the 2021 Predecessor Period and the 2021 Successor Period because management believes such presentation provides the most meaningful comparison of our results to prior periods. We are not able to compare the 40 days from January 1, 2021 through February 9, 2021 operating results to any of the previous periods reported in the condensed consolidated financial statements and do not believe

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reviewing this period in isolation would be useful in identifying any trends in, or reaching any conclusions regarding, our overall operating performance. We believe the key performance indicators, such as operating revenues and expenses for the 2021 Successor Period combined with the 2021 Predecessor Period, provide more meaningful comparisons to other periods and are useful in understanding operational trends. Additionally, there were no changes in policies between the periods, and any material impacts as a result of fresh start accounting were included within the discussion of these changes. These combined results do not comply with GAAP and have not been prepared as pro forma results under applicable regulations, but are presented because we believe they provide the most meaningful comparison of our results to prior periods. As the majority of our production profile consists of natural gas, we have converted the following results of operations, including prior periods, from a per barrel of oil equivalent, to a per one thousand cubic feet of natural gas equivalent, referred to, on such a converted basis, as Mcfe.


Recent Developments

Acquisitions

On March 9, 2022, we completed our Marcellus Acquisition pursuant to definitive agreements with Chief, Radler and Tug Hill, Inc. dated January 24, 2022. On November 1, 2021, we completed our Vine Acquisition pursuant to a definitive agreement with Vine dated August 10, 2021. These transactions strengthen Chesapeake’s competitive position, meaningfully increasing our operating cash flows and adding high quality producing assets and a deep inventory of premium drilling locations, while preserving the strength of our balance sheet.

Divestiture

On March 25, 2022, we completed the sale of our Powder River Basin assets in Wyoming to Continental Resources, Inc. for $450 million in cash, subject to post-closing adjustments, which resulted in the recognition of a gain of approximately $299 million.

Repurchases of Equity Securities and Dividends

In June 2022, our Board of Directors authorized an increase in the size of our share repurchase program from $1.0 billion to up to $2.0 billion in aggregate value of our common stock and/or warrants. As of June 30, 2022, we had repurchased approximately 6.8 million shares of our common stock pursuant to the share repurchase program and had $1,402 million available under the share repurchase program. In addition, we have paid dividends of approximately $508 million, in aggregate, on our common stock in the 2022 Successor Period. In August 2022, we increased our quarterly base dividend by 10% to $0.55 per share beginning with the dividend to be paid on September 1, 2022.

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

The global spread of COVID-19 and its variants created, and continues to create, significant volatility, uncertainty, and economic disruption during 2020, 2021 and into 2022. The ongoing pandemic has resulted in widespread adverse impacts on the global economy and on our customers and other parties with whom we have business relations. To date, we have experienced limited operational impacts as a result of COVID-19 or related governmental restrictions. While we cannot predict the full impact that COVID-19 and its variants, or the related significant disruption and volatility in the natural gas and oil markets will have on our business, cash flows, liquidity, financial condition and results of operations, we believe demand is recovering and prices will continue to be positively impacted in the near term. For additional discussion regarding risks associated with the COVID-19 pandemic, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K and Part I, Item 1A “Risk Factors” in our 2021 Form 10-K.

Russia’s Invasion of Ukraine; Volatility in Natural Gas, Oil and NGL Prices; and Inflationary Cost Pressures

In late February 2022, Russia launched a military invasion against Ukraine. Sustained conflict and disruption in the region is likely in the near term, and the longer-term duration of the war is uncertain. The Russian invasion has caused, and could intensify, volatility in natural gas, oil and NGL prices, driving a sharp upward spike in the short term, and may have an impact on global growth prospects, which could in turn affect demand for natural gas and oil. The global market is also currently experiencing inflationary pressures, including rising fuel costs, a tightening steel market and labor and supply chain shortages, which could result in increases to our operating and capital costs that

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are not fixed. We are monitoring the situation and assessing its impact on our business, including our business partners and customers.


Liquidity and Capital Resources

Liquidity Overview

For the 2022 Successor Period, our primary sources of capital resources and liquidity have consisted of internally generated cash flows from operations and borrowings under our Exit Credit Facility, and our primary uses of cash have been for the development of our natural gas and oil properties, acquisitions of additional natural gas and oil properties and return of value to stockholders through dividends and share repurchases. Historically, our primary sources of capital resources and liquidity have consisted of internally generated cash flows from operations, borrowings under certain credit agreements and dispositions of non-core assets. Our ability to issue additional indebtedness, dispose of assets or access the capital markets was substantially limited during the Chapter 11 Cases and required court approval in most instances. Accordingly, our liquidity in the 2021 Predecessor Period depended mainly on cash generated from operations and available funds under certain credit agreements.

