Companies: 10,652     total market cap: $140.563 T
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Expand Energy
EXE
#993
Rank
$24.78 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$104.05
Share price
0.59%
Change (1 day)
2.69%
Change (1 year)
๐Ÿ›ข Oil&Gas โšก Energy
Categories
  1. Expand Energy
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2019 Q3

Expand Energy - 10-Q quarterly report FY2019 Q3


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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, 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)
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
 
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 October 31, 2019, there were 1,954,162,667 shares of our $0.01 par value common stock outstanding.


CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2019


 
PART I. FINANCIAL INFORMATION
Page
Item 1.
Condensed Consolidated Financial Statements
 
 
Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
3
 
Condensed Consolidated Statements of Operations 
for the Three and Nine Months Ended September 30, 2019 and 2018
5
 
Condensed Consolidated Statements of Comprehensive Income 
for the Three and Nine Months Ended September 30, 2019 and 2018
6
 
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2019 and 2018
7
 
Condensed Consolidated Statements of Stockholders’ Equity 
for the Three and Nine Months Ended September 30, 2019 and 2018
9
 
Notes to the Condensed Consolidated Financial Statements
 
 
Note 1. Basis of Presentation and Summary of Significant Accounting Policies
11
 
Note 2. Change in Accounting Principle
13
 
Note 3. Oil and Natural Gas Property Transactions
26
 
Note 4. Capitalized Exploratory Well Costs
28
 
Note 5. Earnings per Share  
28
 
Note 6. Debt
29
 
Note 7. Contingencies and Commitments
33
 
Note 8. Other Liabilities
34
 
Note 9. Leases
35
 
Note 10. Revenue Recognition
38
 
Note 11. Income Taxes
40
 
Note 12. Equity
42
 
Note 13. Share-Based Compensation
43
 
Note 14. Derivative and Hedging Activities
47
 
Note 15. Investments
53
 
Note 16. Other Operating Expenses
53
 
Note 17. Restructuring and Other Termination Costs
53
 
Note 18. Fair Value Measurements
54
 
Note 19. Condensed Consolidating Financial Information
54
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
63
 
Liquidity and Capital Resources
64
 
Results of Operations for the Three and Nine Months Ended September 30, 2019 and 2018
69
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
78
Item 4.
Controls and Procedures
82
 
PART II. OTHER INFORMATION
 
 
Item 1.
Legal Proceedings
83
Item 1A.
Risk Factors
83
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
85
Item 3.
Defaults Upon Senior Securities
85
Item 4.
Mine Safety Disclosures
85
Item 5.
Other Information
85
Item 6.
Exhibits
86
Signatures
88

Table of Contents
PART I. FINANCIAL INFORMATION



ITEM 1.
Condensed Consolidated Financial Statements

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
September 30,
2019
 
December 31, 2018
 
 
($ in millions)
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents ($2 and $1 attributable to our VIE)
 
$
14

 
$
4

Accounts receivable, net
 
977

 
1,247

Short-term derivative assets
 
272

 
209

Other current assets
 
140

 
138

Total Current Assets
 
1,403

 
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)
 
30,288

 
25,407

Unproved properties
 
2,200

 
1,561

Other property and equipment
 
1,810

 
1,721

Total Property and Equipment, at Cost
 
34,298

 
28,689

Less: accumulated depreciation, depletion and amortization
(($711) and ($707) attributable to our VIE)
 
(19,432
)
 
(17,886
)
Property and equipment held for sale, net
 
10

 
15

Total Property and Equipment, Net
 
14,876

 
10,818

LONG-TERM ASSETS:
 
 
 
 
Long-term derivative assets
 
51

 
76

Other long-term assets
 
249

 
243

TOTAL ASSETS
 
$
16,579

 
$
12,735

 
 
 
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
3
TABLE OF CONTENTS
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS – (Continued)
(Unaudited)

 
 
September 30,
2019
 
December 31, 2018
 
 
($ in millions)
CURRENT LIABILITIES:
 
 
 
 
Accounts payable
 
$
526

 
$
763

Current maturities of long-term debt, net
 
208

 
381

Accrued interest
 
124

 
141

Short-term derivative liabilities
 
—

 
3

Other current liabilities ($1 and $2 attributable to our VIE)
 
1,490

 
1,599

Total Current Liabilities
 
2,348

 
2,887

LONG-TERM LIABILITIES:
 
 
 
 
Long-term debt, net
 
9,133

 
7,341

Asset retirement obligations, net of current portion
 
177

 
155

Other long-term liabilities
 
186

 
219

Total Long-Term Liabilities
 
9,496

 
7,715

CONTINGENCIES AND COMMITMENTS (Note 7)
 

 

EQUITY:
 
 
 
 
Chesapeake Stockholders’ Equity:
 
 
 
 
Preferred stock, $0.01 par value, 20,000,000 shares authorized:
5,563,458 and 5,603,458 shares outstanding
 
1,631

 
1,671

Common stock, $0.01 par value, 3,000,000,000 and 2,000,000,000 shares authorized:
1,954,150,951 and 913,715,512 shares issued
 
19

 
9

Additional paid-in capital
 
16,975

 
14,378

Accumulated deficit
 
(13,896
)
 
(13,912
)
Accumulated other comprehensive income (loss)
 
3

 
(23
)
Less: treasury stock, at cost;
5,623,592 and 3,246,553 common shares
 
(36
)
 
(31
)
Total Chesapeake Stockholders’ Equity
 
4,696

 
2,092

Noncontrolling interests
 
39

 
41

Total Equity
 
4,735

 
2,133

TOTAL LIABILITIES AND EQUITY
 
$
16,579

 
$
12,735




The accompanying notes are an integral part of these condensed consolidated financial statements.
4
TABLE OF CONTENTS
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018*
 
2019
 
2018*
  
 
($ in millions except per share data)
REVENUES AND OTHER:
 
 
 
 
 
 
 
 
Oil, natural gas and NGL
 
$
1,170

 
$
1,199

 
$
3,553

 
$
3,424

Marketing
 
889

 
1,219

 
3,038

 
3,738

Total Revenues
 
2,059

 
2,418

 
6,591

 
7,162

Other
 
15

 
16

 
45

 
48

Gains (losses) on sales of assets
 
13

 
(10
)
 
33

 
27

Total Revenues and Other
 
2,087

 
2,424

 
6,669

 
7,237

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
Oil, natural gas and NGL production
 
155

 
132

 
453

 
417

Oil, natural gas and NGL gathering, processing and transportation
 
270

 
364

 
815

 
1,060

Production taxes
 
35

 
34

 
109

 
91

Exploration
 
17

 
22

 
56

 
123

Marketing
 
901

 
1,238

 
3,071

 
3,798

General and administrative
 
66

 
81

 
258

 
273

Restructuring and other termination costs
 
—

 
—

 
—

 
38

Provision for legal contingencies, net
 
—

 
8

 
3

 
17

Depreciation, depletion and amortization
 
573

 
405

 
1,672

 
1,335

Impairments
 
9

 
58

 
11

 
122

Other operating (income) expense
 
15

 
—

 
79

 
(1
)
Total Operating Expenses
 
2,041

 
2,342

 
6,527

 
7,273

INCOME (LOSS) FROM OPERATIONS
 
46

 
82

 
142

 
(36
)
OTHER INCOME (EXPENSE):
 

 
 
 

 
 
Interest expense
 
(177
)
 
(165
)
 
(513
)
 
(482
)
Gains (losses) on investments
 
(4
)
 
—

 
(28
)
 
139

Gains (losses) on purchases or exchanges of debt
 
70

 
(68
)
 
70

 
(68
)
Other income
 
3

 
6

 
30

 
62

Total Other Expense
 
(108
)
 
(227
)
 
(441
)
 
(349
)
LOSS BEFORE INCOME TAXES
 
(62
)
 
(145
)
 
(299
)
 
(385
)
Income tax expense (benefit)
 
(1
)
 
1

 
(315
)
 
(8
)
NET INCOME (LOSS)
 
(61
)
 
(146
)
 
16

 
(377
)
Net income attributable to noncontrolling interests
 
—

 
—

 
—

 
(1
)
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE
 
(61
)
 
(146
)
 
16

 
(378
)
Preferred stock dividends
 
(23
)
 
(23
)
 
(69
)
 
(69
)
Loss on exchange of preferred stock
 
(17
)
 
—

 
(17
)
 
—

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS
 
$
(101
)
 
$
(169
)
 
$
(70
)
 
$
(447
)
LOSS PER COMMON SHARE:
 
 
 
 
 
 
 
 
Basic
 
$
(0.06
)
 
$
(0.19
)
 
$
(0.04
)
 
$
(0.49
)
Diluted
 
$
(0.06
)
 
$
(0.19
)
 
$
(0.04
)
 
$
(0.49
)
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (in millions):
 
 
 
 
 
 
 
 
Basic
 
1,698

 
910

 
1,570

 
909

Diluted
 
1,698

 
910

 
1,570

 
909

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



 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018*
 
2019
 
2018*
 
 
($ in millions)
NET INCOME (LOSS)
 
$
(61
)
 
$
(146
)
 
$
16

 
$
(377
)
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX:
 
 
 
 
 
 
 
 
Unrealized gains on derivative instruments(a)
 
—

 
—

 
—

 
—

Reclassification of losses on settled derivative instruments(a)
 
8

 
8

 
26

 
25

Other Comprehensive Income
 
8

 
8

 
26

 
25

COMPREHENSIVE INCOME (LOSS)
 
(53
)
 
(138
)
 
42

 
(352
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
—

 
—

 
—

 
(1
)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE
 
$
(53
)
 
$
(138
)
 
$
42

 
$
(353
)

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

 
 
Nine Months Ended
September 30,
 
 
2019
 
2018*
 
 
($ in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
NET INCOME (LOSS)
 
$
16

 
$
(377
)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO CASH
PROVIDED BY OPERATING ACTIVITIES:
 
 
 
 
Depreciation, depletion and amortization
 
1,672

 
1,335

Deferred income tax benefit
 
(314
)
 
(10
)
Derivative (gains) losses, net
 
(137
)
 
500

Cash receipts (payments) on derivative settlements, net
 
129

 
(162
)
Stock-based compensation
 
24

 
25

Gains on sales of assets
 
(33
)
 
(27
)
Impairments
 
11

 
122

Exploration
 
35

 
81

(Gains) losses on investments
 
21

 
(139
)
(Gains) losses on purchases or exchanges of debt
 
(70
)
 
68

Other
 
42

 
(90
)
Changes in assets and liabilities
 
(214
)
 
69

Net Cash Provided By Operating Activities
 
1,182

 
1,395

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Drilling and completion costs
 
(1,640
)
 
(1,407
)
Business combination, net
 
(353
)
 
—

Acquisitions of proved and unproved properties
 
(31
)
 
(118
)
Proceeds from divestitures of proved and unproved properties
 
110

 
395

Additions to other property and equipment
 
(27
)
 
(11
)
Proceeds from sales of other property and equipment
 
6

 
75

Proceeds from sales of investments
 
—

 
74

Net Cash Used In Investing Activities
 
(1,935
)
 
(992
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from revolving credit facility borrowings
 
8,805

 
9,095

Payments on revolving credit facility borrowings
 
(7,495
)
 
(9,231
)
Proceeds from issuance of senior notes, net
 
—

 
1,237

Cash paid to purchase debt
 
(457
)
 
(1,285
)
Extinguishment of other financing
 
—

 
(122
)
Cash paid for preferred stock dividends
 
(69
)
 
(69
)
Distributions to noncontrolling interest owners
 
(2
)
 
(5
)
Other
 
(19
)
 
(24
)
Net Cash Provided By (Used In) Financing Activities
 
763

 
(404
)
Net increase (decrease) in cash and cash equivalents
 
10

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

 
5

Cash and cash equivalents, end of period
 
$
14

 
$
4

 
 
 
 
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
7
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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:
 
 
Nine Months Ended
September 30,
 
 
2019
 
2018*
 
 
($ in millions)
SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
 
Interest paid, net of capitalized interest
 
$
487

 
$
527

Income taxes paid, net of refunds received
 
$
(6
)
 
$
(3
)
 
 
 
 
 
SUPPLEMENTAL DISCLOSURE OF SIGNIFICANT NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
 
Common stock issued for business combination
 
$
2,037

 
$
—

Debt exchanged for common stock
 
$
693

 
$
—

Preferred stock exchanged for common stock
 
$
40

 
$
—

Change in senior notes exchanged
 
$
35

 
$
—

Change in accrued drilling and completion costs
 
$
49

 
$
142

Change in divested proved and unproved properties
 
$
(144
)
 
$
(5
)

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




 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018*
 
2019
 
2018*
 
 
($ in millions)
PREFERRED STOCK:
 
 
 
 
 
 
 
 
Balance, beginning of period
 
$
1,671

 
$
1,671

 
$
1,671

 
$
1,671

Exchange of 40,000, 0, 40,000 and 0 shares of preferred stock for common stock
 
(40
)
 
—

 
(40
)
 
—

Balance, end of period
 
1,631

 
1,671

 
1,631

 
1,671

COMMON STOCK:
 
 
 
 
 
 
 
 
Balance, beginning of period
 
16

 
9

 
9

 
9

Common shares issued for WildHorse Merger
 
—

 
—

 
7

 
—

Exchange of senior notes and convertible senior notes
 
3

 
—

 
3

 
—

Balance, end of period
 
19

 
9

 
19

 
9

ADDITIONAL PAID-IN CAPITAL:
 
 
 
 
 
 
 
 
Balance, beginning of period
 
16,380

 
14,408

 
14,378

 
14,437

Common shares issued for WildHorse Merger
 
—

 
—

 
2,030

 
—

Exchange of preferred stock for 10,367,950, 0 10,367,950 and 0 shares of common stock
 
40

 
—

 
40

 
—

Exchange of senior notes for 235,563,519, 0 235,563,519 and 0 shares of common stock
 
438

 
—

 
438

 
—

Exchange of convertible senior notes for 73,389,094, 0, 73,389,094 and 0 shares of common stock
 
134

 
—

 
134

 
—

Equity component of convertible notes repurchases
 
(2
)
 
—

 
(2
)
 
—

Stock-based compensation
 
8

 
9

 
26

 
26

Dividends on preferred stock
 
(23
)
 
(23
)
 
(69
)
 
(69
)
Balance, end of period
 
16,975

 
14,394

 
16,975

 
14,394

ACCUMULATED DEFICIT:
 
 
 
 
 
 
 
 
Balance, beginning of period
 
(13,835
)
 
(14,370
)
 
(13,912
)
 
(14,130
)
Net income (loss) attributable to Chesapeake
 
(61
)
 
(146
)
 
16

 
(378
)
Cumulative effect of accounting change
 
—

 
—

 
—

 
(8
)
Balance, end of period
 
(13,896
)
 
(14,516
)
 
(13,896
)
 
(14,516
)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
 
 
 
 
 
 
 
 
Balance, beginning of period
 
(5
)
 
(40
)
 
(23
)
 
(57
)
Hedging activity
 
8

 
8

 
26

 
25

Balance, end of period
 
3

 
(32
)
 
3

 
(32
)

The accompanying notes are an integral part of these condensed consolidated financial statements.
9
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - (Continued)
(Unaudited)


 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018*
 
2019
 
2018*
 
 
($ in millions)
TREASURY STOCK – COMMON:
 
 
 
 
 
 
 
 
Balance, beginning of period
 
(36
)
 
(31
)
 
(31
)
 
(31
)
Purchase of 53,337, 30,509, 2,673,903, and 1,499,033 shares for company benefit plans
 
—

 
—

 
(7
)
 
(4
)
Release of 37,301, 41,617, 296,864 and 431,474 shares from company benefit plans
 
—

 
—

 
2

 
4

Balance, end of period
 
(36
)
 
(31
)
 
(36
)
 
(31
)
TOTAL CHESAPEAKE STOCKHOLDERS’ EQUITY
 
4,696

 
1,495

 
4,696

 
1,495

NONCONTROLLING INTERESTS:
 
 
 
 
 
 
 
 
Balance, beginning of period
 
39

 
42

 
41

 
44

Net income attributable to noncontrolling interests
 
—

 
—

 
—

 
1

Distributions to noncontrolling interest owners
 
—

 
(2
)
 
(2
)
 
(5
)
Balance, end of period
 
39

 
40

 
39

 
40

TOTAL EQUITY
 
$
4,735

 
$
1,535

 
$
4,735

 
$
1,535


* 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.
10
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1.
Basis of Presentation and Summary of Significant Accounting Policies
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 and nine months ended September 30, 2019 (the “Current Quarter” and the “Current Period”, respectively) and the three and nine months ended September 30, 2018 (the “Prior Quarter” and the “Prior Period”, respectively). 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 first quarter of 2019, 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

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

until an entire amortization base is sold. However, a gain or loss is recognized from the sale of less than an entire 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 Auditing Standards Update (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.

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

2.
Change in Accounting Principle
In the first quarter of 2019, 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.

13
TABLE OF CONTENTS
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
Three Months Ended September 30, 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
 
$
1,170

 
$
—

 
$
1,170

Marketing
 
889

 
—

 
889

Total Revenues
 
2,059

 
—

 
2,059

Other
 
—

 
15

 
15

Gains on sales of assets
 
—

 
13

 
13

Total Revenues and Other
 
2,059

 
28

 
2,087

OPERATING EXPENSES:
 
 
 
 
 
 
Oil, natural gas and NGL production
 
155

 
—

 
155

Oil, natural gas and NGL gathering, processing and transportation
 
270

 
—

 
270

Production taxes
 
35

 
—

 
35

Exploration
 
—

 
17

 
17

Marketing
 
901

 
—

 
901

General and administrative
 
52

 
14

 
66

Depreciation, depletion and amortization
 
421

 
152

 
573

Impairments
 
1

 
8

 
9

Other operating expense
 
15

 
—

 
15

Total Operating Expenses
 
1,850

 
191

 
2,041

INCOME FROM OPERATIONS
 
209

 
(163
)
 
46

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
Interest expense
 
(134
)
 
(43
)
 
(177
)
Losses on investments
 
(4
)
 
—

 
(4
)
Gains on purchases or exchanges of debt
 
70

 
—

 
70

Other income
 
2

 
1

 
3

Total Other Expense
 
(66
)
 
(42
)
 
(108
)
INCOME (LOSS) BEFORE INCOME TAXES
 
143

 
(205
)
 
(62
)
Income tax benefit
 
(1
)
 
—

 
(1
)
NET INCOME (LOSS)
 
144

 
(205
)
 
(61
)
Net loss attributable to noncontrolling interests
 
—

 
—

 
—

NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE
 
144

 
(205
)
 
(61
)
Preferred stock dividends
 
(23
)
 
—

 
(23
)
Loss on exchange of preferred stock
 
(17
)
 
—

 
(17
)
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
 
$
104

 
$
(205
)
 
$
(101
)
EARNINGS (LOSS) PER COMMON SHARE:
 
 
 
 
 
 
Basic
 
$
0.06

 
$
(0.12
)
 
$
(0.06
)
Diluted
 
$
0.06

 
$
(0.12
)
 
$
(0.06
)
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (in millions):
 
 
 
 
 
 
Basic
 
1,698

 
—

 
1,698

Diluted
 
1,698

 
—

 
1,698


14
TABLE OF CONTENTS
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
Three Months Ended September 30, 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
 
$
1,199

 
$
—

 
$
1,199

Marketing
 
1,219

 
—

 
1,219

Total Revenues
 
2,418

 
—

 
2,418

Other
 
—

 
16

 
16

Losses on sales of assets
 
—

 
(10
)
 
(10
)
Total Revenues and Other
 
2,418

 
6

 
2,424

OPERATING EXPENSES:
 
 
 
 
 
 
Oil, natural gas and NGL production
 
132

 
—

 
132

Oil, natural gas and NGL gathering, processing and transportation
 
364

 
—

 
364

Production taxes
 
34

 
—

 
34

Exploration
 
—

 
22

 
22

Marketing
 
1,238

 
—

 
1,238

General and administrative
 
66

 
15

 
81

Provision for legal contingencies, net
 
8

 
—

 
8

Depreciation, depletion and amortization
 
291

 
114

 
405

Impairments
 
5

 
53

 
58

Total Operating Expenses
 
2,138

 
204

 
2,342

INCOME FROM OPERATIONS
 
280

 
(198
)
 
82

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
Interest expense
 
(127
)
 
(38
)
 
(165
)
Losses on purchases or exchanges of debt
 
(68
)
 
—

 
(68
)
Other income
 
1

 
5

 
6

Total Other Expense
 
(194
)
 
(33
)
 
(227
)
INCOME (LOSS) BEFORE INCOME TAXES
 
86

 
(231
)
 
(145
)
Income tax expense
 
1

 
—

 
1

NET INCOME (LOSS)
 
85

 
(231
)
 
(146
)
Net income attributable to noncontrolling interests
 
(1
)
 
1

 
—

NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE
 
84

 
(230
)
 
(146
)
Preferred stock dividends
 
(23
)
 
—

 
(23
)
Earnings allocated to participating securities
 
(1
)
 
1

 
—

NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
 
$
60

 
$
(229
)
 
$
(169
)
EARNINGS (LOSS) PER COMMON SHARE:
 
 
 
 
 
 
Basic
 
$
0.07

 
$
(0.26
)
 
$
(0.19
)
Diluted
 
$
0.07

 
$
(0.26
)
 
$
(0.19
)
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (in millions):
 
 
 
 
 
 
Basic
 
910

 
—

 
910

Diluted
 
911

 
(1
)
 
910




15
TABLE OF CONTENTS
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
Nine Months Ended September 30, 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
 
$
3,553

 
$
—

 
$
3,553

Marketing
 
3,038

 
—

 
3,038

Total Revenues
 
6,591

 
—

 
6,591

Other
 
—

 
45

 
45

Gains on sales of assets
 
—

 
33

 
33

Total Revenues and Other
 
6,591

 
78

 
6,669

OPERATING EXPENSES:
 
 
 
 
 
 
Oil, natural gas and NGL production
 
453

 
—

 
453

Oil, natural gas and NGL gathering, processing and transportation
 
815

 
—

 
815

Production taxes
 
109

 
—

 
109

Exploration
 
—

 
56

 
56

Marketing
 
3,071

 
—

 
3,071

General and administrative
 
216

 
42

 
258

Provision for legal contingencies
 
3

 
—

 
3

Depreciation, depletion and amortization
 
1,197

 
475

 
1,672

Gain on sale of oil and natural gas properties
 
(10
)
 
10

 
—

Impairments
 
3

 
8

 
11

Other operating expense
 
79

 
—

 
79

Total Operating Expenses
 
5,936

 
591

 
6,527

INCOME FROM OPERATIONS
 
655

 
(513
)
 
142

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
Interest expense
 
(400
)
 
(113
)
 
(513
)
Losses on investments
 
(28
)
 
—

 
(28
)
Gains on purchases or exchanges of debt
 
70

 
—

 
70

Other income
 
22

 
8

 
30

Total Other Expense
 
(336
)
 
(105
)
 
(441
)
INCOME (LOSS) BEFORE INCOME TAXES
 
319

 
(618
)
 
(299
)
Income tax benefit
 
(315
)
 
—

 
(315
)
NET INCOME
 
634

 
(618
)
 
16

Net income attributable to noncontrolling interests
 
(1
)
 
1

 
—

NET INCOME ATTRIBUTABLE TO CHESAPEAKE
 
633

 
(617
)
 
16

Preferred stock dividends
 
(69
)
 
—

 
(69
)
Loss on exchange of preferred stock
 
(17
)
 
—

 
(17
)
Earnings allocated to participating securities
 
(2
)
 
2

 
—

NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
 
$
545

 
$
(615
)
 
$
(70
)
EARNINGS (LOSS) PER COMMON SHARE:
 
 
 
 
 
 
Basic
 
$
0.35

 
$
(0.39
)
 
$
(0.04
)
Diluted
 
$
0.35

 
$
(0.39
)
 
$
(0.04
)
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (in millions):
 
 
 
 
 
 
Basic
 
1,570

 
—

 
1,570

Diluted
 
1,570

 
—

 
1,570


16
TABLE OF CONTENTS
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
Nine Months Ended September 30, 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
 
$
3,424

 
$
—

 
$
3,424

Marketing
 
3,738

 
—

 
3,738

Total Revenues
 
7,162

 
—

 
7,162

Other
 
—

 
48

 
48

Gains on sales of assets
 
—

 
27

 
27

Total Revenues and Other
 
7,162

 
75

 
7,237

OPERATING EXPENSES:
 
 
 
 
 
 
Oil, natural gas and NGL production
 
417

 
—

 
417

Oil, natural gas and NGL gathering, processing and transportation
 
1,060

 
—

 
1,060

Production taxes
 
91

 
—

 
91

Exploration
 
—

 
123

 
123

Marketing
 
3,798

 
—

 
3,798

General and administrative
 
229

 
44

 
273

Restructuring and other termination costs
 
38

 
—

 
38

Provision for legal contingencies, net
 
17

 
—

 
17

Depreciation, depletion and amortization
 
867

 
468

 
1,335

Impairments
 
51

 
71

 
122

Other operating (income) expense
 
6

 
(7
)
 
