Chesapeake Energy(CHK) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets The balance sheet shows total assets increased from $11,009 million (Dec 31, 2021) to $13,899 million (June 30, 2022), primarily driven by an increase in natural gas and oil properties. Total liabilities also increased significantly from $5,338 million to $8,091 million, largely due to short-term derivative liabilities and long-term debt Total Assets | Period | Amount (Millions USD) | | :----- | :-------------------- | | June 30, 2022 | $13,899 | | December 31, 2021 | $11,009 | Total Liabilities | Period | Amount (Millions USD) | | :----- | :-------------------- | | June 30, 2022 | $8,091 | | December 31, 2021 | $5,338 | Key Balance Sheet Items (Millions USD) | Item | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Proved Natural Gas and Oil Properties | $10,816 | $7,682 | | Short-term Derivative Liabilities | $2,059 | $899 | | Long-term Debt, net | $3,046 | $2,278 | | Total Stockholders' Equity | $5,808 | $5,671 | Condensed Consolidated Statements of Operations For the three months ended June 30, 2022, the company reported a net income of $1,237 million, a significant improvement from a net loss of $439 million in the prior-year quarter. This was driven by a substantial increase in natural gas, oil, and NGL revenues, despite large derivative losses. For the six months ended June 30, 2022, net income was $473 million, compared to a net loss of $144 million in the 2021 Successor Period Three Months Ended June 30 (Millions USD, except EPS) | Metric | 2022 (Successor) | 2021 (Successor) | Change (YoY) | | :----------------------------- | :--------------- | :--------------- | :----------- | | Natural Gas, Oil & NGL Revenue | $2,790 | $892 | +$1,898 | | Natural Gas & Oil Derivatives | $(514) | $(740) | +$226 | | Total Revenues & Other | $3,520 | $693 | +$2,827 | | Total Operating Expenses | $2,179 | $1,123 | +$1,056 | | Income (Loss) from Operations | $1,341 | $(430) | +$1,771 | | Net Income (Loss) | $1,237 | $(439) | +$1,676 | | Basic EPS | $9.75 | $(4.48) | +$14.23 | | Diluted EPS | $8.27 | $(4.48) | +$12.75 | Six Months Ended June 30 (Millions USD, except EPS) | Metric | 2022 (Successor) | 2021 (Successor) | 2021 (Predecessor) | | :----------------------------- | :--------------- | :--------------- | :----------------- | | Natural Gas, Oil & NGL Revenue | $4,704 | $1,445 | $398 | | Natural Gas & Oil Derivatives | $(2,639) | $(694) | $(382) | | Total Revenues & Other | $4,455 | $1,573 | $260 | | Total Operating Expenses | $3,908 | $1,718 | $494 | | Income (Loss) from Operations | $547 | $(145) | $(234) | | Net Income (Loss) | $473 | $(144) | $5,383 | | Basic EPS | $3.82 | $(1.47) | $550.35 | | Diluted EPS | $3.25 | $(1.47) | $534.51 | Condensed Consolidated Statements of Comprehensive Income (Loss) Comprehensive income for the three months ended June 30, 2022, was $1,237 million, a significant increase from a comprehensive loss of $439 million in the prior-year quarter. For the six months ended June 30, 2022, comprehensive income was $473 million, compared to a loss of $144 million in the 2021 Successor Period. No other comprehensive income items were recognized in the Successor periods Comprehensive Income (Loss) (Millions USD) | Period | Three Months Ended June 30 | Six Months Ended June 30 | | :---------------- | :------------------------- | :----------------------- | | 2022 Successor | $1,237 | $473 | | 2021 Successor | $(439) | $(144) | | 2021 Predecessor | N/A | $5,386 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $1,762 million for the six months ended June 30, 2022, compared to $803 million in the 2021 Successor Period, primarily due to higher commodity prices and increased sales volumes from acquisitions. Net cash used in investing activities was $2,362 million, largely due to business combinations and capital expenditures. Net cash used in financing activities was $288 million, including significant payments for common stock dividends and repurchases Cash Flows from Operating Activities (Six Months Ended June 30, Millions USD) | Period | Net Cash Provided by (Used in) Operating Activities | | :--------------- | :-------------------------------------------------- | | 2022 Successor | $1,762 | | 2021 Successor | $803 | | 2021 Predecessor | $(21) | Cash Flows from Investing Activities (Six Months Ended June 30, Millions USD) | Period | Net Cash Used in Investing Activities | | :--------------- | :------------------------------------ | | 2022 Successor | $(2,362) | | 2021 Successor | $(220) | | 2021 Predecessor | $(66) | Cash Flows from Financing Activities (Six Months Ended June 30, Millions USD) | Period | Net Cash Used in Financing Activities | | :--------------- | :------------------------------------ | | 2022 Successor | $(288) | | 2021 Successor | $(87) | | 2021 Predecessor | $(66) | - Key cash flow items for the six months ended June 30, 2022, included capital expenditures of $(759) million, business