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

We believe our cash flow from operations, cash on hand and borrowing capacity under the Exit Credit Facility, as discussed below, will provide sufficient liquidity during the next 12 months and the foreseeable future. As of June 30, 2022, we had $960 million of liquidity available, including $17 million of cash on hand and $943 million of aggregate unused borrowing capacity available under the Exit Credit Facility. As of June 30, 2022, we had $775 million of outstanding borrowings under our Exit Credit Facility – Tranche A Loans and $221 million in borrowings under our Exit Credit Facility – Tranche B Loans. See Note 6 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion of our debt obligations, including carrying and fair value of our senior notes.

Dividend

With our strong liquidity position, we initiated a new dividend strategy in the 2021 Successor Period. We paid dividends of $508 million on our common stock in the 2022 Successor Period. See Note 11 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion.

On August 2, 2022, we declared a quarterly dividend payable of $2.32 per share, which will be paid on September 1, 2022 to stockholders of record at the close of business on August 17, 2022. The dividend consists of a base quarterly dividend in the amount of $0.55 per share and a variable quarterly dividend in the amount of $1.77 per share.

The declaration and payment of any future dividend, whether fixed or variable, will remain at the full discretion of the Board of Directors and will depend on the Company’s financial results, cash requirements, future prospects and other relevant factors. The Company’s ability to pay dividends to its stockholders is restricted by (i) Oklahoma corporate law, (ii) its Certificate of Incorporation, (iii) the terms and provisions of its Credit Agreement and (iv) the terms and provisions of the indentures governing its 5.50% 2026 Notes, 5.875% 2029 Notes and 6.75% Senior Notes due 2029 assumed in the Vine Acquisition.

Derivative and Hedging Activities

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

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Contractual Obligations and Off-Balance Sheet Arrangements

As of June 30, 2022, our material contractual obligations included repayment of senior notes, outstanding borrowings and interest payment obligations under the Exit Credit Facility, derivative obligations, asset retirement obligations, lease obligations, undrawn letters of credit and various other commitments we enter into in the ordinary course of business that could result in future cash obligations. In addition, we have contractual commitments with midstream companies and pipeline carriers for future gathering, processing and transportation of natural gas, oil and NGL to move certain of our production to market. The estimated gross undiscounted future commitments under these agreements were approximately $4.2 billion as of June 30, 2022. As discussed above, we estimate the sources of our capital will continue to be adequate to fund our near and long-term contractual obligations. See Notes 6, 7 and 13 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion.

Post-Emergence Debt

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

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

On February 2, 2021, the Company issued $500 million aggregate principal amount of its 2026 Notes and $500 million aggregate principal amount of its 2029 Notes. The offering of the Notes was part of a series of exit financing transactions undertaken in connection with the Debtors’ Chapter 11 Cases and meant to provide the exit financing originally intended to be provided by the Exit Term Loan Facility pursuant to the Commitment Letter.

Assumption and Repayment of Vine Debt

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.

Capital Expenditures

For the year ending December 31, 2022, we currently expect to bring or have online approximately 195 to 235 gross wells across 11 to 16 rigs and plan to invest approximately $1.75 billion to $1.95 billion in capital expenditures. We expect that approximately 75% of our 2022 capital expenditures will be directed toward our natural gas assets. We currently plan to fund our 2022 capital program through cash on hand, expected cash flow from our operations and borrowings under our Exit Credit Facility. We may alter or change our plans with respect to our capital program and expected capital expenditures based on developments in our business, our financial position, our industry or any of the markets in which we operate.

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Sources of Funds

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


	Successor				Predecessor
	Six Months Ended June 30, 2022		Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021
Cash provided by (used in) operating activities	$	1,762	$	803	$	(21)
Proceeds from Exit Credit Facility - Tranche A Loans, net	775		—		—
Proceeds from issuance of senior notes	—		—		1,000
Proceeds from issuance of common stock	—		—		600
Proceeds from warrant exercise	3		2		—
Proceeds from divestitures of property and equipment	403		6		—
Total sources of cash and cash equivalents	$	2,943	$	811	$	1,579

Cash Flows from Operating Activities

Cash provided by operating activities was $1,762 million in the 2022 Successor Period, cash provided by operating activities was $803 million in the 2021 Successor Period and cash used in operating activities was $21 million in the 2021 Predecessor Period. The increase in the 2022 Successor Period is primarily due to higher prices for the natural gas, oil and NGL we sold and increased volumes sold due to the Vine and Marcellus Acquisitions. The cash used in the 2021 Predecessor Period was primarily due to the payment of professional fees related to the Chapter 11 Cases. Cash flows from operations are largely affected by the same factors that affect our net income, excluding various non-cash items, such as depreciation, depletion and amortization, certain impairments, gains or losses on sales of assets, deferred income taxes and mark-to-market changes in our open derivative instruments. See further discussion below under Results of Operations.

