Company Quick10K Filing
Quick10K
Chesapeake Energy
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$2.68 1,634 $4,380
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-17 Shareholder Vote
8-K 2019-05-09 Other Events, Exhibits
8-K 2019-05-08 Earnings, Regulation FD, Exhibits
8-K 2019-04-18 Officers
8-K 2019-04-03 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-02-27 Earnings, Regulation FD, Exhibits
8-K 2019-01-31 Enter Agreement, M&A, Off-BS Arrangement, Officers, Amend Bylaw, Shareholder Vote, Regulation FD, Exhibits
8-K 2019-01-09 Earnings, Regulation FD, Exhibits
8-K 2018-12-31 Officers, Exhibits
8-K 2018-12-06 Regulation FD, Exhibits
8-K 2018-10-30 Enter Agreement, Regulation FD, Exhibits
8-K 2018-10-30 Earnings, Regulation FD, Exhibits
8-K 2018-10-29 M&A, Other Events, Exhibits
8-K 2018-10-03 Other Events
8-K 2018-09-26 Regulation FD
8-K 2018-09-25 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-09-12 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-08-20 Officers, Exhibits
8-K 2018-08-01 Earnings, Regulation FD, Exhibits
8-K 2018-07-26 Enter Agreement, Regulation FD
8-K 2018-05-18 Shareholder Vote
8-K 2018-05-16 Regulation FD
8-K 2018-03-27 Regulation FD
8-K 2018-02-21 Regulation FD
8-K 2018-02-13 Earnings, Exhibits
8-K 2018-02-06 Earnings, Exhibits
SPR Spirit Aerosystems Holdings 8,900
TCBI Texas Capital Bancshares 3,240
SNHY Sun Hydraulics 1,440
PJC Piper Jaffray 1,130
HLX Helix Energy Solutions Group 1,110
CUE Cue Biopharma 167
CYAN Cyanotech 19
HIHO Highway Holdings 12
PTRC Petro River Oil 0
ETBI Eastgate Biotech 0
CHK 2019-03-31
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.10 ex1010psuagreement-march20.htm
EX-31.1 chk-ex_311x20190331x10q.htm
EX-31.2 chk-ex_312x20190331x10q.htm
EX-32.1 chk-ex_321x20190331x10q.htm
EX-32.2 chk-ex_322x20190331x10q.htm
EX-95.1 ex951minesafetydislosures.htm

Chesapeake Energy Earnings 2019-03-31

CHK 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 chk-20190331_10q.htm 10-Q Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2019
[  ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File No. 1-13726
CHESAPEAKE ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Oklahoma
 
73-1395733
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
6100 North Western Avenue, Oklahoma City, Oklahoma
 
73118
(Address of principal executive offices)
 
(Zip Code)
(405) 848-8000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X]     NO [ ] 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES [X]     NO [ ]
 
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer [X] Accelerated Filer [ ] Non-accelerated Filer [ ]
Smaller Reporting Company [ ] Emerging Growth Company [ ]
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ]      NO [X]
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
Common Stock, par value $0.01
 
CHK
 
New York Stock Exchange
6.625% Senior Notes due 2020
 
CHK20A
 
New York Stock Exchange
6.875% Senior Notes due 2020
 
CHK20
 
New York Stock Exchange
6.125% Senior Notes due 2021
 
CHK21
 
New York Stock Exchange
5.375% Senior Notes due 2021
 
CHK21A
 
New York Stock Exchange
4.875% Senior Notes due 2022
 
CHK22
 
New York Stock Exchange
5.75% Senior Notes due 2023
 
CHK23
 
New York Stock Exchange
4.5% Cumulative Convertible Preferred Stock
 
CHK Pr D
 
New York Stock Exchange
 
 
As of May 6, 2019, there were 1,633,677,751 shares of our $0.01 par value common stock outstanding.




CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2019


 
PART I. FINANCIAL INFORMATION
Page
Item 1.
 
 
Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018
 
for the Three Months Ended March 31, 2019 and 2018
 
for the Three Months Ended March 31, 2019 and 2018
 
for the Three Months Ended March 31, 2019 and 2018
 
for the Three Months Ended March 31, 2019 and 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
Item 3.
Item 4.
 
PART II. OTHER INFORMATION
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


PART I. FINANCIAL INFORMATION



ITEM 1.
Condensed Consolidated Financial Statements

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
March 31,
2019
 
December 31, 2018
 
 
($ in millions)
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents ($1 and $1 attributable to our VIE)
 
$
8

 
$
4

Accounts receivable, net
 
1,196

 
1,247

Short-term derivative assets
 
25

 
209

Other current assets
 
136

 
138

Total Current Assets
 
1,365

 
1,598

PROPERTY AND EQUIPMENT:
 
 
 
 
Oil and natural gas properties, at cost based on successful efforts accounting:
 
 
 
 
Proved oil and natural gas properties
($755 and $755 attributable to our VIE)
 
29,259

 
25,407

Unproved properties
 
2,262

 
1,561

Other property and equipment
 
1,798

 
1,721

Total Property and Equipment, at Cost
 
33,319

 
28,689

Less: accumulated depreciation, depletion and amortization
(($708) and ($707) attributable to our VIE)
 
(18,396
)
 
(17,886
)
Property and equipment held for sale, net
 
16

 
15

Total Property and Equipment, Net
 
14,939

 
10,818

LONG-TERM ASSETS:
 
