Chesapeake Energy(CHK) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents Expand Energy Corporation's unaudited condensed consolidated financial statements and related accounting notes - The financial statements are prepared in accordance with GAAP and SEC rules, reflecting all normal recurring adjustments[34][35] - The Southwestern Merger, completed on October 1, 2024, significantly impacted financial results and position, leading to increased volumes and changes in debt structure[41][141] Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents Expand Energy Corporation's unaudited condensed consolidated financial statements and explanatory notes Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights | Metric | March 31, 2025 ($ millions) | December 31, 2024 ($ millions) | | :-------------------------------- | :--------------------------- | :----------------------------- | | Total Assets | 27,934 | 27,894 | | Total Liabilities | 10,743 | 10,329 | | Total Stockholders' Equity | 17,191 | 17,565 | | Current Assets | 2,113 | 1,997 | | Current Liabilities | 3,589 | 3,123 | Condensed Consolidated Statements of Operations This section details the company's financial performance, including revenues, expenses, and net income or loss over a period Condensed Consolidated Statements of Operations Highlights | Metric | Three Months Ended March 31, 2025 ($ millions) | Three Months Ended March 31, 2024 ($ millions) | | :-------------------------------- | :------------------------------------------- | :------------------------------------------- | | Natural gas, oil and NGL revenues | 2,300 | 589 | | Marketing revenues | 910 | 312 | | Natural gas, oil and NGL derivatives | (1,014) | 172 | | Total revenues and other | 2,196 | 1,081 | | Total operating expenses | 2,464 | 1,049 | | Income (loss) from operations | (268) | 32 | | Net income (loss) | (249) | 26 | | Basic EPS | (1.06) | 0.20 | | Diluted EPS | (1.06) | 0.18 | Condensed Consolidated Statements of Cash Flows This section outlines cash flows from operating, investing, and financing activities for the period Condensed Consolidated Statements of Cash Flows Highlights | Metric | Three Months Ended March 31, 2025 ($ millions) | Three Months Ended March 31, 2024 ($ millions) | | :-------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net cash provided by operating activities | 1,096 | 552 | | Net cash used in investing activities | (507) | (374) | | Net cash used in financing activities | (557) | (77) | | Net increase in cash, cash equivalents and restricted cash | 32 | 101 | | Cash, cash equivalents and restricted cash, end of period | 427 | 1,254 | Condensed Consolidated Statements of Stockholders' Equity This section presents changes in the company's equity, including net income, dividends, and share transactions Condensed Consolidated Statements of Stockholders' Equity Highlights | Metric | March 31, 2025 ($ millions) | March 31, 2024 ($ millions) | | :-------------------------------- | :--------------------------- | :--------------------------- | | Total Stockholders' Equity | 17,191 | 10,682 | | Net income (loss) | (249) | 26 | | Dividends on common stock | (138) | (77) | | Shares outstanding (March 31) | 237,476,127 | 130,958,675 | Note 1. Basis of Presentation and Summary of Significant Accounting Policies This note explains the financial statement presentation basis, significant accounting policies, and recent accounting pronouncements - Expand Energy Corporation is the largest natural gas producer in the U.S., with operations in Louisiana, Pennsylvania, West Virginia, and Ohio[33] - Restricted cash of $78 million as of March 31, 2025, is legally restricted for future royalty payments and certain convenience class unsecured claims[36] - The company is evaluating the impact of recently issued ASUs on expense disaggregation and income tax disclosures, while ASU 2023-07 on segment reporting is effective for this quarterly report[37][38][39] Note 2. Natural Gas and Oil Property Transactions This note details significant natural gas and oil property transactions, including the Southwestern Merger and divestitures - The Southwestern Merger was completed on October 1, 2024, with Expand Energy issuing approximately 95.7 million shares of common stock valued at $7.9 billion to Southwestern's shareholders[41] Preliminary Southwestern Merger Purchase Price Allocation | Category | Amount ($ millions) | | :-------------------------------- | :------------------ | | Total Consideration | 8,473 | | Fair Value of Assets Acquired | 15,850 | | Fair Value of Liabilities Assumed | 7,377 | | Total Identifiable Net Assets | 8,473 | - Acquisition-related costs of approximately $27 million were recognized