PART I. FINANCIAL INFORMATION [Condensed Consolidated Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) These unaudited statements reflect **Expand Energy's** financial position, operations, and cash flows as of **September 30, 2024**, showing a **net loss** primarily due to **lower commodity prices** and **reduced production**, excluding the impact of the **Southwestern Energy merger** completed **October 1, 2024** [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of **September 30, 2024**, **total assets** decreased to **$13.39 billion** from **$14.38 billion** at year-end **2023**, with liabilities and equity also declining due to **net losses** and dividends Condensed Consolidated Balance Sheet Highlights ($ in millions) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | **Total Current Assets** | $1,797 | $2,609 | | **Total Property and Equipment, net** | $9,954 | $10,097 | | **Total Assets** | **$13,392** | **$14,376** | | **Total Current Liabilities** | $899 | $1,314 | | **Long-term Debt, net** | $2,017 | $2,028 | | **Total Liabilities** | **$3,204** | **$3,647** | | **Total Stockholders' Equity** | $10,188 | $10,729 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a **net loss of $114 million** for **Q3 2024** and **$315 million** for the nine months, a significant reversal from prior-year **net income**, driven by **substantially lower revenues** from natural gas, oil, and NGL sales Key Operating Results ($ in millions, except per share data) | Metric | Q3 2024 | Q3 2023 | 9 Months 2024 | 9 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $648 | $1,512 | $2,234 | $6,773 | | **Income (Loss) from Operations** | $(155) | $79 | $(417) | $2,416 | | **Net Income (Loss)** | **$(114)** | **$70** | **$(315)** | **$1,850** | | **Diluted EPS** | **$(0.85)** | **$0.49** | **$(2.39)** | **$12.90** | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) **Net cash from operating activities** for the first nine months of **2024** decreased to **$1.18 billion** from **$1.91 billion**, while investing activities shifted to a **$959 million** net use, and **financing activities** used **$257 million** for dividends Cash Flow Summary for Nine Months Ended Sep 30 ($ in millions) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | $1,183 | $1,910 | | **Net Cash from (used in) Investing Activities** | $(959) | $368 | | **Net Cash used in Financing Activities** | $(257) | $(1,684) | | **Net (Decrease) Increase in Cash** | $(33) | $594 | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes detail significant events including the **Southwestern Merger** on **October 1, 2024**, transforming the company into the **largest U.S. natural gas producer**, alongside **2023 Eagle Ford divestitures**, debt structure, **investment grade rating**, and equity changes - On **October 1, 2024**, **Chesapeake** completed its merger with **Southwestern Energy**, changed its name to **Expand Energy Corporation**, and became the **largest natural gas producer** in the U.S. The financial statements for the period ending **September 30, 2024**, do not include **Southwestern's** information[5](index=5&type=chunk)[26](index=26&type=chunk) - The merger with **Southwestern** was an **all-stock transaction** valued at **approximately $7.9 billion**, with **Expand Energy** (formerly **Chesapeake**) as the **accounting acquirer**. The transaction closed on **October 1, 2024**[33](index=33&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk) - In **2023**, the company completed the **divestiture** of all its **Eagle Ford assets** in three separate transactions, generating **total proceeds exceeding $3.5 billion**[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) - Upon receiving **investment grade ratings** from S&P and Fitch in **October 2024**, the company's **credit facility** covenants were amended, releasing all collateral and guarantees and replacing certain financial ratios with a new **Debt to Capitalization Ratio limit of 65%**[48](index=48&type=chunk)[52](index=52&type=chunk) Dividends Paid Per Share | Quarter | 2024 Total Dividend | 2023 Total Dividend | | :--- | :--- | :--- | | Q1 | $0.575 | $1.29 | | Q2 | $0.715 | $1.18 | | Q3 | $0.575 | $0.575 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's transformation into the **largest U.S. natural gas producer** with an **investment-grade balance sheet** post-Southwestern Merger, highlighting **$3.5 billion** liquidity, **$620-$690 million** Q4 capital expenditures, and a shift to **net loss** due to **lower prices** and divestitures [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a **strong liquidity position** of **$3.5 billion** as of **September 30, 2024**, with primary cash uses for **property development and shareholder returns**, and projects **$620-$690 million** in **Q4 2024** capital expenditures after assuming **$3.7 billion** in **Southwestern's senior notes** Liquidity Position as of Sep 30, 2024 ($ in billions) | Component | Amount | | :--- | :--- | | **Cash on Hand** | $1.0 | | **Unused Credit Facility Capacity** | $2.5 | | **Total Liquidity** | **$3.5** | - For **Q4 2024**, the company plans to invest **approximately $620 – $690 million** in **capital expenditures** and operate around **12 rigs**[130](index=130&type=chunk) - On **October 1, 2024**, the company assumed **approximately $3.7 billion** of **Southwestern's senior notes** and terminated **Southwestern's existing credit facility**[129](index=129&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) **Operating results** for **Q3** and the first nine months of **2024** show **significantly lower performance** due to a **sharp drop in natural gas prices**, absence of **Eagle Ford production**, and **planned curtailments**, with **Natural gas, oil, and NGL sales revenue** falling by **$1.41 billion** - **Natural gas, oil, and NGL sales** for the nine months ended **Sep 30, 2024**, decreased by **$1.41 billion** compared to the prior period. This was driven by a **$459 million** decrease from **lower prices**, a **$690 million** decrease from the **Eagle Ford divestitures**, and a **$261 million** decrease from **planned curtailments** and activity deferrals[149](index=149&type=chunk)[150](index=150&type=chunk) Production and Realized Prices (Nine Months Ended Sep 30) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | **Total Production (MMcfe/day)** | 2,862 | 3,737 | | **Avg. Realized Price ($/Mcfe)** | $1.75 | $2.73 | | **Avg. Realized Price incl. Hedges ($/Mcfe)** | $2.64 | $2.99 | - **General and administrative (G&A) expenses** increased on both an absolute and per-unit basis, primarily due to a **lower producing well count** after the **Eagle Ford divestitures**, which **reduced G&A allocations and reimbursements**[156](index=156&type=chunk) - The company recognized **$43 million** in costs related to the **Southwestern Merger** during the first nine months of **2024**, recorded under '**Other operating expense, net**'[161](index=161&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces **commodity price risk** and **interest rate risk**, mitigating the former by **hedging approximately 45%** of natural gas volumes through **2025**, while interest rate exposure is limited as the **Credit Facility** had **no outstanding borrowings** and assumed debt is **fixed-rate** - The company has **hedged approximately 45%** of its projected natural gas volumes through the end of **2025** to mitigate price volatility[118](index=118&type=chunk)[176](index=176&type=chunk) - A hypothetical **10% increase** in forward natural gas prices would decrease the fair value of the company's natural gas derivatives by **approximately $176 million**, while a **10% decrease** would increase the value by **$180 million** as of **September 30, 2024**[175](index=175&type=chunk) - As of **September 30, 2024**, the company had **no outstanding borrowings** under its **floating-rate Credit Facility**. The **approximately $3.7 billion** in **senior notes** assumed from **Southwestern** are all **fixed-rate**, limiting exposure to **interest rate fluctuations** on that debt[177](index=177&type=chunk)[178](index=178&type=chunk) [Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the **CEO and CFO**, concluded the company's **disclosure controls and procedures** were **effective** as of **September 30, 2024**, with **no material changes** to **internal control over financial reporting** during the quarter - The **Chief Executive Officer and Chief Financial Officer** concluded that the company's **disclosure controls and procedures** were **effective** as of **September 30, 2024**[180](index=180&type=chunk) - **No changes were made** during the quarter that **materially affected**, or are reasonably likely to **materially affect**, the company's **internal control over financial reporting**[181](index=181&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in **routine legal proceedings**, including **Southwestern Merger** lawsuits alleging **Exchange Act violations** that were **dismissed in June 2024**, with management not expecting a **material adverse effect** on financial position - Two lawsuits filed by purported stockholders in connection with the **Southwestern Merger**, alleging misstatements in the **registration statement**, were **dismissed in June 2024**[58](index=58&type=chunk)[184](index=184&type=chunk) [Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) A new risk factor indicates the **Southwestern Merger** may have triggered a **Section 382 Ownership Change**, potentially limiting the company's use of **NOLs** and **tax attributes** to offset future taxable income, which could increase **future tax liabilities** - The **Southwestern Merger** on **October 1, 2024**, may have resulted in a **Section 382 Ownership Change**, which could **limit the future use of the company's tax attributes** like **NOLs** and **tax credits**[188](index=188&type=chunk)[191](index=191&type=chunk) - If an **ownership change** occurred, a new **annual limitation** on utilizing **tax attributes** would be established. While the company believes a new limitation from the merger would be **less restrictive** than the one from its **2021 bankruptcy emergence** due to **higher interest rates**, a **future ownership change** under **different market conditions** could be **more restrictive**[191](index=191&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any shares of its **common stock** during the quarter ended **September 30, 2024** - **No common stock was repurchased** during the **third quarter of 2024**[192](index=192&type=chunk)