 
 
 
Long-term derivative assets
 
48

 
76

Other long-term assets
 
285

 
243

TOTAL ASSETS
 
$
16,637

 
$
12,735

 
 
 
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
3

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS – (Continued)
(Unaudited)

 
 
March 31,
2019
 
December 31, 2018
 
 
($ in millions)
CURRENT LIABILITIES:
 
 
 
 
Accounts payable
 
$
751

 
$
763

Current maturities of long-term debt, net
 
380

 
381

Accrued interest
 
147

 
141

Short-term derivative liabilities
 
61

 
3

Other current liabilities ($1 and $2 attributable to our VIE)
 
1,591

 
1,599

Total Current Liabilities
 
2,930

 
2,887

LONG-TERM LIABILITIES:
 
 
 
 
Long-term debt, net
 
9,167

 
7,341

Long-term derivative liabilities
 
15

 

Asset retirement obligations, net of current portion
 
177

 
155

Other long-term liabilities
 
210

 
219

Total Long-Term Liabilities
 
9,569

 
7,715

CONTINGENCIES AND COMMITMENTS (Note 7)
 

 

EQUITY:
 
 
 
 
Chesapeake Stockholders’ Equity (Deficit):
 
 
 
 
Preferred stock, $0.01 par value, 20,000,000 shares authorized:
5,603,458 shares outstanding
 
1,671

 
1,671

Common stock, $0.01 par value, 3,000,000,000 and 2,000,000,000 shares authorized:
1,633,624,993 and 913,715,512 shares issued
 
16

 
9

Additional paid-in capital
 
16,392

 
14,378

Accumulated deficit
 
(13,933
)
 
(13,912
)
Accumulated other comprehensive loss
 
(13
)
 
(23
)
Less: treasury stock, at cost;
5,675,230 and 3,246,553 common shares
 
(36
)
 
(31
)
Total Chesapeake Stockholders’ Equity
 
4,097

 
2,092

Noncontrolling interests
 
41

 
41

Total Equity
 
4,138

 
2,133

TOTAL LIABILITIES AND EQUITY
 
$
16,637

 
$
12,735




The accompanying notes are an integral part of these condensed consolidated financial statements.
4

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


 
 
Three Months Ended
March 31,
 
 
2019
 
2018*
  
 
($ in millions except per share data)
REVENUES AND OTHER:
 
 
 
 
Oil, natural gas and NGL
 
$
929

 
$
1,243

Marketing
 
1,233

 
1,246

Total Revenues
 
2,162

 
2,489

Other
 
15

 
16

Gains on sales of assets
 
19

 
19

Total Revenues and Other
 
2,196

 
2,524

OPERATING EXPENSES:
 
 
 
 
Oil, natural gas and NGL production
 
132

 
147

Oil, natural gas and NGL gathering, processing and transportation
 
274

 
356

Production taxes
 
34

 
31

Exploration
 
24

 
81

Marketing
 
1,230

 
1,268

General and administrative
 
103

 
87

Restructuring and other termination costs
 

 
38

Provision for legal contingencies, net
 

 
5

Depreciation, depletion and amortization
 
519

 
459

Impairments
 
1

 
10

Other operating expense
 
61

 

Total Operating Expenses
 
2,378

 
2,482

INCOME (LOSS) FROM OPERATIONS
 
(182
)
 
42

OTHER INCOME (EXPENSE):
 
 
 
 
Interest expense
 
(161
)
 
(162
)
Gains (losses) on investments
 
(1
)
 
139

Other income (expense)
 
9

 
(1
)
Total Other Expense
 
(153
)
 
(24
)
INCOME (LOSS) BEFORE INCOME TAXES
 
(335
)
 
18

Income tax benefit
 
(314
)
 

NET INCOME (LOSS)
 
(21
)
 
18

Net income attributable to noncontrolling interests
 

 
(1
)
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE
 
(21
)
 
17

Preferred stock dividends
 
(23
)
 
(23
)
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS
 
$
(44
)
 
$
(6
)
EARNINGS (LOSS) PER COMMON SHARE:
 
 
 
 
Basic
 
$
(0.03
)
 
$
(0.01
)
Diluted
 
$
(0.03
)
 
$
(0.01
)
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (in millions):
 
 
 
 
Basic
 
1,380

 
907

Diluted
 
1,380

 
907

* Financial information for 2018 has been recast to reflect the retrospective application of the successful efforts method of accounting. See Note 1.


The accompanying notes are an integral part of these condensed consolidated financial statements.
5

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)



 
 
Three Months Ended
March 31,
 
 
2019
 
2018*
 
 
($ in millions)
NET INCOME (LOSS)
 
$
(21
)
 
$
18

OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX:
 
 
 
 
Unrealized gains on derivative instruments(a)
 

 

Reclassification of losses on settled derivative instruments(a)
 
10

 
10

Other Comprehensive Income
 
10

 
10

COMPREHENSIVE INCOME (LOSS)
 
(11
)
 
28

COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 

 
(1
)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE
 
$
(11
)
 
$
27

* Financial information for 2018 has been recast to reflect the retrospective application of the successful efforts method of accounting. See Note 1.
___________________________________________
(a)
Deferred tax activity incurred in other comprehensive income was offset by a valuation allowance.