(1
)
Total Operating Expenses
 
6,574

 
699

 
7,273

INCOME (LOSS) FROM OPERATIONS
 
588

 
(624
)
 
(36
)
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
Interest expense
 
(367
)
 
(115
)
 
(482
)
Gains on investments
 
139

 
—

 
139

Losses on purchases or exchanges of debt
 
(68
)
 
—

 
(68
)
Other income
 
63

 
(1
)
 
62

Total Other Expense
 
(233
)
 
(116
)
 
(349
)
INCOME (LOSS) BEFORE INCOME TAXES
 
355

 
(740
)
 
(385
)
Income tax benefit
 
(8
)
 
—

 
(8
)
NET INCOME (LOSS)
 
363

 
(740
)
 
(377
)
Net income attributable to noncontrolling interests
 
(3
)
 
2

 
(1
)
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE
 
360

 
(738
)
 
(378
)
Preferred stock dividends
 
(69
)
 
—

 
(69
)
Earnings allocated to participating securities
 
(3
)
 
3

 
—

NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
 
$
288

 
$
(735
)
 
$
(447
)
EARNINGS (LOSS) PER COMMON SHARE:
 
 
 
 
 
 
Basic
 
$
0.32

 
$
(0.81
)
 
$
(0.49
)
Diluted
 
$
0.32

 
$
(0.81
)
 
$
(0.49
)
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (in millions):
 
 
 
 
 
 
Basic
 
909

 
—

 
909

Diluted
 
909

 
—

 
909


17
TABLE OF CONTENTS
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
Three Months Ended September 30, 2019
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 

Under Full Cost
 
Successful
Efforts
Adjustment
 
Under Successful Efforts
 
 
($ in millions)
NET INCOME (LOSS)
 
$
144

 
$
(205
)
 
$
(61
)
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX:
 
 
 
 
 
 
Unrealized gains on derivative instruments
 
—

 
—

 
—

Reclassification of losses on settled derivative instruments
 
8

 
—

 
8

Other Comprehensive Income
 
8

 
—

 
8

COMPREHENSIVE INCOME (LOSS)
 
152

 
(205
)
 
(53
)
COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
—

 
—

 
—

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE
 
$
152

 
$
(205
)
 
$
(53
)
 
 
Three Months Ended September 30, 2018
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 

Under Full Cost
 
Successful
Efforts
Adjustment
 
Under Successful Efforts
 
 
($ in millions)
NET INCOME (LOSS)
 
$
85

 
$
(231
)
 
$
(146
)
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX:
 
 
 
 
 
 
Unrealized gains on derivative instruments
 
—

 
—

 
—

Reclassification of losses on settled derivative instruments
 
8

 
—

 
8

Other Comprehensive Income
 
8

 
—

 
8

COMPREHENSIVE INCOME (LOSS)
 
93

 
(231
)
 
(138
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
(1
)
 
1

 
—

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE
 
$
92

 
$
(230
)
 
$
(138
)
 
 
Nine Months Ended September 30, 2019
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 

Under Full Cost
 
Successful
Efforts
Adjustment
 
Under Successful Efforts
 
 
($ in millions)
NET INCOME
 
$
634

 
$
(618
)
 
$
16

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

 
—

 
—

Reclassification of losses on settled derivative instruments
 
26

 
—

 
26

Other Comprehensive Income
 
26

 
—

 
26

COMPREHENSIVE INCOME
 
660

 
(618
)
 
42

COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
(1
)
 
1

 
—

COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE
 
$
659

 
$
(617
)
 
$
42


18
TABLE OF CONTENTS
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
Nine Months Ended September 30, 2018
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 

Under Full Cost
 
Successful
Efforts
Adjustment
 
Under Successful Efforts
 
 
($ in millions)
NET INCOME (LOSS)
 
$
363

 
$
(740
)
 
$
(377
)
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX:
 
 
 
 
 
 
Unrealized gains on derivative instruments
 
—

 
—

 
—

Reclassification of losses on settled derivative instruments
 
25

 
—

 
25

Other Comprehensive Income
 
25

 
—

 
25

COMPREHENSIVE INCOME (LOSS)
 
388

 
(740
)
 
(352
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
(3
)
 
2

 
(1
)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE
 
$
385

 
$
(738
)
 
$
(353
)

19
TABLE OF CONTENTS
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 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
 
$
634

 
$
(618
)
 
$
16

ADJUSTMENTS TO RECONCILE NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES:
 
 
 

 
 
Depreciation, depletion and amortization
 
1,197

 
475

 
1,672

Deferred income tax benefit
 
(314
)
 
—

 
(314
)
Derivative losses, net
 
(137
)
 
—

 
(137
)
Cash receipts on derivative settlements, net
 
129

 
—

 
129

Stock-based compensation
 
24

 
—

 
24

Gains on sales of assets
 
—

 
(33
)
 
(33
)
Impairments
 
3

 
8

 
11

Exploration
 
—

 
35

 
35

Losses on investments
 
21

 
—

 
21

Gains on purchases of debt
 
(70
)
 
—

 
(70
)
Other
 
33

 
9

 
42

Changes in assets and liabilities
 
(169
)
 
(45
)
 
(214
)
Net Cash Provided By Operating Activities
 
1,351

 
(169
)
 
1,182

CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs
 
(1,694
)
 
54

 
(1,640
)
Business combination, net
 
(353
)
 
—

 
(353
)
Acquisitions of proved and unproved properties
 
(146
)
 
115

 
(31
)
Proceeds from divestitures of proved and unproved properties
 
110

 
—

 
110

Additions to other property and equipment
 
(27
)
 
—

 
(27
)
Proceeds from sales of other property and equipment
 
6

 
—

 
6

Net Cash Used In Investing Activities
 
(2,104
)
 
169

 
(1,935
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility borrowings
 
8,805

 
—

 
8,805

Payments on revolving credit facility borrowings
 
(7,495
)
 
—

 
(7,495
)
Cash paid to purchase debt
 
(457
)
 
—

 
(457
)
Cash paid for preferred stock dividends
 
(69
)
 
—

 
(69
)
Distributions to noncontrolling interest owners
 
(2
)
 
—

 
(2
)
Other
 
(19
)
 
—

 
(19
)
Net Cash Provided By Financing Activities
 
763

 
—

 
763

Net increase in cash and cash equivalents
 
10

 
—

 
10

Cash and cash equivalents, beginning of period
 
4

 
—

 
4

Cash and cash equivalents, end of period
 
$
14

 
$
—

 
$
14





20
TABLE OF CONTENTS
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 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 (LOSS)
 
$
363

 
$
(740
)
 
$
(377
)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO CASH PROVIDED BY OPERATING ACTIVITIES:
 
 
 
 
 
 
Depreciation, depletion and amortization
 
867

 
468

 
1,335

Deferred income tax benefit
 
(10
)
 
—

 
(10
)
Derivative losses, net
 
500

 
—

 
500

Cash payments on derivative settlements, net
 
(162
)
 
—

 
(162
)
Stock-based compensation
 
25

 
—

 
25

Gains on sales of assets
 
—

 
(27
)
 
(27
)
Impairments
 
51

 
71

 
122

Exploration
 
—

 
81

 
81

Gains on investments
 
(139
)
 
—

 
(139
)
Losses on purchases or exchanges of debt
 
68

 
—

 
68

Other
 
(83
)
 
(7
)
 
(90
)
Changes in assets and liabilities
 
116

 
(47
)
 
69

Net Cash Provided By Operating Activities
 
1,596

 
(201
)
 
1,395

CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs
 
(1,482
)
 
75

 
(1,407
)
Acquisitions of proved and unproved properties
 
(244
)
 
126

 
(118
)
Proceeds from divestitures of proved and unproved properties
 
395

 
—

 
395

Additions to other property and equipment
 
(11
)
 
—

 
(11
)
Proceeds from sales of other property and equipment
 
75

 
—

 
75

Proceeds from sales of investments
 
74

 
—

 
74

Net Cash Used In Investing Activities
 
(1,193
)
 
201

 
(992
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility borrowings
 
9,095

 
—

 
9,095

Payments on revolving credit facility borrowings
 
(9,231
)
 
—

 
(9,231
)
Proceeds from issuance of senior notes, net
 
1,237

 
—

 
1,237

Cash paid to purchase debt
 
(1,285
)
 
—

 
(1,285
)
Extinguishment of other financing
 
(122
)
 
—

 
(122
)
Cash paid for preferred stock dividends
 
(69
)
 
—

 
(69
)
Distributions to noncontrolling interest owners
 
(5
)
 
—

 
(5
)
Other
 
(24
)
 
—

 
(24
)
Net Cash Used In Financing Activities
 
(404
)
 
—

 
(404
)
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


21
TABLE OF CONTENTS
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
Three Months Ended September 30, 2019
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 
Under
Full Cost
 
Successful Efforts Adjustment
 
Under Successful Efforts
 
 
($ in millions)
PREFERRED STOCK:
 
 
 
 
 
 
Balance, beginning of period
 
$
1,671

 
$
—

 
$
1,671

Exchange of 40,000 shares of preferred stock for common stock
 
(40
)
 
—

 
(40
)
Balance, end of period
 
1,631

 
—

 
1,631

COMMON STOCK:
 
 
 
 
 
 
Balance, beginning of period
 
16

 
—

 
16

Exchange of senior notes and convertible senior notes
 
3

 
—

 
3

Exchange of preferred stock
 
—

 
—

 
—

Balance, end of period
 
19

 
—

 
19

ADDITIONAL PAID-IN CAPITAL:
 
 
 
 
 
 
Balance, beginning of period
 
16,380

 
—

 
16,380

Exchange of preferred stock for 10,367,950 shares of common stock
 
40

 
—

 
40

Exchange of senior notes for 235,563,519 shares of common stock
 
438

 
—

 
438

Exchange of convertible senior notes for 73,389,094 shares of common stock
 
134

 
—

 
134

Equity component of convertible notes repurchases
 
(2
)
 
—

 
(2
)
Stock-based compensation
 
8

 
—

 
8

Dividends on preferred stock
 
(23
)
 
—

 
(23
)
Balance, end of period
 
16,975

 
—

 
16,975

ACCUMULATED DEFICIT:
 
 
 
 
 
 
Balance, beginning of period
 
(15,171
)
 
1,336

 
(13,835
)
Net income (loss) attributable to Chesapeake
 
144

 
(205
)
 
(61
)
Balance, end of period
 
(15,027
)
 
1,131

 
(13,896
)
ACCUMULATED OTHER COMPREHENSIVE LOSS:
 
 
 
 
 
 
Balance, beginning of period
 
(5
)
 
—

 
(5
)
Hedging activity
 
8

 
—

 
8

Balance, end of period
 
3

 
—

 
3

TREASURY STOCK – COMMON:
 
 
 
 
 
 
Balance, beginning of period
 
(36
)
 
—

 
(36
)
Purchase of 53,337 shares for company benefit plans
 
—

 
—

 
—

Release of 37,301 shares from company benefit plans
 
—

 
—

 
—

Balance, end of period
 
(36
)
 
—

 
(36
)
TOTAL CHESAPEAKE STOCKHOLDERS’ EQUITY
 
3,565

 
1,131

 
4,696

NONCONTROLLING INTERESTS:
 
 
 
 
 
 
Balance, beginning of period
 
122

 
(83
)
 
39

Net loss attributable to noncontrolling interests
 
—

 
—

 
—

Distributions to noncontrolling interest owners
 
—

 
—

 
—

Balance, end of period
 
122

 
(83
)
 
39

TOTAL EQUITY
 
$
3,687

 
$
1,048

 
$
4,735


22
TABLE OF CONTENTS
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
Three Months Ended September 30, 2018
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 
Under
Full Cost
 
Successful Efforts 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

ADDITIONAL PAID-IN CAPITAL:
 
 
 
 
 
 
Balance, beginning of period
 
14,408

 
—

 
14,408

Stock-based compensation
 
9

 
—

 
9

Dividends on preferred stock
 
(23
)
 
—

 
(23
)
Balance, end of period
 
14,394

 
—

 
14,394

ACCUMULATED DEFICIT:
 
 
 
 
 
 
Balance, beginning of period
 
(16,257
)
 
1,887

 
(14,370
)
Net income (loss) attributable to Chesapeake
 
84

 
(230
)
 
(146
)
Balance, end of period
 
(16,173
)
 
1,657

 
(14,516
)
ACCUMULATED OTHER COMPREHENSIVE LOSS:
 
 
 
 
 
 
Balance, beginning of period
 
(40
)
 
—

 
(40
)
Hedging activity
 
8

 
—

 
8

Balance, end of period
 
(32
)
 
—

 
(32
)
TREASURY STOCK – COMMON:
 
 
 
 
 
 
Balance, beginning of period
 
(31
)
 
—

 
(31
)
Purchase of 30,509 shares for company benefit plans
 
—

 
—

 
—

Release of 41,617 shares from company benefit plans
 
—

 
—

 
—

Balance, end of period
 
(31
)
 
—

 
(31
)
TOTAL CHESAPEAKE STOCKHOLDERS’ EQUITY (DEFICIT)
 
(162
)
 
1,657

 
1,495

NONCONTROLLING INTERESTS:
 
 
 
 
 
 
Balance, beginning of period
 
123

 
(81
)
 
42

Net income attributable to noncontrolling interests
 
1

 
(1
)
 
—

Distributions to noncontrolling interest owners
 
(2
)
 
—

 
(2
)
Balance, end of period
 
122

 
(82
)
 
40

TOTAL EQUITY (DEFICIT)
 
$
(40
)
 
$
1,575

 
$
1,535



23
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
Nine Months Ended September 30, 2019
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 
Under
Full Cost
 
Successful Efforts Adjustment
 
Under Successful Efforts
 
 
($ in millions)
PREFERRED STOCK:
 
 
 
 
 
 
Balance, beginning of period
 
$
1,671

 
$
—

 
$
1,671

Exchange of 40,000 shares of preferred stock for common stock
 
(40
)
 
—

 
(40
)
Balance, end of period
 
1,631

 
—

 
1,631

COMMON STOCK:
 
 
 
 
 
 
Balance, beginning of period
 
9

 
—

 
9

Common shares issued for WildHorse Merger
 
7

 
—

 
7

Exchange of senior notes and convertible senior notes
 
3

 
—

 
3

Exchange of preferred stock
 
—

 
—

 
—

Balance, end of period
 
19

 
—

 
19

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

 
—

 
14,378

Common shares issued for WildHorse Merger
 
2,030

 
—

 
2,030

Exchange of preferred stock for 10,367,950 shares of common stock
 
40

 
—

 
40

Exchange of senior notes for 235,563,519 shares of common stock
 
438

 
—

 
438

Exchange of convertible senior notes for 73,389,094 shares of common stock
 
134

 
—

 
134

Equity component of convertible notes repurchases
 
(2
)
 
—

 
(2
)
Stock-based compensation
 
26

 
—

 
26

Dividends on preferred stock
 
(69
)
 
—

 
(69
)
Balance, end of period
 
16,975

 
—

 
16,975

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

 
(13,912
)
Net income attributable to Chesapeake
 
633

 
(617
)
 
16

Balance, end of period
 
(15,027
)
 
1,131

 
(13,896
)
ACCUMULATED OTHER COMPREHENSIVE LOSS:
 
 
 
 
 
 
Balance, beginning of period
 
(23
)
 
—

 
(23
)
Hedging activity
 
26

 
—

 
26

Balance, end of period
 
3

 
—

 
3

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

 
(31
)
Purchase of 2,673,903 shares for company benefit plans
 
(7
)
 
—

 
(7
)
Release of 296,864 shares from company benefit plans
 
2

 
—

 
2

Balance, end of period
 
(36
)
 
—

 
(36
)
TOTAL CHESAPEAKE STOCKHOLDERS’ EQUITY
 
3,565

 
1,131

 
4,696

NONCONTROLLING INTERESTS:
 
 
 
 
 
 
Balance, beginning of period
 
123

 
(82
)
 
41

Net income (loss) attributable to noncontrolling interests
 
1

 
(1
)
 
—

Distributions to noncontrolling interest owners
 
(2
)
 
—

 
(2
)
Balance, end of period
 
122

 
(83
)
 
39

TOTAL EQUITY
 
$
3,687

 
$
1,048

 
$
4,735


24
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)


 
 
Nine Months Ended September 30, 2018
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 
Under
Full Cost
 
Successful Efforts Adjustment
 
Under Successful Efforts
 
 
($ in millions)
PREFERRED STOCK:
 
 
 
 
 
 
Balance, beginning and end of period
 
$
1,671

 
$
—

 
$
1,671

COMMON STOCK:
 
 
 
 
 
 
Balance, beginning and end of period
 
9

 
—

 
9

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

 
—

 
14,437

Stock-based compensation
 
26

 
—

 
26

Dividends on preferred stock
 
(69
)
 
—

 
(69
)
Balance, end of period
 
14,394

 
—

 
14,394

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

 
(14,130
)
Net income (loss) attributable to Chesapeake
 
360

 
(738
)
 
(378
)
Cumulative effect of accounting change
 
(8
)
 
—

 
(8
)
Balance, end of period
 
(16,173
)
 
1,657

 
(14,516
)
ACCUMULATED OTHER COMPREHENSIVE LOSS:
 
 
 
 
 
 
Balance, beginning of period
 
(57
)
 
—

 
(57
)
Hedging activity
 
25

 
—

 
25

Balance, end of period
 
(32
)
 
—

 
(32
)
TREASURY STOCK – COMMON:
 
 
 
 
 
 
Balance, beginning of period
 
(31
)
 
—

 
(31
)
Purchase of 1,499,033 shares for company benefit plans
 
(4
)
 
—

 
(4
)
Release of 431,474 shares from company benefit plans
 
4

 
—

 
4

Balance, end of period
 
(31
)
 
—

 
(31
)
TOTAL CHESAPEAKE STOCKHOLDERS’ EQUITY (DEFICIT)
 
(162
)
 
1,657

 
1,495

NONCONTROLLING INTERESTS:
 
 
 
 
 
 
Balance, beginning of period
 
124

 
(80
)
 
44

Net income attributable to noncontrolling interests
 
3

 
(2
)
 
1

Distributions to noncontrolling interest owners
 
(5
)
 
—

 
(5
)
Balance, end of period
 
122

 
(82
)
 
40

TOTAL EQUITY (DEFICIT)
 
$
(40
)
 
$
1,575

 
$
1,535



25
TABLE OF CONTENTS
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
We have accounted for 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”), 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 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).

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

We included in our condensed consolidated statements of operations revenues of $543 million, direct operating expenses of $579 million and other expense of $67 million related to the WildHorse business for the period from February 1, 2019 to September 30, 2019.
Pro Forma Financial Information
The following unaudited pro forma financial information for the nine months ended September 30, 2019 and three and nine months ended September 30, 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 September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2019
 
2018
 
 
($ in millions except per share data)
Revenues
 
$
2,607

 
$
6,661

 
$
7,692

Net income (loss) available to common stockholders
 
$
(199
)
 
$
(85
)
 
$
(543
)
Earnings per common share:
 
 
 
 
 
 
Basic
 
$
(0.12
)
 
$
(0.05
)
 
$
(0.33
)
Diluted
 
$
(0.12
)
 
$
(0.05
)
 
$
(0.33
)

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 Prior Period, 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 $491 million, subject to certain customary closing adjustments. Included in the sales were approximately 238,500 net acres and interests in approximately 3,200 wells. Also, in the Current Quarter, the Prior Quarter, the Current Period and the Prior Period, we received proceeds of approximately $28 million, $8 million, $110 million and $31 million, respectively, subject to customary closing adjustments, for the sale of other oil and natural gas properties covering various operating areas.

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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 Period 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
 
14

Divestitures and other
 
—

Reclassifications to proved properties
 
(18
)
Charges to exploration expense
 
(8
)
Balance as of September 30
 
$
24


As of September 30, 2019, approximately $1 million of drilling and completion costs on exploratory wells pending determination of proved reserves have been capitalized for greater than one year.
5.
Earnings Per Share
Basic earnings per share (EPS) is calculated using the weighted average number of common shares outstanding during the period and includes the effect of any participating securities as appropriate. Participating securities consist of unvested restricted stock issued to our employees and non-employee directors that provide dividend rights.
Diluted EPS is calculated assuming the issuance of common shares for all potentially dilutive securities, provided the effect is not antidilutive. For all periods presented, our convertible senior notes did not have a dilutive effect and, therefore, were excluded from the calculation of diluted EPS.
Shares of common stock for the following securities were excluded from the calculation of diluted EPS as the effect was antidilutive:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
 
(in millions)
Common stock equivalent of our preferred stock outstanding
58

 
60

 
58

 
60

Common stock equivalent of our convertible senior notes outstanding
124

 
146

 
124

 
146

Common stock equivalent of our preferred stock outstanding prior to exchange
1

 
—

 
1

 
—

Participating securities
—

 
2

 
—

 
1




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

6.
Debt
Our long-term debt consisted of the following as of September 30, 2019 and December 31, 2018:
 
September 30, 2019
 
December 31, 2018
 
Principal
Amount
 
Carrying
Amount
 
Principal
Amount
 
Carrying
Amount
 
($ in millions)
Floating rate senior notes due 2019
—

 
—

 
380

 
380

6.625% senior notes due 2020
208

 
208

 
437

 
437

6.875% senior notes due 2020
93

 
93

 
227

 
227

6.125% senior notes due 2021
167

 
167

 
548

 
548

5.375% senior notes due 2021
127

 
127

 
267

 
267

4.875% senior notes due 2022
338

 
338

 
451

 
451

5.75% senior notes due 2023
209

 
209

 
338

 
338

7.00% senior notes due 2024
850

 
850

 
850

 
850

6.875% senior notes due 2025(a)
618

 
621

 
—

 
—

8.00% senior notes due 2025
1,245

 
1,237

 
1,300

 
1,291

5.5% convertible senior notes due 2026(b)
1,064

 
758

 
1,250

 
866

7.5% senior notes due 2026
400

 
400

 
400

 
400

8.00% senior notes due 2026
919

 
885

 
—

 
—

8.00% senior notes due 2027
1,090

 
1,089

 
1,300

 
1,299

2.25% contingent convertible senior notes due 2038
—

 
—

 
1

 
1

Chesapeake revolving credit facility
1,504

 
1,504

 
419

 
419

BVL revolving credit facility(a)
900

 
900

 
—

 
—

Debt issuance costs
—

 
(46
)
 
—

 
(53
)
Interest rate derivatives
—

 
1

 
—

 
1

Total debt, net
9,732

 
9,341

 
8,168

 
7,722

Less current maturities of long-term debt, net(c)
(208
)
 
(208
)
 
(381
)
 
(381
)
Total long-term debt, net
$
9,524

 
$
9,133

 
$
7,787

 
$
7,341

___________________________________________
(a)
On February 1, 2019, we acquired the debt of WildHorse which consisted of 6.875% Senior Notes due 2025 and a revolving credit facility. We now refer to this debt as our BVL Senior Notes and our BVL revolving credit facility, respectively. See further discussion below.
(b)
We are required to account for the liability and equity components of our convertible debt instrument separately and to reflect interest expense through the first demand repurchase date, as applicable, at the interest rate of similar nonconvertible debt at the time of issuance. The applicable rate for our 5.5% Convertible Senior Notes due 2026 is 11.5%. Prior to maturity under certain circumstances and at the holder’s option, the notes are convertible. During the Current Quarter, the price of our common stock was below the threshold level for conversion and, as a result, the holders do not have the option to convert their notes in the fourth quarter of 2019.
(c)
As of September 30, 2019, net current maturities of long-term debt includes our 6.625% Senior Notes due August 2020.
Chesapeake Revolving Credit Facility
Our Chesapeake revolving credit facility matures in September 2023 and the current aggregate commitment of the lenders and borrowing base under the facility is $3.0 billion. The revolving credit facility provides for an accordion feature, pursuant to which the aggregate commitments thereunder may be increased to up to $4.0 billion from time to time, subject to agreement of the participating lenders and certain other customary conditions. Scheduled borrowing

29
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

base redeterminations will continue to occur semiannually. Our borrowing base was reaffirmed on November 1, 2019, and our next borrowing base redetermination is scheduled for the second quarter of 2020. As of September 30, 2019, we had outstanding borrowings of $1.504 billion under the Chesapeake revolving credit facility and had used $53 million of the Chesapeake revolving credit facility for various letters of credit.
On February 1, 2019, we entered into a first amendment to our Chesapeake credit agreement. Among other things, the amendment (i) designated our subsidiary, Brazos Valley Longhorn, and its subsidiaries as unrestricted subsidiaries under the Chesapeake revolving credit facility and (ii) expressly permitted our initial investment in WildHorse under the limitations on investments covenant. As a result of BVL and its subsidiaries being designated as unrestricted subsidiaries under the Chesapeake revolving credit facility, transactions between BVL and its subsidiaries, on the one hand, and Chesapeake and its subsidiaries (other than BVL and its subsidiaries), on the other hand, are required to be on an arm’s-length basis, subject to certain exceptions, and Chesapeake is limited in the amount of investments it can make in BVL and its subsidiaries.
Borrowings under the Chesapeake revolving credit facility bear interest at an alternative base rate (ABR) or LIBOR, at our election, plus an applicable margin ranging from 0.50%-2.00% per annum for ABR loans and 1.50%-3.00% per annum for LIBOR loans, depending on the percentage of the borrowing base then being utilized and whether our leverage ratio exceeds 4.00 to 1.00.
In July 2017, the UK's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR as a benchmark by the end of 2021. At the present time, the Chesapeake revolving credit facility has a term that extends beyond 2021. The Chesapeake revolving credit facility provides for a mechanism to amend the facility to reflect the establishment of an alternate rate of interest upon the occurrence of certain events related to the phase-out of LIBOR. However, we have not yet pursued any technical amendment or other contractual alternative to address this matter. We are currently evaluating the potential impact of the eventual replacement of the LIBOR interest rate.
The Chesapeake revolving credit facility is subject to various financial and other covenants. The terms of the Chesapeake credit agreement include covenants limiting, among other things, our ability to incur additional indebtedness, make investments or loans, incur liens, consummate mergers and similar fundamental changes, make restricted payments, make investments in unrestricted subsidiaries and enter into transactions with affiliates. The Chesapeake credit agreement contains financial covenants that require us to maintain (i) a leverage ratio, which is the ratio of consolidated indebtedness to consolidated EBITDAX, each as defined in the Chesapeake credit agreement to exclude amounts associated with unrestricted subsidiaries, of not more than 5.50 to 1 through the fiscal quarter ending September 30, 2019, which threshold decreases by 25 basis points each quarter until it reaches 4.00 to 1.00 for the fiscal quarter ending March 31, 2021 and every quarter thereafter, (ii) a secured leverage ratio of not more than 2.50 to 1.00 until the later of (x) the fiscal quarter ending March 31, 2021 or (y) the first fiscal quarter in which the Company’s leverage ratio does not exceed 4.00 to 1.00 and (iii) a fixed charge coverage ratio of not less than 2.00 to 1.00 through the fiscal quarter ending December 31, 2019; not less than 2.25 to 1.00 through the fiscal quarter ending June 30, 2020; and not less than 2.50 to 1.00 for the fiscal quarter ended September 30, 2020 and every quarter thereafter.
As of September 30, 2019, we were in compliance with all applicable financial covenants under the credit agreement and we were able to borrow up to the full availability under the Chesapeake revolving credit facility and had $1.443 billion of borrowing capacity thereunder.
Fluctuations in oil and natural gas prices have a material impact on our financial position, results of operations, cash flows and quantities of oil, natural gas and NGL reserves that may be economically produced. Historically, oil and natural gas prices have been volatile, and may be subject to wide fluctuations in the future. If continued depressed prices persist, combined with the scheduled reductions in the leverage ratio covenant, our ability to comply with the leverage ratio covenant during the next 12 months will be adversely affected which raises substantial doubt about our ability to continue as a going concern. Failure to comply with this covenant, if not waived, would result in an event of default under our Chesapeake revolving credit facility, the potential acceleration of outstanding debt thereunder and the potential foreclosure on the collateral securing such debt, and could cause a cross-default under our other outstanding indebtedness. We are actively pursuing with support from the Board of Directors a variety of transactions and cost-cutting measures, including but not limited to, reduction in corporate discretionary expenditures, refinancing transactions by us or our subsidiaries, capital exchange transactions, asset divestitures, reductions in capital expenditures by approximately 30% in 2020 and operational efficiencies. We believe it is probable that these measures, as we continue to implement them, will enable us to comply with our leverage ratio covenant.

