Chesapeake Energy Earnings 2020-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2020

☐ 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)



Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol⁽¹⁾	Name of Each Exchange on Which Registered
Common Stock, par value $0.01	CHKAQ	N/A
6.625% Senior Notes due 2020	*	N/A
6.875% Senior Notes due 2020	*	N/A
6.125% Senior Notes due 2021	*	N/A
5.375% Senior Notes due 2021	*	N/A
4.875% Senior Notes due 2022	*	N/A
5.75% Senior Notes due 2023	*	N/A
4.5% Cumulative Convertible Preferred Stock	*	N/A

⁽¹⁾ On June 29, 2020, our common stock was suspended from trading on the New York Stock Exchange (the “NYSE”). On June 30, 2020, our common stock began trading on the OTC Pink Marketplace maintained by the OTC Markets Group, Inc. under the symbol “CHKAQ.” On July 20, 2020, the NYSE filed a Form 25 delisting our common stock, senior notes and cumulative convertible preferred stock from trading on the NYSE, which delisting became effective 10 days after the filing of the Form 25. In accordance with Rule 12d2-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the de-registration of our common stock, senior notes and cumulative convertible preferred stock under Section 12(b) of the Exchange Act became effective on October 18, 2020.

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 ☒ 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 ☒ 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 ☒ 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 ☒

As of November 5, 2020, there were 9,780,371 shares of our $0.01 par value common stock outstanding.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2020



	PART I. FINANCIAL INFORMATION	Page
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	4
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019	6
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	8
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019	10
	Notes to the Condensed Consolidated Financial Statements (Unaudited)
	Note 1. Chapter 11 Proceedings	12
	Note 2. Basis of Presentation and Summary of Significant Accounting Policies	16
	Note 3. Earnings per Share	18
	Note 4. Debt	19
	Note 5. Contingencies and Commitments	22
	Note 6. Other Liabilities	24
	Note 7. Revenue	25
	Note 8. Income Taxes	27
	Note 9. Equity	29
	Note 10. Share-Based Compensation	30
	Note 11. Derivative and Hedging Activities	33
	Note 12. Exploration Expense	37
	Note 13. Impairments	38
	Note 14. Capitalized Exploratory Well Costs	39
	Note 15. Investments	39
	Note 16. Other Operating Expense	39
	Note 17. Separation and Other Termination Costs	39
	Note 18. Condensed Combined Debtor-in-Possession Financial Information	40
	Note 19. Subsequent Events	43
	Supplementary Information	44
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45
	Liquidity and Capital Resources	49
	Results of Operations for the Three and Nine Months Ended September 30, 2020 and 2019	53
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	63
Item 4.	Controls and Procedures	64
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	67
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults Upon Senior Securities	73
Item 4.	Mine Safety Disclosures	73
Item 5.	Other Information	73
Item 6.	Exhibits	74
Signatures		76

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1.
Condensed Consolidated Financial Statements

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	September 30, 2020			December 31, 2019
ASSETS	($ in millions)
CURRENT ASSETS:
Cash and cash equivalents ($2 and $2 attributable to our VIE)	$	306		$	6
Accounts receivable, net	676			990
Short-term derivative assets	—			134
Other current assets	90			121
Total Current Assets	1,072			1,251
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)	31,511			30,765
Unproved properties	1,738			2,173
Other property and equipment	1,786			1,810
Total Property and Equipment, at Cost	35,035			34,748
Less: accumulated depreciation, depletion and amortization (($748) and ($713) attributable to our VIE)	(29,399		)	(20,002		)
Property and equipment held for sale, net	10			10
Total Property and Equipment, Net	5,646			14,756
Other long-term assets	185			186
TOTAL ASSETS	$	6,903		$	16,193

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED BALANCE SHEETS – (Continued)

(Unaudited)



	September 30, 2020			December 31, 2019
LIABILITIES AND EQUITY (DEFICIT)	($ in millions)
CURRENT LIABILITIES:
Accounts payable	$	316		$	498
Current maturities of long-term debt, net	1,929			385
Accrued interest	2			75
Short-term derivative liabilities	105			2
Other current liabilities (nominal and $1 attributable to our VIE)	753			1,432
Total Current Liabilities	3,105			2,392
Long-term debt, net	—			9,073
Long-term derivative liabilities	61			2
Asset retirement obligations, net of current portion	212			200
Other long-term liabilities	16			125
Liabilities subject to compromise	8,428			—
Total Liabilities	11,822			11,792
CONTINGENCIES AND COMMITMENTS (Note 5)
EQUITY (DEFICIT):
Chesapeake Stockholders’ Equity (Deficit):
Preferred stock, $0.01 par value, 20,000,000 shares authorized: 5,563,458 shares outstanding	1,631			1,631
Common stock, $0.01 par value, 22,500,000 and 15,000,000 shares authorized: 9,780,371 and 9,772,793 shares issued^(a)	—			—
Additional paid-in capital^(a)	16,931			16,973
Accumulated deficit	(23,538		)	(14,220		)
Accumulated other comprehensive income	36			12
Less: treasury stock, at cost; 0 and 26,224 common shares^(a)	—			(32		)
Total Chesapeake Stockholders’ Equity (Deficit)	(4,940		)	4,364
Noncontrolling interests	21			37
Total Equity (Deficit)	(4,919		)	4,401
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	6,903		$	16,193