The accompanying notes are an integral part of these condensed consolidated financial statements.
6

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
 
Three Months Ended
March 31,
 
 
2019
 
2018*
 
 
($ in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
NET INCOME (LOSS)
 
$
(21
)
 
$
18

ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO CASH
PROVIDED BY OPERATING ACTIVITIES:
 
 
 
 
Depreciation, depletion and amortization
 
519

 
459

Deferred income tax benefit
 
(314
)
 

Derivative losses, net
 
304

 
117

Cash receipts on derivative settlements, net
 
14

 
13

Stock-based compensation
 
6

 
9

Gains on sales of assets
 
(19
)
 
(19
)
Impairments
 
1

 
10

Exploration
 
18

 
68

(Gains) losses on investments
 
1

 
(139
)
Other
 
40

 
(36
)
Changes in assets and liabilities
 
(93
)
 
88

Net Cash Provided By Operating Activities
 
456

 
588

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Drilling and completion costs
 
(515
)
 
(420
)
Business combination, net
 
(353
)
 

Acquisitions of proved and unproved properties
 
(6
)
 
(17
)
Proceeds from divestitures of proved and unproved properties
 
26

 
319

Additions to other property and equipment
 
(9
)
 
(3
)
Proceeds from sales of other property and equipment
 
1

 
68

Proceeds from sales of investments
 

 
74

Net Cash Provided By (Used In) Investing Activities
 
(856
)
 
21

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from revolving credit facility borrowings
 
3,572

 
2,904

Payments on revolving credit facility borrowings
 
(3,136
)
 
(3,485
)
Cash paid to purchase debt
 
(1
)
 

Cash paid for preferred stock dividends
 
(23
)
 
(23
)
Distributions to noncontrolling interest owners
 

 
(2
)
Other
 
(8
)
 
(4
)
Net Cash Provided By (Used In) Financing Activities
 
404

 
(610
)
Net increase (decrease) in cash and cash equivalents
 
4

 
(1
)
Cash and cash equivalents, beginning of period
 
4

 
5

Cash and cash equivalents, end of period
 
$
8

 
$
4

 
 
 
 
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
7

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:
 
 
Three Months Ended
March 31,
 
 
2019
 
2018*
 
 
($ in millions)
SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
 
Interest paid, net of capitalized interest
 
$
145

 
$
170

Income taxes paid, net of refunds received
 
$
(5
)
 
$

 
 
 
 
 
SUPPLEMENTAL DISCLOSURE OF SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
 
Common stock issued for business combination
 
$
2,037

 
$

Change in accrued drilling and completion costs
 
$
39

 
$
103

Change in divested proved and unproved properties
 
$
2

 
$
12


* Financial information for 2018 has been recast to reflect the retrospective application of the successful efforts method of accounting. See Note 1.


The accompanying notes are an integral part of these condensed consolidated financial statements.
8

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)




 
 
Three Months Ended
March 31,
 
 
2019
 
2018*
 
 
($ in millions)
PREFERRED STOCK:
 
 
 
 
Balance, beginning and end of period
 
$
1,671

 
$
1,671

COMMON STOCK:
 
 
 
 
Balance, beginning of period
 
9

 
9

Common shares issued for WildHorse Merger
 
7

 

Balance, end of period
 
16

 
9

ADDITIONAL PAID-IN CAPITAL:
 
 
 
 
Balance, beginning of period
 
14,378

 
14,437

Common shares issued for WildHorse Merger
 
2,030

 

Stock-based compensation
 
7

 
5

Dividends on preferred stock
 
(23
)
 
(23
)
Balance, end of period
 
16,392

 
14,419

ACCUMULATED DEFICIT:
 
 
 
 
Balance, beginning of period
 
(13,912
)
 
(14,130
)
Net income (loss) attributable to Chesapeake
 
(21
)
 
17

Cumulative effect of accounting change
 

 
(8
)
Balance, end of period
 
(13,933
)
 
(14,121
)
ACCUMULATED OTHER COMPREHENSIVE LOSS:
 
 
 
 
Balance, beginning of period
 
(23
)
 
(57
)
Hedging activity
 
10

 
10

Balance, end of period
 
(13
)
 
(47
)
TREASURY STOCK – COMMON:
 
 
 
 
Balance, beginning of period
 
(31
)
 
(31
)
Purchase of 2,539,473 and 1,451,478 shares for company benefit plans
 
(6
)
 
(4
)
Release of 110,796 and 275,407 shares from company benefit plans
 
1

 
3

Balance, end of period
 
(36
)
 
(32
)
TOTAL CHESAPEAKE STOCKHOLDERS’ EQUITY
 
4,097

 
1,899

NONCONTROLLING INTERESTS:
 
 
 
 
Balance, beginning of period
 
41

 
44

Net income attributable to noncontrolling interests
 

 
1

Distributions to noncontrolling interest owners
 

 
(2
)
Balance, end of period
 
41

 
43

TOTAL EQUITY
 
$
4,138

 
$
1,942


* Financial information for prior periods has been recast to reflect the retrospective application of the successful efforts method of accounting. See Note 1.