Proceeds from Exit Credit Facility - Tranche A Loans, net

In the 2022 Successor Period, we borrowed a net $775 million on the Exit Credit Facility - Tranche A Loans. We funded a portion of the Marcellus Acquisition with borrowings under the Company’s Exit Credit Facility. A portion of the borrowings were repaid with internally generated cash from operating activities.

Proceeds from Issuance of Senior Notes and Common Stock

In the 2021 Predecessor Period, we issued $500 million aggregate principal amount of 5.50% 2026 Notes and $500 million aggregate principal amount of 5.875% 2029 Notes for total proceeds of $1.0 billion. Additionally, upon emergence from Chapter 11, we issued 62,927,320 shares of New Common Stock in exchange for $600 million of cash as agreed upon in the Plan.

Proceeds from Divestitures of Property and Equipment

In the 2022 Successor Period, we sold our Powder River Basin assets to Continental Resources, Inc. See Note 4 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion.

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Uses of Funds

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


	Successor				Predecessor
	Six Months Ended June 30, 2022		Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021
Natural Gas and Oil Expenditures:
Capital expenditures	$	759	$	226	$	66
Other Uses of Cash and Cash Equivalents:
Business combination, net	2,006		—		—
Payments on Exit Credit Facility - Tranche A Loans, net	—		50		479
Payments on DIP Facility borrowings	—		—		1,179
Debt issuance and other financing costs	—		3		8
Cash paid for common stock dividends	508		34		—
Cash paid to repurchase and retire common stock	558		—		—
Other	—		2		—
Total other uses of cash and cash equivalents	3,072		89		1,666
Total uses of cash and cash equivalents	$	3,831	$	315	$	1,732

Capital Expenditures

Our capital expenditures significantly increased in the 2022 Successor Period compared to the combined 2021 Successor and Predecessor Periods primarily as a result of increased drilling and completion activity in Haynesville and Marcellus, following the Vine Acquisition and Marcellus Acquisition, respectively.

Business Combination

In the 2022 Successor Period, we completed the Marcellus Acquisition for approximately $2 billion and 9.4 million shares of our common stock. See Note 4 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion.

Payments on DIP Facility Borrowings

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

Cash Paid for Common Stock Dividends

As part of our dividend program, we paid common stock base dividends of $116 million and common stock variable dividends of $392 million in the 2022 Successor Period. See Note 11 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion.

Cash Paid to Repurchase and Retire Common Stock

In March 2022, we commenced our share repurchase program and repurchased 1 million shares of our common stock for an aggregate price of $83 million. In June 2022, we repurchased 5.8 million shares of our common stock for an aggregate price of $515 million, which is inclusive of shares for which cash settlement occurred in early July. The shares of common stock that were repurchased in March 2022 and June 2022 were retired and recorded as a reduction to common stock and retained earnings.

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Results of Operations

Natural Gas, Oil and NGL Production and Average Sales Prices


	Successor
	Three Months Ended June 30, 2022
	Natural Gas		Oil		NGL		Total
	MMcf per day	$/Mcf	MBbl per day	$/Bbl	MBbl per day	$/Bbl	MMcfe per day	$/Mcfe
Marcellus	1,957	6.46	—	—	—	—	1,957	6.46
Haynesville	1,643	6.60	—	—	—	—	1,643	6.60
Eagle Ford	130	7.23	50	111.01	16	42.56	525	13.63

Total	3,730	6.55	50	111.01	16	42.56	4,125	7.43

	Successor
	Three Months Ended June 30, 2021
	Natural Gas		Oil		NGL		Total
	MMcf per day	$/Mcf	MBbl per day	$/Bbl	MBbl per day	$/Bbl	MMcfe per day	$/Mcfe
Marcellus	1,279	1.94	—	—	—	—	1,279	1.94
Haynesville	531	2.57	—	—	—	—	531	2.57
Eagle Ford	143	2.37	64	65.58	20	22.78	650	7.73
Powder River Basin	57	3.10	10	64.27	3	30.39	138	6.69
Total	2,010	2.17	74	65.41	23	23.90	2,598	3.77