combination (net) of $(2,006) million, cash paid for common stock dividends of $(508) million, and cash paid to repurchase and retire common stock of $(558) million[67] Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased from $5,671 million at December 31, 2021, to $5,808 million at June 30, 2022. This was influenced by the issuance of common stock for the Marcellus Acquisition ($764 million), net income ($1,237 million), offset by significant share repurchases ($515 million) and common stock dividends ($301 million) Total Stockholders' Equity (Millions USD) | Period | Amount | | :---------------- | :----- | | June 30, 2022 | $5,808 | | December 31, 2021 | $5,671 | - Key changes in stockholders' equity for the six months ended June 30, 2022, included the issuance of common stock for the Marcellus Acquisition ($764 million), net income ($1,237 million), repurchase and retirement of common stock ($(515) million), and dividends on common stock ($(301) million)[69] Note 1. Basis of Presentation and Summary of Significant Accounting Policies Chesapeake Energy Corporation is a natural gas and oil exploration and production company operating onshore in the United States. The financial statements are prepared in accordance with GAAP and SEC regulations, reflecting the company's emergence from Chapter 11 bankruptcy on February 9, 2021, distinguishing between "Predecessor" (pre-emergence) and "Successor" (post-emergence) periods. The company operates as a single reportable segment - Chesapeake Energy Corporation is a natural gas and oil exploration and production company engaged in the acquisition, exploration, and development of properties onshore in the United States[71] - The company filed Chapter 11 Cases on the Petition Date and emerged on February 9, 2021, with financial statements distinguishing between "Successor" (post-February 9, 2021) and "Predecessor" (on or prior to February 9, 2021) periods[71] - The company has concluded it has only one reportable operating segment due to the similar nature of its exploration and production business[74] - As of June 30, 2022, restricted cash was $9 million, primarily maintained to pay certain convenience class unsecured claims following bankruptcy emergence[75] Note 2. Chapter 11 Emergence The company emerged from Chapter 11 bankruptcy on February 9, 2021, following the confirmation of its Plan of Reorganization. This involved significant transactions including the issuance of new common stock and warrants to various claim holders, cancellation of pre-petition equity interests, and the establishment of new debt facilities - The Debtors emerged from the Chapter 11 Cases on February 9, 2021 (the Effective Date), after the Bankruptcy Court confirmed the Plan of Reorganization[82] - Upon emergence, 97,907,081 shares of New Common Stock were issued, and additional shares and warrants were reserved for future issuance to eligible claim holders[83] - All equity interests in the Predecessor, including common and preferred stock, were canceled, released, and extinguished without any distribution[84] - Holders of obligations under the FLLO Term Loan Facility received 23,022,420 shares of New Common Stock[85] - Holders of Allowed Second Lien Notes Claim received shares of New Common Stock and Class A, B, and C Warrants[87] - The 2021 Long Term Incentive Plan (LTIP) was approved with a share reserve equal to 6,800,000 shares of New Common Stock[92] Note 3. Fresh Start Accounting Upon emergence from bankruptcy on February 9, 2021, Chesapeake applied fresh start accounting, revaluing its assets and liabilities to their estimated fair values. The enterprise value was estimated at $4.85 billion, and the reorganization value of assets was $6.814 billion. This process resulted in significant adjustments to the balance sheet, including a gain on settlement of liabilities subject to compromise of $6.443 billion - The company qualified for and applied fresh start accounting on the Effective Date (February 9, 2021), reallocating its reorganization value to individual assets based on estimated fair value[97][98] Enterprise Value and Reorganization Value (Millions USD) as of February 9, 2021 | Metric | Amount | | :--------------------------------- | :----- | | Estimated Enterprise Value | $4,851 | | Reorganization Value of Successor Assets | $6,814 | - The fair values of natural gas and oil properties, other property and equipment, long-term debt, asset retirement obligations, and warrants were estimated as of the Effective Date[104] Reorganization Items, Net (Predecessor Period from Jan 1, 2021 through Feb 9, 2021, Millions USD) | Item | Amount | | :------------------------------------------ | :----- | | Gains on the settlement of liabilities subject to compromise | $6,443 | | Accrual for allowed claims | $(1,002) | | Gain on fresh start adjustments | $201 | | Total reorganization items, net | $5,569 | - No reorganization items, net were recognized for the 2022 Successor Quarter, 