The accompanying notes are an integral part of these condensed consolidated financial statements.
9

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1.
Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements of Chesapeake were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the SEC. Pursuant to such rules and regulations, certain disclosures have been condensed or omitted.
This Form 10-Q relates to the three months ended March 31, 2019 (the “Current Quarter”) and the three months ended March 31, 2018 (the “Prior Quarter”). Our Form 8-K dated May 9, 2019 should be read in conjunction with this Form 10-Q. The accompanying condensed consolidated financial statements reflect all normal recurring adjustments which, 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.
Recast Financial Information for Change in Accounting Principle
In the Current Quarter, we voluntarily changed our method of accounting for oil and natural gas exploration and development activities from the full cost method to the successful efforts method. Accordingly, financial information for prior periods has been recast to reflect retrospective application of the successful efforts method. Although the full cost method of accounting for oil and natural gas exploration and development activities continues to be an accepted alternative, the successful efforts method of accounting is the generally preferred method of the SEC and, because it is more widely used in the industry, we expect the change to improve the comparability of our financial statements to our peers. We also believe the successful efforts method provides a more representational depiction of assets and operating results and provides for our investments in oil and natural gas properties to be assessed for impairment in accordance with Accounting Standards Codification (ASC) Topic 360, Property Plant and Equipment, rather than valuations based on prices and costs prescribed under the full cost method as of the balance sheet date. For detailed information regarding the effects of the change to the successful efforts method, see Note 2.
Oil and Natural Gas Properties
We follow the successful efforts method of accounting for our oil and natural gas properties. Under this method, exploration costs, such as exploratory geological and geophysical costs, expiration of unproved leasehold, delay rentals and exploration overhead are expensed as incurred. All costs related to production, general corporate overhead and similar activities are also expensed as incurred. All property acquisition costs and development costs are capitalized when incurred.
Exploratory drilling costs are initially capitalized, or suspended, pending the determination of proved reserves. If proved reserves are found, drilling costs remain capitalized and are classified as proved properties. Costs of unsuccessful wells are charged to exploration expense. For exploratory wells that find reserves that cannot be classified as proved when drilling is completed, costs continue to be capitalized as suspended exploratory drilling costs if there have been sufficient reserves found to justify completion as a producing well and sufficient progress is being made in assessing the reserves and the economic and operational viability of the project. If we determine that future appraisal drilling or development activities are unlikely to occur, associated suspended exploratory well costs are expensed. In some instances, this determination may take longer than one year. We review the status of all suspended exploratory drilling costs quarterly. Costs to develop proved reserves, including the costs of all development wells and related equipment used in the production of oil and natural gas, are capitalized.
Costs of drilling and equipping successful wells, costs to construct or acquire facilities, and associated asset retirement costs are depreciated using the unit-of-production (UOP) method based on total estimated proved developed oil and gas reserves. Costs of acquiring proved properties, including leasehold acquisition costs transferred from unproved properties, are depleted using the UOP method based on total estimated proved developed and undeveloped reserves. 
Proceeds from the sales of individual oil and natural gas properties and the capitalized costs of individual properties sold or abandoned are credited and charged, respectively, to accumulated depreciation, depletion and amortization, if doing so does not materially impact the depletion rate of an amortization base. Generally, no gain or loss is recognized until an entire amortization base is sold. However, a gain or loss is recognized from the sale of less than an entire

10

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

amortization base if the disposition is significant enough to materially impact the depletion rate of the remaining properties in the amortization base.
When circumstances indicate that the carrying value of proved oil and gas properties may not be recoverable, we compare unamortized capitalized costs to the expected undiscounted pre-tax future cash flows for the associated assets grouped at the lowest level for which identifiable cash flows are independent of cash flows of other assets. If the expected undiscounted pre-tax future cash flows, based on our estimate of future crude oil and natural gas prices, operating costs, anticipated production from proved reserves and other relevant data, are lower than the unamortized capitalized costs, the capitalized costs are reduced to fair value. Fair value is generally estimated using the income approach described in the ASC 820, Fair Value Measurements. If applicable, we utilize prices and other relevant information generated by market transactions involving assets and liabilities that are identical or comparable to the item being measured as the basis for determining fair value. The expected future cash flows used for impairment reviews and related fair value measurements are typically based on judgmental assessments of future production volumes, commodity prices, operating costs, and capital investment plans, considering all available information at the date of review. These assumptions are applied to develop future cash flow projections that are then discounted to estimated fair value, using a discount rate believed to be consistent with those applied by market participants. We have classified these fair value measurements as Level 3 in the fair value hierarchy.
Capitalized Interest
Interest from external borrowings is capitalized on significant investments in major development projects until the asset is ready for service using the weighted average borrowing rate of outstanding borrowings. Capitalized interest is determined by multiplying our weighted average borrowing cost on debt by the average amount of qualifying costs incurred. Capitalized interest is depreciated over the useful lives of the assets in the same manner as the depreciation of the underlying asset.
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASC 842”), which requires lessees to recognize a lease liability and a right-of-use (ROU) asset on the balance sheet for all leases, including operating leases, with terms in excess of 12 months. As the implicit rate of the lease is not always readily determinable, the company uses its incremental borrowing rate to calculate the present value of lease payments based on information available at the commencement date. Operating ROU assets are included in other long-term assets while operating lease liabilities are included in other current and other long-term liabilities on the condensed consolidated balance sheet. Finance ROU assets are reflected in total property and equipment, net while finance lease liabilities are included in other current and other long-term liabilities on the condensed consolidated balance sheet.
ASC 842 does not apply to our leases of mineral rights to explore for or use oil and natural gas resources, including the intangible rights to explore for those natural resources and rights to use the land in which those natural resources are contained.
We adopted the new standard on January 1, 2019 and as permitted by ASU 2018-11, Leases (Topic 842): Targeted Improvements, we will not adjust comparative-period financial statements and will continue to apply the guidance in Topic 840, including its disclosure requirements, in the comparative periods presented prior to adoption. No cumulative-effect adjustment to retained earnings was required as a result of the modified retrospective approach.
Upon adoption of ASC 842, we made certain elections permitting us to not reassess: (1) whether any expired or existing contracts contained leases (2) the lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. Upon adoption of ASC 842, we also made an election permitting us to continue applying our current policy for land easements. The adoption of ASC 842 did not result in a material impact on our balance sheet, results of operations or cash flows.
Short-term leases will not be recognized on the balance sheet as an asset or a liability, and the related rental expense will be expensed as incurred. We have short-term lease agreements related to most of our drilling rig arrangements and hydraulic fracturing arrangements and some of our compressor rental arrangements.
See Note 9 for further information regarding leases.