	Successor
	Six Months Ended June 30, 2022
	Natural Gas		Oil		NGL		Total
	MMcf per day	$/Mcf	MBbl per day	$/Bbl	MBbl per day	$/Bbl	MMcfe per day	$/Mcfe
Marcellus	1,706	5.70	—	—	—	—	1,706	5.70
Haynesville	1,634	5.54	—	—	—	—	1,634	5.54
Eagle Ford	129	5.65	51	102.84	16	41.84	531	12.53
Powder River Basin	20	5.45	4	95.18	1	53.96	51	10.66
Total	3,489	5.62	55	102.30	17	42.82	3,922	6.62

	Successor
	Period from February 10, 2021 through June 30, 2021
	Natural Gas		Oil		NGL		Total
	MMcf per day	$/Mcf	MBbl per day	$/Bbl	MBbl per day	$/Bbl	MMcfe per day	$/Mcfe
Marcellus	1,280	2.15	—	—	—	—	1,280	2.15
Haynesville	529	2.61	—	—	—	—	529	2.61
Eagle Ford	143	3.67	65	64.11	19	23.74	650	7.95
Powder River Basin	57	3.71	10	62.42	4	31.98	137	6.84
Total	2,009	2.43	75	63.89	23	24.99	2,596	3.95

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	Predecessor
	Period from January 1, 2021 through February 9, 2021
	Natural Gas		Oil		NGL		Total
	MMcf per day	$/Mcf	MBbl per day	$/Bbl	MBbl per day	$/Bbl	MMcfe per day	$/Mcfe
Marcellus	1,233	2.42	—	—	—	—	1,233	2.42
Haynesville	543	2.44	—	—	—	—	543	2.44
Eagle Ford	165	2.57	74	53.37	18	23.94	721	6.71
Powder River Basin	61	2.92	10	51.96	4	34.31	144	5.71
Total	2,002	2.45	84	53.21	22	25.92	2,641	3.77

Natural Gas, Oil and NGL Sales


	Successor
	Three Months Ended June 30, 2022
	Natural Gas		Oil		NGL		Total
Marcellus	$	1,152	$	—	$	—	$	1,152
Haynesville	988		—		—		988
Eagle Ford	85		503		62		650

Total natural gas, oil and NGL sales	$	2,225	$	503	$	62	$	2,790

	Successor
	Three Months Ended June 30, 2021
	Natural Gas		Oil		NGL		Total
Marcellus	$	226	$	—	$	—	$	226
Haynesville	124		—		—		124
Eagle Ford	31		386		41		458
Powder River Basin	16		58		10		84
Total natural gas, oil and NGL sales	$	397	$	444	$	51	$	892

	Successor
	Six Months Ended June 30, 2022
	Natural Gas		Oil		NGL		Total
Marcellus	$	1,761	$	—	$	—	$	1,761
Haynesville	1,640		—		—		1,640
Eagle Ford	132		953		119		1,204
Powder River Basin	20		66		13		99
Total natural gas, oil and NGL sales	$	3,553	$	1,019	$	132	$	4,704

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	Successor
	Period from February 10, 2021 through June 30, 2021
	Natural Gas		Oil		NGL		Total
Marcellus	$	389	$	—	$	—	$	389
Haynesville	194		—		—		194
Eagle Ford	74		592		64		730
Powder River Basin	30		86		16		132
Total natural gas, oil and NGL sales	$	687	$	678	$	80	$	1,445

	Predecessor
	Period from January 1, 2021 through February 9, 2021
	Natural Gas		Oil		NGL		Total
Marcellus	$	119	$	—	$	—	$	119
Haynesville	53		—		—		53
Eagle Ford	17		159		17		193
Powder River Basin	7		20		6		33
Total natural gas, oil and NGL sales	$	196	$	179	$	23	$	398

	Non-GAAP Combined
	Six Months Ended June 30, 2021
	Natural Gas		Oil		NGL		Total
Marcellus	$	508	$	—	$	—	$	508
Haynesville	247		—		—		247
Eagle Ford	91		751		81		923
Powder River Basin	37		106		22		165
Total natural gas, oil and NGL sales	$	883	$	857	$	103	$	1,843

Natural gas, oil and NGL sales in the 2022 Successor Quarter increased $1,898 million compared to the 2021 Successor Quarter. The increase includes $1,068 million due to increased sales volumes, which is primarily related to the Vine and Marcellus Acquisitions in November 2021 and March 2022, respectively. The increase due to volumes is partially offset by a $155 million decrease in Eagle Ford primarily due to a natural decline in production. The increase in sales also includes $1,069 million due to higher average prices received. The higher average prices are consistent with the upward trend in index prices for all products throughout the 2022 Successor Quarter. The increases noted above are partially offset by an $84 million decrease due to the Powder River Basin divestiture in March 2022.