2022 Successor Period, 2021 Successor Quarter, or 2021 Successor Period[136] Note 4. Natural Gas and Oil Property Transactions Chesapeake completed two significant acquisitions: the Marcellus Acquisition on March 9, 2022, for approximately $2.77 billion (cash and stock), and the Vine Acquisition on November 1, 2021, for approximately $1.5 billion (stock and cash). These acquisitions added high-quality producing assets and drilling locations. The company also divested its Powder River Basin assets on March 25, 2022, for $450 million, recognizing a gain of $299 million - The Marcellus Acquisition closed on March 9, 2022, for approximately $2.77 billion (including $2 billion cash and 9.4 million common shares), acquiring high-quality producing assets and drilling locations[138][139] - The Vine Acquisition closed on November 1, 2021, for approximately $1.5 billion (including 18.7 million common shares and $90 million cash), acquiring natural gas properties in the Haynesville and Mid-Bossier shale plays[143][146] - The divestiture of Powder River Basin assets closed on March 25, 2022, for $450 million cash, resulting in a gain of approximately $299 million[155] Revenues from Acquisitions (Millions USD) | Acquisition | Period | Natural Gas, Oil & NGL Revenues | | :---------- | :-------------------------------- | :------------------------------ | | Marcellus | March 10 - June 30, 2022 | $473 | | Vine | Six Months Ended June 30, 2022 | $878 | Note 5. Earnings Per Share Basic EPS for the three months ended June 30, 2022, was $9.75, significantly up from $(4.48) in the prior-year quarter. Diluted EPS was $8.27, also a substantial increase. For the six months ended June 30, 2022, basic EPS was $3.82 and diluted EPS was $3.25. Potentially dilutive securities include warrants, RSUs, and PSUs Earnings Per Common Share (Three Months Ended June 30) | Metric | 2022 Successor | 2021 Successor | | :--------- | :------------- | :------------- | | Basic EPS | $9.75 | $(4.48) | | Diluted EPS | $8.27 | $(4.48) | Earnings Per Common Share (Six Months Ended June 30) | Metric | 2022 Successor | 2021 Successor | 2021 Predecessor | | :--------- | :------------- | :------------- | :--------------- | | Basic EPS | $3.82 | $(1.47) | $550.35 | | Diluted EPS | $3.25 | $(1.47) | $534.51 | - Potentially dilutive securities during the Successor Periods consist of issuable shares related to warrants, unvested Restricted Stock Units (RSUs), and unvested Performance Share Units (PSUs)[157] - The diluted earnings per share calculation for the 2022 Successor Quarter and Period excludes the effect of 1,191,877 reserved shares of common stock and 2,248,726 reserved Class C Warrants related to the settlement of General Unsecured Claims[159] Note 6. Debt As of June 30, 2022, total long-term debt, net, was $3,046 million, up from $2,278 million at December 31, 2021. This increase is primarily due to borrowings under the Exit Credit Facility and the assumption of Vine's senior notes. The Exit Credit Facility has an initial borrowing base of $2.5 billion, with $775 million in Tranche A Loans and $221 million in Tranche B Loans outstanding as of June 30, 2022 Long-term Debt, Net (Millions USD) | Period | Amount | | :---------------- | :----- | | June 30, 2022 | $3,046 | | December 31, 2021 | $2,278 | Outstanding Debt Components (June 30, 2022, Millions USD) | Debt Type | Carrying Amount | | :-------------------------------- | :-------------- | | Exit Credit Facility - Tranche A Loans | $775 | | Exit Credit Facility - Tranche B Loans | $221 | | 5.50% Senior Notes due 2026 | $500 | | 5.875% Senior Notes due 2029 | $500 | | 6.75% Senior Notes due 2029 (Vine Notes) | $950 | - The Exit Credit Facility has an initial borrowing base of $2.5 billion, redetermined semiannually[167] - The Credit Agreement contains financial covenants including a first lien leverage ratio of not more than 2.75 to 1:00, a total leverage ratio of not more than 3.50 to 1:00, and a current ratio of not less than 1.00 to 1:00[169] Note 7. Contingencies and Commitments The company is involved in various litigation and regulatory proceedings, including those related to its Chapter 11 emergence and environmental risks. While significant judgment is required for estimates, management believes no pending or threatened lawsuit is likely to have a material adverse effect on future financial position. Contractual commitments for gathering, processing, and transportation agreements totaled approximately $4.2 billion as of June 30, 2022 - The Chapter 11 Plan, effective February 9, 2021, provided for the treatment of claims against the company's bankruptcy estates[181] - The company is involved in various lawsuits and disputes incidental to its business operations, including commercial disputes, personal injury claims, royalty claims, property damage claims, and contract actions[183] - Management is of the opinion that no pending or threatened lawsuit or dispute is likely to have a material