30
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

BVL Revolving Credit Facility
In connection with the acquisition of WildHorse, our subsidiary, BVL, became the borrower under the WildHorse revolving credit facility (as amended, the “BVL revolving credit facility”). The BVL revolving credit facility has a maximum credit amount of $2.0 billion, with current aggregate commitments and a borrowing base of $1.3 billion. The BVL revolving credit facility matures in December 2021. Scheduled borrowing base redeterminations occur on at least a semi-annual basis, primarily on the basis of estimated proved reserves. The scheduled borrowing base redetermination for the fourth quarter of 2019 is ongoing, and there can be no assurance that the borrowing base will remain at $1.3 billion. As of September 30, 2019, BVL had outstanding borrowings of $900 million under its credit agreement. The BVL revolving credit facility is guaranteed by certain of BVL’s subsidiaries (the “BVL Guarantors”) and is required to be secured, and is secured, by substantially all of the assets of BVL and the BVL Guarantors, including mortgages on not less than 85% of the proved reserves of their oil and gas properties.
On February 1, 2019, BVL, as successor by merger to WildHorse, entered into a sixth amendment to the BVL credit agreement. Among other things, the amendment (i) amended the merger covenant and the definition of change of control to permit our acquisition of WildHorse and (ii) permits borrowings under the BVL revolving credit facility to be used to redeem or repurchase the BVL Senior Notes so long as certain conditions are met.
The obligations under the BVL revolving credit facility are the senior secured obligations of BVL and the BVL Guarantors. The obligations under the BVL revolving credit facility are not obligations of Chesapeake or any of its other subsidiaries. The obligations under the BVL revolving credit facility rank equally in right of payment with all other senior secured indebtedness of BVL and the other BVL Guarantors, and are effectively senior to the BVL and the BVL Guarantors’ senior unsecured indebtedness, including their obligations under the BVL Senior Notes, to the extent of the value of the collateral securing the BVL revolving credit facility.
The BVL revolving credit facility is used for the liquidity and expenses of BVL and its subsidiaries and not Chesapeake and its other subsidiaries. Revolving loans under the BVL revolving credit facility bear interest at an ABR, Eurodollar rate or LIBOR at BVL’s election, plus an applicable margin (ranging from 0.50%-1.50% per annum for ABR loans, 1.50%-2.50% per annum for Eurodollar loans and 1.50%-2.50% per annum for LIBOR Market Index loans), depending on Brazos Valley Longhorn’s total commitment usage. The unused portion of the total commitments are subject to a commitment fee that varies from 0.375% to 0.500%, depending on BVL’s total commitment usage.
In July 2017, the UK's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR as a benchmark by the end of 2021. At the present time, the BVL revolving credit facility has a stated maturity date in December 2021. Under the terms of the BVL revolving credit facility, the occurrence of certain events related to the phase-out of LIBOR would make Eurodollar borrowings unavailable and require BVL to borrow at the ABR rate or at an alternate rate of interest determined by the lenders under the BVL revolving credit facility as their cost of funds. We are currently evaluating the potential impact of the eventual phasing-out of LIBOR, including the amendment of the BVL revolving credit facility to implement a market-standard approach to the transition from LIBOR.
The terms of the BVL credit agreement include covenants limiting, among other things, the ability of BVL and its restricted subsidiaries (as defined in the BVL credit agreement) to incur additional indebtedness, make investments or loans, incur liens, consummate mergers or similar fundamental changes, make restricted payments, including distributions to Chesapeake, and enter into transactions with affiliates, including Chesapeake and its other subsidiaries. The BVL credit agreement also contains financial covenants that require BVL to maintain (i)(x) if there are no loans outstanding thereunder, a ratio of net debt to EBITDAX (as defined in the BVL credit agreement) of not more than 4.00 to 1.00 as of the last day of each fiscal quarter or (y) if there are such loans outstanding, a ratio of total funded debt to EBITDAX of not more than 4.00 to 1.00 as of the last day of each fiscal quarter and (ii) a ratio of current assets (including availability under the BVL revolving credit facility) to current liabilities of not less than 1.00 to 1.00 as of the last day of each fiscal quarter. As of September 30, 2019, we were in compliance with all applicable financial covenants under the BVL credit agreement and we were able to borrow up to the full availability under the BVL revolving credit facility.
Chesapeake Senior Notes
In the Current Quarter, we privately negotiated exchanges of approximately $507 million principal amount of our outstanding senior notes for 235,563,519 shares of common stock and $186 million principal amount of our outstanding convertible senior notes for 73,389,094 shares of common stock. We recorded an aggregate net gain of approximately $64 million associated with the exchanges.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

In the Current Period, we issued at par approximately $919 million of 8.00% Senior Notes due 2026 (“2026 notes”) pursuant to a private exchange offer for the following outstanding senior unsecured notes:
 
 
Notes Exchanged
 
 
($ in millions)
6.625% senior notes due 2020
 
$
229

6.875% senior notes due 2020
 
134

6.125% senior notes due 2021
 
381

5.375% senior notes due 2021
 
140

Total
 
$
884


We may redeem some or all of the 2026 notes at any time prior to March 15, 2022 at a price equal to 100% of the principal amount of the notes to be redeemed plus a “make-whole” premium. At any time prior to March 15, 2022, we also may redeem up to 35% of the aggregate principal amount of each series of notes with an amount of cash not greater than the net cash proceeds of certain equity offerings at a specified redemption price. In addition, we may redeem some or all of the 2026 notes at any time on or after March 15, 2022 at the redemption prices in accordance with the terms of the notes, the indenture and supplemental indenture governing the notes. These senior notes are unsecured obligations of Chesapeake and rank equally in right of payment with all of our other existing and future senior unsecured indebtedness and rank senior in right of payment to all of our future subordinated indebtedness. Our obligations under the senior notes are jointly and severally, fully and unconditionally guaranteed by all of our wholly owned subsidiaries that guarantee the Chesapeake revolving credit facility and certain other unsecured senior notes. We accounted for the exchange as a modification to existing debt and no gain or loss was recognized.
In the Current Period, we repaid upon maturity $380 million principal amount of our Floating Rate Senior Notes due April 2019 with borrowings from our Chesapeake revolving credit facility.
BVL Senior Notes
As a result of the completion of the acquisition of WildHorse, BVL assumed the obligations under WildHorse’s $700 million aggregate principal amount of 6.875% Senior Notes due 2025 (the “BVL Senior Notes”) and Brazos Valley Longhorn Finance Corp. (“BVL Finance Corp.”), a wholly owned subsidiary of BVL, became a co-issuer of the BVL Senior Notes.
On February 1, 2019, BVL, as successor by merger to WildHorse, and BVL Finance Corp. entered into a fourth supplemental indenture (the “BVL supplemental indenture”) to the indenture governing the BVL Senior Notes (as supplemented, the “BVL indenture”). Pursuant to the BVL supplemental indenture, (i) BVL assumed the rights and obligations of WildHorse as issuer under the BVL indenture and (ii) BVL Finance Corp. was named as a co-issuer of the BVL Senior Notes under the BVL indenture.
The BVL Senior Notes are the senior unsecured obligations of BVL, BVL Finance Corp. and the other BVL Guarantors. The BVL Senior Notes are not obligations of Chesapeake or any of its other subsidiaries. The BVL Senior Notes rank equally in right of payment with all other senior unsecured indebtedness of BVL, BVL Finance Corp. and the other BVL Guarantors, and will be effectively subordinated to BVL’s, BVL Finance Corp.’s and the other BVL Guarantors’ senior secured indebtedness, including their obligations under the BVL revolving credit facility, to the extent of the value of the collateral securing such indebtedness.
The BVL indenture contains customary reporting covenants (including furnishing quarterly and annual reports to the holders of the BVL Senior Notes) and restrictive covenants that, among other things, limit the ability of BVL and its subsidiaries to: (i) pay dividends on, purchase or redeem BVL’s equity interests or purchase or redeem subordinated debt, unless such distributions, purchases or redemptions are permitted by certain exceptions, including for amounts based on BVL’s operating results, subject to the satisfaction of certain conditions, and a $25 million basket; (ii) make certain investments; (iii) incur or guarantee additional indebtedness or issue certain types of equity securities; (iv) create or incur certain secured debt; (v) sell assets; (vi) consolidate, merge or transfer all or substantially all of BVL’s assets; (vii) enter into agreements that restrict distributions or other payments from BVL’s restricted subsidiaries to BVL; (viii) engage in transactions with affiliates, including Chesapeake and its other subsidiaries; and (ix) create unrestricted subsidiaries. These covenants are subject to a number of important qualifications and limitations. In

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

addition, most of the covenants will be terminated before the BVL Senior Notes mature if at any time no default or event of default exists under the BVL indenture and the BVL Senior Notes receive an investment grade rating from both of two specified ratings agencies. The BVL indenture also contains customary events of default.
The BVL credit agreement and the BVL indenture constrain the ability of BVL and its subsidiaries to make distributions or otherwise provide funds to, or guarantee the obligations of, Chesapeake and its other subsidiaries. The provisions of the BVL credit agreement and the BVL indenture require that all transactions between BVL and its subsidiaries, on the one hand, and Chesapeake and its other subsidiaries, on the other hand, be on an arm's-length basis, subject to certain exceptions.
In the Current Quarter, we repurchased approximately $82 million principal amount of the BVL Senior Notes for $76 million and recorded a $6 million gain.
Fair Value of Debt
We estimate the fair value of our senior notes based on the market value of our publicly traded debt as determined based on the yield of our senior notes (Level 1). The fair value of all other debt is based on a market approach using estimates provided by an independent investment financial data services firm (Level 2). Fair value is compared to the carrying value, excluding the impact of interest rate derivatives, in the table below:
 
 
September 30, 2019
 
December 31, 2018
 
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 
 
 
 
($ in millions)
 
 
Short-term debt (Level 1)
 
$
208

 
$
208

 
$
381

 
$
379

Long-term debt (Level 1)
 
$
2,790

 
$
2,245

 
$
3,495

 
$
3,173

Long-term debt (Level 2)
 
$
6,343

 
$
4,980

 
$
3,846

 
$
3,644


7.
Contingencies and Commitments
There have been no material developments in previously reported legal or environmental contingencies or commitments other than the items discussed below. For a discussion of commitments and contingencies, see “Contingencies and Commitments,” Note 4 to the Consolidated Financial Statements in our 2018 Form 10-K.
Contingencies
Litigation and Regulatory Proceedings
We are involved in a number of litigation and regulatory proceedings including those described below. Many of these proceedings are in early stages, and many of them seek or may seek damages and penalties, the amount of which is indeterminate. Our total accrued liability in respect of litigation and regulatory proceedings is determined on a case-by-case basis and represents an estimate of probable losses after considering, among other factors, the progress of each case or proceeding, our experience and the experience of others in similar cases or proceedings, and the opinions and views of legal counsel. Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different.
Business Operations. We are involved in various lawsuits and disputes incidental to our business operations, including commercial disputes, personal injury claims, royalty claims, property damage claims and contract actions.
We and other natural gas producers have been named in various lawsuits alleging underpayment of royalties and other shares of the proceeds of production. The suits against us allege, among other things, that we used below-market prices, made improper deductions, utilized improper measurement techniques, entered into arrangements with affiliates that resulted in underpayment of amounts owed in connection with the production and sale of natural gas and NGL, or similar theories. These lawsuits include cases filed by individual royalty owners and putative class actions, some of which seek to certify a statewide class. The lawsuits seek compensatory, consequential, treble, and punitive damages, restitution and disgorgement of profits, declaratory and injunctive relief regarding our payment practices, pre-and post-judgment interest, and attorney’s fees and costs. Royalty plaintiffs have varying provisions in their respective leases, oil and gas law varies from state to state, and royalty owners and producers differ in their interpretation of the legal effect of lease provisions governing royalty calculations. We have resolved a number of these claims through negotiated settlements of past and future royalty obligations and have prevailed in various other lawsuits. We are currently defending numerous lawsuits seeking damages with respect to underpayment of royalties or other shares of the proceeds of production in multiple states where we have operated, including those discussed below.
On December 9, 2015, the Commonwealth of Pennsylvania, by the Office of Attorney General, filed a lawsuit in the Bradford County Court of Common Pleas related to royalty underpayment and lease acquisition and accounting practices with respect to properties in Pennsylvania. The lawsuit, which primarily relates to the Marcellus Shale and Utica Shale, alleges that we violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL) by making improper deductions and entering into arrangements with affiliates that resulted in underpayment of royalties. The lawsuit includes other UTPCPL claims and antitrust claims, including that a joint exploration agreement to which we are a party established unlawful market allocation for the acquisition of leases. The lawsuit seeks statutory restitution, civil penalties and costs, as well as a temporary injunction from exploration and drilling activities in Pennsylvania until restitution, penalties and costs have been paid, and a permanent injunction from further violations of the UTPCPL.
Putative statewide class actions in Pennsylvania and Ohio and purported class arbitrations in Pennsylvania have been filed on behalf of royalty owners asserting various claims for damages related to alleged underpayment of royalties as a result of the divestiture of substantially all of our midstream business and most of our gathering assets in 2012 and 2013. These cases include claims for violation of and conspiracy to violate the federal Racketeer Influenced and Corrupt Organizations Act and for an unlawful market allocation agreement for mineral rights, intentional interference with contractual relations, and violations of antitrust laws related to purported markets for gas mineral rights, operating rights and gas gathering sources. These lawsuits seek in aggregate compensatory, consequential, treble, and punitive damages, restitution and disgorgement of profits, declaratory and injunctive relief regarding our royalty payment practices, pre-and post-judgment interest, and attorney’s fees and costs. On December 20, 2017 and August 9, 2018, we reached tentative settlements to resolve substantially all Pennsylvania civil royalty cases for a total of approximately $35 million.
We believe losses are reasonably possible in certain of the pending royalty cases for which we have not accrued a loss contingency, but we are currently unable to estimate an amount or range of loss or the impact the actions could have on our future results of operations or cash flows. Uncertainties in pending royalty cases generally include the complex nature of the claims and defenses, the potential size of the class in class actions, the scope and types of the properties and agreements involved, and the applicable production years.
On July 24, 2018, Healthcare of Ontario Pension Plan (HOOPP) filed a demand for arbitration with the American Arbitration Association regarding HOOPP’s purchase of our interest in Chaparral Energy, Inc. stock for $215 million on January 5, 2014. HOOPP claims that we engaged in material misrepresentations and fraud, and that we violated the Securities Exchange Act of 1934 (the “Exchange Act”) and Oklahoma Uniform Securities Act. HOOPP seeks either rescission or $215 million in monetary damages, and in either case, interest, attorney’s fees, disgorgement and punitive damages. We intend to vigorously defend these claims.
In February 2019, a putative class action lawsuit was filed in the District Court of Dallas County, Texas against FTS International, Inc. (FTSI), certain investment banks, FTSI’s directors including certain of our officers and certain shareholders of FTSI including us. The lawsuit alleges various violations of Sections 11 (with respect to certain of our officers in their capacities as directors of FTSI) and 15 (with respect to such officers and us) of the Securities Act of 1933 in connection with public disclosure made during the initial public offering of FTSI. The suit seeks damages in excess of $1,000,000 and attorneys’ fees and other expenses. We intend to vigorously defend these claims.
Environmental Contingencies
The nature of the oil and gas business carries with it certain environmental risks for us and our subsidiaries. We have implemented various policies, programs, procedures, training and audits to reduce and mitigate such environmental risks. We conduct periodic reviews, on a company-wide basis, to assess changes in our environmental risk profile. Environmental reserves are established for environmental liabilities for which economic losses are probable and reasonably estimable. We manage our exposure to environmental liabilities in acquisitions by using an evaluation process that seeks to identify pre-existing contamination or compliance concerns and address the potential liability. Depending on the extent of an identified environmental concern, we may, among other things, exclude a property from the transaction, require the seller to remediate the property to our satisfaction in an acquisition or agree to assume liability for the remediation of the property.
We are named as a defendant in numerous lawsuits in Oklahoma alleging that we and other companies have engaged in activities that have caused earthquakes. These lawsuits seek compensation for injury to real and personal property, diminution of property value, economic losses due to business interruption, interference with the use and enjoyment of property, annoyance and inconvenience, personal injury and emotional distress.  In addition, they seek the reimbursement of insurance premiums and the award of punitive damages, attorneys’ fees, costs, expenses and interest. We intend to vigorously defend these claims.
We previously disclosed ongoing discussions between our subsidiary, Chesapeake Appalachia, L.L.C. (“CALLC”) and the Pennsylvania Department of Environmental Protection related to gas migration in the vicinity of certain of our wells in Bradford County. Those concerns were resolved by the parties on August 28, 2019.  Pursuant to the settlement, CALLC paid a civil penalty of less than $100,000.  
Other Matters
Based on management’s current assessment, we are of the opinion that no pending or threatened lawsuit or dispute relating to our business operations is likely to have a material adverse effect on our future consolidated financial position, results of operations or cash flows. The final resolution of such matters could exceed amounts accrued, however, and actual results could differ materially from management’s estimates.
Commitments
Gathering, Processing and Transportation Agreements
We have contractual commitments with midstream service companies and pipeline carriers for future gathering, processing and transportation of oil, natural gas and NGL to move certain of our production to market. Working interest owners and royalty interest owners, where appropriate, will be responsible for their proportionate share of these costs. Commitments related to gathering, processing and transportation agreements are not recorded as obligations in the accompanying condensed consolidated balance sheets; however, they are reflected in our estimates of proved reserves.
The aggregate undiscounted commitments under our gathering, processing and transportation agreements, excluding any reimbursement from working interest and royalty interest owners, credits for third-party volumes or future costs under cost-of-service agreements, are presented below:
 
 
September 30,
2019
 
 
($ in millions)
Remainder of 2019
 
$
201

2020
 
764

2021
 
673

2022
 
570

2023
 
480

2024 – 2035
 
2,731

Total
 
$
5,419


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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

8.
Other Liabilities
Other current liabilities as of September 30, 2019 and December 31, 2018 are detailed below:
 
 
September 30,
2019
 
December 31,
2018
 
 
($ in millions)
Revenues and royalties due others
 
$
429

 
$
687

Accrued drilling and production costs
 
474

 
258

Joint interest prepayments received
 
49

 
73

VPP deferred revenue(a)
 
56

 
59

Accrued compensation and benefits
 
156

 
202

Other accrued taxes
 
141

 
108

Other
 
185

 
212

Total other current liabilities
 
$
1,490

 
$
1,599


Other long-term liabilities as of September 30, 2019 and December 31, 2018 are detailed below:
 
 
September 30,
2019
 
December 31,
2018
 
 
($ in millions)
VPP deferred revenue(a)
 
$
22

 
$
63

Unrecognized tax benefits
 
55

 
53

Other
 
109

 
103

Total other long-term liabilities
 
$
186

 
$
219

____________________________________________
(a)
At the inception of our volumetric production payment (VPP) agreements, we (i) removed the proved reserves associated with the VPP, (ii) recognized VPP proceeds as deferred revenue which are being amortized on a unit-of-production basis to other revenue over the term of the VPP, (iii) retained responsibility for the production costs and capital costs related to VPP interests and (iv) ceased recognizing production associated with the VPP volumes. The remaining deferred revenue balance will be recognized in other revenues in the consolidated statement of operations through 2021, assuming the related VPP production volumes are delivered as scheduled.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

9.
Leases
We are a lessee under various agreements for compressors, office space, vehicles and other equipment. As of September 30, 2019, these leases have remaining terms ranging from one month to 7.3 years. Certain of our lease agreements include options to renew the lease, terminate the lease early or purchase the underlying asset at the end of the lease. We determine the lease term at the lease commencement date as the non-cancelable period of the lease, including options to extend or terminate the lease when we are reasonably certain to exercise the option. The company’s vehicles are the only leases with renewal options that we are reasonably certain to exercise. The renewals are reflected in the ROU asset and lease liability balances.
Upon adoption of ASC 842 on January 1, 2019, we recognized a nominal operating lease liability and a nominal related ROU asset related to vehicles we lease.
On February 1, 2019, we acquired WildHorse and, as part of the purchase price allocation, we recognized additional operating lease liabilities of $40 million, a related ROU asset of $38 million, and lease incentives of $2 million related to two office space leases, a long-term hydraulic fracturing agreement and other equipment leases. Regarding our long-term hydraulic fracturing agreements, we made a policy election to treat both lease and non-lease components as a single lease component.
In 2018, we sold our wholly owned subsidiary, Midcon Compression, L.L.C., to a third party and subsequently leased back some natural gas compressors for 38 months. The lease is accounted for as a finance lease liability.
The following table presents our ROU assets and lease liabilities as of September 30, 2019.
 