____________________________________________


(a)	Amounts and shares have been retroactively adjusted to reflect a 1-for-200 (1:200) reverse stock split effective April 14, 2020. See Note 9 for additional information.

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	($ in millions except per share data)
REVENUES AND OTHER:
Oil, natural gas and NGL	$	511		$	1,170		$	2,579		$	3,553
Marketing	448			889			1,412			3,038
Total Revenues	959			2,059			3,991			6,591
Other	15			15			45			45
Gains on sales of assets	1			13			1			33
Total Revenues and Other	975			2,087			4,037			6,669
OPERATING EXPENSES:
Oil, natural gas and NGL production	82			135			295			394
Oil, natural gas and NGL gathering, processing and transportation	258			270			813			815
Severance and ad valorem taxes	37			55			116			168
Exploration	5			17			417			56
Marketing	450			901			1,438			3,071
General and administrative	52			66			229			258
Separation and other termination costs	16			—			43			—
Provision for legal contingencies, net	12			—			20			3
Depreciation, depletion and amortization	170			573			931			1,672
Impairments	—			9			8,522			11
Other operating expense	4			15			92			79
Total Operating Expenses	1,086			2,041			12,916			6,527
INCOME (LOSS) FROM OPERATIONS	(111		)	46			(8,879		)	142
OTHER INCOME (EXPENSE):
Interest expense	(25		)	(177		)	(307		)	(513		)
Losses on investments	—			(4		)	(23		)	(28		)
Gains on purchases or exchanges of debt	—			70			65			70
Other income	2			3			14			30
Reorganization items, net	(611		)	—			(217		)	—
Total Other Expense	(634		)	(108		)	(468		)	(441		)
LOSS BEFORE INCOME TAXES	(745		)	(62		)	(9,347		)	(299		)
Income tax benefit	—			(1		)	(13		)	(315		)
NET INCOME (LOSS)	(745		)	(61		)	(9,334		)	16
Net loss attributable to noncontrolling interests	—			—			16			—
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	(745		)	(61		)	(9,318		)	16
Preferred stock dividends	—			(23		)	(22		)	(69		)
Loss on exchange of preferred stock	—			(17		)	—			(17		)
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS	$	(745	)	$	(101	)	$	(9,340	)	$	(70	)
LOSS PER COMMON SHARE:^(a)
Basic	$	(76.18	)	$	(11.89	)	$	(955.99	)	$	(8.92	)
Diluted	$	(76.18	)	$	(11.89	)	$	(955.99	)	$	(8.92	)
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (in thousands):^(a)
Basic	9,780			8,492			9,770			7,848
Diluted	9,780			8,492			9,770			7,848

____________________________________________


(a)	All share and per share information has been retroactively adjusted to reflect a 1-for-200 (1:200) reverse stock split effective April 14, 2020. See Note 9 for additional information.

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

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	($ in millions)
NET INCOME (LOSS)	$	(745	)	$	(61	)	$	(9,334	)	$	16
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX:
Reclassification of losses on settled derivative instruments^(a)	7			8			24			26
Other Comprehensive Income	7			8			24			26
COMPREHENSIVE INCOME (LOSS)	(738		)	(53		)	(9,310		)	42
COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS	—			—			16			—
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	$	(738	)	$	(53	)	$	(9,294	)	$	42

___________________________________________


(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.

Table of Contents

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Nine Months Ended September 30,
	2020			2019
	($ in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS)	$	(9,334	)	$	16
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation, depletion and amortization	931			1,672
Deferred income tax benefit	(10		)	(314		)
Derivative gains, net	(573		)	(137		)
Cash receipts on derivative settlements, net	890			129
Stock-based compensation	16			24
Gains on sales of assets	(1		)	(33		)
Impairments	8,522			11
Non-cash reorganization items, net	(300		)	—
Exploration	409			35
Losses on investments	23			21
Gains on purchases or exchanges of debt	(65		)	(70		)
Other	(46		)	42
Changes in assets and liabilities	693			(214		)
Net Cash Provided By Operating Activities	1,155			1,182
CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	(946		)	(1,640		)
Business combination, net	—			(353		)
Acquisitions of proved and unproved properties	(9		)	(31		)
Proceeds from divestitures of proved and unproved properties	10			110
Additions to other property and equipment	(18		)	(27		)
Proceeds from sales of other property and equipment	5			6
Net Cash Used In Investing Activities	(958		)	(1,935		)
CASH FLOWS FROM FINANCING ACTIVITIES:

Price	1.41	EPS	0
Shares	1,698	P/E	150
MCap	2,394	P/FCF	2
Net Debt	9,510	EBIT	523
TEV	11,904	TEV/EBIT	23
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-09-30	Filed 2020-11-09
10-Q	2020-06-30	Filed 2020-08-10
10-Q	2020-03-31	Filed 2020-05-11
10-K	2019-12-31	Filed 2020-02-27
10-Q	2019-09-30	Filed 2019-11-05
10-Q	2019-06-30	Filed 2019-08-06
10-Q	2019-03-31	Filed 2019-05-09
10-K	2018-12-31	Filed 2019-02-27
10-Q	2018-09-30	Filed 2018-10-30
10-Q	2018-06-30	Filed 2018-08-01
10-Q	2018-03-31	Filed 2018-05-02
10-K	2017-12-31	Filed 2018-02-22
10-Q	2017-09-30	Filed 2017-11-02
10-Q	2017-06-30	Filed 2017-08-03
10-Q	2017-03-31	Filed 2017-05-04
10-K	2016-12-31	Filed 2017-03-03
10-Q	2016-09-30	Filed 2016-11-03
10-Q	2016-06-30	Filed 2016-08-04
10-Q	2016-03-31	Filed 2016-05-05
10-K	2015-12-31	Filed 2016-02-25
10-Q	2015-09-30	Filed 2015-11-04
10-Q	2015-06-30	Filed 2015-08-05
10-Q	2015-03-31	Filed 2015-05-06
10-K	2014-12-31	Filed 2015-02-27
10-Q	2014-09-30	Filed 2014-11-06
10-Q	2014-06-30	Filed 2014-08-06
10-Q	2014-03-31	Filed 2014-05-07
10-K	2013-12-31	Filed 2014-02-27
10-Q	2013-09-30	Filed 2013-11-06
10-Q	2013-06-30	Filed 2013-08-06
10-Q	2013-03-31	Filed 2013-05-10
10-K	2012-12-31	Filed 2013-03-01
10-Q	2012-09-30	Filed 2012-11-09
10-Q	2012-06-30	Filed 2012-08-09
10-Q	2012-03-31	Filed 2012-05-11
10-K	2011-12-31	Filed 2012-02-29
10-Q	2011-09-30	Filed 2011-11-09
10-Q	2011-06-30	Filed 2011-08-09
10-Q	2011-03-31	Filed 2011-05-10
10-K	2010-12-31	Filed 2011-03-01
10-Q	2010-09-30	Filed 2010-11-09
10-Q	2010-06-30	Filed 2010-08-09
10-Q	2010-03-31	Filed 2010-05-10
10-K	2009-12-31	Filed 2010-03-01

8-K	2020-10-08
8-K	2020-09-15
8-K	2020-06-29
8-K	2020-06-28
8-K	2020-06-12
8-K	2020-05-05
8-K	2020-04-23
8-K	2020-04-13
8-K	2020-02-26
8-K	2020-01-29
8-K	2020-01-29
8-K	2019-12-26
8-K	2019-12-19
8-K	2019-12-10
8-K	2019-12-03
8-K	2019-11-15
8-K	2019-11-12
8-K	2019-11-05
8-K	2019-09-16
8-K	2019-09-09
8-K	2019-08-06
8-K	2019-05-17
8-K	2019-05-09
8-K	2019-05-08
8-K	2019-04-18
8-K	2019-04-03
8-K	2019-02-27
8-K	2019-01-31
8-K	2019-01-09
8-K	2018-12-31
8-K	2018-12-06
8-K	2018-10-30
8-K	2018-10-30
8-K	2018-10-29
8-K	2018-10-03
8-K	2018-09-26
8-K	2018-09-25
8-K	2018-09-12
8-K	2018-08-20
8-K	2018-08-01
8-K	2018-07-26
8-K	2018-05-18
8-K	2018-05-16
8-K	2018-05-02
8-K	2018-03-27
8-K	2018-02-22
8-K	2018-02-21
8-K	2018-02-13
8-K	2018-02-06

EX-31.1	chk-ex3112020093010q.htm
EX-31.2	chk-ex3122020093010q.htm
EX-32.1	chk-ex3212020093010q.htm
EX-32.2	chk-ex3222020093010q.htm
EX-95.1	ex951minesafetydisclos.htm

CHK 10Q Quarterly Report

Chesapeake Energy Earnings 2020-09-30