during the Current Quarter, primarily consisting of employee expenses[41] - The company received $60 million in deferred consideration from Eagle Ford divestitures in both Q1 2025 and Q1 2024[51][136] Note 3. Earnings Per Share This note provides the calculation of basic and diluted earnings per share, including factors affecting dilution Earnings Per Common Share | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss), basic and diluted | $(249) million | $26 million | | Weighted average common shares outstanding, basic | 234,434 thousand | 130,893 thousand | | Weighted average common shares outstanding, diluted | 234,434 thousand | 141,752 thousand | | Basic EPS | $(1.06) | $0.20 | | Diluted EPS | $(1.06) | $0.18 | - The diluted loss per share calculation for Q1 2025 excludes the antidilutive effect of 5,634,917 Warrants, 413,816 RSUs, and 154,868 PSUs[54] Note 4. Debt This note details the company's debt structure, including long-term debt, credit facilities, and covenant compliance Long-Term Debt, Net | Metric | March 31, 2025 ($ millions) | December 31, 2024 ($ millions) | | :-------------------------------- | :--------------------------- | :----------------------------- | | Total debt, net | 5,243 | 5,680 | | Less current maturities of long-term debt, net | — | (389) | | Total long-term debt, net | 5,243 | 5,291 | - The Credit Facility provides $2.5 billion in aggregate commitments, with approximately $2.5 billion available for borrowings as of March 31, 2025, and no outstanding borrowings[57][125] - In January 2025, $389 million of 4.95% Senior Notes due 2025 were repaid, and in March 2025, the remaining $47 million of 5.50% Senior Notes due 2026 were redeemed[63][64] - The company was in compliance with its Debt to Capitalization Ratio (not to exceed 65%) as of March 31, 2025[58] Note 5. Contingencies and Commitments This note outlines potential liabilities from litigation, environmental matters, and contractual commitments - Management believes current litigation, claims, and proceedings are not likely to have a material adverse impact on the company's financial position, results of operations, or cash flows[66][70] - Environmental reserves are established for probable and reasonably estimable environmental liabilities[68] Aggregate Undiscounted Commitments Under Gathering, Processing and Transportation Agreements | Period | Amount ($ millions) | | :---------------- | :------------------ | | Remainder of 2025 | 1,071 | | 2026 | 1,372 | | 2027 | 1,260 | | 2028 | 1,192 | | 2029 | 1,011 | | Thereafter | 4,609 | | Total | 10,515 | Note 6. Other Current Liabilities This note breaks down various current liabilities, including revenues due to others, accrued costs, and taxes Other Current Liabilities | Category | March 31, 2025 ($ millions) | December 31, 2024 ($ millions) | | :-------------------------------- | :--------------------------- | :----------------------------- | | Revenues and royalties due to others | 892 | 734 | | Accrued drilling and production costs | 466 | 296 | | Contract liabilities | 274 | 284 | | Accrued compensation and benefits | 48 | 124 | | Taxes payable | 104 | 142 | | Operating leases | 71 | 71 | | Joint interest prepayments received | 14 | 13 | | Other | 102 | 122 | | Total other current liabilities | 1,971 | 1,786 | Note 7. Revenue This note disaggregates revenue by operating area and product type, and details accounts receivable Revenue Disaggregated by Operating Area and Product Type (Q1 2025) | Operating Area | Natural Gas ($ millions) | Oil ($ millions) | NGL ($ millions) | Total ($ millions) | | :------------------- | :----------------------- | :--------------- | :--------------- | :--------------- | | Haynesville | 821 | — | — | 821 | | Northeast Appalachia | 900 | — | — | 900 | | Southwest Appalachia | 294 | 78 | 207 | 579 | | Total Natural gas, oil and NGL revenue | 2,015 | 78 | 207 | 2,300 | | Marketing revenue | 837 | 34 | 39 | 910 | Revenue Disaggregated by Operating Area and Product Type (Q1 2024) | Operating Area | Natural Gas ($ millions) | Oil ($ millions) | NGL ($ millions) | Total ($ millions) | | :------------------- | :----------------------- | :--------------- | :--------------- | :--------------- | | Haynesville | 272 | — | — | 272 | | Northeast Appalachia | 317 | — | — | 317 | | Total Natural gas, oil and NGL revenue | 589 | — | — | 589 | | Marketing revenue | 197 | 82 | 33 | 312 | Accounts Receivable, Net | Category | March 31, 2025 ($ millions) | December 31, 2024 ($ millions) | | :-------------------------------- | :--------------------------- | :----------------------------- | | Natural gas, oil and NGL sales | 1,137 | 1,028 | | Joint interest | 228 | 191 | | Other | 12 | 18 | | Allowance