 
Financing
 
Operating
 
 
($ in millions)
ROU assets
 
$
20

 
$
22

 
 
 
 
 
Lease liabilities:
 
 
 
 
Current lease liabilities
 
$
9

 
$
9

Long-term lease liabilities
 
11

 
16

Total lease liabilities
 
$
20

 
$
25



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Additional information for the Company’s operating and finance leases is presented below:
 
 
Three Months Ended
September 30, 2019
 
Nine Months Ended
September 30, 2019
Lease cost:
 
($ in millions)
Amortization of ROU assets
 
$
2

 
$
6

Interest on lease liability
 
—

 
1

Finance lease cost
 
2

 
7

Operating lease cost
 
7

 
24

Short-term lease cost
 
34

 
82

Total lease cost(a)
 
$
43

 
$
113

 
 
 
 
 
Other information:
 
 
 
 
Operating cash outflows from finance lease
 
$
—

 
$
1

Operating cash outflows from operating leases
 
$
3

 
$
8

Investing cash outflows from operating leases
 
$
38

 
$
98

Financing cash outflows from finance lease
 
$
2

 
$
6

 
 
 
 
 
 
 
 
 
 
Weighted-average remaining lease term - finance lease
 


 
2.25 years

Weighted-average remaining lease term - operating leases
 


 
4.87 years

Weighted-average discount rate - finance lease
 


 
7.50
%
Weighted-average discount rate - operating leases
 


 
4.17
%
____________________________________________
(a)
Includes $38 million and $98 million of capitalized lease costs for the Current Quarter and the Current Period, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Maturity analysis of finance lease liabilities and operating lease liabilities are presented below:
 
 
September 30, 2019
 
 
Financing Lease
 
Operating Leases
 
 
($ in millions)
Remainder of 2019
 
$
3

 
$
2

2020
 
10

 
9

2021
 
10

 
5

2022
 
—

 
3

2023
 
—

 
2

Thereafter
 
—

 
7

Total lease payments
 
23

 
28

Less imputed interest
 
(3
)
 
(3
)
Present value of lease liabilities
 
20

 
25

Less current maturities
 
(9
)
 
(9
)
Present value of lease liabilities, less current maturities
 
$
11

 
$
16

The aggregate undiscounted minimum future lease payments under previous lease accounting standard, ASC 840, are presented below:
 
 
December 31, 2018
 
 
Capital Lease
 
Operating Leases
 
 
($ in millions)
2019
 
$
10

 
$
3

2020
 
10

 
1

2021
 
10

 
—

Total minimum lease payments
 
$
30

 
$
4



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

10.
Revenue Recognition
The FASB issued Revenue from Contracts with Customers (Topic 606) superseding virtually all existing revenue recognition guidance. We adopted this new standard in the Prior Period using the modified retrospective approach. We applied the new standard to all contracts that were not completed as of January 1, 2018 and reflected the aggregate effect of all modifications in determining and allocating the transaction price. The cumulative effect of adoption of $8 million in the Prior Period did not have a material impact on our consolidated financial statements.
The following table shows revenue disaggregated by operating area and product type, for the Current Quarter, the Prior Quarter, the Current Period and the Prior Period:
 
 
Three Months Ended September 30, 2019
 
 
Oil
 
Natural Gas
 
NGL
 
Total
 
 
($ in millions)
Marcellus
 
$
—

 
$
158

 
$
—

 
$
158

Haynesville
 
—

 
129

 
—

 
129

Eagle Ford
 
282

 
32

 
22

 
336

Brazos Valley
 
194

 
10

 
5

 
209

Powder River Basin
 
97

 
16

 
5

 
118

Mid-Continent
 
40

 
8

 
5

 
53

Revenue from contracts with customers
 
613

 
353

 
37

 
1,003

Gains on oil, natural gas and NGL derivatives
 
124

 
43

 
—

 
167

Oil, natural gas and NGL revenue
 
$
737

 
$
396

 
$
37

 
$
1,170

 
 
 
 
 
 
 
 
 
Marketing revenue from contracts with customers
 
$
603

 
$
165

 
$
37

 
$
805

Other marketing revenue
 
80

 
4

 
—

 
84

Losses on oil, natural gas and NGL derivatives
 
—

 
—

 
—

 
—

Marketing revenue
 
$
683

 
$
169

 
$
37

 
$
889

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 
Oil
 
Natural Gas
 
NGL
 
Total
 
 
($ in millions)
Marcellus
 
$
—

 
$
184

 
$
—

 
$
184

Haynesville
 
—

 
195

 
—

 
195

Eagle Ford
 
399

 
36

 
58

 
493

Powder River Basin
 
78

 
17

 
13

 
108

Mid-Continent
 
58

 
15

 
12

 
85

Utica
 
59

 
131

 
76

 
266

Revenue from contracts with customers
 
594

 
578

 
159

 
1,331

Losses on oil, natural gas and NGL derivatives
 
(100
)
 
(18
)
 
(14
)
 
(132
)
Oil, natural gas and NGL revenue
 
$
494

 
$
560

 
$
145

 
$
1,199

 
 
 
 
 
 
 
 
 
Marketing revenue from contracts with customers
 
707

 
211

 
112

 
1,030

Other marketing revenue
 
119

 
70

 
—

 
189

Marketing revenue
 
$
826

 
$
281

 
$
112

 
$
1,219

 
 
 
 
 
 
 
 
 


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

 
 
Nine Months Ended September 30, 2019
 
 
Oil
 
Natural Gas
 
NGL
 
Total
 
 
($ in millions)
Marcellus
 
$
—

 
$
656

 
$
—

 
$
656

Haynesville
 
—

 
494

 
—

 
494

Eagle Ford
 
962

 
117

 
89

 
1,168

Brazos Valley
 
513

 
23

 
12

 
548

Powder River Basin
 
273

 
59

 
23

 
355

Mid-Continent
 
131

 
34

 
26

 
191

Revenue from contracts with customers
 
1,879

 
1,383

 
150

 
3,412

Gains (losses) on oil, natural gas and NGL derivatives
 
(49
)
 
190

 
—

 
141

Oil, natural gas and NGL revenue
 
$
1,830

 
$
1,573

 
$
150

 
$
3,553

 
 
 
 
 
 
 
 
 
Marketing revenue from contracts with customers
 
$
1,830

 
$
741

 
$
202

 
$
2,773

Other marketing revenue
 
230

 
38

 
—

 
268

Losses on oil, natural gas and NGL derivatives
 
—

 
(3
)
 
—

 
(3
)
Marketing revenue
 
$
2,060

 
$
776

 
$
202

 
$
3,038

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
Oil
 
Natural Gas
 
NGL
 
Total
 
 
($ in millions)
Marcellus
 
$
—

 
$
646

 
$
—

 
$
646

Haynesville
 
2

 
603

 
—

 
605

Eagle Ford
 
1,148

 
120

 
143

 
1,411

Powder River Basin
 
173

 
40

 
30

 
243

Mid-Continent
 
196

 
63

 
42

 
301

Utica
 
179

 
350

 
189

 
718

Revenue from contracts with customers
 
1,698

 
1,822

 
404

 
3,924

Losses on oil, natural gas and NGL derivatives
 
(388
)
 
(85
)
 
(27
)
 
(500
)
Oil, natural gas and NGL revenue
 
$
1,310

 
$
1,737

 
$
377

 
$
3,424

 
 
 
 
 
 
 
 
 
Marketing revenue from contracts with customers
 
2,125

 
733

 
324

 
3,182

Other marketing revenue
 
381

 
175

 
—

 
556

Marketing revenue
 
$
2,506

 
$
908

 
$
324

 
$
3,738



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Accounts Receivable
Our accounts receivable are primarily from purchasers of oil, natural gas and NGL and from exploration and production companies that own interests in properties we operate. This industry concentration could affect our overall exposure to credit risk, either positively or negatively, because our purchasers and joint working interest owners may be similarly affected by changes in economic, industry or other conditions. We monitor the creditworthiness of all our counterparties and we generally require letters of credit or parent guarantees for receivables from parties deemed to have sub-standard credit, unless the credit risk can otherwise be mitigated. We utilize an allowance method in accounting for bad debt based on historical trends in addition to specifically identifying receivables that we believe may be uncollectible. Accounts receivable as of September 30, 2019 and December 31, 2018 are detailed below:
 
 
September 30,
2019
 
December 31,
2018
 
 
($ in millions)
Oil, natural gas and NGL sales
 
$
644

 
$
976

Joint interest
 
290

 
211

Other
 
64

 
77

Allowance for doubtful accounts
 
(21
)
 
(17
)
Total accounts receivable, net
 
$
977

 
$
1,247


11.
Income Taxes
We estimate our annual effective tax rate for continuing operations in recording our quarterly income tax provision (or benefit) for the various jurisdictions in which we operate. The tax effects of statutory rate changes, significant unusual or infrequent items, and certain changes in the assessment of the realizability of deferred tax assets are excluded from the determination of our estimated annual effective tax rate as such items are recognized as discrete items in the quarter in which they occur.
For the Current Quarter, our estimated annual effective tax rate is 0.0% as a result of maintaining a full valuation allowance against our net deferred tax asset. Taking into account our projected operating results for the fourth quarter of 2019, we project remaining in a net deferred tax asset position as of December 31, 2019. Based on all available positive and negative evidence, including projections of future taxable income, we believe it is more likely than not that these deferred tax assets will not be realized. A significant piece of objectively verifiable negative evidence evaluated is the cumulative loss incurred over the rolling thirty-six month period ended September 30, 2019. Such evidence limits our ability to consider various forms of subjective positive evidence, such as any projections for future growth and earnings. However, should we return to a level of sustained profitability, consideration will need to be given to projections of future taxable income to determine whether such projections provide an adequate source of taxable income for the realization of our deferred tax assets. A full valuation allowance was recorded against our net deferred tax asset position as of September 30, 2019 and December 31, 2018.
On February 1, 2019, we completed the acquisition of WildHorse. For federal income tax purposes, the transaction qualified as a tax-free merger under Section 368 of the Internal Revenue Code of 1986, as amended, (the “Code”) and, as a result, we acquired carryover tax basis in WildHorse’s assets and liabilities. We recorded a net deferred tax liability of $314 million as part of the business combination accounting for WildHorse. As a consequence of maintaining a full valuation allowance against our net deferred tax asset, a partial release of the valuation allowance was recorded as a discrete income tax benefit of $314 million through the condensed consolidated statement of operations in the first quarter of 2019. The net deferred tax liability acquired includes deferred tax liabilities on plant, property and equipment and prepaid compensation totaling $401 million, partially offset by deferred tax assets totaling $87 million relating to federal net operating loss (NOL) carryforwards, disallowed interest carryforwards and certain other deferred tax assets. These carryforwards will be subject to an annual limitation under Section 382 of the Code of approximately $61 million. We determined that no separate valuation allowances were required to be established through business combination accounting against any of the individual deferred tax assets acquired.
We are subject to U.S. federal income tax as well as income and capital taxes in various state jurisdictions in which we operate. We recorded an income tax benefit of $1 million for the Current Quarter and an income tax benefit of $315 million for the Current Period. The benefit for the Current Period was a result of the aforementioned discrete

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

item relating to the partial release of the valuation allowance in the amount of $314 million and state income tax refunds resulting from the filing of amended state income tax returns reporting federal audit adjustments.
Our ability to utilize NOL carryforwards and possibly other tax attributes to reduce future federal taxable income and federal income tax is subject to various limitations under Section 382 of the Code. The utilization of these attributes may be subject to an annual limitation under Section 382 of the Code should transactions involving our equity, including issuances of our stock or the sale or exchange of our stock by certain shareholders, result in a cumulative shift of more than 50% in the beneficial ownership of our stock during any three-year testing period (an “Ownership Change”). (For this purpose, “stock” includes certain preferred stock). Some states impose similar limitations on tax attribute utilization upon experiencing an Ownership Change.
As of September 30, 2019, we do not believe that an Ownership Change has occurred that would subject us to an annual limitation on the utilization of our NOL carryforwards, disallowed interest carryforwards and other tax attributes. However, the exchanges of our common stock for certain outstanding senior notes that occurred during the Current Quarter (see Note 6 for further details of the debt exchanges) and the exchange of our common stock for certain Cumulative Convertible Preferred Stock which also occurred during the Current Quarter (see Note 12 for further details of the stock exchange) increased our cumulative shift to over 40%. As a result, future transactions involving our equity, including relatively small transactions and transactions beyond our control, could cause an Ownership Change and therefore an annual limitation on the utilization of NOL carryforwards, disallowed interest carryforwards and possibly other tax attributes.
Further, proposed regulations issued on September 10, 2019, under Section 382(h) of the Code (the “Proposed Regulations”) would, if finalized in their current form, significantly reduce our annual limitation should we experience an Ownership Change on or after the date the Proposed Regulations become final. Among other changes, the Proposed Regulations would, if finalized in their current form, limit the potential increases to the annual limitation amount associated with certain built-in gains existing at the time of an Ownership Change, thereby significantly reducing the ability to utilize tax attributes. As a result, certain NOL carryforwards, disallowed interest carryforwards and other tax attributes may need to be written off or have a valuation allowance maintained against them possibly leading to a material charge to income tax expense.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

12.
Equity
Common Stock
A summary of the changes in our common shares issued is detailed below.
 
 
Three Months Ended September 30,
 
Nine Months Ended, September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Beginning balance
 
1,634,486

 
913,271

 
913,716

 
908,733

Common shares issued for WildHorse Merger(a)
 
—

 
—

 
717,376

 
—

Exchange of convertible notes(b)
 
73,389

 
—

 
73,389

 
—

Exchange of senior notes(b)
 
235,564

 
—

 
235,564

 
—

Exchange of preferred stock(c)
 
10,368

 
—

 
10,368

 
—

Restricted stock issuances (net of forfeitures and cancellations)(d)
 
344

 
421

 
3,738

 
4,959

Ending balance
 
1,954,151

 
913,692

 
1,954,151

 
913,692

____________________________________________
(a)
See Note 3 for discussion of WildHorse Merger.
(b)
See Note 6 for discussion of debt exchanges.
(c)
In the Current Quarter, we exchanged 10,367,950 shares of common stock for 40,000 shares of our 5.75% (Series A) Cumulative Convertible Preferred Stock. In connection with the exchange, we recognized a loss equal to the excess of the fair value of all common stock issued in exchange for the preferred stock over the fair value of the common stock issuable pursuant to the original terms of the preferred stock. The loss of $17 million is reflected as a reduction to net income available to common stockholders for the purpose of calculating earnings per common share.
(d)
See Note 13 for discussion of restricted stock.

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(Unaudited)

Preferred Stock
A summary of the changes in our outstanding shares of preferred stock is detailed below.
 
 
5.75%
 
5.75% (A)
 
4.50%
 
5.00%
(2005B)  
 
 
(in thousands)
Shares outstanding as of July 1, 2019
 
770

 
463

 
2,559

 
1,811

Exchange of preferred stock(a)
 
—

 
(40
)
 
—

 
—

Shares outstanding as of September 30, 2019
 
770

 
423

 
2,559

 
1,811

 
 
 
 
 
 
 
 
 
Shares outstanding as of July 1, 2018
and September 30, 2018
 
770

 
463

 
2,559

 
1,811

 
 
 
 
 
 
 
 
 
Shares outstanding as of January 1, 2019
 
770

 
463

 
2,559

 
1,811

Exchange of preferred stock(a)
 
—

 
(40
)
 
—

 
—

Shares outstanding as of September 30, 2019
 
770

 
423

 
2,559

 
1,811

 
 
 
 
 
 
 
 
 
Shares outstanding as of January 1, 2018
and September 30, 2018
 
770

 
463

 
2,559

 
1,811

 
 
 
 
 
 
 
 
 
Liquidation price per share
 
$
1,000

 
$
1,000

 
$
100

 
$
100

____________________________________________
(a)
See discussion above regarding the exchange of our 5.75% (Series A) Cumulative Convertible Preferred Stock in the Current Quarter.
13.
Share-Based Compensation
Our share-based compensation program consists of restricted stock, stock options, performance share units (PSUs) and cash restricted stock units (CRSUs) granted to employees and restricted stock granted to non-employee directors under our long-term incentive plans. The restricted stock and stock options are equity-classified awards and the PSUs and CRSUs are liability-classified awards.
Equity-Classified Awards
Restricted Stock. We grant restricted stock units to employees and non-employee directors. A summary of the changes in unvested restricted stock during the Current Period is presented below:
 
 
Shares of
Unvested
Restricted Stock
 
Weighted Average
Grant Date
Fair Value Per Share
 
 
(in thousands)
 
 
Unvested restricted stock as of January 1, 2019
 
11,858

 
$
4.43

Granted
 
5,370

 
$
2.85

Vested
 
(5,439
)
 
$
4.46

Forfeited
 
(1,241
)
 
$
3.75

Unvested restricted stock as of September 30, 2019
 
10,548

 
$
3.69


The aggregate intrinsic value of restricted stock that vested during the Current Period was approximately $15 million based on the stock price at the time of vesting.
As of September 30, 2019, there was approximately $24 million of total unrecognized compensation expense related to unvested restricted stock. The expense is expected to be recognized over a weighted average period of approximately 1.92 years.

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(Unaudited)

Stock Options. In the Current Period and the Prior Period, we granted members of management stock options that vest ratably over a three-year period. Each stock option award has an exercise price equal to the closing price of our common stock on the grant date. Outstanding options expire seven years to ten years from the date of grant.
We utilize the Black-Scholes option pricing model to measure the fair value of stock options. The expected life of an option is determined using the simplified method. Volatility assumptions are estimated based on the average historical volatility of Chesapeake stock over the expected life of an option. The risk-free interest rate is based on the U.S. Treasury rate in effect at the time of the grant over the expected life of the option. The dividend yield is based on an annual dividend yield, taking into account our dividend policy, over the expected life of the option. We used the following weighted average assumptions to estimate the grant date fair value of the stock options granted in the Current Period:
Expected option life – years
 
6.0

Volatility
 
65.61
%
Risk-free interest rate
 
2.47
%
Dividend yield
 
—
%

The following table provides information related to stock option activity in the Current Period: 
 
 
Number of
Shares
Underlying  
Options
 
Weighted
Average
Exercise Price Per Share
 
Weighted  
Average
Contract Life in Years
 
Aggregate  
Intrinsic
Value(a)
 
 
(in thousands)
 
 
 
 
 
($ in millions)
Outstanding as of January 1, 2019
 
18,096

 
$
7.20

 
7.15
 
$
—

Granted
 
1,000

 
$
2.97

 
 
 
 
Exercised
 
—

 
$
—

 
 
 
$
—

Expired
 
(487
)
 
$
6.49

 
 
 
 
Forfeited
 
(589
)
 
$
3.92

 
 
 
 
Outstanding as of September 30, 2019
 
18,020

 
$
7.09

 
6.12
 
$
—

Exercisable as of September 30, 2019
 
12,999

 
$
8.30

 
5.31
 
$
—

___________________________________________
(a)
The intrinsic value of a stock option is the amount by which the current market value or the market value upon exercise of the underlying stock exceeds the exercise price of the option.
As of September 30, 2019, there was $7 million of total unrecognized compensation expense related to stock options. The expense is expected to be recognized over a weighted average period of approximately 1.26 years, net of actual forfeitures.
Restricted Stock and Stock Option Compensation. We recognized the following compensation costs related to restricted stock and stock options for the Current Quarter, the Prior Quarter, the Current Period and the Prior Period:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
 
($ in millions)
General and administrative expenses
$
6

 
$
7

 
$
21

 
$
24

Oil and natural gas properties
1

 
—

 
2

 
2

Oil, natural gas and NGL production expenses
1

 
1

 
3

 
4

Exploration expenses
—

 
—

 
—

 
—

Total restricted stock and stock option compensation
$
8

 
$
8

 
$
26

 
$
30



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Liability-Classified Awards
Performance Share Units. In the Current Period and the Prior Period, we granted PSUs to senior management that vest ratably over a three-year performance period and are settled in cash. The ultimate amount earned is based on achievement of performance metrics established by the Compensation Committee of the Board of Directors. Compensation expense associated with PSU awards is recognized over the service period based on the graded-vesting method. The value of the PSU awards at the end of each reporting period is dependent upon our estimates of the underlying performance measures.
For PSUs granted in 2017, performance metrics include a total shareholder return (TSR) component, which can range from 0% to 100% and an operational performance component based on finding and development costs, which can range from 0% to 100%, resulting in a maximum payout of 200%. The payout percentage for the 2017 PSU awards is capped at 100% if our absolute TSR is less than zero. The PSUs are settled in cash on the third anniversary of the awards. We utilized a Monte Carlo simulation for the TSR performance measure and the following assumptions to determine the grant date fair value and the reporting date fair value of the 2017 awards.
Grant Date Assumptions
Assumption
 
2017 Awards
Volatility
 
80.65
%
Risk-free interest rate
 
1.54
%
Dividend yield for value of awards
 
—
%

Reporting Period Assumptions
Assumption
 
2017 Awards
Volatility
 
95.41
%
Risk-free interest rate
 
1.87
%
Dividend yield for value of awards
 
—
%

As the above assumptions and expected satisfaction of performance metrics change, the PSU liabilities will be adjusted quarterly through the end of the performance period.
For PSUs granted in 2018 and 2019, performance metrics include an operational performance component based on a ratio of cumulative earnings before interest expense, income taxes, and depreciation, depletion and amortization expense (EBITDA) to capital expenditures, for which payout can range from 0% to 200%. For the 2019 award, EBITDA and capital expenditures will be adjusted for changes resulting from our conversion from the full cost method of accounting to the successful efforts method. The vested PSUs are settled in cash on each of the three annual vesting dates. We used the closing price of our common stock on the grant date to determine the grant date fair value of the PSUs. The PSU liability will be adjusted quarterly, based on changes in our stock price and expected satisfaction of performance metrics, through the end of the performance period.
Cash Restricted Stock Units. In 2018, we granted CRSUs to employees that vest straight-line over a three-year period and are settled in cash on each of the three annual vesting dates. The ultimate amount earned is based on the closing price of our common stock on each of the vesting dates. We used the closing price of our common stock on the grant date to determine the grant date fair value of the CRSUs. The CRSU liability will be adjusted quarterly, based on changes in our stock price, through the end of the vesting period.

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(Unaudited)

The following table presents a summary of our liability-classified awards:
 
 
 
 
Grant Date
Fair Value
 
September 30, 2019
 
 
Units
 
 
Fair Value
 
Vested Liability
 
 
 
 
($ in millions)
 
($ in millions)
2019 PSU Awards:
 
 
 
 
 
 
 
 
Payable 2020, 2021 and 2022
 
4,785,372

 
$
14

 
$
7

 
$
—

2018 PSU Awards:
 
 
 
 
 
 
 
 
Payable 2020 and 2021
 
2,388,185

 
$
7

 
$
3

 
$
—

2017 PSU Awards:
 
 
 
 
 
 
 
 
Payable 2020
 
1,174,973

 
$
8

 
$
1

 
$
1

2018 CRSU Awards:
 
 
 
 
 
 
 
 
Payable 2020 and 2021
 
9,267,227

 
$
28

 
$
13

 
$
—




We recognized the following compensation costs, net of actual forfeitures, related to our liability-classified awards for the Current Quarter, the Prior Quarter, the Current Period and the Prior Period.
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
($ in millions)
General and administrative expenses
 
$
(1
)
 
$
(1
)
 
$
7

 
$
20

Oil and natural gas properties
 
1

 
1

 
2

 
2

Oil, natural gas and NGL production expenses
 
—

 
1

 
3

 
3

Exploration expenses
 
—

 
—

 
—

 
1

Total liability-classified awards compensation
 
$
—

 
$
1

 
$
12

 
$
26



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

14.
Derivative and Hedging Activities
We use derivative instruments to reduce our exposure to fluctuations in future commodity prices and to protect our expected operating cash flow against significant market movements or volatility. All of our oil, natural gas and NGL derivative instruments are net settled based on the difference between the fixed-price payment and the floating-price payment, resulting in a net amount due to or from the counterparty. None of our open oil, natural gas or NGL derivative instruments were designated for hedge accounting as of September 30, 2019 or December 31, 2018.
Oil, Natural Gas and NGL Derivatives
As of September 30, 2019 and December 31, 2018, our oil, natural gas and NGL derivative instruments consisted of the following types of instruments:
•
Swaps: We receive a fixed price and pay a floating market price to the counterparty for the hedged commodity. In exchange for higher fixed prices on certain of our swap trades, we may sell call options and call swaptions.
•
Options: We occasionally sell and buy call and put options in exchange for a premium. At the time of settlement, if the market price exceeds the fixed price of the call option, we pay the counterparty the excess on sold call options and we receive the excess on bought call options. At the time of settlement, if the market price is lower than the fixed price of the put option, we receive the difference on bought put options and pay the counterparty the difference on sold put options. If the market price settles below the fixed price of the call option or above the fixed price of the put option, no payment is due from either party.
•
Call Swaptions: We sell call swaptions to counterparties in exchange for a premium that allow the counterparty, on a specific date, to extend an existing fixed-price swap for a certain period of time or to increase the notional volumes of an existing fixed-price swap.
•
Collars: These instruments contain a fixed floor price (put) and ceiling price (call). If the market price exceeds the call strike price or falls below the put strike price, we receive the fixed price and pay the market price. If the market price is between the put and the call strike prices, no payments are due from either party. Three-way collars include the sale by us of an additional put option in exchange for a more favorable strike price on the call option. This eliminates the counterparty’s downside exposure below the second put option strike price.
•
Basis Protection Swaps: These instruments are arrangements that guarantee a fixed price differential to NYMEX from a specified delivery point. We receive the fixed price differential and pay the floating market price differential to the counterparty for the hedged commodity.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

The estimated fair values of our oil, natural gas and NGL derivative instrument assets (liabilities) as of September 30, 2019 and December 31, 2018 are provided below: 
 
 
September 30, 2019
 
December 31, 2018
 
 
Notional Volume
 
Fair Value
 
Notional Volume
 
Fair Value
 
 
 
 
($ in millions)  
 
 
 
($ in millions)  
Oil (mmbbl):
 
 
 
 
 
 
 
 
Fixed-price swaps
 
22

 
$
152

 
12

 
$
157

Collars
 
3

 
33

 
8

 
98

Call swaptions
 
2

 
(1
)
 
—

 
—

Put options
 
1

 
(2
)
 
—

 
—

Basis protection swaps
 
2

 
4

 
7

 
5

Total oil
 
30

 
186

 
27

 
260

Natural gas (bcf):
 
 
 
 
 
 
 
 
Fixed-price swaps
 
383

 
139

 
623

 
26

Three-way collars
 
15

 
3

 
88

 
1

Collars
 
9

 
3

 
55

 
(3
)
Call options
 
28

 
—

 
44

 
—

Call swaptions
 
136

 
(7
)
 
106

 
(9
)
Basis protection swaps
 
54

 
(1
)
 
50

 
—

Total natural gas
 
625

 
137

 
966

 
15

Contingent consideration:
 
 
 
 
 
 
 
 
Utica divestiture
 
 
 
—

 
 
 
7

Total estimated fair value
 
 
 
$
323

 
 
 
$
282


We have terminated certain commodity derivative contracts that were previously designated as cash flow hedges for which the original contract months are yet to occur. See further discussion below under Effect of Derivative Instruments – Accumulated Other Comprehensive Income (Loss).
Contingent Consideration Arrangements
In 2018, we sold our Utica Shale position to EAP Ohio, LLC (“Encino”). The purchase and sale agreement with Encino provides for additional contingent payments to us of up to $100 million comprised of $50 million in consideration in each case if, on or prior to December 31, 2019, there is a period of twenty (20) trading days out of a period of thirty (30) consecutive trading days where (i) the average of the NYMEX natural gas strip prices for the months comprising the year 2022 equals or exceeds $3.00/mmbtu as calculated pursuant to the purchase agreement, and (ii) the average of the NYMEX natural gas strip price for the months comprising the year 2023 equals or exceeds $3.25/mmbtu as calculated pursuant to the purchase and sale agreement.
In the Current Period, based on the unlikelihood of any payout occurring related to the contingent consideration, we determined the contingent consideration had no fair value and recognized a $7 million unrealized loss, which is included as a reduction in our gains on sales of assets in the condensed consolidated statement of operations.

