Chesapeake Energy(US:CHK)2024-10-29 20:12PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements (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 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 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 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) 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 information526 - 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, 2024333435 - In 2023, the company completed the divestiture of all its Eagle Ford assets in three separate transactions, generating total proceeds exceeding $3.5 billion363738 - 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%4852 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 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 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 rigs130 - On October 1, 2024, the company assumed approximately $3.7 billion of Southwestern's senior notes and terminated Southwestern's existing credit facility129 Results of Operations 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 $261 million decrease from planned curtailments and activity deferrals149150 Production and Realized Prices (Nine Months Ended Sep 30) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total Production (MMcfe/day) | 2,862 | 3,737 | | Avg. Realized Price ($/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 reimbursements156 - 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 Quantitative and Qualitative Disclosures About Market Risk 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 volatility118176 - 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, 2024175 - 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 debt177178 Controls and Procedures 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, 2024180 - No changes were made during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting181 PART II. OTHER INFORMATION Legal Proceedings 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 202458184 Risk Factors 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 credits188191 - 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 restrictive191 Unregistered Sales of Equity Securities and Use of Proceeds 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 2024192