adverse effect on future consolidated financial position, results of operations, or cash flows[186] Aggregate Undiscounted Commitments under Gathering, Processing and Transportation Agreements (Millions USD) as of June 30, 2022 | Period | Amount | | :------------ | :----- | | Remainder of 2022 | $296 | | 2023 | $536 | | 2024 | $496 | | 2025 | $426 | | 2026 | $386 | | 2027-2036 | $2,062 | | Total | $4,202 | Note 8. Other Current Liabilities Other current liabilities increased from $1,202 million at December 31, 2021, to $1,730 million at June 30, 2022. The primary components include revenues and royalties due others, accrued drilling and production costs, and accrued hedging costs Other Current Liabilities (Millions USD) | Item | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Revenues and royalties due others | $926 | $617 | | Accrued drilling and production costs | $268 | $142 | | Accrued hedging costs | $120 | $113 | | Accrued compensation and benefits | $56 | $91 | | Other accrued taxes | $134 | $86 | | Operating leases | $45 | $29 | | Accrued share repurchases | $40 | — | | Joint interest prepayments received | $16 | $14 | | Other | $125 | $110 | | Total other current liabilities | $1,730 | $1,202 | Note 9. Revenue Natural gas, oil, and NGL sales significantly increased in the 2022 Successor Quarter and Period compared to prior periods, primarily due to higher average prices and increased sales volumes from the Vine and Marcellus Acquisitions. For the three months ended June 30, 2022, total natural gas, oil, and NGL sales were $2,790 million, with Marcellus contributing $1,152 million and Haynesville $988 million Natural Gas, Oil and NGL Sales by Operating Area (Three Months Ended June 30, Millions USD) | Operating Area | 2022 Successor | 2021 Successor | | :------------- | :------------- | :------------- | | Marcellus | $1,152 | $226 | | Haynesville | $988 | $124 | | Eagle Ford | $650 | $458 | | Powder River Basin | — | $84 | | Total | $2,790 | $892 | Natural Gas, Oil and NGL Sales by Operating Area (Six Months Ended June 30, Millions USD) | Operating Area | 2022 Successor | 2021 Successor | 2021 Predecessor | | :------------- | :------------- | :------------- | :--------------- | | Marcellus | $1,761 | $389 | $119 | | Haynesville | $1,640 | $194 | $53 | | Eagle Ford | $1,204 | $730 | $193 | | Powder River Basin | $99 | $132 | $33 | | Total | $4,704 | $1,445 | $398 | - Natural gas, oil and NGL sales in the 2022 Successor Quarter increased $1,898 million compared to the 2021 Successor Quarter, including $1,068 million due to increased sales volumes (Vine and Marcellus Acquisitions) and $1,069 million due to higher average prices received[295] Note 10. Income Taxes The company recorded an income tax expense of $31 million for the 2022 Successor Period, with an effective tax rate of 6.2%. A full valuation allowance is maintained against net deferred tax assets due to historical losses, though future profitability could lead to its release. The company experienced an Ownership Change upon bankruptcy emergence, resulting in an annual limitation of $54 million on NOL carryforwards and other tax attributes under Section 382 of the Code Income Tax Expense and Effective Tax Rate (Millions USD) | Period | Income Tax Expense (Benefit) | Effective Tax Rate | | :---------------- | :--------------------------- | :----------------- | | 2022 Successor Period | $31 | 6.2% | | 2021 Successor Period | — | 0.0% | | 2021 Predecessor Period | $(57) | (1.1%) | - A full valuation allowance was recorded against net deferred tax assets for federal and state purposes as of June 30, 2022, and December 31, 2021, due to historical losses, but there is a possibility of release in the foreseeable future if profitability trends emerge[206] - An Ownership Change occurred upon emergence from bankruptcy on February 9, 2021, resulting in an annual limitation of $54 million on NOL carryforwards and other tax attributes under Section 382 of the Code[208] - Cancellation of debt income (CODI) of $5 billion reduced NOL carryforwards, and $593 million of federal NOLs were estimated to expire due to the Section 382 limitation[209] Note 11. Equity The company issued new common stock for allowed claims upon bankruptcy emergence, and further shares for the Vine and Marcellus Acquisitions. An annual dividend program was initiated in May 2021, with a quarterly dividend of $2.32 per share declared in August 2022. The share repurchase program was expanded to $2.0 billion, with $598 million in common stock repurchased by June 30, 2022 - On the Effective Date, 97,907,081 shares of New Common Stock were issued to holders of allowed claims, and 2,092,918 shares were reserved for future distributions[211] - The company issued 18,709,399 shares for the Vine Acquisition (November 1, 2021) and 9,442,185 shares for the Marcellus Acquisition (March 9, 2022)[212] Common Stock Dividend Payments (2022 Successor Period, Millions USD) | Payment Date | Dividend Payment | | :----------- | :--------------- | | March 22, 2022 | $210 | | June 2, 2022 | $298 | | Total | $508 | - A quarterly dividend of $2.32 per share ($0.55 base, $1.77 variable) was declared on August 2, 2022, payable September 1, 2022[214][263] - The share repurchase program was expanded by $1.0 billion in June 2022, bringing the total authorized amount to $2.0 billion (expires December 31, 2023)[215] - By June 30, 2022, the company repurchased 6.8 million shares of common stock for an aggregate price of $598 million[216][254] Note 12. Share-Based Compensation Following bankruptcy emergence, all Predecessor share-based awards were canceled. The Successor period introduced the 2021 Long Term Incentive Plan (LTIP), granting Restricted Stock Units (RSUs) and Performance Share Units (PSUs). As of June 30, 2022, unrecognized compensation expense for RSUs was $50 million (over 2.41 years) and for PSUs was $21 million (over 2.46 years) - Predecessor common stock and existing share-based compensation awards were canceled upon emergence from Chapter 11[220][221] - The 2021 Long Term Incentive Plan (LTIP) was adopted with a share reserve of 6,800,000 shares of New Common Stock, providing for grants of RSUs, PSUs, and other awards[222] Unrecognized Share-Based Compensation Expense (Millions USD) | Award Type | Unrecognized Expense | Weighted Average Period | | :---------------- | :------------------- | :---------------------- | | Unvested RSUs | $50 | 2.41 years | | Unvested PSUs | $21 | 2.46 years | Total RSU, Stock Option, and PSU Compensation Costs (Millions USD) | Period | 2022 Successor (Six Months) | 2021 Successor (Period Feb 10-Jun 30) | 2021 Predecessor (Period Jan 1-Feb 9) | | :---------------- | :-------------------------- | :------------------------------------ | :------------------------------------ | | Total Compensation | $12 | $3 | $3 | Note 13. Derivative and Hedging Activities The company uses derivative instruments (swaps, collars, options) to mitigate exposure to commodity price fluctuations, not for speculative trading. All instruments are net settled. As of June 30, 2022, the total estimated fair value of natural gas and oil derivatives was a net liability of $(2,490) million, significantly higher than $(1,143) million at December 31, 2021, reflecting increased market volatility - The company uses derivative instruments (financial price swaps, basis protection swaps, collars, three-way collars, options, and swaptions) to reduce exposure to fluctuations in future commodity prices[234] - The company does not intend to hold or issue derivative financial instruments for speculative trading purposes and has not designated any for hedge accounting treatment[234] Total Estimated Fair Value of Natural Gas and Oil Derivatives (Net Liability, Millions USD) | Period | Amount | | :---------------- | :------- | | June 30, 2022 | $(2,490) | | December 31, 2021 | $(1,143) | Estimated Fair Value of Derivatives by Type (June 30, 2022, Millions USD) | Type | Amount | | :---------- | :------- | | Natural Gas | $(2,062) | | Oil | $(428) | - Derivative instruments expose the company to counterparty credit risk, which is mitigated by contracting with highly rated counterparties and requiring collateral if obligations exceed defined thresholds[239][240] Note 14. Other Operating Expense (Income), Net For the six months ended June 30, 2022, other operating expense, net, was $31 million, primarily driven by $33 million in costs related to the Marcellus Acquisition, including integration, consulting, financial advisory, legal fees, and change in control expenses Other Operating Expense (Income), Net (Millions USD) | Period | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Period from Feb 10, 2021 through June 30, 2021 | Period from Jan 1, 2021 through Feb 9, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :--------------------------------------------- | :-------------------------------------------- | | Other operating expense (income), net | $8 | $(4) | $31 | $(2) | $(12) | - Approximately $33 million of costs related to the Marcellus Acquisition, including integration, consulting, financial advisory, legal fees, and change in control expenses, were recognized during the 2022 Successor Period[242][319] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction Chesapeake is an independent E&P company focused on natural gas, oil, and NGL production from U.S. onshore unconventional assets (Marcellus, Haynesville, Eagle Ford). Its strategy aims to generate sustainable Free Cash Flow, improve margins, and enhance ESG performance, including achieving net-zero direct greenhouse gas emissions by 2035. The company views combined 2021 Predecessor and Successor periods for meaningful comparison - Chesapeake is an independent exploration and production company with a portfolio of onshore U.S. unconventional natural gas and liquids assets, including interests in approximately 8,300 gross natural gas and