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(Unaudited)

Effect of Derivative Instruments – Condensed Consolidated Balance Sheets
The following table presents the fair value and location of each classification of derivative instrument included in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018 on a gross basis and after same-counterparty netting:
Balance Sheet Classification
 
Gross
Fair Value
 
Amounts Netted
in the
Consolidated
Balance Sheets
 
Net Fair Value
Presented in the
Consolidated
Balance Sheet
 
 
($ in millions)
As of September 30, 2019
 
 
 
 
 
 
Commodity Contracts:
 
 
 
 
 
 
Short-term derivative asset
 
$
294

 
$
(22
)
 
$
272

Long-term derivative asset
 
55

 
(4
)
 
51

Short-term derivative liability
 
(22
)
 
22

 
—

Long-term derivative liability
 
(4
)
 
4

 
—

Contingent Consideration:
 
 
 
 
 
 
Short-term derivative asset
 
—

 
—

 
—

Total derivatives
 
$
323

 
$
—

 
$
323

 
 
 
 
 
 
 
As of December 31, 2018
 
 
 
 
 
 
Commodity Contracts:
 
 
 
 
 
 
Short-term derivative asset
 
$
306

 
$
(104
)
 
$
202

Long-term derivative asset
 
117

 
(41
)
 
76

Short-term derivative liability
 
(107
)
 
104

 
(3
)
Long-term derivative liability
 
(41
)
 
41

 
—

Contingent Consideration:
 
 
 
 
 
 
Short-term derivative asset
 
7

 
—

 
7

Total derivatives
 
$
282

 
$
—

 
$
282



Effect of Derivative Instruments – Condensed Consolidated Statements of Operations
The components of oil, natural gas and NGL revenues for the Current Quarter, the Prior Quarter, the Current Period and the Prior Period are presented below:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
($ in millions)
Oil, natural gas and NGL revenues
 
$
1,003

 
$
1,331

 
$
3,412

 
$
3,924

Gains (losses) on undesignated oil, natural gas and NGL derivatives
 
175

 
(124
)
 
167

 
(475
)
Losses on terminated cash flow hedges
 
(8
)
 
(8
)
 
(26
)
 
(25
)
Total oil, natural gas and NGL revenues
 
$
1,170

 
$
1,199

 
$
3,553

 
$
3,424


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

The components of marketing revenues for the Current Quarter, the Prior Quarter, the Current Period and the Prior Period are presented below:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
($ in millions)
Marketing revenues
 
$
889

 
$
1,219

 
$
3,042

 
$
3,738

Losses on undesignated marketing natural gas derivatives
 
—

 
—

 
(4
)
 
—

Total marketing revenues
 
$
889

 
$
1,219

 
$
3,038

 
$
3,738



Effect of Derivative Instruments – Accumulated Other Comprehensive Income (Loss)
A reconciliation of the changes in accumulated other comprehensive income (loss) in our condensed consolidated statements of stockholders’ equity related to our cash flow hedges is presented below:
 
 
Three Months Ended September 30,
 
 
2019
 
2018
 
 
Before 
Tax  
 
After 
Tax  
 
Before 
Tax  
 
After 
Tax  
 
 
($ in millions)
Balance, beginning of period
 
$
(62
)
 
$
(5
)
 
$
(97
)
 
(40
)
Losses reclassified to income
 
8

 
8

 
8

 
8

Balance, end of period
 
$
(54
)
 
$
3

 
$
(89
)
 
$
(32
)

 
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
 
Before 
Tax  
 
After 
Tax  
 
Before 
Tax  
 
After 
Tax  
 
 
($ in millions)
Balance, beginning of period
 
$
(80
)
 
$
(23
)
 
$
(114
)
 
(57
)
Losses reclassified to income
 
26

 
26

 
25

 
25

Balance, end of period
 
$
(54
)
 
$
3

 
$
(89
)
 
$
(32
)

The accumulated other comprehensive loss as of September 30, 2019 represents the net deferred loss associated with commodity derivative contracts that were previously designated as cash flow hedges for which the original contract months are yet to occur. Remaining deferred gain or loss amounts will be recognized in earnings in the month for which the original contract months are to occur. As of September 30, 2019, we expect to transfer approximately $34 million of net loss included in accumulated other comprehensive income (loss) to net income (loss) during the next 12 months. The remaining amounts will be transferred by December 31, 2022.
Credit Risk Considerations
Our derivative instruments expose us to our counterparties’ credit risk. To mitigate this risk, we enter into derivative contracts only with counterparties that have a high credit rating or are deemed by us to have acceptable credit strength, and are deemed by management to be competent and competitive market-makers, and we attempt to limit our exposure to non-performance by any single counterparty. As of September 30, 2019, our oil, natural gas and NGL derivative instruments were spread among 15 counterparties.
Hedging Arrangements
Certain of our hedging arrangements are with counterparties that are also lenders (or affiliates of lenders) under the Chesapeake revolving credit facility and/or the BVL revolving credit facility. The contracts entered into with these

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

counterparties are secured by the same collateral that secures the revolving credit facilities. In addition, we enter into bilateral hedging agreements with other counterparties. The counterparties’ and our obligations under the bilateral hedging agreements must be secured by cash or letters of credit to the extent that any mark-to-market amounts owed to us or by us exceed defined thresholds. As of September 30, 2019, there were no letters of credit or cash posted as collateral for our commodity derivatives.
Fair Value
The fair value of our derivatives is based on third-party pricing models which utilize inputs that are either readily available in the public market, such as oil, natural gas and NGL forward curves and discount rates, or can be corroborated from active markets or broker quotes. These values are compared to the values given by our counterparties for reasonableness. Since oil, natural gas and NGL swaps do not include optionality and therefore generally have no unobservable inputs, they are classified as Level 2. All other derivatives have some level of unobservable input, such as volatility curves, and are therefore classified as Level 3. Derivatives are also subject to the risk that either party to a contract will be unable to meet its obligations. We factor non-performance risk into the valuation of our derivatives using current published credit default swap rates. To date, this has not had a material impact on the values of our derivatives.
The following table provides information for financial assets (liabilities) measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018: 
 
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2) 
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Fair Value
 
 
 
 
($ in millions)
 
 
As of September 30, 2019
 
 
 
 
 
 
 
 
Derivative Assets (Liabilities):
 
 
 
 
 
 
 
 
Commodity assets
 
$
—

 
$
307

 
$
40

 
$
347

Commodity liabilities
 
—

 
(16
)
 
(8
)
 
(24
)
Utica divestiture contingent consideration
 
—

 
—

 
—

 
—

Total derivatives
 
$
—

 
$
291

 
$
32

 
$
323

 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
 
 
 
 
 
 
 
Derivative Assets (Liabilities):
 
 
 
 
 
 
 
 
Commodity assets
 
$
—

 
$
319

 
$
103

 
$
422

Commodity liabilities
 
—

 
(131
)
 
(16
)
 
(147
)
Utica divestiture contingent consideration
 
—

 
—

 
7

 
7

Total derivatives
 
$
—

 
$
188

 
$
94

 
$
282




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

A summary of the changes in the fair values of our financial assets (liabilities) classified as Level 3 during the Current Period and the Prior Period is presented below: 
 
 
Commodity
Derivatives
 
Utica Contingent Consideration
 
 
($ in millions)
Balance, as of January 1, 2019
 
$
87

 
$
7

Total gains (losses) (realized/unrealized):
 
 
 
 
Included in earnings(a)
 
(47
)
 
(7
)
Total purchases, issuances, sales and settlements:
 
 
 
 
Settlements
 
(8
)
 
—

Balance, as of September 30, 2019
 
$
32

 
$
—

 
 
 
 
 
Balance, as of January 1, 2018
 
$
(15
)
 
$
—

Total gains (losses) (realized/unrealized):
 
 
 
 
Included in earnings(a)
 
(3
)
 
—

Total purchases, issuances, sales and settlements:
 
 
 
 
Settlements
 
13

 
—

Balance, as of September 30, 2018
 
$
(5
)
 
$
—

___________________________________________
(a)
 
 
Commodity Derivatives
 
Utica Contingent Consideration
 
 
 
 
 
 
2019
 
2018
 
2019
 
2018
 
 
 
($ in millions)
 
Total gains (losses) included in earnings for the period
 
$
(47
)
 
$
(3
)
 
$
(7
)
 
$
—

 
Change in unrealized gains (losses) related to assets
still held at reporting date
 
$
(57
)
 
$
(3
)
 
$
(7
)
 
$
—

Qualitative and Quantitative Disclosures about Unobservable Inputs for Level 3 Fair Value Measurements
The significant unobservable inputs for Level 3 derivative contracts include market volatility. Changes in market volatility impact the fair value measurement of our derivative contracts, which is based on an estimate derived from option models. For example, an increase or decrease in the forward prices and volatility of oil and natural gas prices decreases or increases the fair value of oil and natural gas derivatives. The following table presents quantitative information about Level 3 inputs used in the fair value measurement of our commodity derivative contracts at fair value as of September 30, 2019:
Instrument
Type
 
Unobservable
Input
 
Range
 
Weighted
Average
 
Fair Value
September 30, 2019
 
 
 
 
 
 
 
 
($ in millions)
Oil trades
 
Oil price volatility curves
 
24.62% – 48.77%
 
32.55%
 
$
33

Natural gas trades
 
Natural gas price volatility curves
 
13.37% – 145.37%
 
37.40%
 
$
(1
)



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

15.
Investments
In the Current Period in connection with the acquisition of WildHorse, we obtained a 50% membership interest in JWH Midstream LLC (JWH). The carrying value of our investment in JWH, which was being accounted for as an equity method investment, was approximately $17 million as of March 31, 2019. In the Current Period, we paid approximately $7 million to terminate our involvement in the partnership. This removed us from any future obligations related to this joint venture and, therefore, we impaired the full value of the investment and recognized approximately $24 million of impairment expense in the Current Period.
In the Prior Period, FTS International, Inc. (NYSE: FTSI) completed an initial public offering. Due to the offering, the ownership percentage of our equity method investment in FTSI decreased from approximately 29% to 24% and resulted in a gain of approximately $78 million. In addition, we sold approximately 4.3 million shares of FTSI in the offering for net proceeds of approximately $74 million and recognized a gain of approximately $61 million decreasing our ownership percentage to approximately 20%. We continue to hold approximately 22.0 million shares in the publicly traded company. In the Current Period, the hydraulic fracturing industry experienced challenging operating conditions resulting in the current fair value of our investment in FTSI to fall below book value of $65 million at the end of the Current Quarter. Given that the average NYSE closing price for FTSI shares in the Current Quarter exceeded our carrying value per share and more often than not the closing price was greater than our carrying value per share, we have not assessed the reduction in fair value of our investment in FTSI to be other-than-temporary. We will continue to monitor the hydraulic fracturing industry, FTSI operating results and FTSI share price for indications that the reduction in fair value is other-than-temporary, which could result in an impairment of our investment in FTSI.
16.
Other Operating Expenses
In the Current Period, we recorded approximately $34 million of costs related to our acquisition of WildHorse which consisted of consulting fees, financial advisory fees, legal fees and travel and lodging expenses. In addition, we recorded approximately $38 million of severance expense as a result of the acquisition of WildHorse. A majority of the WildHorse executives and employees were terminated. These executives and employees were entitled to severance benefits in accordance with existing employment agreements.
17.
Restructuring and Other Termination Costs
On January 30, 2018, we underwent a reduction in workforce impacting approximately 13% of employees across all functions, primarily on our Oklahoma City campus. In connection with the reduction, we incurred a total charge in the Prior Period of approximately $38 million for one-time termination benefits.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

18.
Fair Value Measurements
Recurring Fair Value Measurements
Other Current Assets. Assets related to our deferred compensation plan are included in other current assets. The fair value of these assets is determined using quoted market prices, as they consist of exchange-traded securities.
Other Current Liabilities. Liabilities related to our deferred compensation plan are included in other current liabilities. The fair values of these liabilities are determined using quoted market prices, as the plan consists of exchange-traded mutual funds.
Financial Assets (Liabilities). The following table provides fair value measurement information for the above-noted financial assets (liabilities) measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018:
 
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2) 
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Fair Value
 
 
($ in millions)
As of September 30, 2019
 
 
 
 
 
 
 
 
Financial Assets (Liabilities):
 
 
 
 
 
 
 
 
Other current assets
 
$
46

 
$
—

 
$
—

 
$
46

Other current liabilities
 
(45
)
 
—

 
—

 
(45
)
Total
 
$
1

 
$
—

 
$
—

 
$
1

 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
 
 
 
 
 
 
 
Financial Assets (Liabilities):
 
 
 
 
 
 
 
 
Other current assets
 
$
50

 
$
—

 
$
—

 
$
50

Other current liabilities
 
(51
)
 
—

 
—

 
(51
)
Total
 
$
(1
)
 
$
—

 
$
—

 
$
(1
)

See Note 6 for information regarding fair value measurement of our debt instruments. See Note 14 for information regarding fair value measurement of our derivatives.
19.
Condensed Consolidating Financial Information
Chesapeake Energy Corporation is a holding company, owns no operating assets and has no significant operations independent of its subsidiaries. Our obligations under our outstanding senior notes, convertible senior notes and Chesapeake revolving credit facility listed in Note 6 are fully and unconditionally guaranteed, jointly and severally, by certain of our 100% owned subsidiaries. Our BVL subsidiaries are not guarantors of Chesapeake’s indebtedness and are subject to covenants under the BVL credit agreement and BVL indenture. Subsidiaries with noncontrolling interests, consolidated variable interest entities and certain de minimis subsidiaries are also non-guarantors.
The tables below are condensed consolidating financial statements for Chesapeake Energy Corporation (parent) on a stand-alone, unconsolidated basis, and its combined guarantor and combined non-guarantor subsidiaries as of September 30, 2019 and December 31, 2018 and for the three and six months ended September 30, 2019 and 2018. This financial information may not necessarily be indicative of our results of operations, cash flows or financial position had these subsidiaries operated as independent entities.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2019
($ in millions) 
 
 
Parent  
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
8

 
$
1

 
$
10

 
$
(5
)
 
$
14

Other current assets
 
56

 
1,231

 
102

 
—

 
1,389

Intercompany receivable, net
 
6,275

 
—

 
—

 
(6,275
)
 
—

Total Current Assets
 
6,339

 
1,232

 
112

 
(6,280
)
 
1,403

PROPERTY AND EQUIPMENT:
 
 
 
 
 
 
 
 
 
 
Oil and natural gas properties, at cost
based on successful efforts accounting, net
 
—

 
9,513

 
4,221

 
—

 
13,734

Other property and equipment, net
 
—

 
1,046

 
86

 
—

 
1,132

Property and equipment
held for sale, net
 
—

 
10

 
—

 
—

 
10

Total Property and Equipment,
Net
 
—

 
10,569

 
4,307

 
—

 
14,876

LONG-TERM ASSETS:
 
 
 
 
 
 
 
 
 
 
Other long-term assets
 
336

 
231

 
30

 
(297
)
 
300

Investments in subsidiaries and
intercompany advances
 
6,013

 
2,338

 
—

 
(8,351
)
 
—

TOTAL ASSETS
 
$
12,688

 
$
14,370

 
$
4,449

 
$
(14,928
)
 
$
16,579

 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
$
325

 
$
1,805

 
$
223

 
$
(5
)
 
$
2,348

Intercompany payable, net
 
—

 
6,275

 
—

 
(6,275
)
 
—

Total Current Liabilities
 
325

 
8,080

 
223

 
(6,280
)
 
2,348

LONG-TERM LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Long-term debt, net
 
7,612

 
—

 
1,521

 
—

 
9,133

Deferred income tax liabilities
 
—

 
—

 
297

 
(297
)
 
—

Other long-term liabilities
 
55

 
277

 
31

 
—

 
363

Total Long-Term Liabilities
 
7,667

 
277

 
1,849

 
(297
)
 
9,496

EQUITY:
 
 
 
 
 
 
 
 
 
 
Chesapeake stockholders’ equity
 
4,696

 
6,013

 
2,338

 
(8,351
)
 
4,696

Noncontrolling interests
 
—

 
—

 
39

 
—

 
39

Total Equity
 
4,696

 
6,013

 
2,377

 
(8,351
)
 
4,735

TOTAL LIABILITIES AND EQUITY
 
$
12,688

 
$
14,370

 
$
4,449

 
$
(14,928
)
 
$
16,579


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2018
($ in millions)
 
 
Parent  
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
4

 
$
1

 
$
1

 
$
(2
)
 
$
4

Other current assets
 
60

 
1,532

 
2

 
—

 
1,594

Intercompany receivable, net
 
6,671

 
—

 
—

 
(6,671
)
 
—

Total Current Assets
 
6,735

 
1,533

 
3

 
(6,673
)
 
1,598

PROPERTY AND EQUIPMENT:
 
 
 
 
 
 
 
 
 
 
Oil and natural gas properties, at cost
based on successful efforts accounting, net
 
—

 
9,664

 
48

 
—

 
9,712

Other property and equipment, net
 
—

 
1,091

 
—

 
—

 
1,091

Property and equipment
held for sale, net
 
—

 
15

 
—

 
—

 
15

Total Property and Equipment,
Net
 
—

 
10,770

 
48

 
—

 
10,818

LONG-TERM ASSETS:
 
 
 
 
 
 
 
 
 
 
Other long-term assets
 
26

 
293

 
—

 
—

 
319

Investments in subsidiaries and
intercompany advances
 
3,248

 
9

 
—

 
(3,257
)
 
—

TOTAL ASSETS
 
$
10,009

 
$
12,605

 
$
51

 
$
(9,930
)
 
$
12,735

 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
$
523

 
$
2,365

 
$
1

 
$
(2
)
 
$
2,887

Intercompany payable, net
 
—

 
6,671

 
—

 
(6,671
)
 
—

Total Current Liabilities
 
523

 
9,036

 
1

 
(6,673
)
 
2,887

LONG-TERM LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Long-term debt, net
 
7,341

 
—

 
—

 
—

 
7,341

Other long-term liabilities
 
53

 
321

 
—

 
—

 
374

Total Long-Term Liabilities
 
7,394

 
321

 
—

 
—

 
7,715

EQUITY:
 
 
 
 
 
 
 
 
 
 
Chesapeake stockholders’ equity
 
2,092

 
3,248

 
9

 
(3,257
)
 
2,092

Noncontrolling interests
 
—

 
—

 
41

 
—

 
41

Total Equity
 
2,092

 
3,248

 
50

 
(3,257
)
 
2,133

TOTAL LIABILITIES AND EQUITY
 
$
10,009

 
$
12,605

 
$
51

 
$
(9,930
)
 
$
12,735






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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2019
($ in millions)
 
 
Parent  
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
REVENUES:
 
 
 
 
 
 
 
 
 
 
Oil, natural gas and NGL
 
$
—

 
$
932

 
$
238

 
$
—

 
$
1,170

Marketing
 
—

 
889

 
—

 
—

 
889

Total Revenues
 
—

 
1,821

 
238

 
—

 
2,059

Other
 
—

 
15

 
—

 
—

 
15

Gains on sales of assets
 
—

 
13

 
—

 
—

 
13

Total Revenues and Other
 
—

 
1,849

 
238

 
—

 
2,087

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
Oil, natural gas and NGL production
 
—

 
129

 
26

 
—

 
155

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

 
268

 
2

 
—

 
270

Production taxes
 
—

 
25

 
10

 
—

 
35

Exploration
 
—

 
17

 
—

 
—

 
17

Marketing
 
—

 
901

 
—

 
—

 
901

General and administrative
 
—

 
43

 
23

 
—

 
66

Depreciation, depletion and amortization
 
—

 
421

 
152

 
—

 
573

Impairments
 
—

 
9

 
—

 
—

 
9

Other operating expense
 
—

 
15

 
—

 
—

 
15

Total Operating Expenses
 
—

 
1,828

 
213

 
—

 
2,041

INCOME FROM OPERATIONS
 
—

 
21

 
25

 
—

 
46

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
 
 
 
Interest income (expense)
 
(161
)
 
3

 
(19
)
 
—

 
(177
)
Losses on investments
 
—

 
(4
)
 
—

 
—

 
(4
)
Gains on purchases or exchanges of debt
 
64

 
—

 
6

 
—

 
70

Other income
 
—

 
3

 
—

 
—

 
3

Equity in net earnings of subsidiary
 
25

 
2

 
—

 
(27
)
 
—

Total Other Income (Expense)
 
(72
)
 
4

 
(13
)
 
(27
)
 
(108
)
INCOME (LOSS) BEFORE INCOME TAXES
 
(72
)
 
25

 
12

 
(27
)
 
(62
)
INCOME TAX (BENEFIT) EXPENSE
 
(11
)
 
—

 
10

 
—

 
(1
)
NET INCOME (LOSS)
 
(61
)
 
25

 
2

 
(27
)
 
(61
)
Net loss attributable to
noncontrolling interests
 
—

 
—

 
—

 
—

 
—

NET INCOME (LOSS) ATTRIBUTABLE
TO CHESAPEAKE
 
(61
)
 
25

 
2

 
(27
)
 
(61
)
Other comprehensive income
 
—

 
8

 
—

 
—

 
8

COMPREHENSIVE INCOME (LOSS)
ATTRIBUTABLE TO CHESAPEAKE
 
$
(61
)
 
$
33

 
$
2

 
$
(27
)
 
$
(53
)



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2018
($ in millions)
 
 
Parent  
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
REVENUES:
 
 
 
 
 
 
 
 
 
 
Oil, natural gas and NGL
 
$
—

 
$
1,194

 
$
5

 
$
—

 
$
1,199

Marketing
 
—

 
1,219

 
—

 
—

 
1,219

Total Revenues
 
—

 
2,413

 
5

 
—

 
2,418

Other
 
—

 
16

 
—

 
—

 
16

Losses on sales of assets
 
—

 
(10
)
 
—

 
—

 
(10
)
Total Revenues and Other
 
—

 
2,419

 
5

 
—

 
2,424

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
Oil, natural gas and NGL production
 
—

 
132

 
—

 
—

 
132

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

 
362

 
2

 
—

 
364

Production taxes
 
—

 
33

 
1

 
—

 
34

Exploration
 
—

 
22

 
—

 
—

 
22

Marketing
 
—

 
1,238

 
—

 
—

 
1,238

General and administrative
 
—

 
81

 
—

 
—

 
81

Provision for legal contingencies, net
 
—

 
8

 
—

 
—

 
8

Depreciation, depletion and amortization
 
—

 
403

 
2

 
—

 
405

Impairments
 
—

 
58

 
—

 
—

 
58

Total Operating Expenses
 
—

 
2,337

 
5

 
—

 
2,342

INCOME FROM OPERATIONS
 
—

 
82

 
—

 
—

 
82

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(163
)
 
(2
)
 
—

 
—

 
(165
)
Losses on purchases or exchanges of debt
 
(68
)
 
—

 
—

 
—

 
(68
)
Other income
 
—

 
6

 
—

 
—

 
6

Equity in net earnings of subsidiary
 
86

 
—

 
—

 
(86
)
 
—

Total Other Income (Expense)
 
(145
)
 
4

 
—

 
(86
)
 
(227
)
INCOME (LOSS) BEFORE INCOME TAXES
 
(145
)
 
86

 
—

 
(86
)
 