11

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

2.
Change in Accounting Principle
In the Current Quarter, we voluntarily changed our method of accounting for oil and natural gas exploration and development activities from the full cost method to the successful efforts method. Accordingly, financial information for prior periods has been recast to reflect retrospective application of the successful efforts method. In general, under successful efforts, exploration costs such as exploratory dry holes, exploratory geophysical and geological costs, delay rentals, unproved leasehold impairments and exploration overhead are charged against earnings as incurred, versus being capitalized under the full cost method of accounting. The successful efforts method also provides for the assessment of potential property impairments by comparing the net carrying value of oil and natural gas properties to associated projected undiscounted pre-tax future net cash flows. If the expected undiscounted pre-tax future net cash flows are lower than the unamortized capitalized costs, the capitalized costs are reduced to fair value. Under the full cost method of accounting, a write-down would be required if the net carrying value of oil and natural gas properties exceeds a full cost ceiling using an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months. In addition, gains or losses, if applicable, are generally recognized on the disposition of oil and natural gas property and equipment under the successful efforts method, as opposed to an adjustment to the net carrying value of the assets remaining under the full cost method. Our condensed consolidated financial statements have been recast to reflect these differences.

12

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
Three Months Ended March 31, 2019
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
Under
Full Cost
 
Successful
Efforts
Adjustment
 
Under Successful Efforts
 
 
($ in millions except per share data)
REVENUES AND OTHER:
 
 
 
 
 
 
Oil, natural gas and NGL
 
$
929

 
$

 
$
929

Marketing
 
1,233

 

 
1,233

Total Revenues
 
2,162

 

 
2,162

Other
 

 
15

 
15

Gains on sales of assets
 

 
19

 
19

Total Revenues and Other
 
2,162

 
34

 
2,196

OPERATING EXPENSES:
 
 
 
 
 
 
Oil, natural gas and NGL production
 
132

 

 
132

Oil, natural gas and NGL gathering, processing and transportation
 
274

 

 
274

Production taxes
 
34

 

 
34

Exploration
 

 
24

 
24

Marketing
 
1,230

 

 
1,230

General and administrative
 
88

 
15

 
103

Depreciation, depletion and amortization
 
357

 
162

 
519

Impairments
 
1

 

 
1

Other operating expense
 
51

 
10

 
61

Total Operating Expenses
 
2,167

 
211

 
2,378

LOSS FROM OPERATIONS
 
(5
)
 
(177
)
 
(182
)
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
Interest expense
 
(135
)
 
(26
)
 
(161
)
Losses on investments
 
(1
)
 

 
(1
)
Other income
 
7

 
2

 
9

Total Other Expense
 
(129
)
 
(24
)
 
(153
)
LOSS BEFORE INCOME TAXES
 
(134
)
 
(201
)
 
(335
)
Income tax benefit
 
(314
)
 

 
(314
)
NET INCOME (LOSS)
 
180

 
(201
)
 
(21
)
Net income attributable to noncontrolling interests
 
(1
)
 
1

 

NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE
 
179

 
(200
)
 
(21
)
Preferred stock dividends
 
(23
)
 

 
(23
)
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
 
$
156

 
$
(200
)
 
$
(44
)
EARNINGS (LOSS) PER COMMON SHARE:
 
 
 
 
 
 
Basic
 
$
0.11

 
$
(0.14
)
 
$
(0.03
)
Diluted
 
$
0.11

 
$
(0.14
)
 
$
(0.03
)
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (in millions):
 
 
 
 
 
 
Basic
 
1,380

 

 
1,380

Diluted
 
1,380

 

 
1,380



13

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
Three Months Ended March 31, 2018
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
Under
Full Cost
 
Successful
Efforts
Adjustment
 
Under Successful Efforts
 
 
($ in millions except per share data)
REVENUES AND OTHER:
 
 
 
 
 
 
Oil, natural gas and NGL
 
$
1,243

 
$

 
$
1,243

Marketing
 
1,246

 

 
1,246

Total Revenues
 
2,489

 

 
2,489

Other
 

 
16

 
16

Gains on sales of assets
 

 
19

 
19

Total Revenues and Other
 
2,489

 
35

 
2,524

OPERATING EXPENSES:
 
 
 
 
 
 
Oil, natural gas and NGL production
 
147

 

 
147

Oil, natural gas and NGL gathering, processing and transportation
 
356

 