Natural gas, oil and NGL sales in the 2022 Successor Period increased $2,861 million compared to the combined 2021 Successor and Predecessor Periods. The increase includes $1,559 million due to increased sales volumes, which is primarily related to the Vine and Marcellus Acquisitions in November 2021 and March 2022, respectively. The increase due to volumes is partially offset by a $304 million decrease in Eagle Ford primarily due to a natural decline in production. The increase in sales also includes $1,672 million due to higher average prices received. The higher average prices are consistent with the upward trend in index prices for all products throughout the 2022 Successor Period. The increases noted above are partially offset by an $66 million decrease due to the Powder River Basin divestiture in March 2022.

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Production Expenses


	Successor
	Three Months Ended June 30, 2022			Three Months Ended June 30, 2021
			$/Mcfe			$/Mcfe
Marcellus	$	19	0.11	$	9	0.07
Haynesville	39		0.26	11		0.22
Eagle Ford	60		1.25	47		0.80
Powder River Basin	—		—	7		0.60
Total production expenses	$	118	0.31	$	74	0.31


	Successor						Predecessor			Non-GAAP Combined
	Six Months Ended June 30, 2022			Period from February 10, 2021 through June 30, 2021			Period from January 1, 2021 through February 9, 2021			Six Months Ended June 30, 2021
			$/Mcfe			$/Mcfe			$/Mcfe			$/Mcfe
Marcellus	$	32	0.10	$	14	0.08	$	4	0.08	$	18	0.08
Haynesville	71		0.24	17		0.23	4		0.19	21		0.22
Eagle Ford	115		1.20	71		0.77	21		0.71	92		0.76
Powder River Basin	10		0.94	12		0.65	3		0.56	15		0.63
Total production expenses	$	228	0.32	$	114	0.31	$	32	0.30	$	146	0.31

Production expenses in the 2022 Successor Quarter increased $44 million as compared to the 2021 Successor Quarter. The increase was primarily due to the Vine Acquisition in November 2021 and the Marcellus Acquisition in March 2022, as well as additional workovers and other preventative maintenance in Eagle Ford. The increase was partially offset by the divestiture of the Powder River Basin.

Production expenses in the 2022 Successor Period increased $82 million as compared to the combined 2021 Successor and Predecessor Periods. The increase was primarily due to the Vine Acquisition in November 2021 and the Marcellus Acquisition in March 2022, as well as additional workovers and other preventative maintenance in Eagle Ford. The increase was partially offset by the divestiture of the Powder River Basin.

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Gathering, Processing and Transportation Expenses


	Successor
	Three Months Ended June 30, 2022			Three Months Ended June 30, 2021
			$/Mcfe			$/Mcfe
Marcellus	$	105	0.59	$	79	0.68
Haynesville	86		0.57	25		0.52
Eagle Ford	83		1.75	82		1.39
Powder River Basin	—		—	25		1.95
Total gathering, processing and transportation expenses	$	274	0.73	$	211	0.89


	Successor						Predecessor			Non-GAAP Combined
	Six Months Ended June 30, 2022			Period from February 10, 2021 through June 30, 2021			Period from January 1, 2021 through February 9, 2021			Six Months Ended June 30, 2021
			$/Mcfe			$/Mcfe			$/Mcfe			$/Mcfe
Marcellus	$	176	0.57	$	121	0.67	$	34	0.70	$	155	0.69
Haynesville	151		0.51	36		0.48	11		0.49	47		0.49
Eagle Ford	167		1.74	126		1.38	45		1.55	171		1.44
Powder River Basin	22		2.32	39		2.00	12		2.09	51		2.03
Total gathering, processing and transportation expenses	$	516	0.73	$	322	0.88	$	102	0.96	$	424	0.90

Gathering, processing and transportation expenses in the 2022 Successor Quarter increased $63 million as compared to the 2021 Successor Quarter. Haynesville increased $61 million primarily due to the Vine Acquisition in November 2021. Marcellus increased $26 million, resulting from an increase of $41 million due to the Marcellus Acquisition in March 2022, partially offset by a decrease of $15 million primarily due to lower rates. Powder River Basin decreased by $25 million due to the divestiture in March 2022.