(145
)
INCOME TAX EXPENSE
 
1

 
—

 
—

 
—

 
1

NET INCOME (LOSS)
 
(146
)
 
86

 
—

 
(86
)
 
(146
)
Net (income) loss attributable to
noncontrolling interests
 
—

 
—

 
—

 
—

 
—

NET INCOME (LOSS) ATTRIBUTABLE
TO CHESAPEAKE
 
(146
)
 
86

 
—

 
(86
)
 
(146
)
Other comprehensive income
 
—

 
8

 
—

 
—

 
8

COMPREHENSIVE INCOME (LOSS)
ATTRIBUTABLE TO CHESAPEAKE
 
$
(146
)
 
$
94

 
$
—

 
$
(86
)
 
$
(138
)



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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2019
($ in millions)
 
 
Parent  
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
REVENUES:
 
 
 
 
 
 
 
 
 
 
Oil, natural gas and NGL
 
$
—

 
$
3,000

 
$
553

 
$
—

 
$
3,553

Marketing
 
—

 
3,038

 
—

 
—

 
3,038

Total Revenues
 
—

 
6,038

 
553

 
—

 
6,591

Other
 
—

 
45

 
—

 
—

 
45

Gains on sales of assets
 
—

 
33

 
—

 
—

 
33

Total Revenues and Other
 
—

 
6,116

 
553

 
—

 
6,669

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
Oil, natural gas and NGL production
 
—

 
384

 
69

 
—

 
453

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

 
802

 
13

 
—

 
815

Production taxes
 
—

 
83

 
26

 
—

 
109

Exploration
 
—

 
53

 
3

 
—

 
56

Marketing
 
—

 
3,071

 
—

 
—

 
3,071

General and administrative
 
—

 
193

 
65

 
—

 
258

Provision for legal contingencies, net
 
—

 
3

 
—

 
—

 
3

Depreciation, depletion and amortization
 
—

 
1,295

 
377

 
—

 
1,672

Impairments
 
—

 
11

 
—

 
—

 
11

Other operating expense
 
—

 
41

 
38

 
—

 
79

Total Operating Expenses
 
—

 
5,936

 
591

 
—

 
6,527

INCOME (LOSS) FROM OPERATIONS
 
—

 
180

 
(38
)
 
—

 
142

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
 
 
 
Interest income (expense)
 
(475
)
 
13

 
(51
)
 
—

 
(513
)
Losses on investments
 
—

 
(4
)
 
(24
)
 
—

 
(28
)
Gains on purchases or exchanges of debt
 
64

 
—

 
6

 
—

 
70

Other income
 
—

 
28

 
2

 
—

 
30

Equity in net earnings of subsidiary
 
129

 
(88
)
 
—

 
(41
)
 
—

Total Other Expense
 
(282
)
 
(51
)
 
(67
)
 
(41
)
 
(441
)
INCOME (LOSS) BEFORE INCOME TAXES
 
(282
)
 
129

 
(105
)
 
(41
)
 
(299
)
INCOME TAX BENEFIT
 
(298
)
 
—

 
(17
)
 
—

 
(315
)
NET INCOME (LOSS)
 
16

 
129

 
(88
)
 
(41
)
 
16

Net loss attributable to
noncontrolling interests
 
—

 
—

 
—

 
—

 
—

NET INCOME (LOSS) ATTRIBUTABLE
TO CHESAPEAKE
 
16

 
129

 
(88
)
 
(41
)
 
16

Other comprehensive income
 
—

 
26

 
—

 
—

 
26

COMPREHENSIVE INCOME (LOSS)
ATTRIBUTABLE TO CHESAPEAKE
 
$
16

 
$
155

 
$
(88
)
 
$
(41
)
 
$
42



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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2018
($ in millions)
 
 
Parent  
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
REVENUES:
 
 
 
 
 
 
 
 
 
 
Oil, natural gas and NGL
 
$
—

 
$
3,410

 
$
14

 
$
—

 
$
3,424

Marketing
 
—

 
3,738

 
—

 
—

 
3,738

Total Revenues
 
—

 
7,148

 
14

 
—

 
7,162

Other
 
—

 
48

 
—

 
—

 
48

Gains on sales of assets
 
—

 
27

 
—

 
—

 
27

Total Revenues and Other
 
—

 
7,223

 
14

 
—

 
7,237

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
Oil, natural gas and NGL production
 
—

 
417

 
—

 
—

 
417

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

 
1,055

 
5

 
—

 
1,060

Production taxes
 
—

 
90

 
1

 
—

 
91

Exploration
 
—

 
123

 
—

 
—

 
123

Marketing
 
—

 
3,798

 
—

 
—

 
3,798

General and administrative
 
—

 
272

 
1

 
—

 
273

Restructuring and other termination costs
 
—

 
38

 
—

 
—

 
38

Provision for legal contingencies, net
 
—

 
17

 
—

 
—

 
17

Depreciation, depletion and amortization
 
—

 
1,330

 
5

 
—

 
1,335

Impairments
 
—

 
122

 
—

 
—

 
122

Other operating income
 
—

 
(1
)
 
—

 
—

 
(1
)
Total Operating Expenses
 
—

 
7,261

 
12

 
—

 
7,273

INCOME (LOSS) FROM OPERATIONS
 
—

 
(38
)
 
2

 
—

 
(36
)
OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(480
)
 
(2
)
 
—

 
—

 
(482
)
Gains on investments
 
—

 
139

 
—

 
—

 
139

Losses on purchases or exchanges of debt
 
(68
)
 
—

 
—

 
—

 
(68
)
Other income
 
—

 
62

 
—

 
—

 
62

Equity in net earnings of subsidiary
 
162

 
1

 
(1
)
 
(162
)
 
—

Total Other Income (Expense)
 
(386
)
 
200

 
(1
)
 
(162
)
 
(349
)
INCOME (LOSS) BEFORE INCOME TAXES
 
(386
)
 
162

 
1

 
(162
)
 
(385
)
INCOME TAX BENEFIT
 
(8
)
 
—

 
—

 
—

 
(8
)
NET INCOME (LOSS)
 
(378
)
 
162

 
1

 
(162
)
 
(377
)
Net income attributable to
noncontrolling interests
 
—

 
(1
)
 
—

 
—

 
(1
)
NET INCOME (LOSS) ATTRIBUTABLE
TO CHESAPEAKE
 
(378
)
 
161

 
1

 
(162
)
 
(378
)
Other comprehensive income
 
—

 
25

 
—

 
—

 
25

COMPREHENSIVE INCOME (LOSS)
ATTRIBUTABLE TO CHESAPEAKE
 
$
(378
)
 
$
186

 
$
1

 
$
(162
)
 
$
(353
)


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

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2019
($ in millions) 
 
 
Parent  
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
CASH FLOWS FROM
OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Net Cash Provided By
Operating Activities
 
$
—

 
$
898

 
$
287

 
$
(3
)
 
$
1,182

 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM
INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Drilling and completion costs
 
—

 
(1,204
)
 
(436
)
 
—

 
(1,640
)
Business combination, net
 
—

 
(381
)
 
28

 
—

 
(353
)
Acquisitions of proved and unproved properties
 
—

 
(31
)
 
—

 
—

 
(31
)
Proceeds from divestitures of proved and unproved properties
 
—

 
110

 
—

 
—

 
110

Additions to other property and equipment
 
—

 
(12
)
 
(15
)
 
—

 
(27
)
Other investing activities
 
—

 
6

 
—

 
—

 
6

Net Cash Used In
Investing Activities
 
—

 
(1,512
)
 
(423
)
 
—

 
(1,935
)
 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Proceeds from revolving credit facility borrowings
 
8,096

 
—

 
709

 
—

 
8,805

Payments on revolving credit facility borrowings
 
(7,011
)
 
—

 
(484
)
 
—

 
(7,495
)
Cash paid to purchase debt
 
(381
)
 
—

 
(76
)
 
—

 
(457
)
Cash paid for preferred stock dividends
 
(69
)
 
—

 
—

 
—

 
(69
)
Other financing activities
 
(13
)
 
(6
)
 
(5
)
 
3

 
(21
)
Intercompany advances, net
 
(620
)
 
620

 
1

 
(1
)
 
—

Net Cash Provided By
Financing Activities
 
2

 
614

 
145

 
2

 
763

Net increase in cash and cash equivalents
 
2

 
—

 
9

 
(1
)
 
10

Cash and cash equivalents,
beginning of period
 
4

 
1

 
1

 
(2
)
 
4

Cash and cash equivalents, end of period
 
$
6

 
$
1

 
$
10

 
$
(3
)
 
$
14



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

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2018
($ in millions)
 
 
Parent  
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
CASH FLOWS FROM
OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Net Cash Provided By
Operating Activities
 
$
86

 
$
1,312

 
$
7

 
$
(10
)
 
$
1,395

 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM
INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Drilling and completion costs
 
—

 
(1,407
)
 
—

 
—

 
(1,407
)
Acquisitions of proved and unproved properties
 
—

 
(118
)
 
—

 
—

 
(118
)
Proceeds from divestitures of proved and unproved properties
 
—

 
395

 
—

 
—

 
395

Additions to other property and equipment
 
—

 
(11
)
 
—

 
—

 
(11
)
Other investing activities
 
—

 
149

 
—

 
—

 
149

Net Cash Used In
Investing Activities
 
—

 
(992
)
 
—

 
—

 
(992
)
 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Proceeds from revolving credit facility borrowings
 
9,095

 
—

 
—

 
—

 
9,095

Payments on revolving credit facility borrowings
 
(9,231
)
 
—

 
—

 
—

 
(9,231
)
Proceeds from issuance of senior notes, net
 
1,237

 
—

 
—

 
—

 
1,237

Cash paid to purchase debt
 
(1,285
)
 
—

 
—

 
—

 
(1,285
)
Cash paid for preferred stock dividends
 
(69
)
 
—

 
—

 
—

 
(69
)
Other financing activities
 
(2
)
 
(127
)
 
(9
)
 
(13
)
 
(151
)
Intercompany advances, net
 
170

 
(193
)
 
1

 
22

 
—

Net Cash Used In
Financing Activities
 
(85
)
 
(320
)
 
(8
)
 
9

 
(404
)
Net increase (decrease) in cash and cash equivalents
 
1

 
—

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

 
1

 
2

 
(3
)
 
5

Cash and cash equivalents, end of period
 
$
6

 
$
1

 
$
1

 
$
(4
)
 
$
4





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ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The following discussion should be read together with the condensed consolidated financial statements included in Item 1 of Part I of this report and our Form 8-K dated May 9, 2019.
We are an independent exploration and production company engaged in the acquisition, exploration and development of properties to produce oil, natural gas 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 13,900 oil and natural gas wells. We have leading positions in the liquids-rich resource plays of the Eagle Ford Shale in South Texas, the stacked pay in the Powder River Basin in Wyoming and the Anadarko Basin in northwestern Oklahoma. Our natural gas resource plays are the Marcellus Shale in the northern Appalachian Basin in Pennsylvania and the Haynesville/Bossier Shales in northwestern Louisiana.
Our strategy is to create shareholder value through the development of our significant resource plays. We continue to focus on reducing debt, increasing cash provided by operating activities, improving margins through financial discipline and operating efficiencies and maintaining exceptional environmental and safety performance. To accomplish these goals, we intend to allocate our capital expenditures to projects we believe offer the highest return and value regardless of the commodity price environment, to deploy leading drilling and completion technology throughout our portfolio, and to take advantage of acquisition and divestiture opportunities to strengthen our cost structure and our portfolio. Increasing our margins means not only increasing our absolute level of cash flows from operations, but also increasing our cash flows from operations generated per barrel of oil equivalent production. We continue to seek opportunities to reduce cash costs per barrel of oil equivalent production (production, gathering, processing and transportation and general and administrative) through operational efficiencies, including but not limited to improving our production volumes from existing wells.
Oil and natural gas prices have a material impact on our financial position, results of operations, cash flows and quantities of oil, natural gas and NGL reserves that may be economically produced. Historically, oil and natural gas prices have been volatile, and may be subject to wide fluctuations in the future. Our consolidated EBITDAX (as defined in the Chesapeake credit agreement to exclude amounts associated with unrestricted subsidiaries) has been, and will continue to be, negatively impacted by the recent substantial decline in oil, natural gas and NGL prices. The reduction in our consolidated EBITDAX will adversely affect our ability to comply with the leverage ratio covenant contained in our revolving credit facility during the next 12 months, absent a reduction in our total indebtedness excluding amounts associated with unrestricted subsidiaries. Please read “Liquidity and Capital Resources.”
Management continues to review operational plans for 2019 and beyond and anticipates reducing capital expenditures in 2020 by approximately 30% to target free cash flow.
Our focus remains concentrated on four strategic priorities:
•
reduce total leverage to achieve long-term net debt/EBITDAX of 2x;
•
increase net cash provided by operating activities to fund capital expenditures;
•
improve margins through financial discipline and operating efficiencies; and
•
maintain industry leading environmental and safety performance.
During the Current Period, we changed our method of accounting for our oil and natural gas exploration and development activities from the full cost method to the successful efforts method of accounting. Financial information for all periods has been recast to reflect retrospective application of the successful efforts method of accounting. See Note 1 of the notes to our condensed consolidated financial statements included in Item 1 of this 10-Q for further discussion of the change in accounting principle.
Overview
Highlights of 2019 include the following:
•
acquired 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, and the acquisition of WildHorse’s debt of $1.4 billion as of February 1, 2019. We anticipate the acquisition to materially increase our oil production and enhance our oil production mix as well as significantly reduce costs due to operational synergies that we believe the combined company will achieve. We expect

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that the WildHorse Merger will provide substantial cost savings with $200 million to $280 million in projected average annual savings, totaling $1 billion to $1.5 billion by 2023, due to operational and capital efficiencies as a result of Chesapeake’s significant expertise with unconventional assets and technical and operational excellence;
•
restructured gas gathering and crude oil transportation contracts in the Eagle Ford, improving future returns and liquidity;
•
privately negotiated exchanges of approximately $507 million principal amount of our outstanding senior notes for 235,563,519 shares of common stock and $186 million principal amount of our outstanding convertible senior notes for 73,389,094 shares of common stock, reducing annual interest payments;
•
exchanged 40,000 shares of our 5.75% (Series A) Cumulative Convertible Preferred Stock for 10,367,950 shares of common stock, reducing annual preferred stock dividend payments;
•
extended our debt maturity profile by privately exchanging approximately $884 million aggregate principal amount of our existing senior notes due in 2020 and 2021 for approximately $919 million aggregate principal amount of new 8.00% Senior Notes due 2026; and
•
improved our cost structure in the Current Period compared to the Prior Period by reducing combined production, general and administrative, and gathering, processing and transportation expenses by $224 million, or 13%. The primary driver in the reduction is lower gathering, processing and transportation expenses due to certain 2018 divestitures.
Liquidity and Capital Resources
Liquidity Overview
Our ability to grow, make capital expenditures and service our debt depends primarily upon the prices we receive for the oil, natural gas and NGL we sell. Substantial expenditures are required to replace reserves, sustain production and fund our business plans. Fluctuations in oil and natural gas prices have a material impact on our financial position, results of operations, cash flows and quantities of oil, natural gas and NGL reserves that may be economically produced. Historically, oil and natural gas prices have been volatile, and may be subject to wide fluctuations in the future. If depressed prices persist or decline throughout 2020, our ability to comply with the leverage ratio covenant under our revolving credit facility during the next 12 months will be adversely affected and may cause doubt about our ability to continue as a going concern. Failure to comply with this covenant, if not waived, would result in an event of default under our Chesapeake revolving credit facility, the potential acceleration of outstanding debt thereunder and the potential foreclosure on the collateral securing such debt, and could cause a cross-default under our other outstanding indebtedness. We are actively pursuing a variety of transactions and cost-cutting measures, including but not limited to, reducing corporate discretionary expenditures, refinancing transactions by us or our subsidiaries, capital exchange transactions, asset divestitures, reductions in capital expenditures by approximately 30% in 2020 and operational efficiencies, which we believe have the potential to positively impact our ability to comply with our leverage ratio covenant. There can be no assurance that such refinancing transactions, capital exchange transactions or asset divestitures will be available to us on acceptable terms or at all, or that such transactions, reductions in capital expenditures or other measures will be sufficient to alleviate liquidity concerns. Other risks and uncertainties that could affect our liquidity include, but are not limited to, counterparty credit risk for our receivables, access to capital markets, regulatory risks and our ability to meet financial covenants in our financing agreements.
Based on our cash balance, forecasted cash flows from operating activities and availability under our revolving credit facilities, we expect to be able to fund our planned capital expenditures, meet our debt service requirements and fund our other commitments and obligations for the next 12 months, subject to our ability to comply with our financial covenants.
As of September 30, 2019 and December 31, 2018, we had a cash balance of $14 million and $4 million, respectively. As of September 30, 2019 and December 31, 2018, we had a net working capital deficit of $945 million and $1.289 billion, respectively. As of September 30, 2019 and December 31, 2018, our working capital deficit included $208 million and $380 million, respectively, of debt due in the next 12 months. As of September 30, 2019, we had $1.443 billion of borrowing capacity available under our Chesapeake revolving credit facility, with outstanding borrowings of $1.504 billion and $53 million utilized for various letters of credit. In addition, as of September 30, 2019, we had $400 million of borrowing capacity available under our BVL revolving credit facility with outstanding borrowings of $900 million. 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 principal and carrying amounts of our notes.

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We closely monitor the amounts and timing of our sources and uses of funds, particularly as they affect our ability to maintain compliance with the financial covenants of our revolving credit facilities. Furthermore, our ability to generate operating cash flow in the current commodity price environment, sell assets, access capital markets or take any other action to improve our liquidity and manage our debt is subject to the risks discussed above and the other risks and uncertainties that exist in our industry, some of which we may not be able to anticipate or control at this time.
Derivative and Hedging Activities
Our results of operations and cash flows are impacted by changes in market prices for oil, natural gas and NGL. To mitigate a portion of our exposure to adverse market price changes, we have entered into various derivative instruments. Our oil, natural gas and NGL derivative activities, when combined with our sales of oil, natural gas and NGL, allow us to better predict the total revenue we expect to receive.
We utilize various oil, natural gas and NGL derivative instruments to protect a portion of our cash flow against downside risk. As of October 31, 2019, including October and November derivative contracts that have settled, approximately 80% of our remaining forecasted oil, natural gas and NGL production revenue was hedged, including 74% and 75% of our remaining forecasted 2019 oil and natural gas production at average prices of $59.34 per barrel and $2.83 per mcf, respectively.
Oil Derivatives(a)
Year
 
Type of Derivative Instrument
 
Notional Volume
 
Average NYMEX Price
 
 
 
 
(mmbbls)
 
 
2019
 
Swaps
 
7

 
$60.24
2019
 
Two-way collars
 
1

 
$58.00/$67.75
2019
 
Basis protection swaps
 
2

 
$5.67
2019
 
Puts
 
1

 
$54.43
2020
 
Swaps
 
15

 
$58.60
2020
 
Two-way collars
 
2

 
$65.00/$83.25
2020
 
Call swaptions
 
2

 
$63.15
2020
 
Basis protection swaps
 
5

 
$2.45
Natural Gas Derivatives(a)
Year
 
Type of Derivative Instrument
 
Notional Volume
 
Average NYMEX Price
 
 
 
 
(bcf)
 
 
2019
 
Swaps
 
118

 
$2.84
2019
 
Two-way collars
 
9

 
$2.75/$2.91
2019
 
Three-way collars
 
15

 
$2.50/$2.80/$3.10
2019
 
Calls
 
6

 
$12.00
2019
 
Basis protection swaps
 
29

 
($0.10)
2020
 
Swaps
 
265

 
$2.76
2020
 
Basis protection swaps
 
30

 
$0.08
2020
 
Call swaptions
 
106

 
$2.77
2020
 
Calls
 
22

 
$12.00
2021
 
Call swaptions
 
15

 
$2.80
2022
 
Call swaptions
 
15

 
$2.80
___________________________________________
(a)
Includes amounts settled in October and November 2019.
See Note 14 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion of derivatives and hedging activities.

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Debt
We are committed to reducing total leverage to achieve long-term net debt/EBITDAX of 2x. To accomplish this goal, we intend to allocate our capital expenditures to projects we believe offer the highest return and value regardless of the commodity price environment, to deploy leading drilling and completion technology throughout our portfolio, and to take advantage of acquisition and divestiture opportunities to strengthen our cost structure and our portfolio. Increasing our margins means not only increasing our absolute level of cash flows from operations, but also increasing our cash flows from operations generated per barrel of oil equivalent production. We continue to seek opportunities to reduce cash costs (production, gathering, processing and transportation and general and administrative), improve our production volumes from existing wells, and achieve additional operating and capital efficiencies with a focus on growing our oil volumes.
We may continue to use a combination of cash, borrowings and issuances of our common stock or other securities and the proceeds from asset sales to retire our outstanding debt and/or preferred stock through privately negotiated transactions, open market repurchases, redemptions, exchanges, tender offers or otherwise, but we are under no obligation to do so.
Chesapeake Revolving Credit Facility
The Chesapeake revolving credit facility is currently subject to a $3.0 billion borrowing base that matures in September 2023. As of September 30, 2019, we had $1.443 billion of borrowing capacity available under our revolving credit facility. Our next borrowing base redetermination is scheduled for the second quarter of 2020. As of September 30, 2019, we had outstanding borrowings of $1.504 billion under the revolving credit facility and had used $53 million of the revolving credit facility for various letters of credit. Borrowings under the facility bear interest at a variable rate. See Note 6 of the notes to our condensed consolidated financial statements included in Item 1 of this report for further discussion of the terms of the Chesapeake revolving credit facility. As of September 30, 2019, we were in compliance with all applicable financial covenants under the credit agreement. Our total leverage ratio was approximately 3.88 to 1.00, our first lien secured leverage ratio was approximately 0.74 to 1.00 and our interest coverage ratio was approximately 3.55 to 1.00.
Fluctuations in oil and natural gas prices have a material impact on our financial position, results of operations, cash flows and quantities of oil, natural gas and NGL reserves that may be economically produced. Historically, oil and natural gas prices have been volatile, and may be subject to wide fluctuations in the future. If continued depressed prices persist, combined with the scheduled reductions in the leverage ratio covenant, our ability to comply with the leverage ratio covenant during the next 12 months will be adversely affected which raises substantial doubt about our ability to continue as a going concern. Failure to comply with this covenant, if not waived, would result in an event of default under our Chesapeake revolving credit facility, the potential acceleration of outstanding debt thereunder and the potential foreclosure on the collateral securing such debt, and could cause a cross-default under our other outstanding indebtedness. We are actively pursuing with support from the Board of Directors a variety of transactions and cost-cutting measures, including but not limited to, reduction in corporate discretionary expenditures, refinancing transactions by us or our subsidiaries, capital exchange transactions, asset divestitures, reductions in capital expenditures by approximately 30% in 2020 and operational efficiencies. We believe it is probable that these measures, as we continue to implement them, will enable us to comply with our leverage ratio covenant.
BVL Revolving Credit Facility
The BVL revolving credit facility is currently subject to a $1.3 billion borrowing base that matures in December 2021. The scheduled borrowing base redetermination for the fourth quarter of 2019 is ongoing, and there can be no assurance that the borrowing base will remain at $1.3 billion. As of September 30, 2019, we had $400 million of borrowing capacity available under the BVL revolving credit facility, with outstanding borrowings of $900 million. Borrowings under the facility bear interest at a variable rate. See Note 6 of the notes to our condensed consolidated financial statements included in Item 1 of this report for further discussion of the terms of the BVL revolving credit facility. As of September 30, 2019, we were in compliance with all applicable financial covenants under the credit agreement. Our ratio of net debt to EBITDAX was 2.97 to 1.00 and our ratio of current assets to current liabilities was 2.23 to 1.00 as of September 30, 2019.
Contractual Obligations and Off-Balance Sheet Arrangements
From time to time, we enter into arrangements and transactions that can give rise to contractual obligations and off-balance sheet commitments. As of September 30, 2019, these arrangements and transactions included (i) certain

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operating lease agreements, (ii) open purchase commitments, (iii) open delivery commitments, (iv) open drilling commitments, (v) undrawn letters of credit, (vi) open gathering and transportation commitments, and (vii) various other commitments we enter into in the ordinary course of business that could result in future cash obligations.
Capital Expenditures
Our 2019 capital expenditures program is expected to generate greater capital efficiency than our 2018 program as we focus on expanding our margins through disciplined investing in the highest-return projects. Our forecasted 2019 capital expenditures, inclusive of capitalized interest, are $2.1 – $2.3 billion compared to our 2018 capital spending level of $2.1 billion. We have significant control and flexibility over the timing and execution of our development plan, enabling us to reduce our capital spending as needed. Management continues to review operational plans for 2019 and beyond, and anticipates reducing capital expenditures in 2020 by approximately 30% to target free cash flow.
Credit Risk
Some of our counterparties have requested or required us to post collateral as financial assurance of our performance under certain contractual arrangements, such as gathering, processing, transportation and hedging agreements. As of October 31, 2019, we have received requests and posted approximately $71 million of collateral related to certain of our marketing and other contracts. We may be requested or required by other counterparties to post additional collateral in an aggregate amount of approximately $356 million, which may be in the form of additional letters of credit, cash or other acceptable collateral. However, we have substantial long-term business relationships with each of these counterparties, and we may be able to mitigate any collateral requests through ongoing business arrangements and by offsetting amounts that the counterparty owes us. Any posting of collateral consisting of cash or letters of credit reduces availability under our revolving credit facility and negatively impacts our liquidity.
Sources of Funds
The following table presents the sources of our cash and cash equivalents for the Current Period and the Prior Period. See Note 3 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion of divestitures of oil and natural gas assets.
 