for doubtful accounts | (16) | (11) | | Total accounts receivable, net | 1,361 | 1,226 | Note 8. Income Taxes This note presents income tax expense or benefit, effective tax rates, and the impact of tax regulations Income Tax Expense (Benefit) and Effective Tax Rates | Metric | Three Months Ended March 31, 2025 ($ millions) | Three Months Ended March 31, 2024 ($ millions) | | :-------------------------------- | :------------------------------------------- | :------------------------------------------- | | Income (loss) before income taxes | (319) | 33 | | Current tax benefit | (33) | — | | Deferred tax expense (benefit) | (37) | 7 | | Income tax expense (benefit) | (70) | 7 | | Effective tax rate | 21.9% | 21.2% | - A current tax benefit of $33 million was recorded in Q1 2025 due to a book loss[83] - The company anticipates being subject to and paying the 15% corporate alternative minimum tax (CAMT) in 2025[85] Note 9. Equity This note details changes in equity, including dividend payments, share repurchases, and warrant exercises Dividend Payments | Period | Amount ($ millions) | Per Share Amount | | :-------------------------------- | :------------------ | :--------------- | | Three Months Ended March 31, 2025 | 142 | $0.575 | | Three Months Ended March 31, 2024 | 77 | $0.575 | - The Board authorized repurchases of up to $1.0 billion of common stock and/or warrants in October 2024, but no repurchases were made in Q1 2025[87] - 5,320,216 shares of common stock were issued during Q1 2025 as a result of Warrant exercises[89] Note 10. Share-Based Compensation This note describes share-based compensation plans, including RSUs and PSUs, and related expenses - The Long-Term Incentive Plan (LTIP) has a share reserve of 6,800,000 shares of common stock[90] Unrecognized Compensation Expense for RSUs and PSUs (as of March 31, 2025) | Award Type | Unrecognized Compensation Expense ($ millions) | Weighted Average Recognition Period (years) | | :-------------------------------- | :------------------------------------------- | :------------------------------------------ | | Restricted Stock Units (RSUs) | 89 | 2.53 | | Performance Share Units (PSUs) | 42 | 2.66 | Total RSU and PSU Compensation Costs | Period | Three Months Ended March 31, 2025 ($ millions) | Three Months Ended March 31, 2024 ($ millions) | | :-------------------------------- | :------------------------------------------- | :------------------------------------------- | | Total RSU and PSU compensation | 13 | 11 | | Related income tax benefit | 4 | 2 | Note 11. Derivative and Hedging Activities This note explains the use of derivative instruments to manage commodity price risk and their fair values - The company uses derivative instruments (financial price swaps, collars, call options, basis protection swaps) to reduce exposure to commodity price fluctuations, not for speculative trading[99] Estimated Fair Values of Derivative Instruments | Derivative Type | March 31, 2025 ($ millions) | December 31, 2024 ($ millions) | | :-------------------------------- | :--------------------------- | :----------------------------- | | Natural gas | (1,011) | (49) | | Oil | 4 | 4 | | NGLs | (16) | (9) | | Total estimated fair value | (1,023) | (54) | - As of March 31, 2025, the company had no cash or letters of credit posted as collateral for its commodity derivatives[105] Note 12. Investments This note details the company's equity method investment in Momentum Sustainable Ventures LLC and its project - The company holds a 35% equity method interest in Momentum Sustainable Ventures LLC, a joint venture to build a natural gas gathering pipeline and carbon capture project[106] - The project includes a natural gas gathering pipeline with an initial capacity of 1.7 Bcf/d (expandable to 2.2 Bcf/d) and anticipates capturing approximately 1.0 million tons per annum of CO2[106] Carrying Value of Investment in Momentum Sustainable Ventures LLC | Date | Carrying Value ($ millions) | | :---------------- | :-------------------------- | | March 31, 2025 | 311 | | December 31, 2024 | 307 | Note 13. Supplemental Cash Flow Information This note provides additional details on non-cash investing, financing activities, and other cash flow adjustments Changes in Assets and Liabilities Affecting Cash Flows | Category | Three Months Ended March 31, 2025 ($ millions) | Three Months Ended March 31, 2024 ($ millions) | | :-------------------------------- | :------------------------------------------- | :------------------------------------------- | | Accounts receivable | (135) | 286 | | Accounts payable | (96) | (93) | | Other current assets | (25) | 1 | | Other current liabilities | 5 | (118) | | Total | (251) | 76 | Supplemental Cash Flow Information | Metric | Three Months Ended March 31, 2025 ($ millions) | Three Months Ended March 31, 2024 ($ millions) | | :-------------------------------- | :------------------------------------------- | :------------------------------------------- | | Interest paid, net of capitalized interest | 91 | 20 | | Income taxes paid (refunds received), net | — | — | | Change in accrued drilling and completion costs | 126 | (59) | | Operating lease obligations recognized | 19 | — | Note 14. Segment Information This note explains the company's operating segments, their aggregation, and capital expenditure allocation - The company's operating areas (Haynesville, Northeast Appalachia, Southwest Appalachia) are aggregated into one reportable segment due to the similar nature of the exploration and production business[109] - The Chief Executive Officer (CODM) uses consolidated net income (loss) and reviews significant segment expenses and capital expenditures for resource allocation and performance assessment[110][111] Capital Expenditures | Period | Three Months Ended March 31, 2025 ($ millions) | Three Months Ended March 31, 2024 ($ millions) | | :-------------------------------- | :------------------------------------------- | :------------------------------------------- | | Capital expenditures | 662 | 354 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Expand Energy's financial condition, liquidity, and operational results, highlighting the Southwestern Merger, investment ratings, and ESG goals - The Southwestern Merger, completed on October 1, 2024, established Expand Energy as a premier energy company and the largest independent natural gas producer in the U.S[113][114] - The company's strategy focuses on responsible development of resource plays, improving margins through operating efficiencies, financial discipline, and enhancing ESG performance[115] - Key ESG goals include achieving net zero (Scope 1 and 2) greenhouse gas emissions by 2035 and maintaining 100% responsibly sourced gas (RSG) certification[116] - Expand Energy received investment grade ratings from S&P, Fitch, and Moody's in late 2024 and early 2025, leading to more permissive covenants on its Credit Facility[118] Liquidity and Capital Resources This section discusses the company's liquidity, capital allocation framework, and planned capital expenditures - As of March 31, 2025, Expand Energy had $2.8 billion of liquidity available, comprising $0.3 billion cash on hand and $2.5 billion in unused borrowing capacity under its Credit Facility[125] - The company's enhanced capital returns framework, effective January 1, 2025, prioritizes a base dividend of $2.30 per share and a targeted $500 million annual net debt reduction, with 75% of remaining free cash flow allocated to share repurchases or additional dividends[121] - Expected capital expenditures for 2025 are between $2.9 billion and $3.1 billion, to be funded by cash on hand, operating cash flow, and Credit Facility borrowings[133] Sources and (Uses) of Cash and Cash Equivalents | Category | Three Months Ended March 31, 2025 ($ millions) | Three Months Ended March 31, 2024 ($ millions) | | :-------------------------------- | :------------------------------------------- | :------------------------------------------- | | Cash provided by operating activities | 1,096 | 552 | | Capital expenditures | (563) | (421) | | Cash paid to purchase debt | (436) | — | | Cash paid for common stock dividends | (142) | (77) | | Net increase in cash, cash equivalents and restricted cash | 32 | 101 | Results of Operations This section analyzes the company's financial performance, focusing on revenue drivers, expenses, and derivative impacts - Natural gas, oil, and NGL sales increased by $1,711 million in Q1 2025 compared to Q1 2024, primarily driven by a $1.3 billion increase in volumes due to the Southwestern Merger and a $462 million increase from higher average prices[141] Production and Average Realized Prices | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total Production (MMcfe per day) | 6,788 | 3,198 | | Average Realized Price (including realized derivatives) per Mcfe | $3.69 | $2.85 | - Production expenses increased by $88 million and gathering, processing, and transportation expenses increased by $390 million in Q1 2025, both primarily due to the Southwestern Merger and increased volumes[142][143] - Natural gas, oil, and NGL derivatives resulted in a $(1,014) million loss in Q1 2025, compared to a $172 million gain in Q1 2024, mainly due to unrealized losses on natural gas derivatives[145] - Depreciation, depletion, and amortization (DD&A) increased to $711 million in Q1 2025 from $399 million in Q1 2024 