Chesapeake Energy(US:CHK)2025-02-26 21:06PART I Business Expand Energy is the largest independent natural gas producer in the U.S., operating primarily in the Haynesville, Northeast Appalachia, and Southwest Appalachia shale plays - On October 1, 2024, Chesapeake Energy Corporation completed its merger with Southwestern Energy Company and changed its name to Expand Energy Corporation, becoming the largest independent natural gas producer in the U.S. based on net daily production125253 - The company's core operating areas are Haynesville (Louisiana), Northeast Appalachia (Pennsylvania), and Southwest Appalachia (West Virginia and Ohio), with interests in approximately 8,000 gross wells5259 - The business strategy is centered on creating shareholder value by developing significant resource plays, improving margins through efficiencies, maintaining financial discipline, and enhancing ESG performance58 Annual Production Volumes (Bcfe) | Year | Haynesville | Northeast Appalachia | Southwest Appalachia | Eagle Ford | Total Production (Bcfe) | | :--- | :--- | :--- | :--- | :--- | :--- | | 2024 | 561 | 662 | 152 | — | 1,375 | | 2023 | 566 | 669 | — | 100 | 1,335 | | 2022 | 588 | 670 | — | 193 | 1,461 | Average Sales Price and Per-Unit Expenses (2024 vs 2023) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Avg. Sales Price ($/Mcfe) | $2.16 | $2.66 | | Production Expense ($/Mcfe) | $0.23 | $0.27 | | GP&T Expense ($/Mcfe) | $0.75 | $0.64 | Proved Reserves as of December 31, 2024 | Reserve Category | Natural Gas (Bcf) | Oil (MMBbl) | NGL (MMBbl) | Total (Bcfe) | | :--- | :--- | :--- | :--- | :--- | | Proved Developed | 14,418 | 40.3 | 383.0 | 16,958 | | Proved Undeveloped | 2,506 | 27.6 | 195.1 | 3,842 | | Total Proved | 16,924 | 67.9 | 578.1 | 20,800 | - As of December 31, 2024, the company had approximately 1,700 employees115116 - The company culture is built on core values of Stewardship, Character, Collaboration, Learning, and Disruption, with a strong commitment to safety, diversity, equity, and inclusion (DEI)120 Risk Factors The company faces substantial risks primarily related to commodity price volatility, which impacts revenues, profitability, and capital expenditures - Natural gas, oil, and NGL prices fluctuate widely due to factors beyond the company's control, such as supply/demand, weather, and geopolitical events, with a prolonged period of low prices potentially harming the business129130 - The Southwestern Merger involves complex integration challenges, and failure to successfully integrate businesses or realize anticipated synergies could adversely affect future results and financial condition198202 - The company is subject to extensive governmental regulations that can change and adversely impact the business, including rules on hydraulic fracturing, methane emissions, and climate change policies, which could increase compliance costs and reduce demand for fossil fuels207208214 - Cyber-attacks targeting IT and operational technology systems pose a significant risk, potentially leading to operational disruptions, data corruption, and financial or legal liability, despite the company's cybersecurity risk management program168170 - The completion of the Southwestern Merger triggered an annual limitation on the utilization of the company's tax attributes under Section 382 of the Internal Revenue Code, which could reduce the ability to offset future taxable income and increase tax liabilities229 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable234 Cybersecurity The company has implemented a cybersecurity risk management program guided by the NIST Cybersecurity Framework, which is integrated into its overall enterprise risk management - The cybersecurity program is designed based on the NIST Cybersecurity Framework to identify, assess, and manage risks235 - Oversight is provided by the Board of Directors' Audit Committee, which receives bi-annual updates from management on cybersecurity risks238239 - The program is led by a Cybersecurity Manager with over 20 years of experience, supervising an internal team with over 50 years of combined experience242 - No known cybersecurity threats or prior incidents have materially affected the company to date, but the company acknowledges that future threats are reasonably likely to have a material impact237 Properties Information regarding the company's properties is detailed in other sections of the report, specifically under Item 1 (Business) and Item 8 (Financial Statements and Supplementary Data) - Details on the company's properties are located in Item 1 and Item 8 of this report244 Legal Proceedings The company is involved in various legal proceedings arising from the ordinary course of business - The company is involved in various lawsuits and disputes arising in the ordinary course