 
356

Production taxes
 
31

 

 
31

Exploration
 

 
81

 
81

Marketing
 
1,268

 

 
1,268

General and administrative
 
72

 
15

 
87

Restructuring and other termination costs
 
38

 

 
38

Provision for legal contingencies, net
 
5

 

 
5

Depreciation, depletion and amortization
 
286

 
173

 
459

Impairments
 

 
10

 
10

Other operating expense
 
8

 
(8
)
 

Total Operating Expenses
 
2,211

 
271

 
2,482

INCOME FROM OPERATIONS
 
278

 
(236
)
 
42

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
Interest expense
 
(123
)
 
(39
)
 
(162
)
Gains on investments
 
139

 

 
139

Other expense
 

 
(1
)
 
(1
)
Total Other Income (Expense)
 
16

 
(40
)
 
(24
)
INCOME BEFORE INCOME TAXES
 
294

 
(276
)
 
18

Income tax expense (benefit)
 

 

 

NET INCOME
 
294

 
(276
)
 
18

Net income attributable to noncontrolling interests
 
(1
)
 

 
(1
)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE
 
293

 
(276
)
 
17

Preferred stock dividends
 
(23
)
 

 
(23
)
Earnings allocated to participating securities
 
(2
)
 
2

 

NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
 
$
268

 
$
(274
)
 
$
(6
)
EARNINGS (LOSS) PER COMMON SHARE:
 
 
 
 
 
 
Basic
 
$
0.30

 
$
(0.31
)
 
$
(0.01
)
Diluted
 
$
0.29

 
$
(0.30
)
 
$
(0.01
)
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (in millions):
 
 
 
 
 
 
Basic
 
907

 

 
907

Diluted
 
1,053

 
(146
)
 
907


14

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
Three Months Ended March 31, 2019
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 

Under Full Cost
 
Successful
Efforts
Adjustment
 
Under Successful Efforts
 
 
($ in millions)
NET INCOME (LOSS)
 
$
180

 
$
(201
)
 
$
(21
)
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX:
 
 
 
 
 
 
Unrealized gains on derivative instruments
 

 

 

Reclassification of losses on settled derivative instruments
 
10

 

 
10

Other Comprehensive Income
 
10

 

 
10

COMPREHENSIVE INCOME (LOSS)
 
190

 
(201
)
 
(11
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
(1
)
 
1

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE
 
$
189

 
$
(200
)
 
$
(11
)
 
 
Three Months Ended March 31, 2018
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 

Under Full Cost
 
Successful
Efforts
Adjustment
 
Under Successful Efforts
 
 
($ in millions)
NET INCOME
 
$
294

 
$
(276
)
 
$
18

OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX:
 
 
 
 
 
 
Unrealized gains on derivative instruments
 

 

 

Reclassification of losses on settled derivative instruments
 
10

 

 
10

Other Comprehensive Income
 
10

 

 
10

COMPREHENSIVE INCOME
 
304

 
(276
)
 
28

COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
(1
)
 

 
(1
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE
 
$
303

 
$
(276
)
 
$
27


15

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2019
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Under
Full Cost
 
Successful
Efforts
Adjustment
 
Under Successful Efforts
 
 
($ in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS)
 
$
180

 
$
(201
)
 
$
(21
)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO CASH PROVIDED BY OPERATING ACTIVITIES:
 
 
 
 
 
 
Depreciation, depletion and amortization
 
357

 
162

 
519

Deferred income tax benefit
 
(314
)
 

 
(314
)
Derivative losses, net
 
304

 

 
304

Cash receipts on derivative settlements, net
 
14

 

 
14

Stock-based compensation
 
6

 

 
6

Gains on sales of assets
 

 
(19
)
 
(19
)
Impairments
 
1

 

 
1

Exploration
 

 
18

 
18

Losses on investments
 
1

 

 
1

Other
 
31

 
9

 
40

Changes in assets and liabilities
 
(78
)
 
(15
)
 
(93
)
Net Cash Provided By Operating Activities
 
502

 
(46
)
 
456

CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs
 
(533
)
 
18

 
(515
)
Business combination, net
 
(353
)
 

 
(353
)
Acquisitions of proved and unproved properties
 
(34
)
 
28

 
(6
)
Proceeds from divestitures of proved and unproved properties
 
26

 

 
26

Additions to other property and equipment
 
(9
)
 

 
(9
)
Proceeds from sales of other property and equipment
 
1

 

 
1

Net Cash Used In Investing Activities
 
(902
)
 
46

 
(856
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility borrowings
 
3,572

 

 
3,572

Payments on revolving credit facility borrowings
 
(3,136
)
 

 
(3,136
)
Cash paid to purchase debt
 
(1
)
 

 
(1
)
Cash paid for preferred stock dividends
 
(23
)
 

 
(23
)
Other
 
(8
)
 

 
(8
)
Net Cash Provided By Financing Activities
 
404

 

 
404

Net increase in cash and cash equivalents
 
4

 

 
4

Cash and cash equivalents, beginning of period
 
4

 

 
4

Cash and cash equivalents, end of period
 
$
8

 
$

 
$
8





16

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2018
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Under
Full Cost
 
Successful
Efforts
Adjustment
 
Under Successful Efforts
 
 
($ in millions )
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME
 
$
294

 
$
(276
)
 
$
18

ADJUSTMENTS TO RECONCILE NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES:
 