Gathering, processing and transportation expenses in the 2022 Successor Period increased $92 million as compared to the combined 2021 Successor and Predecessor Periods. Haynesville increased $104 million primarily due to the Vine Acquisition in November 2021. Marcellus increased $21 million, resulting from an increase of $51 million due to the Marcellus Acquisition in March 2022, partially offset by a decrease of $30 million primarily due to lower rates. Powder River Basin decreased by $29 million due to the divestiture in March 2022. Eagle Ford decreased by $4 million, resulting from a decrease of $26 million primarily due to a natural decline in production, partially offset by an increase of $22 million primarily due to increased effective rates.

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Severance and Ad Valorem Taxes


	Successor
	Three Months Ended June 30, 2022			Three Months Ended June 30, 2021
			$/Mcfe			$/Mcfe
Marcellus	$	4	0.02	$	3	0.02
Haynesville	12		0.08	5		0.09
Eagle Ford	41		0.85	26		0.43
Powder River Basin	—		—	7		0.64
Total severance and ad valorem taxes	$	57	0.15	$	41	0.17


	Successor						Predecessor			Non-GAAP Combined
	Six Months Ended June 30, 2022			Period from February 10, 2021 through June 30, 2021			Period from January 1, 2021 through February 9, 2021			Six Months Ended June 30, 2021
			$/Mcfe			$/Mcfe			$/Mcfe			$/Mcfe
Marcellus	$	8	0.02	$	4	0.02	$	1	0.01	$	5	0.02
Haynesville	24		0.09	7		0.09	2		0.09	9		0.09
Eagle Ford	77		0.80	42		0.46	13		0.45	55		0.48
Powder River Basin	11		1.09	12		0.65	2		0.48	14		0.60
Total severance and ad valorem taxes	$	120	0.17	$	65	0.18	$	18	0.17	$	83	0.18

Severance and ad valorem taxes in the 2022 Successor Quarter increased $16 million as compared to the 2021 Successor Quarter. Improved pricing in the 2022 Successor Quarter drove $14 million of the increase, and an additional $7 million increase was the result of the Vine and Marcellus Acquisitions. These increases were slightly offset by a $7 million decrease attributable to the divestiture of the Powder River Basin.

Severance and ad valorem taxes in the 2022 Successor Period increased $37 million as compared to the combined 2021 Successor and Predecessor Periods. Improved pricing in the 2022 Successor Period drove $21 million of the increase, and an additional $13 million increase was the result of the Vine and Marcellus Acquisitions. These increases were slightly offset by a $3 million decrease attributable to the divestiture of the Powder River Basin.

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Gross Margin by Operating Area

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


	Successor
	Three Months Ended June 30, 2022			Three Months Ended June 30, 2021
			$/Mcfe			$/Mcfe
Marcellus	$	1,024	5.74	$	135	1.17
Haynesville	851		5.69	83		1.74
Eagle Ford	466		9.78	303		5.11
Powder River Basin	—		—	45		3.50
Gross margin by operating area	$	2,341	6.24	$	566	2.40


	Successor						Predecessor			Non-GAAP Combined
	Six Months Ended June 30, 2022			Period from February 10, 2021 through June 30, 2021			Period from January 1, 2021 through February 9, 2021			Six Months Ended June 30, 2021
			$/Mcfe			$/Mcfe			$/Mcfe			$/Mcfe
Marcellus	$	1,545	5.01	$	250	1.38	$	80	1.63	$	330	1.42
Haynesville	1,394		4.70	134		1.81	36		1.67	170		1.77
Eagle Ford	845		8.79	491		5.34	114		4.00	605		4.97
Powder River Basin	56		6.31	69		3.54	16		2.58	85		3.31
Gross margin by operating area	$	3,840	5.40	$	944	2.58	$	246	2.34	$	1,190	2.52

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Natural Gas and Oil Derivatives


	Successor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021
Natural gas derivatives - realized losses	$	(857)	$	(11)
Natural gas derivatives - unrealized gains (losses)	436		(422)
Total losses on natural gas derivatives	$	(421)	$	(433)

Oil derivatives - realized losses	$	(189)	$	(113)
Oil derivatives - unrealized gains (losses)	96		(194)
Total losses on oil derivatives	(93)		(307)
Total losses on natural gas and oil derivatives	$	(514)	$	(740)


	Successor				Predecessor
	Six Months Ended June 30, 2022		Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021
Natural gas derivatives - realized gains (losses)	$	(1,285)	$	(16)	$	6
Natural gas derivatives - unrealized losses	(936)		(304)		(179)
Total losses on natural gas derivatives	$	(2,221)	$	(320)	$	(173)

Oil derivatives - realized losses	$	(348)	$	(174)	$	(19)
Oil derivatives - unrealized losses	(70)		(200)		(190)
Total losses on oil derivatives	(418)		(374)		(209)
Total losses on natural gas and oil derivatives	$	(2,639)	$	(694)	$	(382)

See Note 13 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for a discussion of our derivative activity.