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
 
($ in millions)
Cash provided by operating activities
 
$
1,182

 
$
1,395

Proceeds from divestitures of proved and unproved properties, net
 
110

 
395

Proceeds from revolving credit facility borrowings, net
 
1,310

 
—

Proceeds from issuance of senior notes, net
 
—

 
1,237

Proceeds from sales of other property and equipment, net
 
6

 
75

Proceeds from sales of investments
 
—

 
74

Total sources of cash and cash equivalents
 
$
2,608

 
$
3,176

Cash Flows from Operating Activities
Cash provided by operating activities was $1.182 billion in the Current Period compared to $1.395 billion in the Prior Period. The decrease in the Current Period is primarily due to the result of lower prices for the oil, natural gas and NGL we sold and lower volumes of natural gas and NGL sold offset by higher oil volumes sold. Additionally, cash provided by operating activities in the Current Period included one-time charges for transaction and severance costs of $72 million related to our acquisition of WildHorse. 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.

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Uses of Funds
The following table presents the uses of our cash and cash equivalents for the Current Period and the Prior Period:
 
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
 
($ in millions)
Oil and Natural Gas Expenditures:
 
 
 
 
Drilling and completion costs
 
$
1,640

 
$
1,407

Acquisitions of proved and unproved properties
 
31

 
118

Total oil and natural gas expenditures
 
1,671

 
1,525

Other Uses of Cash and Cash Equivalents:
 
 
 
 
Payments on revolving credit facility borrowings, net
 
—

 
136

Business combination, net
 
353

 
—

Additions to other property and equipment
 
27

 
11

Cash paid to purchase debt
 
457

 
1,285

Extinguishment of other financing
 
—

 
122

Dividends paid
 
69

 
69

Other
 
21

 
29

Total other uses of cash and cash equivalents
 
927

 
1,652

Total uses of cash and cash equivalents
 
$
2,598

 
$
3,177

Drilling and Completion Costs
Our drilling and completion costs increased in the Current Period compared to the Prior Period primarily as a result of increased drilling and completion activity in our oil plays. Our average operated rig count was 18 rigs and spud wells were 258 in the Current Period compared to an average operated rig count of 17 rigs and 240 spud wells in the Prior Period. We completed 290 operated wells in the Current Period compared to 242 in the Prior Period.
Business Combination - Acquisition of WildHorse
In the Current Period, we acquired WildHorse for approximately 717.4 million shares of our common stock and $381 million less $28 million of cash held by WildHorse as of the acquisition date. See Note 3 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion of the acquisition.
Cash Paid to Purchase Debt
In the Current Quarter, we repurchased approximately $82 million principal amount of the BVL Senior Notes for $76 million. In the Current Period, we repaid upon maturity $380 million principal amount of our Floating Rate Senior Notes due April 2019 with borrowings from our Chesapeake revolving credit facility. In the Prior Period, we used $1.285 billion of cash from the issuance of senior notes together with cash on hand and borrowings under our revolving credit facility to repay in full $1.233 billion principal amount of borrowings under our secured term loan due 2021 plus a call premium of $52 million.
Extinguishment of Other Financing
In the Prior Quarter, we repurchased previously conveyed overriding royalty interests (ORRIs) from CHK Utica, L.L.C. investors and extinguished our obligation to convey future ORRIs to the investors for combined consideration of $199 million. The cash paid was bifurcated between extinguishment of the obligation and acquisition of the ORRI.
Dividends
We paid dividends of $69 million on our preferred stock in both the Current Period and the Prior Period. We eliminated common stock dividends in the 2015 third quarter and do not anticipate paying any common stock dividends in the foreseeable future.

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Results of Operations
Oil, Natural Gas and NGL Production and Average Sales Prices
 
 
Three Months Ended September 30, 2019
 
 
Oil
 
Natural Gas
 
NGL
 
Total
 
 
mbbl
per day
 
$/bbl
 
mmcf
per day
 
$/mcf
 
mbbl
per day
 
$/bbl
 
mboe
per day
 
%
 
$/boe
Marcellus
 
—

 
—

 
928

 
1.85

 
—

 
—

 
154

 
32

 
11.11

Haynesville
 
—

 
—

 
694

 
2.03

 
—

 
—

 
116

 
24

 
12.17

Eagle Ford
 
51

 
60.13

 
161

 
2.13

 
16

 
14.24

 
94

 
20

 
38.62

Brazos Valley
 
36

 
58.23

 
62

 
1.70

 
6

 
8.84

 
53

 
11

 
43.07

Powder River Basin
 
20

 
54.17

 
86

 
1.96

 
5

 
11.49

 
39

 
8

 
33.09

Mid-Continent
 
8

 
55.24

 
57

 
1.63

 
5

 
12.06

 
22

 
5

 
26.26

Retained assets(a)
 
115

 
58.18

 
1,988

 
1.93

 
32

 
12.44

 
478

 
100

 
22.79

Divested assets
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
 
115

 
58.18

 
1,989

 
1.93

 
32

 
12.44

 
478

 
100
%
 
22.79

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 
Oil
 
Natural Gas
 
NGL
 
Total
 
 
mbbl
per day
 
$/bbl
 
mmcf
per day
 
$/mcf
 
mbbl
per day
 
$/bbl
 
mboe
per day
 
%
 
$/boe
Marcellus
 
—

 
—

 
812

 
2.46

 
—

 
—

 
135

 
25

 
14.77

Haynesville
 
—

 
—

 
769

 
2.74

 
—

 
—

 
128

 
24

 
16.44

Eagle Ford
 
58

 
74.38

 
121

 
3.26

 
21

 
28.94

 
100

 
19

 
53.48

Powder River Basin
 
12

 
69.24

 
73

 
2.50

 
5

 
27.89

 
29

 
5

 
39.76

Mid-Continent
 
9

 
69.76

 
60

 
2.50

 
4

 
29.73

 
23

 
4

 
38.64

Retained assets(a)
 
79

 
73.07

 
1,835

 
2.63

 
30

 
28.86

 
415

 
77

 
27.66

Divested assets
 
10

 
67.02

 
497

 
2.91

 
29

 
29.34

 
122

 
23

 
24.38

Total
 
89

 
72.39

 
2,332

 
2.69

 
59

 
29.09

 
537

 
100
%
 
26.92

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2019
 
 
Oil
 
Natural Gas
 
NGL
 
Total
 
 
mbbl
per day
 
$/bbl
 
mmcf
per day
 
$/mcf
 
mbbl
per day
 
$/bbl
 
mboe
per day
 
%
 
$/boe
Marcellus
 
—

 
—

 
935

 
2.57

 
—

 
—

 
156

 
32

 
15.45

Haynesville
 
—

 
—

 
734

 
2.46

 
—

 
—

 
122

 
25

 
14.78

Eagle Ford
 
57

 
61.95

 
153

 
2.77

 
20

 
16.75

 
102

 
21

 
41.95

Brazos Valley(b)
 
31

 
60.38

 
47

 
1.80

 
5

 
8.89

 
44

 
9

 
45.75

Powder River Basin
 
18

 
54.26

 
86

 
2.51

 
5

 
15.66

 
38

 
8

 
34.15

Mid-Continent
 
9

 
55.57

 
58

 
2.16

 
5

 
17.05

 
23

 
5

 
29.25

Retained assets(a)
 
115

 
59.81

 
2,013

 
2.52

 
35

 
15.50

 
485

 
100

 
25.71

Divested assets
 
—

 
—

 
2

 
1.37

 
—

 
—

 
1

 
—

 
—

Total
 
115

 
59.78

 
2,015

 
2.51

 
35

 
15.50

 
486

 
100
%
 
25.70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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Nine Months Ended September 30, 2018
 
 
Oil
 
Natural Gas
 
NGL
 
Total
 
 
mbbl
per day
 
$/bbl
 
mmcf
per day
 
$/mcf
 
mbbl
per day
 
$/bbl
 
mboe
per day
 
%
 
$/boe
Marcellus
 
—

 
—

 
830

 
2.85

 
—

 
—

 
138

 
26

 
17.14

Haynesville
 
—

 
—

 
810

 
2.72

 
—

 
—

 
135

 
25

 
16.34

Eagle Ford
 
60

 
70.35

 
134

 
3.26

 
19

 
26.93

 
101

 
19

 
50.88

Powder River Basin
 
9

 
67.02

 
59

 
2.48

 
4

 
27.86

 
23

 
4

 
38.28

Mid-Continent
 
9

 
66.27

 
61

 
2.52

 
4

 
26.62

 
24

 
4

 
36.78

Retained assets(a)
 
78

 
69.47

 
1,894

 
2.80

 
27

 
27.00

 
421

 
78

 
27.25

Divested assets
 
13

 
63.35

 
475

 
2.87

 
28

 
26.73

 
119

 
22

 
24.25

Total
 
91

 
68.63

 
2,369

 
2.82

 
55

 
26.87

 
540

 
100
%
 
26.59

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
___________________________________________
(a)
Includes assets retained as of September 30, 2019.
(b) Average production per day since the date of the WildHorse acquisition on February 1, 2019, 242 days, was 35 mbbl, 53 mmcf and 6 mbbl for oil, natural gas and NGL, respectively.
Oil, Natural Gas and NGL Sales
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
 
($ in millions)
Oil
 
$
613

 
$
594

 
3
 %
 
$
1,879

 
$
1,698

 
11
 %
Natural gas
 
353

 
578

 
(39
)%
 
1,384

 
1,822

 
(24
)%
NGL
 
37

 
159

 
(77
)%
 
149

 
404

 
(63
)%
Oil, natural gas and NGL sales
 
$
1,003

 
$
1,331

 
(25
)%
 
$
3,412

 
$
3,924

 
(13
)%
The decrease in the average price received per boe in the Current Quarter resulted in a $182 million decrease in revenues, and decreased sales volumes resulted in a $146 million decrease in revenues, for a total net decrease in revenues of $328 million. The decrease in the average price received per boe in the Current Period resulted in a $118 million decrease in revenues, and decreased sales volumes resulted in a $394 million decrease in revenues, for a total net decrease in revenues of $512 million.

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Oil, Natural Gas and NGL Derivatives
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
($ in millions)
Oil derivatives – realized gains (losses)
 
$
26

 
$
(112
)
 
$
18

 
$
(273
)
Oil derivatives – unrealized gains (losses)
 
98

 
12

 
(67
)
 
(115
)
Total gains (losses) on oil derivatives
 
124

 
(100
)
 
(49
)
 
(388
)
 
 
 
 
 
 
 
 
 
Natural gas derivatives – realized gains (losses)
 
83

 
(1
)
 
71

 
83

Natural gas derivatives – unrealized gains (losses)
 
(40
)
 
(17
)
 
119

 
(168
)
Total gains (losses) on natural gas derivatives
 
43

 
(18
)
 
190

 
(85
)
 
 
 
 
 
 
 
 
 
NGL derivatives – realized gains (losses)
 
—

 
(10
)
 
—

 
(14
)
NGL derivatives – unrealized gains (losses)
 
—

 
(4
)
 
—

 
(13
)
Total gains (losses) on NGL derivatives
 
—

 
(14
)
 
—

 
(27
)
Total gains (losses) on oil, natural gas and NGL derivatives
 
$
167

 
$
(132
)
 
$
141

 
$
(500
)
See Note 14 of the notes to our condensed consolidated financial statements included in Item 1 of this report for a discussion of our derivative activity.
Marketing Revenues and Expenses
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
 
($ in millions)
Marketing revenues
 
$
889

 
$
1,219

 
(27
)%
 
$
3,038

 
$
3,738

 
(19
)%
Marketing expenses
 
901

 
1,238

 
(27
)%
 
3,071

 
3,798

 
(19
)%
Marketing gross margin
 
$
(12
)
 
$
(19
)
 
37
 %
 
$
(33
)
 
$
(60
)
 
45
 %
Marketing revenues and expenses decreased in the Current Quarter and the Current Period primarily as a result of decreased oil, natural gas and NGL prices received in our marketing operations as well decreases from the termination of a marketing contract related to our Utica divestiture. Gross margin increased in the Current Quarter primarily due to improved margins related to non-equity transactions including decreases in transportation costs offset by losses on throughput transportation and inventory due to lower prices. Gross margin increased in the Current Period due to improved margins related to non-equity transactions including decreases in transportation costs as well as marketing services provided to acquires of our divested wells offset by losses on throughput transportation and inventory due to lower prices.
Other Revenue
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
 
($ in millions)
Other revenue
 
$
15

 
$
16

 
(6
)%
 
$
45

 
$
48

 
(6
)%
Other revenue relates to the amortization of deferred VPP revenue. Our remaining deferred revenue balance of $78 million will be amortized on a straight-line basis through 2021. See Note 8 of the notes to our condensed consolidated financial statements included in Item 8 of this report for further discussion of our VPP.

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Oil, Natural Gas and NGL Production Expenses
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
 
($ in millions)
Marcellus
 
9

 
8

 
13
 %
 
27

 
25

 
8
 %
Haynesville
 
12

 
15

 
(20
)%
 
39

 
45

 
(13
)%
Eagle Ford
 
45

 
42

 
7
 %
 
141

 
141

 
—
 %
Brazos Valley
 
25

 
—

 
n/a

 
62

 
—

 
n/a

Powder River Basin
 
20

 
12

 
67
 %
 
51

 
35

 
46
 %
Mid-Continent
 
24

 
27

 
(11
)%
 
75

 
73

 
3
 %
Retained Assets(a)
 
135

 
104

 
30
 %
 
395

 
319

 
24
 %
Divested Assets
 
—

 
12

 
(100
)%
 
(1
)
 
50

 
(102
)%
Total
 
135


116

 
16
 %
 
394

 
369

 
7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Ad valorem tax
 
20

 
16

 
25
 %
 
59

 
48

 
23
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Total oil, natural gas and NGL production expenses
 
$
155

 
$
132

 
17
 %
 
$
453

 
$
417

 
9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($ per boe)
Marcellus
 
$
0.63

 
$
0.66

 
(5
)%
 
$
0.63

 
$
0.67

 
(6
)%
Haynesville
 
$
1.16

 
$
1.28

 
(9
)%
 
$
1.16

 
$
1.21

 
(4
)%
Eagle Ford
 
$
5.24

 
$
4.52

 
16
 %
 
$
5.08

 
$
5.10

 
—
 %
Brazos Valley
 
$
5.26

 
$
—

 
n/a

 
$
5.17

 
$
—

 
n/a

Powder River Basin
 
$
5.47

 
$
4.40

 
24
 %
 
$
4.90

 
$
5.48

 
(11
)%
Mid-Continent
 
$
12.03

 
$
12.97

 
(7
)%
 
$
11.66

 
$
11.49

 
1
 %
Retained Assets(a)
 
$
3.09

 
$
2.72

 
14
 %
 
$
2.97

 
$
2.78

 
7
 %
Divested Assets
 
$
—

 
$
1.11

 
(100
)%
 
$
—

 
$
1.52

 
(100
)%
Total
 
$
3.09

 
$
2.36

 
31
 %
 
$
2.97

 
$
2.50

 
19
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Ad valorem tax
 
$
0.45

 
$
0.32

 
41
 %
 
$
0.44

 
$
0.33

 
33
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Total oil, natural gas and NGL production expenses per boe
 
$
3.54

 
$
2.68

 
32
 %
 
$
3.41

 
$
2.83

 
20
 %
___________________________________________
(a) Includes assets retained as of September 30, 2019.
The absolute and per unit increase in the Current Quarter and the Current Period was the result of the acquisition of WildHorse in 2019, partially offset by the sale of certain oil and natural gas properties in 2018 and 2019.
Production expenses associated with VPP production volumes in the Current Quarter, the Prior Quarter, the Current Period and the Prior Period included approximately $4 million, $4 million, $11 million and $12 million, respectively. We anticipate a continued decrease in production expenses as the contractually scheduled volumes under our remaining VPP agreement decrease and operating efficiencies generally improve.

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Oil, Natural Gas, and NGL Gathering, Processing and Transportation Expenses
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
($ in millions, except per unit)
Oil, natural gas and NGL gathering, processing and transportation expenses
 
$
270

 
$
364

 
$
815

 
$
1,060

Oil ($ per bbl)
 
$
3.53

 
$
3.83

 
$
3.12

 
$
3.75

Natural gas ($ per mcf)
 
$
1.19

 
$
1.33

 
$
1.21

 
$
1.30

NGL ($ per bbl)
 
$
5.19

 
$
8.59

 
$
5.27

 
$
8.62

Total ($ per boe)
 
$
6.12

 
$
7.36

 
$
6.14

 
$
7.18

The absolute and per unit decrease in oil, natural gas and NGL gathering, processing and transportation expenses was primarily due to certain 2018 divestitures.
Production Taxes
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
 
($ in millions, except per unit)
Production taxes
 
$
35

 
$
34

 
3
%
 
$
109

 
$
91

 
20
%
Production taxes per boe
 
$
0.79

 
$
0.69

 
14
%
 
$
0.82

 
$
0.62

 
32
%
The absolute and per unit increase in production taxes in the Current Quarter and the Current Period was primarily due to the addition of Texas assets through our acquisition of WildHorse and the divestiture of Ohio assets that were taxed at a lower rate.
Exploration Expenses
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
 
($ in millions, except per unit)
Impairments of unproved properties
 
$
1

 
$
7

 
(86
)%
 
$
26

 
$
60

 
(57
)%
Dry hole expense
 
8

 
—

 
—
 %
 
8

 
21

 
(62
)%
Geological and geophysical expense and other
 
8

 
15

 
(47
)%
 
22

 
42

 
(48
)%
Exploration expense
 
$
17

 
$
22

 
(23
)%
 
$
56

 
123

 
(54
)%


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General and Administrative Expenses
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
 
($ in millions, except per unit)
Gross compensation and overhead
 
$
150

 
$
174

 
(14
)%
 
$
530

 
$
563

 
(6
)%
Allocated to production expenses
 
(33
)
 
(36
)
 
(8
)%
 
(105
)
 
(112
)
 
(6
)%
Allocated to marketing expenses
 
(3
)
 
(5
)
 
(40
)%
 
(11
)
 
(16
)
 
(31
)%
Allocated to exploration expenses
 
(2
)
 
(3
)
 
(33
)%
 
(8
)
 
(7
)
 
14
 %
Allocated to sand mine expenses
 
(2
)
 
—

 
n/a

 
(5
)
 
—

 
n/a

Capitalized general and administrative expenses
 
(11
)
 
(13
)
 
(15
)%
 
(37
)
 
(42
)
 
(12
)%
Reimbursed from third parties
 
(33
)
 
(36
)
 
(8
)%
 
(106
)
 
(113
)
 
(6
)%
General and administrative expenses, net
 
$
66

 
$
81

 
(19
)%
 
$
258

 
$
273

 
(5
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses, net per boe
 
$
1.48

 
$
1.63

 
(9
)%
 
$
1.94

 
$
1.85

 
5
 %
Restructuring and Other Termination Costs
On January 30, 2018, we underwent a reduction in workforce impacting approximately 13% of employees across all functions, primarily on our Oklahoma City campus. In connection with the reduction, we incurred a total charge of approximately $38 million in the Prior Period for one-time termination benefits. The charge consisted of $33 million in salary expense and $5 million of other termination benefits.
Depreciation, Depletion and Amortization
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
 
 
($ in millions, except per unit)
Depreciation, depletion and amortization
 
$
573

 
$
405

 
41
%
 
$
1,672

 
$
1,335

 
25
%
Depreciation, depletion and amortization per boe
 
$
13.04

 
$
8.20

 
59
%
 
$
12.60

 
$
9.05

 
39
%
The absolute and per unit increase in the Current Quarter and the Current Period is primarily the result of a higher depletion rate. The increase in depletion rate per boe primarily reflects our acquisition of WildHorse, coupled with our higher concentration of capital deployment in liquids-rich operating areas, which generally involve higher finding costs per boe relative to our gas-rich operating areas, as we focus on expanding our margins through disciplined investing in the highest-return projects.
Impairments
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
($ in millions)
Impairments due to lower forecasted commodity prices
 
$
8

 
$
—

 
$
8

 
$
16

Impairments due to anticipated sale
 
—

 
53

 
—

 
55

Total impairments of oil and natural gas properties
 
8

 
53

 
8

 
71

Impairments of other fixed assets
 
1

 
5

 
3

 
51

Total impairments
 
$
9

 
$
58

 
$
11

 
$
122



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Other Operating (Income) Expense
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
($ in millions)
Other operating (income) expense
 
$
15

 
$
—

 
$
79

 
$
(1
)
In the Current Period, we recorded $34 million of costs related to our acquisition of WildHorse, which consisted of consulting fees, financial advisory fees, legal fees and travel and lodging expenses. Additionally, we recorded $38 million of severance expense as a result of our acquisition of WildHorse. A majority of the WildHorse executives and employees were terminated. These executives and employees were entitled to severance benefits in accordance with existing employment agreements.
Interest Expense
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
($ in millions, except per unit)
Interest expense on senior notes
 
$
147

 
$
146

 
$
444

 
$
434

Interest expense on term loan
 
—

 
29

 
—

 
87

Amortization of loan discount, issuance costs and other
 
7

 
8

 
19

 
18

Amortization of premium
 
—

 
(24
)
 
—

 
(72
)
Interest expense on revolving credit facilities
 
29

 
11

 
69

 
29

Realized gains on interest rate derivatives
 
(1
)
 
(1
)
 
(2
)
 
(2
)
Unrealized losses on interest rate derivatives
 
1

 
1

 
2

 
2

Capitalized interest
 
(6
)
 
(5
)
 
(19
)
 
(14
)
Total interest expense
 
$
177

 
$
165

 
$
513

 
$
482

 
 
 
 
 
 
 
 
 
Interest expense per boe(a)
 
$
3.99

 
$
3.32

 
$
3.85

 
$
3.26

 
 
 
 
 
 
 
 
 
Average senior notes borrowings
 
$
7,930

 
$
8,021

 
$
8,098

 
$
7,985

Average credit facilities borrowings
 
$
2,301

 
$
642

 
$
1,852

 
$
540

Average term loan borrowings
 
$
—

 
$
1,179

 
$
—

 
$
1,215

___________________________________________
(a)
Includes the effects of realized (gains) losses from interest rate derivatives, excludes the effects of unrealized (gains) losses from interest rate derivatives and is shown net of amounts capitalized.
The decrease in interest expense on the term loan is due to the repurchase of our term loan in the third quarter of 2018. The decrease in amortization of premium is due to the repurchase of our senior secured second lien notes in the fourth quarter of 2018. The increase in interest expense on revolving credit facilities is due to interest on the BVL revolving credit facility assumed in the WildHorse acquisition as well as increased borrowings to fund operations.

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Gains (Losses) on Investments
In the Current Period and in connection with the acquisition of WildHorse, we obtained a 50% membership interest in JWH Midstream LLC (JWH). The carrying value of our investment in JWH, which was being accounted for as an equity method investment, was approximately $17 million as of March 31, 2019. In the Current Period, we paid approximately $7 million to terminate our involvement in the partnership. This removed us from any future obligations related to this joint venture and, therefore, we impaired the full value of the investment and recognized approximately $24 million of impairment expense in the Current Period.
In the Prior Period, we recognized $139 million of gains related to our equity investment in FTSI, including the sale of a portion of that investment. See Note 15 of the notes to our condensed consolidated financial statements included in Item 1 of this report for further discussion. In the Current Period, the hydraulic fracturing industry experienced challenging operating conditions resulting in the current fair value of our investment in FTSI to fall below book value at the end of the Current Quarter. Given the average NYSE closing price for FTSI shares in the Current Quarter exceeded our carrying value per share and more often than not the closing price was greater than our carrying value per share, we have not assessed the reduction in fair value of our investment in FTSI to be other-than-temporary. We will continue to monitor the hydraulic fracturing industry, FTSI operating results and FTSI share price for indications that the reduction in fair value is other-than-temporary, which could result in an impairment of our investment in FTSI.
Gains (Losses) on Purchases or Exchanges of Debt
In the Current Quarter, we privately negotiated exchanges of approximately $507 million principal amount of our outstanding senior notes for 235,563,519 shares of common stock and $186 million principal amount of our outstanding convertible senior notes for 73,389,094 shares of common stock. We recorded an aggregate net gain of approximately $64 million associated with the exchanges. Also in the Current Quarter, we repurchased approximately $82 million principal amount of the BVL Senior Notes and recorded a $6 million gain.
Other Income
In the Current Period, we recognized $8 million of other income from the sale of seismic data licenses to third parties. In the Prior Period, we extinguished our obligation to convey future ORRIs to the CHK Utica L.L.C. investors and recognized a $61 million gain included in other income on our condensed consolidated statement of operations.
Income Tax Expense (Benefit)
We recorded a $1 million income tax benefit in the Current Quarter and a $315 million income tax benefit in the Current Period. We recorded a $1 million income tax expense in the Prior Quarter and an $8 million income tax benefit in the Prior Period. Our effective income tax rate was 1.6% for the Current Quarter and 105.4% for the Current Period. The rate for the Current Period is due to the partial release of the valuation allowance associated with our acquisition of WildHorse and a nominal amount of state income tax refunds resulting from the filing of amended state income tax returns reporting federal audit adjustments. The effective income tax rate was (0.7%) for the Prior Quarter and 2.1% for the Prior Period. Our effective tax rate can fluctuate as a result of the impact of various items, including state income taxes, permanent differences, tax law changes and adjustments to the valuation allowance. See Note 11 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.
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 Exchange Act. Forward-looking statements include our current expectations or forecasts of future events, including matters relating to our ability to meet debt service requirements, cost-cutting measures, reductions in expenditures, proposed refinancing transactions, capital exchange transactions, asset divestitures, reductions in capital expenditures, operational efficiencies, cost savings due to operational and capital efficiencies related to the WildHorse Merger and the other items discussed in the Introduction to Item 2 of this report. 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.”