of business246 - Legal proceedings existing before the Chapter 11 petition date will be resolved through the Bankruptcy Court's claims reconciliation process246 - Management does not currently expect any pending litigation to have a material adverse effect on the company's financial condition or results of operations247 Mine Safety Disclosures This item is not applicable to the company - Not applicable249 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Following the Southwestern Merger, the company's name changed to Expand Energy Corporation and its NASDAQ ticker changed from 'CHK' to 'EXE' - Effective October 1, 2024, the company's name changed to Expand Energy Corporation and its NASDAQ trading symbol changed to 'EXE'252 - A new enhanced returns framework, effective January 1, 2025, prioritizes a base dividend and annual net debt reduction before additional shareholder returns253 - On October 22, 2024, the Board of Directors authorized a new share repurchase program for up to $1.0 billion of common stock and/or warrants254 - No shares of common stock were repurchased during the quarter ended December 31, 2024, leaving the full $1.0 billion available under the new program255 Management's Discussion and Analysis of Financial Condition and Results of Operations This section details the company's financial condition and operational results, heavily influenced by the Southwestern Merger, which created the largest U.S. independent natural gas producer Recent Developments Recent developments include the Southwestern Energy merger, achieving investment grade ratings, and establishing a new capital returns framework - Completed the all-stock merger with Southwestern Energy on October 1, 2024, issuing approximately 95.7 million shares of common stock valued at about $7.9 billion263264 - Achieved an investment grade rating of 'BBB-' from both S&P and Fitch in October 2024, leading to more permissive covenants on its credit facility265 - In December 2024, issued $750 million of 5.70% Senior Notes due 2035 and tendered for $453 million of its 2026 Notes266 - Announced an enhanced capital returns framework effective January 1, 2025, prioritizing a base dividend and a target of $500 million in annual net debt reduction for 2025268 - Entered into a long-term LNG export deal to purchase approximately 0.5 million tonnes per annum from Delfin LNG starting in 2028, for delivery to Gunvor Group272 Liquidity and Capital Resources The company maintains strong liquidity of $2.8 billion, though 2024 operating cash flow decreased due to lower commodity prices - As of December 31, 2024, the company had $2.8 billion of available liquidity, comprising $317 million in cash and $2.5 billion of unused capacity under its Credit Facility276 Sources and (Uses) of Cash (in millions) | Category | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Cash from operating activities | $1,565 | $2,380 | $4,125 | | Capital expenditures | $(1,557) | $(1,829) | $(1,823) | | Proceeds from divestitures | $21 | $2,533 | $407 | | Business combination, net | $(459) | — | $(1,967) | | Cash paid for dividends | $(388) | $(487) | $(1,212) | | Net change in cash | $(758) | $961 | $(722) | - Cash from operating activities decreased to $1.57 billion in 2024 from $2.38 billion in 2023, primarily due to lower commodity prices288 - The company plans to invest between $2.9 billion and $3.1 billion in capital expenditures for 2025, expecting to complete 240 to 270 gross wells286 Results of Operations 2024 revenues decreased to $2.97 billion due to lower prices and divestitures, while operating expenses increased post-merger Production and Sales Price Comparison (2024 vs. 2023) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total Production (MMcfe per day) | 3,758 | 3,659 | | Avg. Realized Price ($/Mcfe, before derivatives) | $2.16 | $2.66 | | Avg. Realized Price ($/Mcfe, with derivatives) | $2.84 | $2.99 | - Natural gas, oil, and NGL sales decreased by $578 million in 2024 compared to 2023, driven by a $426 million decrease from lower average prices and a $764 million decrease from the Eagle Ford divestitures, partially offset by a $1.0 billion increase from the Southwestern Merger305 - Total production expenses decreased by $40 million in 2024, mainly due to a $90 million reduction from the Eagle Ford divestitures, partially offset by a $49 million increase from the Southwestern Merger306 - Gathering, processing, and transportation (GP&T) expenses increased by $182 million in 2024, primarily due to a $404 million increase related to the Southwestern Merger, partially offset by a $157 million decrease from the Eagle Ford divestitures308 - General and administrative (G&A) expenses increased by $59 million in 2024, mainly due to reduced G&A allocations after the Eagle Ford divestitures and