oil wells as of June 30, 2022[245] - The company's strategy focuses on generating sustainable Free Cash Flow, improving margins through operating efficiencies and financial discipline, and enhancing Environmental, Social, and Governance (ESG) performance[246] - Chesapeake aims to achieve net-zero direct greenhouse gas emissions by 2035, having already achieved interim goals of 0.07% methane intensity and 4.5 GHG intensity by the end of 2021[247][248] - Management views operating results for the six months ended June 30, 2021, by combining the 2021 Predecessor Period and the 2021 Successor Period for more meaningful comparisons and understanding operational trends[249][251] Recent Developments Recent developments include the Marcellus Acquisition (March 2022) and Vine Acquisition (November 2021) to strengthen competitive position and increase operating cash flows. The company also divested its Powder River Basin assets (March 2022) for $450 million, recognizing a $299 million gain. The share repurchase program was increased to $2.0 billion, and quarterly base dividends were raised by 10% - Completed the Marcellus Acquisition (March 9, 2022) and Vine Acquisition (November 1, 2021), which meaningfully increased operating cash flows and added high-quality assets[252] - Completed the sale of Powder River Basin assets (March 25, 2022) for $450 million cash, recognizing a gain of approximately $299 million[253] - The share repurchase program was increased from $1.0 billion to $2.0 billion in June 2022, with approximately 6.8 million shares repurchased by June 30, 2022[254] - Paid approximately $508 million in common stock dividends in the 2022 Successor Period and increased the quarterly base dividend by 10% to $0.55 per share[254] - The company is monitoring the impact of the COVID-19 pandemic and Russia's invasion of Ukraine, which could intensify commodity price volatility and inflationary cost pressures[255][256] Liquidity and Capital Resources Liquidity Overview The company believes it has sufficient liquidity for the foreseeable future, with $960 million available as of June 30, 2022, including $17 million cash on hand and $943 million unused borrowing capacity under the Exit Credit Facility. Total indebtedness was reduced by $9.4 billion post-Chapter 11 emergence - The company emerged from Chapter 11 Cases as a fundamentally stronger company, having reduced total indebtedness by $9.4 billion[260] Liquidity Available (Millions USD) as of June 30, 2022 | Item | Amount | | :------------------------------------------ | :----- | | Cash on hand | $17 | | Unused borrowing capacity (Exit Credit Facility) | $943 | | Total Liquidity Available | $960 | - As of June 30, 2022, outstanding borrowings under the Exit Credit Facility included $775 million in Tranche A Loans and $221 million in Tranche B Loans[261] Dividend Chesapeake paid $508 million in common stock dividends during the 2022 Successor Period and declared a quarterly dividend of $2.32 per share for September 2022, consisting of a $0.55 base and $1.77 variable component. Future dividends are at the Board's discretion and subject to various restrictions - The company paid $508 million in common stock dividends during the 2022 Successor Period[262] - A quarterly dividend of $2.32 per share ($0.55 base, $1.77 variable) was declared on August 2, 2022, payable September 1, 2022[263] - The declaration and payment of future dividends are at the full discretion of the Board of Directors and are restricted by Oklahoma corporate law, the Certificate of Incorporation, the Credit Agreement, and indentures governing senior notes[264] Derivative and Hedging Activities The company uses derivative instruments to mitigate commodity price risk and improve revenue predictability, but these can limit cash flows during rising prices. These instruments are considered highly effective in achieving risk management objectives - The company uses various derivative instruments to mitigate exposure to commodity price declines and to better predict total revenue[265] - These derivative transactions may limit cash flows in periods of rising commodity prices[265] - Derivative instruments are considered highly effective in achieving risk management objectives[333] Contractual Obligations and Off-Balance Sheet Arrangements Material contractual obligations include senior notes, Exit Credit Facility borrowings, derivative obligations, asset retirement obligations, lease obligations, and various other commitments. As of June 30, 2022, estimated gross undiscounted future commitments for gathering, processing, and transportation agreements totaled approximately $4.2 billion - Material contractual obligations include repayment of senior notes, outstanding borrowings and interest payment obligations under the Exit Credit Facility, derivative obligations, asset retirement obligations, lease obligations, and undrawn letters of credit[267] - Estimated gross undiscounted future commitments