Chesapeake Energy(US:CHK)2024-07-29 20:14PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the period, highlighting financial performance, liquidity, and operational results Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for the six months ended June 30, 2024, report a net loss of $201 million, a significant decrease from the prior year's net income, primarily due to lower commodity prices and asset divestitures Condensed Consolidated Statements of Operations Highlights (Six Months Ended June 30) | Metric | 2024 ($ million) | 2023 ($ million) | | :--- | :--- | :--- | | Total revenues and other | 1,586 | 5,261 | | Income (loss) from operations | (262) | 2,337 | | Net income (loss) | (201) | 1,780 | | Diluted earnings (loss) per share | (1.53) | 12.36 | Condensed Consolidated Balance Sheet Highlights | Metric | June 30, 2024 ($ million) | Dec 31, 2023 ($ million) | | :--- | :--- | :--- | | Total current assets | 2,013 | 2,609 | | Total assets | 13,608 | 14,376 | | Total liabilities | 3,238 | 3,647 | | Total stockholders' equity | 10,370 | 10,729 | Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30) | Metric | 2024 ($ million) | 2023 ($ million) | | :--- | :--- | :--- | | Net cash provided by operating activities | 761 | 1,404 | | Net cash provided by (used in) investing activities | (640) | 848 | | Net cash used in financing activities | (179) | (1,469) | | Net increase (decrease) in cash | (58) | 783 | Note 2. Natural Gas and Oil Property Transactions The company is progressing with its all-stock merger with Southwestern Energy, while having completed the divestiture of its Eagle Ford assets in 2023, generating over $3.5 billion in proceeds - Entered into an all-stock merger agreement with Southwestern Energy Company, targeted to close in the second half of 2024, subject to regulatory approvals, with stockholders from both companies approving the merger on June 18, 2024107 - Completed the sale of Eagle Ford assets in three transactions during 2023 to WildFire Energy I LLC, INEOS Upstream Holdings Limited, and SilverBow Resources, Inc., resulting in gains of approximately $337 million, $470 million, and $140 million, respectively108109112 - Received the first installment payments for deferred consideration from the WildFire and INEOS Energy divestitures during the current period108109 Note 4. Debt As of June 30, 2024, total long-term debt, net, was approximately $2.02 billion, with the Credit Facility amended to increase commitments to $2.5 billion and no outstanding borrowings Long-Term Debt Summary (as of June 30, 2024) | Debt Instrument | Carrying Amount ($ million) | Fair Value ($ million) | | :--- | :--- | :--- | | 5.50% senior notes due 2026 | 500 | 495 | | 5.875% senior notes due 2029 | 500 | 494 | | 6.75% senior notes due 2029 | 950 | 952 | | Total long-term debt, net | 2,021 | 1,941 | - In April 2024, the Credit Facility was amended to increase aggregate commitments to $2.5 billion and the borrowing base to $3.5 billion, maturing in December 2027119203 - As of June 30, 2024, there were no outstanding borrowings under the Credit Facility, with approximately $2.5 billion available119 Note 9. Equity The company paid total dividends of $172 million during the first six months of 2024, with no share repurchases in the current period Dividends Paid Per Share | Quarter | Base Dividend ($) | Variable Dividend ($) | Total Per Share ($) | | :--- | :--- | :--- | :--- | | 2024 Q1 | 0.575 | — | 0.575 | | 2024 Q2 | 0.575 | 0.14 | 0.715 | | 2023 Q1 | 0.55 | 0.74 | 1.29 | | 2023 Q2 | 0.55 | 0.63 | 1.18 | - No shares were repurchased during the six months ended June 30, 2024. In the prior year period, 2.2 million shares were repurchased for an aggregate price of $175 million152 Note 11. Derivative and Hedging Activities The company's derivative portfolio, primarily natural gas contracts, had a net asset fair value of $370 million as of June 30, 2024, used to mitigate commodity price exposure Fair Value of Derivative Instruments (as of June 30, 2024) | Derivative Type | Notional Volume (Bcf) | Fair Value ($ million) | | :--- | :--- | :--- | | Fixed-price swaps | 259 | 60 | | Collars | 518 | 256 | | Basis protection swaps | 425 | 21 | | Total natural gas | 1,202 | 337 | | Contingent Consideration | N/A | 33 | | Total estimated fair value | | $370 | - The company does not designate its derivative instruments for hedge accounting treatment; all changes in fair value are recognized in earnings167 - A contingent consideration arrangement from the SilverBow Eagle Ford sale could provide up to an additional $50 million based on WTI NYMEX prices, with an unrealized gain of $21 million recorded during the current period168 Note 12. Investments The company holds a 35% interest in a joint venture for a natural gas gathering pipeline and CCUS project in the Haynesville Shale, with a carrying value of $280 million - The investment is for a new natural gas gathering pipeline with 1.7 billion cubic feet per day initial capacity and a CCUS project capable of capturing up to 2.0 million metric tons of CO2 per annum178 - The carrying value of the investment increased to $280 million as of June 30, 2024, from $238 million at year-end 2023178 - The company estimates an additional $75 million commitment to the project178 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic focus on Marcellus and Haynesville natural gas assets, the pending merger with Southwestern Energy, and financial performance impacted by lower commodity prices and asset divestitures - The company's strategy is focused on responsible development of its Marcellus and Haynesville natural gas assets, aiming for high cash returns, operational efficiency, and improved ESG performance182 - ESG goals include achieving net-zero GHG emissions (Scope 1 and 2) by 2035, reducing methane intensity to 0.02% by 2025, and GHG intensity to 3.0 metric tons CO2e per thousand barrels of oil equivalent by 2025183 Recent Developments Recent developments include the pending all-stock merger with Southwestern Energy, a 20-year LNG export deal with Delfin LNG and Gunvor Group, and continued