increased corporate expenses following the Southwestern Merger314 - Other operating expenses in 2024 included approximately $312 million in costs related to the Southwestern Merger317 Critical Accounting Estimates Key accounting estimates involve natural gas and oil reserves, business combinations, and long-lived asset impairment assessments - Estimates of natural gas and oil reserves are the most significant estimates, affecting depreciation, depletion, and amortization (DD&A) and impairment calculations, and are subject to revision based on production data, prices, and other factors323 - Accounting for business combinations, such as the Southwestern Merger, requires significant judgment in allocating the purchase price to the fair value of assets acquired and liabilities assumed, particularly for natural gas and oil properties324325 - The company assesses long-lived assets for impairment when circumstances indicate that their carrying value may not be recoverable, involving comparing undiscounted future cash flows to the asset's carrying value330 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposures are to commodity price volatility and interest rate changes - The company's main market risk is from volatile natural gas, oil, and NGL prices, with derivative instruments used to mitigate a portion of this exposure333 - Based on 2024 production, a 10% change in commodity prices would have impacted revenues as follows: Natural Gas by ~$269 million, Oil by ~$7 million, and NGL by ~$21 million (excluding hedges)335 - As of December 31, 2024, a 10% increase in forward gas prices would decrease the fair value of natural gas derivatives by approximately $493 million, while a 10% decrease would increase the value by $482 million335 - Interest rate risk is tied to the Credit Facility, which has floating rates, but as of December 31, 2024, there were no outstanding borrowings, minimizing current exposure336 Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for the fiscal years ended December 31, 2024, 2023, and 2022, including the balance sheets, statements of operations, cash flows, and stockholders' equity Consolidated Balance Sheet Highlights (in millions) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $27,894 | $14,376 | | Total Liabilities | $10,329 | $3,647 | | Total Stockholders' Equity | $17,565 | $10,729 | Consolidated Statement of Operations Highlights (in millions) | Account | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Total Revenues and Other | $4,235 | $8,721 | $11,743 | | Total Operating Expenses | $5,038 | $5,579 | $7,963 | | Net Income (Loss) | $(714) | $2,419 | $4,936 | Consolidated Statement of Cash Flows Highlights (in millions) | Account | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $1,565 | $2,380 | $4,125 | | Net Cash from Investing Activities | $(1,904) | $473 | $(3,401) | | Net Cash from Financing Activities | $(419) | $(1,892) | $(1,446) | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable590 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2024 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2024592 - Management's assessment of internal control over financial reporting as of December 31, 2024, excluded the recently acquired Southwestern Energy596 - Southwestern Energy represented approximately 56% of consolidated total assets and 35% of consolidated revenues for the year ended December 31, 2024346596 Other Information During the fourth quarter of 2024, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement in Q4 2024599 - On February 21, 2025, the company approved a supplement to certain employee equity awards providing for pro rata vesting upon termination without cause after one year of employment600 PART III Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees Information regarding directors, executive officers, corporate governance, executive compensation, security ownership, certain relationships, related transactions, director independence, and principal accountant fees and services is incorporated by reference from the company's definitive proxy statement for the 2025 Annual Meeting of Stockholders - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the forthcoming 2025 Proxy Statement602604605606607 - The company has adopted a Code of Business Conduct applicable to all officers, directors, and employees, which is available on its website603 PART IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K - This section contains an index of all exhibits filed with or incorporated by reference into the Form 10-K611 - Key exhibits filed include consents from the independent registered public accounting firm and the independent petroleum engineers, as well as certifications from the CEO and CFO614 Form 10-K Summary This item is not applicable to the company - Not applicable618