due to the Southwestern Merger, though DD&A per Mcfe decreased due to lower depletion rates on acquired wells[147] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines Expand Energy's exposure to market risks, including commodity price volatility and interest rate fluctuations, and details derivative use - The company's primary market risks are changes in natural gas, oil, and NGL prices and interest rates[158] - Derivative instruments are used to mitigate exposure to commodity price declines and manage price volatility, not for speculative trading[159] - A 10% increase in forward natural gas prices would decrease the valuation of natural gas derivatives by approximately $753 million, while a 10% decrease would increase it by approximately $734 million[161] - Interest rate risk primarily relates to floating-rate borrowings under the Credit Facility; as of March 31, 2025, there were no outstanding borrowings[162] Item 4. Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures and reported no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2025[164] - There were no material changes in internal control over financial reporting during the quarter ended March 31, 2025[165] PART II. OTHER INFORMATION This section provides additional information on legal proceedings, risk factors, equity sales, defaults, mine safety, and exhibits Item 1. Legal Proceedings This section details Expand Energy's legal and regulatory proceedings, including those from Chapter 11 and the Southwestern Merger, with no material adverse impact expected - The company is involved in various regulatory proceedings, lawsuits, and disputes incidental to its business operations[168] - Pre-petition legal proceedings from the Chapter 11 Cases will be resolved through the claims reconciliation process, while those assumed from the Southwestern Merger are not subject to Chapter 11 discharge[168] - Management believes no pending or threatened lawsuit is likely to have a material adverse effect on future consolidated financial position, results of operations, or cash flows[169] - Environmental risks are managed through policies, programs, and the establishment of reserves for probable and reasonably estimable liabilities[170] Item 1A. Risk Factors This section directs readers to the 2024 Form 10-K for comprehensive risk factors that could materially affect Expand Energy's business and financial condition - Factors that could materially adversely affect the business are described under 'Risk Factors' in Item 1A of the 2024 Form 10-K[171] - Forward-looking statements are subject to numerous risks and uncertainties, including reduced demand for natural gas, oil, and NGLs, price volatility, and regulatory changes[152][157] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that Expand Energy Corporation did not repurchase any common stock shares during the quarter ended March 31, 2025 - No repurchases of common stock were made during the quarter ended March 31, 2025[172] Item 3. Defaults Upon Senior Securities This section confirms no defaults upon senior securities for Expand Energy Corporation during the reporting period - There were no defaults upon senior securities[173] Item 4. Mine Safety Disclosures This section indicates that mine safety violations and other regulatory matters are detailed in Exhibit 95.1 to this Form 10-Q - Information concerning mine safety violations and other regulatory matters is included in Exhibit 95.1 to this Form 10-Q[174] Item 5. Other Information No director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2025 - No director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the three months ended March 31, 2025[175] Item 6. Exhibits This section lists exhibits filed, furnished, or incorporated by reference, including key corporate documents, merger agreements, and certifications - The exhibits include the Fifth Amended Joint Plan of Reorganization, the Agreement and Plan of Merger with Southwestern Energy Company, and the Third Amended and Restated Certificate of Incorporation and Bylaws[178] - Also included are forms of Executive/Employee Restricted Stock Unit Award Agreement, Performance Share Unit Award agreements, and certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[178] - The exhibits also contain Inline XBRL Instance Document and Taxonomy Extension Documents for interactive data filing[180] Signatures This section contains the official signatures of Expand Energy Corporation's CEO and CFO, certifying the report's accuracy and completeness - The report is duly signed by Domenic J. Dell'Osso, Jr., President and Chief Executive Officer, and Mohit Singh, Executive Vice President and Chief Financial Officer, on April 29, 2025[186]