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General and Administrative Expenses


	Successor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021

Gross compensation and benefits	$	74	$	59
Non-labor	30		24
Allocations and reimbursements	(68)		(59)
Total G&A, net	$	36	$	24

G&A, net per Mcfe	$	0.10	$	0.10


	Successor				Predecessor
	Six Months Ended June 30, 2022		Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021

Gross compensation and benefits	$	144	$	94	$	32
Non-labor	55		36		12
Allocations and reimbursements	(137)		(91)		(23)
Total G&A, net	$	62	$	39	$	21

G&A, net per Mcfe	$	0.09	$	0.11	$	0.20

Gross compensation and benefits and non-labor expenses during the 2022 Successor Quarter and 2022 Successor Period increased $21 million and $25 million compared to the 2021 Successor Quarter and the combined 2021 Successor and Predecessor Periods, respectively, primarily due to adjustments in employee benefits and compensation and timing of stock award grants.

Allocations and reimbursements during the 2022 Successor Quarter and the 2022 Successor Period increased $9 million and $23 million compared to the 2021 Successor Quarter and the combined 2021 Successor and Predecessor Periods, respectively, primarily due to increased drilling and production activity due to the Vine and Marcellus Acquisitions.

Separation and Other Termination Costs

During the 2021 Successor Quarter, 2021 Successor Period and 2021 Predecessor Period, we recognized $11 million, $11 million and $22 million, respectively, of separation and other termination costs related to one-time termination benefits for certain employees.

Depreciation, Depletion and Amortization


	Successor								Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Six Months Ended June 30, 2022		Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021
DD&A	$	451	$	229	$	860	$	351	$	72
DD&A per Mcfe	$	1.20	$	0.97	$	1.21	$	0.96	$	0.68

The absolute and per unit increases in depreciation, depletion and amortization for the 2022 Successor Quarter and 2022 Successor Period compared to the 2021 Successor Quarter and the combined 2021 Successor and Predecessor Periods, respectively, are primarily the result of the Vine Acquisition and Marcellus Acquisition.

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Other Operating Expense (Income), Net


	Successor								Predecessor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Six Months Ended June 30, 2022		Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021
Other operating expense (income), net	$	8	$	(4)	$	31	$	(2)	$	(12)

During the 2022 Successor Period, we recognized approximately $33 million of costs related to our Marcellus Acquisition, which included integration costs, consulting fees, financial advisory fees, legal fees and change in control expense in accordance with Chief’s existing employment agreements.

Interest Expense


	Successor
	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021

Interest expense on debt	$	44	$	19
Amortization of premium, discount, issuance costs and other	—		2
Capitalized interest	(8)		(3)
Total interest expense	$	36	$	18


	Successor				Predecessor
	Six Months Ended June 30, 2022		Period from February 10, 2021 through June 30, 2021		Period from January 1, 2021 through February 9, 2021

Interest expense on debt	$	82	$	31	$	11
Amortization of premium, discount, issuance costs and other	(1)		3		—
Capitalized interest	(13)		(4)		—
Total interest expense	$	68	$	30	$	11

The increase in total interest expense in the 2022 Successor Quarter and 2022 Successor Period compared to the 2021 Successor Quarter and the combined 2021 Successor and Predecessor Periods, respectively, resulted from the increase in outstanding debt obligations between periods. In November 2021, we assumed Vine’s $950 million of senior notes as part of the Vine Acquisition, and during the 2022 Successor Quarter and 2022 Successor Period, we had increased borrowings under our Exit Credit Facility compared to the 2021 Successor Quarter and the combined 2021 Successor and Predecessor Periods, respectively.

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Reorganization Items, Net


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

In the 2021 Predecessor Period, we recorded a net gain of $5.569 billion in reorganization items, net related to the Chapter 11 Cases. See Note 2 and Note 3 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for a discussion of the Chapter 11 Cases and for discussion of adoption of fresh start accounting. We did not have any reorganization items, net for the 2022 Successor Quarter, the 2022 Successor Period, the 2021 Successor Quarter or the 2021 Successor Period.