 
 
 
 
 
Depreciation, depletion and amortization
 
286

 
173

 
459

Derivative losses, net
 
117

 

 
117

Cash receipts on derivative settlements, net
 
13

 

 
13

Stock-based compensation
 
9

 

 
9

Gains on sales of assets
 

 
(19
)
 
(19
)
Impairments
 

 
10

 
10

Exploration
 

 
68

 
68

Gains on investments
 
(139
)
 

 
(139
)
Other
 
(28
)
 
(8
)
 
(36
)
Changes in assets and liabilities
 
104

 
(16
)
 
88

Net Cash Provided By Operating Activities
 
656

 
(68
)
 
588

CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs
 
(442
)
 
22

 
(420
)
Acquisitions of proved and unproved properties
 
(63
)
 
46

 
(17
)
Proceeds from divestitures of proved and unproved properties
 
319

 

 
319

Additions to other property and equipment
 
(3
)
 

 
(3
)
Proceeds from sales of other property and equipment
 
68

 

 
68

Proceeds from sales of investments
 
74

 

 
74

Net Cash Provided by (Used In) Investing Activities
 
(47
)
 
68

 
21

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility borrowings
 
2,904

 

 
2,904

Payments on revolving credit facility borrowings
 
(3,485
)
 

 
(3,485
)
Cash paid for preferred stock dividends
 
(23
)
 

 
(23
)
Distributions to noncontrolling interest owners
 
(2
)
 

 
(2
)
Other
 
(4
)
 

 
(4
)
Net Cash Used In Financing Activities
 
(610
)
 

 
(610
)
Net decrease in cash and cash equivalents
 
(1
)
 

 
(1
)
Cash and cash equivalents, beginning of period
 
5

 

 
5

Cash and cash equivalents, end of period
 
$
4

 
$

 
$
4


17

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
Three Months Ended March 31, 2019
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 
Under
Full Cost
 
Adjustment
 
Under Successful Efforts
 
 
($ in millions)
PREFERRED STOCK:
 
 
 
 
 
 
Balance, beginning and end of period
 
$
1,671

 
$

 
$
1,671

COMMON STOCK:
 
 
 
 
 
 
Balance, beginning of period
 
9

 

 
9

Common shares issued for WildHorse Merger
 
7

 

 
7

Balance, end of period
 
16

 

 
16

ADDITIONAL PAID-IN CAPITAL:
 
 
 
 
 
 
Balance, beginning of period
 
14,378

 

 
14,378

Common shares issued for WildHorse Merger
 
2,030

 

 
2,030

Stock-based compensation
 
7

 

 
7

Dividends on preferred stock
 
(23
)
 

 
(23
)
Balance, end of period
 
16,392

 

 
16,392

ACCUMULATED DEFICIT:
 
 
 
 
 
 
Balance, beginning of period
 
(15,660
)
 
1,748

 
(13,912
)
Net income (loss) attributable to Chesapeake
 
179

 
(200
)
 
(21
)
Balance, end of period
 
(15,481
)
 
1,548

 
(13,933
)
ACCUMULATED OTHER COMPREHENSIVE LOSS:
 
 
 
 
 
 
Balance, beginning of period
 
(23
)
 

 
(23
)
Hedging activity
 
10

 

 
10

Balance, end of period
 
(13
)
 

 
(13
)
TREASURY STOCK – COMMON:
 
 
 
 
 
 
Balance, beginning of period
 
(31
)
 

 
(31
)
Purchase of 2,539,473 shares for company benefit plans
 
(6
)
 

 
(6
)
Release of 110,796 shares from company benefit plans
 
1

 

 
1

Balance, end of period
 
(36
)
 

 
(36
)
TOTAL CHESAPEAKE STOCKHOLDERS’ EQUITY
 
2,549

 
1,548

 
4,097

NONCONTROLLING INTERESTS:
 
 
 
 
 
 
Balance, beginning of period
 
123

 
(82
)
 
41

Net income attributable to noncontrolling interests
 
(1
)
 
1

 

Distributions to noncontrolling interest owners
 

 

 

Balance, end of period
 
122

 
(81
)
 
41

TOTAL EQUITY
 
$
2,671

 
$
1,467

 
$
4,138



18

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
Three Months Ended March 31, 2018
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 
Under
Full Cost
 
Adjustment
 
Under Successful Efforts
 
 
($ in millions)
PREFERRED STOCK:
 
 
 
 
 
 
Balance, beginning and end of period
 
$
1,671

 
$

 
$
1,671

COMMON STOCK:
 
 
 
 
 
 
Balance, beginning of period
 
9

 

 
9

Balance, end of period
 
9

 

 
9

ADDITIONAL PAID-IN CAPITAL:
 
 
 
 
 
 
Balance, beginning of period
 
14,437

 

 
14,437

Stock-based compensation
 
5

 

 
5

Dividends on preferred stock
 
(23
)
 

 
(23
)
Balance, end of period
 
14,419

 

 
14,419

ACCUMULATED DEFICIT:
 
 
 
 
 
 
Balance, beginning of period
 
(16,525
)
 
2,395

 
(14,130
)
Net income attributable to Chesapeake
 
293

 
(276
)
 
17

Cumulative effect of accounting change
 
(8
)
 

 
(8
)
Balance, end of period
 
(16,240
)
 