investment in the Momentum Sustainable Ventures project - Announced an all-stock merger with Southwestern Energy, approved by stockholders of both companies and expected to close in the second half of 2024186 - Entered into a 20-year LNG export deal to purchase approximately 0.5 million metric tons per annum from Delfin LNG and sell to Gunvor Group, with a targeted start date in 2028190 - Continued investment in the Momentum Sustainable Ventures project, with total capital contributions reaching $275 million through the end of the current period193 Liquidity and Capital Resources The company maintains a strong liquidity position of $3.5 billion, comprising $1.0 billion in cash and $2.5 billion in unused Credit Facility capacity, with projected 2024 capital expenditures between $1.2 billion and $1.3 billion - Total available liquidity was $3.5 billion as of June 30, 2024, including $1.0 billion cash and $2.5 billion available under the Credit Facility197 - The 2024 capital expenditure budget is projected to be between $1.2 billion and $1.3 billion206 - Cash provided by operating activities decreased from $1,404 million in the prior period to $761 million in the current period, primarily due to lower natural gas prices and decreased volumes from divestitures209 - Capital expenditures decreased in the current period due to reduced drilling and completion activity in the Marcellus and Haynesville areas, as well as the Eagle Ford divestitures3 Results of Operations The company's results for the first half of 2024 were significantly impacted by lower commodity prices and the 2023 Eagle Ford asset divestiture, leading to a $1,135 million decrease in total sales Natural Gas, Oil and NGL Sales ($ million) | Period | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $378 | $649 | ($271) | | Six Months Ended June 30 | $967 | $2,102 | ($1,135) | - The decrease in sales for the six months ended June 30, 2024, was driven by a $402 million decrease from lower prices, a $577 million decrease from the Eagle Ford divestitures, and a $156 million decrease from lower volumes in Marcellus and Haynesville16 Total Production Expenses ($ million) | Period | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $49 | $89 | ($40) | | Six Months Ended June 30 | $108 | $220 | ($112) | - General and Administrative (G&A) expenses increased to $94 million for the six-month period from $66 million in the prior period, primarily due to a decrease in producing well count following the Eagle Ford divestitures27 - The company recorded a total gain on natural gas and oil derivatives of $161 million for the six months ended June 30, 2024, compared to a gain of $1,089 million in the prior year period26 Forward-Looking Statements This section details forward-looking statements and associated risks, including those related to the Southwestern Merger, commodity price volatility, competition, and regulatory initiatives - Forward-looking statements cover expectations regarding the Southwestern Merger, impacts of global economic and geopolitical conditions, commodity prices, and ESG initiatives35 - Key uncertainties include the volatility of natural gas, oil, and NGL prices; competition; significant capital required to replace reserves; and risks associated with drilling and operations36 - Specific risks related to the pending Southwestern Merger are detailed, including failure to obtain regulatory approvals, integration challenges, and potential loss of key personnel39 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks stem from commodity price volatility and interest rate changes, with hedging strategies employed to manage commodity price exposure - The company's primary market risks are from fluctuations in natural gas, oil, and NGL prices, and interest rates233 - A 10% change in natural gas prices would have changed revenues by approximately $97 million in the first six months of 2024 (pre-hedging); a 10% increase in forward prices would decrease the value of gas derivatives by approximately $175 million, while a 10% decrease would increase their value by approximately $178 million236 - Interest rate risk is currently low as there were no outstanding borrowings under the floating-rate Credit Facility as of June 30, 2024227237 Item 4. Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures as of June 30, 2024, with no material changes to internal control over financial reporting during the quarter - An evaluation of disclosure controls and procedures, with the participation of the CEO and CFO, concluded that they were effective as of June 30, 2024229 - No material changes were identified in the company's internal control over financial reporting during the quarter211 PART II. OTHER INFORMATION This section covers legal proceedings, a reference to comprehensive risk factors, and disclosures regarding unregistered sales of equity securities and use of proceeds Item 1. Legal Proceedings The company is involved in routine legal proceedings, with two merger-related lawsuits dismissed, and management anticipates no material adverse effect on financial position - The company is involved in various legal proceedings arising in the ordinary course of business212 - Two lawsuits filed by purported stockholders in connection with the Southwestern Merger were dismissed in June 2024129246 - Management does not expect any pending or threatened lawsuits to have a material adverse effect on the company's financial condition or results of operations213 Item 1A. Risk Factors This section refers to the comprehensive risk factors detailed in the company's 2023 Form 10-K, which could materially impact its business and financial results - The report directs readers to the "Risk Factors" section in Item 1A of the company's 2023 Form 10-K for a comprehensive description of business risks215 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities and no common stock repurchases during the quarter ended June 30, 2024 - There were no unregistered sales of equity securities250 - The company did not repurchase any shares of its common stock during the quarter ended June 30, 2024216