Income Taxes

Income tax expense of $31 million was recorded for the 2022 Successor Period as a result of projecting current federal and state income taxes. An income tax benefit of $57 million was recorded for the 2021 Predecessor Period. Our effective income tax rate was 6.2% for the 2022 Successor Period, 0.0% for the 2021 Successor Period, and (1.1%) for the 2021 Predecessor Period. Our effective tax rate can fluctuate as a result of the impact of discrete items, state income taxes and permanent differences. See Note 10 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for a discussion of income taxes.

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Forward-Looking Statements

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements include our current expectations or forecasts of future events, including matters relating to the continuing effects of the impact of inflation and commodity price volatility resulting from Russia’s invasion of Ukraine, COVID-19 and related supply chain constraints, and the impact of each on our business, financial condition, results of operations and cash flows, the potential effects of the Plan on our operations, management, and employees, actions by, or disputes among or between, members of OPEC+ and other foreign oil-exporting countries, market factors, market prices, our ability to meet debt service requirements, our ability to continue to pay cash dividends, the amount and timing of any cash dividends, and our ESG initiatives. Forward-looking and other statements in this Form 10-Q regarding our environmental, social and other sustainability plans and goals are not an indication that these statements are necessarily material to investors or required to be disclosed in our filings with the SEC. In addition, historical, current, and forward-looking environmental, social and sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. In this context, forward-looking statements often address our expected future business, financial performance and financial condition, and often contain words such as "expect," “could,” “may,” "anticipate," "intend," "plan," “ability,” "believe," "seek," "see," "will," "would," “estimate,” “forecast,” "target," “guidance,” “outlook,” “opportunity” or “strategy.”

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

the ability to execute on our business strategy following emergence from bankruptcy;
the impact of inflation and commodity price volatility resulting from Russia’s invasion of Ukraine, COVID-19 and related supply chain constraints, along with the effect on our business, financial condition, employees, contractors, vendors and the global demand for natural gas and oil and U.S. and world financial markets;
risks related to the Vine Acquisition, including our ability to successfully integrate the business of Vine into the Company and achieve the expected synergies from the Vine Acquisition within the expected timeframe;
risks related to the Marcellus Acquisition, including our ability to successfully integrate the business of Chief into the Company and achieve the expected synergies from the Marcellus Acquisition within the expected timeframe;
our ability to comply with the covenants under our Exit Credit Facility and other indebtedness;
our ability to realize anticipated cash cost reductions;
the volatility of natural gas, oil and NGL prices, which are affected by general economic and business conditions, as well as increased demand for (and availability of) alternative fuels and electric vehicles;
a deterioration in general economic, business or industry conditions;
uncertainties inherent in estimating quantities of natural gas, oil and NGL reserves and projecting future rates of production and the amount and timing of development expenditures;
our ability to replace reserves and sustain production;
drilling and operating risks and resulting liabilities;
our ability to generate profits or achieve targeted results in drilling and well operations;
the limitations our level of indebtedness may have on our financial flexibility;
our ability to achieve and maintain ESG certifications/goals;
our inability to access the capital markets on favorable terms;
the availability of cash flows from operations and other funds to fund cash dividends and repurchases of equity securities, to finance reserve replacement costs and/or satisfy our debt obligations;
write-downs of our natural gas and oil asset carrying values due to low commodity prices;

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charges incurred in response to market conditions;
limited control over properties we do not operate;
leasehold terms expiring before production can be established;
commodity derivative activities resulting in lower prices realized on natural gas, oil and NGL sales;
the need to secure derivative liabilities and the inability of counterparties to satisfy their obligations;
potential OTC derivatives regulations limiting our ability to hedge against commodity price fluctuations;
adverse developments or losses from pending or future litigation and regulatory proceedings, including royalty claims;
our need to secure adequate supplies of water for our drilling operations and to dispose of or recycle the water used;
pipeline and gathering system capacity constraints and transportation interruptions;
legislative, regulatory and ESG initiatives, addressing environmental concerns, including initiatives addressing the impact of global climate change or further regulating hydraulic fracturing, methane emissions, flaring or water disposal;
terrorist activities and/or cyber-attacks adversely impacting our operations;
an interruption in operations at our headquarters due to a catastrophic event;
federal and state tax proposals affecting our industry;
competition in the natural gas and oil exploration and production industry;
negative public perceptions of our industry;
effects of purchase price adjustments and indemnity obligations; and
other factors that are described under Risk Factors in Item 1A of our 2021 Form 10-K and Risk Factors in Item 1A of Part II of this report.

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


Information About Us

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

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

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