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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:
•
our ability to comply with the covenants under our revolving credit facility and other indebtedness and the related impact on our ability to continue as a going concern;
•
the volatility of oil, natural gas and NGL prices;
•
uncertainties inherent in estimating quantities of oil, natural gas 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 inability to access the capital markets on favorable terms;
•
the availability of cash flows from operations and other funds to finance reserve replacement costs or satisfy our debt obligations;
•
adverse developments or losses from pending or future litigation and regulatory proceedings, including royalty claims;
•
effects of environmental protection laws and regulation on our business;
•
terrorist activities and/or cyber-attacks adversely impacting our operations;
•
effects of acquisitions and dispositions, including our acquisition of WildHorse and our ability to realize related synergies and cost savings;
•
effects of purchase price adjustments and indemnity obligations; and
•
other factors that are described under Risk Factors in Item 1A of our 2018 Form 10-K and this Form 10-Q.
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 there 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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ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
Oil, Natural Gas and NGL Derivatives
Our results of operations and cash flows are impacted by changes in market prices for oil, natural gas and NGL. To mitigate a portion of our exposure to adverse price changes, we have entered into various derivative instruments. Our oil, natural gas and NGL derivative activities, when combined with our sales of oil, natural gas and NGL, allow us to predict with greater certainty the revenue we will receive. We believe our derivative instruments continue to be highly effective in achieving our risk management objectives.
Our general strategy for protecting short-term cash flows and attempting to mitigate exposure to adverse oil, natural gas and NGL price changes is to hedge into strengthening oil, natural gas and NGL futures markets when prices reach levels that management believes are unsustainable for the long term, have material downside risk in the short term or provide reasonable rates of return on our invested capital. Information we consider in forming an opinion about future prices includes general economic conditions, industrial output levels and expectations, producer breakeven cost structures, liquefied natural gas trends, oil and natural gas storage inventory levels, industry decline rates for base production and weather trends. Executive management is involved in our risk management activities and the Board of Directors reviews our derivative program at quarterly board meetings. We believe we have sufficient internal controls to prevent unauthorized trading.
We use derivative instruments to achieve our risk management objectives, including swaps, collars and options. All of these are described in more detail below. We typically use swaps and collars for a large portion of the oil and natural gas price risk we hedge. We have also sold calls, taking advantage of premiums associated with market price volatility.
We determine the notional volume potentially subject to derivative contracts by reviewing our overall estimated future production levels, which are derived from extensive examination of existing producing reserve estimates and estimates of likely production from new drilling. Production forecasts are updated at least monthly and adjusted if necessary to actual results and activity levels. We do not enter into derivative contracts for volumes in excess of our share of forecasted production, and if production estimates were lowered for future periods and derivative instruments are already executed for some volume above the new production forecasts, the positions would be reversed. The actual fixed price on our derivative instruments is derived from the reference NYMEX price, as reflected in current NYMEX trading. The pricing dates of our derivative contracts follow NYMEX futures. All of our commodity derivative instruments are net settled based on the difference between the fixed price as stated in the contract and the floating-price, resulting in a net amount due to or from the counterparty.
We review our derivative positions continuously and if future market conditions change and prices are at levels we believe could jeopardize the effectiveness of a position, we will mitigate this risk by either negotiating a cash settlement with our counterparty, restructuring the position or entering into a new trade that effectively reverses the current position. The factors we consider in closing or restructuring a position before the settlement date are identical to those we review when deciding to enter into the original derivative position. Gains or losses related to closed positions will be recognized in the month specified in the original contract.
We have determined the fair value of our derivative instruments utilizing established index prices, volatility curves and discount factors. These estimates are compared to counterparty valuations for reasonableness. Derivative transactions are also subject to the risk that counterparties will be unable to meet their obligations. This non-performance risk is considered in the valuation of our derivative instruments, but to date has not had a material impact on the values of our derivatives. Future risk related to counterparties not being able to meet their obligations has been partially mitigated under our commodity hedging arrangements that require counterparties to post collateral if their obligations to us are in excess of defined thresholds. The values we report in our financial statements are as of a point in time and subsequently change as these estimates are revised to reflect actual results, changes in market conditions and other factors. See Note 14 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion of the fair value measurements associated with our derivatives.

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As of September 30, 2019, our oil, natural gas and NGL derivative instruments consisted of the following types of instruments:
•
Swaps: We receive a fixed price and pay a floating market price to the counterparty for the hedged commodity. In exchange for higher fixed prices on certain of our swap trades, we may sell call options and call swaptions.
•
Options: We occasionally sell and buy call and put options in exchange for a premium. At the time of settlement, if the market price exceeds the fixed price of the call option, we pay the counterparty the excess on sold call options and we receive the excess on bought call options. At the time of settlement, if the market price is lower than the fixed price of the put option, we receive the difference on bought put options and pay the counterparty the difference on sold put options. If the market price settles below the fixed price of the call option or above the fixed price of the put option, no payment is due from either party.
•
Call Swaptions: We sell call swaptions to counterparties in exchange for a premium that allow the counterparty, on a specific date, to extend an existing fixed-price swap for a certain period of time or to increase the notional volumes of an existing fixed-price swap.
•
Collars: These instruments contain a fixed floor price (put) and ceiling price (call). If the market price exceeds the call strike price or falls below the put strike price, we receive the fixed price and pay the market price. If the market price is between the put and the call strike prices, no payments are due from either party. Three-way collars include the sale by us of an additional put option in exchange for a more favorable strike price on the call option. This eliminates the counterparty’s downside exposure below the second put option strike price.
•
Basis Protection Swaps: These instruments are arrangements that guarantee a fixed price differential to NYMEX from a specified delivery point. We receive the fixed price differential and pay the floating market price differential to the counterparty for the hedged commodity.

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As of September 30, 2019, we had the following open oil, natural gas and NGL derivative instruments:
 
 
 
 
Weighted Average Price
 
Fair Value
 
 
Volume
 
Fixed
 
Call
 
Put
 
Differential
 
Asset
(Liability)
 
 
(mmbbl)
 
($ per bbl)
 
($ in millions)
Oil:
 
 
 
 
 
 
 
 
 
 
 
 
Swaps:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term
 
19

 
$
59.17

 
$
—

 
$
—

 
$
—

 
$
123

Long-term
 
3

 
$
58.71

 
$
—

 
$
—

 
$
—

 
29

Collars:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term
 
3

 
$
—

 
$
75.22

 
$
61.37

 
$
—

 
26

Long-term
 
—

 
$
—

 
$
83.25

 
$
65.00

 
$
—

 
7

Call Swaptions:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term
 
2

 
$
63.15

 
$
—

 
$
—

 
$
—

 
(1
)
Put Options (bought):
 
 
 
 
 
 
 
 
 
 
 
 
Short-term
 
1

 
$
—

 
$
—

 
$
54.43

 
$
—

 
2

Deferred Premiums (Put Options):
 
 
 
 
 
 
 
 
 
 
 
 
Short-term
 
—

 
$
—

 
$
—

 
$
—

 
$
—

 
(4
)
Basis Protection Swaps:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term
 
2

 
$
—

 
$
—

 
$
—

 
$
5.67

 
4

Total Oil
 
186

 
 
(bcf)
 
($ per mcf)
 

Natural Gas:
 
 
 
 
 
 
 
 
 
 
 
 
Swaps:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term
 
316

 
$
2.79

 
$
—

 
$
—

 
$
—

 
120

Long-term
 
67

 
$
2.76

 
$
—

 
$
—

 
$
—

 
19

Three-Way Collars:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term
 
15

 
$
—

 
$
3.10

 
$2.50/$2.80

 
$
—

 
3

Collars:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term
 
9

 
$
—

 
$
2.91

 
$
2.75

 
$
—

 
3

Call Options (sold):
 
 
 
 
 
 
 
 
 
 
 
 
Short-term
 
22

 
$
—

 
$
12.00

 
$
—

 
$
—

 
—

Long-term
 
6

 
$
—

 
$
12.00

 
$
—

 
$
—

 
—

Call Swaptions:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term
 
79

 
$
2.77

 
$
—

 
$
—

 
$
—

 
(3
)
Long-term
 
57

 
$
2.78

 
$
—

 
$
—

 
$
—

 
(4
)
Basis Protection Swaps:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term
 
54

 
$
—

 
$
—

 
$
—

 
$
(0.01
)
 
(1
)
Total Natural Gas
 
137

Total Commodities
 
$
323


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In addition to the open derivative positions disclosed above, as of September 30, 2019, we had $40 million of net derivative losses related to settled contracts for future periods that will be recorded within oil, natural gas and NGL revenues as realized gains (losses) on derivatives once they are transferred from either accumulated other comprehensive income or unrealized gains (losses) on derivatives in the month specified in the original contract as noted below:
 
 
September 30,
2019
 
 
($ in millions)
Short-term
 
$
(22
)
Long-term
 
(18
)
Total
 
$
(40
)
The table below reconciles the changes in fair value of our oil and natural gas derivatives during the Current Period. Of the $323 million fair value liability as of September 30, 2019, a $272 million asset relates to contracts maturing in the next 12 months and a $51 million asset relates to contracts maturing after 12 months. All open derivative instruments as of September 30, 2019 are expected to mature by December 31, 2020.
 
 
September 30,
2019
 
 
($ in millions)
Fair value of contracts outstanding, as of January 1, 2019
 
$
282

Change in fair value of contracts
 
109

Contracts realized or otherwise settled
 
(68
)
Fair value of contracts outstanding, as of September 30, 2019
 
$
323

Interest Rate Risk
The table below presents principal cash flows and related weighted average interest rates by expected maturity dates, using the earliest demand repurchase date for contingent convertible senior notes.
 
Years of Maturity
 
 
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
 
Total
 
($ in millions)
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt – fixed rate
$
—

 
$
301

 
$
294

 
$
338

 
$
209

 
$
6,186

 
$
7,328

Average interest rate
—
%
 
6.70
%
 
5.80
%
 
4.86
%
 
5.75
%
 
7.29
%
 
7.05
%
Debt – variable rate
$
—

 
$
—

 
$
900

 
$
—

 
$
1,504

 
$
—

 
$
2,404

Average interest rate
—
%
 
—
%
 
4.04
%
 
—
%
 
4.03
%
 
—
%
 
4.03
%
Changes in interest rates affect the amount of interest we earn on our cash, cash equivalents and short-term investments and the interest rate we pay on borrowings under our revolving credit facility and our floating rate senior notes. All of our other indebtedness is fixed rate and, therefore, does not expose us to the risk of fluctuations in earnings or cash flows due to changes in market interest rates. However, changes in interest rates do affect the fair value of our fixed-rate debt.
In July 2017, the UK's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR as a benchmark by the end of 2021. At the present time, the BVL revolving credit facility has a stated maturity date in December 2021. Under the terms of the BVL revolving credit facility, the occurrence of certain events related to the phase-out of LIBOR would make Eurodollar borrowings unavailable and require BVL to borrow at the ABR rate or at an alternate rate of interest determined by the lenders under the BVL revolving credit facility as their cost of funds. We are currently evaluating the potential impact of the eventual phasing-out of LIBOR, including the amendment of the BVL revolving credit facility to implement a market-standard approach to the transition from LIBOR.

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As of September 30, 2019, we had $3 million of net gains related to settled interest rate derivative contracts that will be recorded within interest expense as realized gains or losses once they are transferred from our senior note liability or within interest expense as unrealized gains or losses over the remaining six-year term of our related senior notes.
Realized and unrealized (gains) or losses from interest rate derivative transactions are reflected as adjustments to interest expense on the condensed consolidated statements of operations.
ITEM 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of September 30, 2019 that our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
As previously disclosed, we acquired WildHorse on February 1, 2019 (see Note 3 in Part 1, Item 1 in this Quarterly Report on Form 10-Q) and are in the process of fully integrating its operations into our overall system of internal control over financial reporting. As permitted by U.S. Securities and Exchange Commission rules and regulations, we have not yet included WildHorse in our assessment of the effectiveness of our internal control over financial reporting.
There were no other changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
ITEM 1.
Legal Proceedings
There have been no material developments in previously reported legal or environmental proceedings. For a description of other legal and regulatory proceedings affecting us, see Item 3 in our 2018 Form 10-K.
ITEM 1A.
Risk Factors
Our business has many risks. Factors that could materially adversely affect our business, financial condition, operating results or liquidity and the trading price of our common stock, preferred stock or senior notes are described under “Risk Factors” in Item 1A of our 2018 Form 10-K and our 10-Q for the three months ended March 31, 2019. This information should be considered carefully, together with other information in this report and other reports and materials we file with the SEC.
Restrictive covenants in certain of our debt agreements could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may be in our best interests.
Our debt agreements impose operating and financial restrictions on us. These restrictions limit our ability and that of our restricted subsidiaries to, among other things:
•
incur additional indebtedness;
•
make investments or loans;
•
create liens;
•
consummate mergers and similar fundamental changes;
•
make restricted payments;
•
make investments in unrestricted subsidiaries;
•
enter into transactions with affiliates; and
•
use the proceeds of asset sales.
We may be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us by the restrictive covenants under certain of our debt agreements. The restrictions contained in the covenants could:
•
limit our ability to plan for, or react to, market conditions, to meet capital needs or otherwise to restrict our activities or business plan; and
•
adversely affect our ability to finance our operations, enter into acquisitions or divestitures to engage in other business activities that would be in our interest.
Also, our credit facilities require us to maintain compliance with specified financial ratios and satisfy certain financial condition tests. Our ability to comply with these ratios and financial condition tests may be affected by events beyond our control and, as a result, we may be unable to meet these ratios and financial condition tests. These financial ratio restrictions and financial condition tests could limit our ability to obtain future financings, make needed capital expenditures, withstand a continued downturn in our business or a downturn in the economy in general or otherwise conduct necessary corporate activities. Further declines in oil, NGL and natural gas prices, or a prolonged period of low oil, NGL and natural gas prices could eventually result in our failing to meet one or more of the financial covenants under our credit facilities, which could require us to refinance or amend such obligations resulting in the payment of consent fees or higher interest rates, or require us to raise additional capital at an inopportune time or on terms not favorable to us. Specifically, the leverage ratio required by the covenants in our revolving credit begins to decrease by 25 basis points each quarter beginning with the fiscal quarter ending December 31, 2019 until it reaches 4.00 to 1.00 for the fiscal quarter ending March 31, 2021 and each quarter thereafter. If depressed prices persist or decline throughout 2020, our ability to comply with the leverage ratio covenant under our revolving credit facility during the next 12 months will be adversely affected and may cause doubt about our ability to continue as a going concern.
The WildHorse revolving credit facility and the WildHorse Indenture constrain the ability of WildHorse and its subsidiaries to make distributions or otherwise provide funds to, or guarantee the obligations of, Chesapeake and its other subsidiaries. The provisions of the WildHorse revolving credit facility and the WildHorse Indenture require that

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all transactions between WildHorse and its subsidiaries, on the one hand, and Chesapeake and its other subsidiaries, on the other hand, be on an arm's-length basis.
A breach of any of these covenants or our inability to comply with the required financial ratios or financial condition tests could result in a default under our credit facilities that, if not cured or waived, could result in acceleration of all indebtedness outstanding thereunder and cross-default rights under our other debt. If that should occur, we may be unable to pay all such debt or to borrow sufficient funds to refinance it. Even if new financing were then available, it may not be on terms that are acceptable to us. In addition, in the event of an event of default under one of the credit facilities, the affected lenders could foreclose on the collateral securing such credit facility and require repayment of all borrowings outstanding thereunder. If the amounts outstanding under the credit facilities or any of our other indebtedness were to be accelerated, our assets may not be sufficient to repay in full the amounts owed to the lenders or to our other debt holders.
The issuance of our common stock to shareholders of WildHorse as well as other stock transactions could lead to a limitation on the utilization of our loss carryforwards to reduce future taxable income.
Our ability to utilize NOL carryforwards, disallowed interest carryforwards and possibly other tax attributes to reduce future taxable income and federal income tax is subject to various limitations under Section 382 of the Code. The utilization of such attributes may be subject to an annual limitation under Section 382 of the Code upon the occurrence of an Ownership Change. The annual limitation is generally equal to the product of (a) the fair market value of our equity multiplied by (b) the long-term tax-exempt rate in effect for the month in which an Ownership Change occurs. If we are in a net unrealized built-in gain position at the time of an Ownership Change, then the limitation is increased by recognized built-in gains occurring within a five year period following the Ownership Change, but only to the extent of the net unrealized built-in gain which existed at the time of the Ownership Change. However, the Proposed Regulations would, if finalized in their current form, limit the potential increases to the annual limitation amount for certain built-in gains existing at the time of an Ownership Change, thereby significantly reducing the ability to utilize tax attributes. If we are in a net unrealized built-in loss position at the time of an Ownership Change, then the limitation may apply to tax attributes other than just NOL carryforwards and disallowed interest carryforwards, such as depreciable basis of tangible equipment. Some states impose similar limitations on tax attribute utilization upon experiencing an Ownership Change.
We believe that, based on information currently available, neither the WildHorse Merger, the exchanges of our common stock for certain outstanding senior notes that occurred during the Current Quarter nor the exchange of our common stock for certain Cumulative Convertible Preferred Stock that also occurred during the Current Quarter resulted in an Ownership Change. Therefore, with the exception of the WildHorse NOL carryforwards and disallowed interest carryforwards acquired earlier this year, we do not believe we have a limitation on the ability to utilize our carryforwards and other tax attributes under Section 382 of the Code as of September 30, 2019. However, issuances, sales and/or exchanges of our stock (including, potentially, relatively small transactions and transactions beyond our control) occurring after September 30, 2019, taken together with other prior transactions with respect to our stock, could trigger an Ownership Change and therefore a limitation on our ability to utilize our carryforwards and other tax attributes. Furthermore, if such an Ownership Change were to occur and the Proposed Regulations are finalized in their current form, the severity of the limitation may worsen due to the inability to consider certain recognized built-in gains in the calculation of the annual limitation amount. Any such limitation could result in a significant portion of our NOL carryforwards expiring before we would be able to utilize them to reduce taxable income in future periods. Based on the foregoing, certain NOL carryforwards, disallowed interest carryforwards and other tax attributes may need to be written off or have a valuation allowance maintained against them which, in turn, may result in a material charge to income tax expense.

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ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information about repurchases of our common stock during the quarter ended September 30, 2019:
Period
 
Total
Number
of Shares
Purchased(a)
 
Average
Price
Paid
Per
Share(a)
 
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
 
Maximum
Approximate
Dollar Value
of Shares
That May Yet
Be Purchased
Under
the Plans
or Programs
 
 
 
 
 
 
 
 
($ in millions)
July 1, 2019 through July 31, 2019
 
31,565

 
$
1.98

 
—

 
$
—

August 1, 2019 through August 31, 2019
 
—

 
$
—

 
—

 
$
—

September 1, 2019 through September 30, 2019
 
—

 
$
—

 
—

 
$
—

Total
 
31,565

 
$
1.98

 
—

 
 
___________________________________________
(a)
Includes shares of common stock purchased on behalf of our deferred compensation plan.
ITEM 3.
Defaults Upon Senior Securities
None.
ITEM 4.
Mine Safety Disclosures
The information concerning mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17CFR 229.104) is included in Exhibit 95.1 to this Quarterly Report on Form 10-Q.
ITEM 5.
Other Information

Not applicable.

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ITEM 6.
Exhibits
The exhibits listed below in the Index of Exhibits are filed, furnished or incorporated by reference pursuant to the requirements of Item 601 of Regulation S-K.
INDEX OF EXHIBITS
 
 
 
 
Incorporated by Reference
 
 
Exhibit
Number
 
Exhibit Description
 
Form
 
SEC File
Number
 
Exhibit
 
Filing Date
 
Filed or
Furnished
Herewith
3.1.1
 
Chesapeake’s Restated Certificate of Incorporation.
 
10-K
 
001-13726
 
3.1.1
 
2/27/2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.1.2
 
Certificate of Designation of 5% Cumulative Convertible Preferred Stock (Series 2005B), as amended.
 
10-Q
 
001-13726
 
3.1.4
 
11/10/2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.1.3
 
Certificate of Designation of 4.5% Cumulative Convertible Preferred Stock, as amended.
 
10-Q
 
001-13726
 
3.1.6
 
8/11/2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.1.4
 
Certificate of Designation of 5.75% Cumulative Non-Voting Convertible Preferred Stock (Series A).
 
8-K
 
001-13726
 
3.2
 
5/20/2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.1.5
 
Certificate of Designation of 5.75% Cumulative Non-Voting Convertible Preferred Stock, as amended.
 
10-Q
 
001-13726
 
3.1.5
 
8/9/2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.2
 
Chesapeake’s Amended and Restated Bylaws.
 
8-K
 
001-13726
 
3.2
 
6/19/2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.1
 
Indenture, dated as of February 1, 2017, by and among WildHorse Resource Development Corporation, the subsidiary guarantors named therein and U.S. Bank National Association, as Trustee.
 
8-K
 
001-37964
 
4.1
 
2/1/2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.2
 
Fourth Supplemental Indenture, dated as of February 1, 2019 among Brazos Valley Longhorn, L.L.C., the Guarantors (as defined in the Indenture referred to therein) and U.S. Bank National Association.
 
8-K
 
001-37964
 
4.1
 
2/1/2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.3
 
Third Supplemental Indenture, dated as of August 2, 2018 among Burleson Sand LLC, WildHorse Resource Development Corporation, the other subsidiary guarantors named therein and U.S. Bank National Association, as Trustee.
 
10-Q
 
001-37964
 
4.6
 
8/9/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.4
 
Second Supplemental Indenture, dated as of January 8, 2018 among Burleson Sand LLC, WildHorse Resource Development Corporation, the other subsidiary guarantors named therein and U.S. Bank National Association, as Trustee.
 
10-K
 
001-37964
 
4.6
 
3/12/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.5
 
First Supplemental Indenture, dated as of June 30, 2017, by and among WHR Eagle Ford LLC, WildHorse Resource Development Corporation, the other subsidiary guarantors named therein and U.S. Bank National Association, as Trustee.
 
10-Q
 
001-37964
 
4.6
 
8/10/2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.6
 
Tenth Supplemental Indenture, dated as of April 3, 2019, to Indenture dated as of April 24, 2014 with respect to 8.00% Senior Notes due 2026.
 
8-K
 
001-13726
 
4.2
 
4/5/2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.7
 
Registration Rights Agreement, dated as of April 3, 2019, among Chesapeake Energy Corporation, the subsidiary guarantors named therein and the dealer managers party thereto with respect to 8.00% Senior Notes due 2026.
 
8-K
 
001-13726
 
4.4
 
4/5/2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.1
 
Securities Exchange Agreement, dated as of September 9, 2019, between Chesapeake Energy Corporation and Franklin Advisers, Inc..
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
31.1
 
Robert D. Lawler, President and Chief Executive Officer, Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 

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31.2
 
Domenic J. Dell’Osso, Jr., Executive Vice President and Chief Financial Officer, Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
32.1
 
Robert D. Lawler, President and Chief Executive Officer, Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
32.2
 
Domenic J. Dell’Osso, Jr., Executive Vice President and Chief Financial Officer, Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
95.1
 
Mine Safety Disclosure
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101 INS
 
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101 SCH
 
Inline XBRL Taxonomy Extension Schema Document.
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101 CAL
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101 DEF
 
Inline XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101 LAB
 
Inline XBRL Taxonomy Extension Labels Linkbase Document.
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101 PRE
 
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
104
 
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
†
 
Management contract or compensatory plan or arrangement

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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
CHESAPEAKE ENERGY CORPORATION
 
 
 
 
Date: November 5, 2019
By:
 
/s/ ROBERT D. LAWLER      
 
 
 
Robert D. Lawler
President and Chief Executive Officer
 
 
 
 
Date: November 5, 2019
By:
 
/s/ DOMENIC J. DELL’OSSO, JR.
 
 
 
Domenic J. Dell’Osso, Jr.
Executive Vice President and
Chief Financial Officer


88

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