Financial Performance - Expand Energy reported a net cash provided by operating activities of $422 million for Q3 2024, with a net loss of $114 million, or $0.85 per fully diluted share; adjusted net income was $22 million, or $0.16 per share[2]. - Total revenues for Q3 2024 were $648 million, a decrease of 57.1% compared to $1,512 million in Q3 2023[25]. - Net loss for Q3 2024 was $114 million, compared to a net income of $70 million in Q3 2023, resulting in a basic loss per share of $0.85[25]. - Adjusted net income for the three months ended September 30, 2024, was $22 million, down from $155 million in the same period of 2023[42]. - Adjusted diluted earnings per common share for the three months ended September 30, 2024, was $0.16, compared to $1.09 for the same period in 2023[43]. - Adjusted EBITDAX for the three months ended September 30, 2024, was $365 million, down from $580 million in the same period of 2023[44]. - The company reported a net loss of $114 million for the three months ended September 30, 2024, compared to a net income of $70 million for the same period in 2023[42]. Production and Operations - The company produced approximately 2.65 billion cubic feet per day (bcf/d) of natural gas, which is 100% of its production[2]. - Natural gas production averaged 2,647 MMcf per day in Q3 2024, a decrease from 3,495 MMcf per day in Q3 2023[28]. - Total natural gas production reached 3,510 MMcf per day with an average realized price of $2.25 per Mcf[31]. - Expand Energy is currently operating 12 rigs and expects to reduce this to 10-12 rigs in 2025 based on market conditions[7][9]. - As of October 1, 2024, the combined company had 58 drilled but uncompleted (DUC) wells and 58 deferred turn in lines (TILs)[6]. Capital Expenditures and Investments - For 2025, capital expenditures are expected to be approximately $2.7 billion, yielding an estimated daily production of approximately 7 billion cubic feet equivalent (bcfe) per day[2][9]. - Capital expenditures for Q3 2024 were $298 million, down from $423 million in Q3 2023[26]. - Total capital expenditures for the nine months ended September 30, 2024, were $936 million, compared to $1,406 million for the same period in 2023[32]. - Cash capital expenditures for Q3 2024 were $298 million, down from $423 million in Q3 2023, indicating a reduction of 29.6%[45]. - Cash contributions to investments decreased to $26 million in Q3 2024 from $61 million in Q3 2023, a decline of 57.4%[45]. Debt and Equity - Total debt as of September 30, 2024, stood at $2,017 million, with net debt calculated at $906 million after accounting for cash and cash equivalents[46]. - Total stockholders' equity decreased to $10,188 million from $10,729 million year-over-year[24]. - The company upgraded its credit rating to Investment Grade (BBB-) from S&P and Fitch at the start of Q4 2024[2]. Cash Flow and Dividends - Cash flows from operating activities for Q3 2024 were $422 million, compared to $506 million in Q3 2023[26]. - Free cash flow (Non-GAAP) for Q3 2024 increased to $124 million, compared to $83 million in Q3 2023, marking a growth of 49.4%[45]. - Adjusted free cash flow (Non-GAAP) for Q3 2024 was $98 million, a significant improvement from a negative $35 million in Q3 2023[45]. - The company plans to pay a quarterly base dividend of $0.575 per common share in December 2024, marking the 15th consecutive quarter of dividend payments[2][10]. Strategic Initiatives - Expand Energy raised its annual synergy target by $100 million, now expecting approximately $225 million in 2025 and $500 million in annual synergies by year-end 2027[2][8]. - The company plans to focus on market expansion and new technology development in the upcoming quarters[25]. - The company plans to continue focusing on capital efficiency and operational improvements to enhance financial performance moving forward[34]. - Expand Energy's enhanced capital return framework includes a new $1 billion share repurchase authorization, effective January 1, 2025[2][12]. Market Conditions and Pricing - Average realized price for natural gas in Q3 2024 was $2.51 per Mcfe, compared to $2.64 in Q3 2023[27]. - Average NYMEX price for gas was $2.69 per Mcf, while the average realized price was $2.56 per Mcf[31]. - Unrealized losses on natural gas and oil derivatives amounted to $160 million for the three months ended September 30, 2024[44].

Laura Starks is the founder and CEO of Starks Energy Economics, LLC (since 2007). She has a degree in chemical engineering and an MBA with a concentration in finance which she has used for many years to invest personally and to share her ideas about energy companies. Her coverage includes utilities, independent power producers, energy service companies and contractors, a few petrochemical companies, and all sectors of oil and natural gas: upstream, midstream, and downstream Analyst's Disclosure: I/we have a ...

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