2,119

 
(14,121
)
ACCUMULATED OTHER COMPREHENSIVE LOSS:
 
 
 
 
 
 
Balance, beginning of period
 
(57
)
 

 
(57
)
Hedging activity
 
10

 

 
10

Balance, end of period
 
(47
)
 

 
(47
)
TREASURY STOCK – COMMON:
 
 
 
 
 
 
Balance, beginning of period
 
(31
)
 

 
(31
)
Purchase of 1,451,478 shares for company benefit plans
 
(4
)
 

 
(4
)
Release of 275,407 shares from company benefit plans
 
3

 

 
3

Balance, end of period
 
(32
)
 

 
(32
)
TOTAL CHESAPEAKE STOCKHOLDERS’ EQUITY (DEFICIT)
 
(220
)
 
2,119

 
1,899

NONCONTROLLING INTERESTS:
 
 
 
 
 
 
Balance, beginning of period
 
124

 
(80
)
 
44

Net income attributable to noncontrolling interests
 
1

 

 
1

Distributions to noncontrolling interest owners
 
(2
)
 

 
(2
)
Balance, end of period
 
123

 
(80
)
 
43

TOTAL EQUITY (DEFICIT)
 
$
(97
)
 
$
2,039

 
$
1,942



19

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

3.
Oil and Natural Gas Property Transactions
WildHorse Acquisition
On February 1, 2019, we acquired WildHorse Resource Development Corporation (“WildHorse”), an oil and gas company with operations in the Eagle Ford Shale and Austin Chalk formations in southeast Texas for approximately 717.4 million shares of our common stock and $381 million in cash. We funded the cash portion of the consideration through borrowings under the Chesapeake revolving credit facility. In connection with the closing, we acquired all of WildHorse’s debt. See Note 6 for additional information on the acquired debt.
Purchase Price Allocation
The acquisition of WildHorse and its corresponding merger (the “Merger”) with and into our wholly owned subsidiary, Brazos Valley Longhorn, L.L.C. (“Brazos Valley Longhorn” or “BVL”) has been accounted for as a business combination, using the acquisition method. The following table represents the preliminary allocation of the total purchase price of WildHorse 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, final tax returns that provide the underlying tax basis of WildHorse’s assets and liabilities and final appraisals of assets acquired and liabilities assumed. We expect to complete the purchase price allocation during the 12-month period following the acquisition date, during which time the value of the assets and liabilities may be revised as appropriate.
 
Preliminary Purchase Price Allocation
 
($ in millions)
Consideration:
 
Cash
$
381

Fair value of Chesapeake’s common stock issued in the Merger (a)
2,037

Total consideration
$
2,418

 
 
Fair Value of Liabilities Assumed:
 
Current liabilities
$
166

Long-term debt
1,379

Deferred tax liabilities
314

Other long-term liabilities
36

Amounts attributable to liabilities assumed
$
1,895

 
 
Fair Value of Assets Acquired:
 
Cash and cash equivalents
$
28

Other current assets
128

Proved oil and natural gas properties
3,264

Unproved properties
756

Other property and equipment
77

Other long-term assets
60

Amounts attributable to assets acquired
$
4,313

 
 
Total identifiable net assets
$
2,418

___________________________________________
(a)
Based on 717,376,170 Chesapeake common shares issued at closing at $2.84 per share (closing price as of February 1, 2019).

20

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

We included in our condensed consolidated statements of operations revenues of $75 million, direct operating expenses of $164 million and other expenses of $12 million for the period from February 1, 2019 to March 31, 2019.
Pro Forma Financial Information
The following unaudited pro forma financial information for the three months ended March 31, 2019 and 2018, respectively, is based on our historical consolidated financial statements adjusted to reflect as if the WildHorse acquisition had occurred on January 1, 2018. The information below reflects pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including adjustments to conform the classification of expenses in WildHorse’s statements of operations to our classification for similar expenses and the estimated tax impact of pro forma adjustments.
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
($ in millions
except per share data)
Revenues
 
$
2,188

 
$
2,682

Net loss available to common stockholders
 
$
(59
)
 
$
(10
)
Earnings per common share:
 
 
 
 
Basic
 
$
(0.04
)
 
$
(0.01
)
Diluted
 
$
(0.04
)
 
$
(0.01
)
This unaudited pro forma information has been derived from historical information. The unaudited pro forma financial information is not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of the periods presented, nor is it necessarily indicative of future results.
Divestitures
In the Current Quarter, we received proceeds of approximately $26 million, subject to customary closing adjustments, for the sale of other oil and natural gas properties covering various operating areas.
In the Prior Quarter, we sold portions of our acreage, producing properties and other related property and equipment in the Mid-Continent, including our Mississippian Lime assets, for approximately $420 million, subject to certain customary closing adjustments. Included in the sales were approximately 171,000 net acres and interests in approximately 2,150 wells. Also in the Prior Quarter, we received proceeds of approximately $18 million, subject to customary closing adjustments, for the sale of other oil and natural gas properties covering various operating areas.

21

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

4.
Capitalized Exploratory Well Costs
A summary of the changes in our capitalized well costs for the Current Quarter is detailed below. Additions pending the determination of proved reserves excludes amounts capitalized and subsequently charged to expense within the same year.
 
 
2019
 
 
($ in millions)
Balance as of January 1
 
$
36

Additions pending the determination of proved reserves
 
7