under gathering, processing, and transportation agreements were approximately $4.2 billion as of June 30, 2022[267] Post-Emergence Debt Post-emergence financing includes the Exit Credit Facility (reserve-based, $2.5 billion initial borrowing base, redetermined semi-annually) and $1.0 billion in Senior Notes (2026 and 2029). The Exit Credit Facility includes $1.75 billion of revolving Tranche A Loans and $221 million of fully funded Tranche B Loans - The Exit Credit Facility has an initial borrowing base of $2.5 billion, redetermined semiannually on or around May 1 and November 1[268] - The aggregate initial elected commitments under the Exit Credit Facility were $1.75 billion of revolving Tranche A Loans and $221 million of fully funded Tranche B Loans[268] - The company issued $500 million aggregate principal amount of 2026 Notes and $500 million aggregate principal amount of 2029 Notes[270] Assumption and Repayment of Vine Debt In conjunction with the Vine Acquisition, Vine's Second Lien Term Loan was repaid for $163 million, and its $950 million 6.75% Senior Notes due 2029 were assumed by Chesapeake - Vine's Second Lien Term Loan was repaid and terminated for $163 million, inclusive of a $13 million make whole premium[271] - Vine's $950 million aggregate principal amount of 6.75% Senior Notes due 2029 were assumed by the company[271] Capital Expenditures For 2022, the company expects capital expenditures of $1.75 billion to $1.95 billion, primarily directed towards natural gas assets (75%). These expenditures are planned to be funded by cash on hand, operating cash flow, and Exit Credit Facility borrowings - Expected capital expenditures for the year ending December 31, 2022, are approximately $1.75 billion to $1.95 billion[272] - Approximately 75% of 2022 capital expenditures are expected to be directed toward natural gas assets[272] - The 2022 capital program is planned to be funded through cash on hand, expected cash flow from operations, and borrowings under the Exit Credit Facility[272] Sources of Funds Total sources of cash and cash equivalents for the six months ended June 30, 2022, were $2,943 million, primarily from operating activities ($1,762 million), net proceeds from Exit Credit Facility Tranche A Loans ($775 million), and divestitures ($403 million) Sources of Cash and Cash Equivalents (Six Months Ended June 30, Millions USD) | Source | 2022 Successor | 2021 Successor | 2021 Predecessor | | :------------------------------------------ | :------------- | :------------- | :--------------- | | Cash provided by (used in) operating activities | $1,762 | $803 | $(21) | | Proceeds from Exit Credit Facility - Tranche A Loans, net | $775 | — | — | | Proceeds from issuance of senior notes | — | — | $1,000 | | Proceeds from issuance of common stock | — | — | $600 | | Proceeds from divestitures of property and equipment | $403 | $6 | — | | Total sources of cash and cash equivalents | $2,943 | $811 | $1,579 | - The increase in cash provided by operating activities in the 2022 Successor Period is primarily due to higher prices for natural gas, oil, and NGL sold and increased volumes from the Vine and Marcellus Acquisitions[276] Uses of Funds Total uses of cash and cash equivalents for the six months ended June 30, 2022, were $3,831 million. Major uses included business combinations ($2,006 million, primarily Marcellus Acquisition), capital expenditures ($759 million), common stock dividends ($508 million), and share repurchases ($558 million) Uses of Cash and Cash Equivalents (Six Months Ended June 30, Millions USD) | Use | 2022 Successor | 2021 Successor | 2021 Predecessor | | :------------------------------------------ | :------------- | :------------- | :--------------- | | Capital expenditures | $759 | $226 | $66 | | Business combination, net | $2,006 | — | — | | Payments on DIP Facility borrowings | — | — | $1,179 | | Cash paid for common stock dividends | $508 | $34 | — | | Cash paid to repurchase and retire common stock | $558 | — | — | | Total uses of cash and cash equivalents | $3,831 | $315 | $1,732 | - Capital expenditures significantly increased in the 2022 Successor Period primarily due to increased drilling and completion activity in Haynesville and Marcellus following the Vine and Marcellus Acquisitions[282] - The Marcellus Acquisition accounted for approximately $2 billion of the business combination, net, in the 2022 Successor Period[283] Results of Operations Natural Gas, Oil and NGL Production and Average Sales Prices For the three months ended June 30, 2022, total production was 4,125 MMcfe per day at an average sales price of $7.43 per Mcfe. This represents a significant increase in production and price compared to the prior-year quarter (2,598 MMcfe/day at $3.77/Mcfe), primarily driven by the Marcellus and Vine acquisitions Natural Gas, Oil and NGL Production and Average Sales Prices (Three Months Ended June 30) | Metric | 2022 Successor | 2021 Successor | | :-------------------------- | :------------- | :------------- | | Total Production (MMcfe/day) | 4,125 | 2,598 | | Average Sales Price ($/Mcfe) | $7.43 | $3.77 | | Marcellus Production (MMcf/day) | 1,957 | 1,279 | | Haynesville Production (MMcf/day) | 1,643 | 531 | | Eagle Ford Production (MMcfe/day) | 525 | 650 | Natural Gas, Oil and NGL Production and Average Sales Prices (Six Months Ended June 30) | Metric | 2022 Successor | 2021 Successor | 2021 Predecessor | | :-------------------------- | :------------- | :------------- | :--------------- | | Total Production (MMcfe/day) | 3,922 | 2,596 | 2,641 | | Average Sales Price ($/Mcfe) | $6.62 | $3.95 | $3.77 | Natural Gas, Oil and NGL Sales Natural gas, oil, and NGL sales for the three months ended June 30, 2022, increased by $1,898 million YoY to $2,790 million. This was primarily due to a $1,068 million increase from higher sales volumes (Vine and Marcellus Acquisitions) and a $1,069 million increase from higher average prices. For the six months ended June 30, 2022, sales increased by $2,861 million compared to the combined 2021 periods Natural Gas, Oil and NGL Sales by Operating Area (Three Months Ended June 30, Millions USD) | Operating Area | 2022 Successor | 2021 Successor | | :------------- | :------------- | :------------- | | Marcellus | $1,152 | $226 | | Haynesville | $988 | $124 | | Eagle Ford | $650 | $458 | | Powder River Basin | — | $84 | | Total | $2,790 | $892 | Natural Gas, Oil and NGL Sales by Operating Area (Six Months Ended June 30, Millions USD) | Operating Area | 2022 Successor | 2021 Successor | 2021 Predecessor | | :------------- | :------------- | :------------- | :--------------- | | Marcellus | $1,761 | $389 | $119 | | Haynesville | $1,640 | $194 | $53 | | Eagle Ford | $1,204 | $730 | $193 | | Powder River Basin | $99 | $132 | $33 | | Total | $4,704 | $1,445 | $398 | - Natural gas, oil and NGL sales in the 2022 Successor Quarter increased $1,898 million compared to the 2021 Successor Quarter, driven by $1,068 million from increased sales volumes (Vine and Marcellus Acquisitions) and $1,069 million from higher average prices[295] Production Expenses Production expenses for the three months ended June 30, 2022, increased by $44 million to $118 million, primarily due to the Vine and Marcellus Acquisitions and additional workovers in Eagle Ford. Per Mcfe, total production expenses remained flat at $0.31. For the six months ended June 30, 2022, expenses increased by $82 million Total Production Expenses (Millions USD, except $/Mcfe) | Period | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | 2021 Successor (Feb 10-Jun 30) | 2021 Predecessor (Jan 1-Feb 9) | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total Production Expenses | $118 | $74 | $228 | $114 | $32 | | Total Production Expenses ($/Mcfe) | $0.31 | $0.31 | $0.32 | $0.31 | $0.30 | - Production expenses in the 2022 Successor Quarter increased $44 million compared to the 2021 Successor Quarter, primarily due to the Vine and Marcellus Acquisitions and additional workovers in Eagle Ford[299] - Production expenses in the 2022 Successor Period increased $82 million compared to the combined 2021 Successor and Predecessor Periods, driven by the Vine and Marcellus Acquisitions and Eagle Ford workovers[300] Gathering, Processing and Transportation Expenses Gathering, processing, and transportation expenses for the three months ended June 30, 2022, increased by $63 million to $274 million, mainly due to the Vine and Marcellus Acquisitions. Per Mcfe, these expenses decreased from $0.89 to $0.73. For the six months ended June 30, 2022, expenses increased by $92 million Total Gathering, Processing and Transportation Expenses (Millions USD, except $/Mcfe) | Period | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | 2021 Successor (Feb 10-Jun 30) | 2021 Predecessor (Jan 1-Feb 9) | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total Expenses | $274 | $211 | $516 | $322 | $102 | | Total Expenses ($/Mcfe) | $0.73 | $0.89 | $0.73 | $0.88 | $0.96 | - Gathering, processing and transportation expenses in the 2022 Successor Quarter increased $63 million, primarily due to the Vine Acquisition ($61 million in Haynesville) and Marcellus Acquisition ($41 million in Marcellus)[302] - Gathering, processing and transportation expenses in the 2022 Successor Period increased $92 million, primarily due to the Vine Acquisition ($104 million in Haynesville) and Marcellus Acquisition ($51 million in Marcellus)[303] Severance and Ad Valorem Taxes Severance and ad valorem taxes for the three months ended June 30, 2022, increased by $16 million to $57 million, driven by improved pricing ($14 million) and the Vine and Marcellus Acquisitions ($7 million). Per Mcfe, these taxes decreased from $0.17 to $0.15. For the six months ended June 30, 2022, expenses increased by $37 million Total Severance and Ad Valorem Taxes (Millions USD, except $/Mcfe) | Period | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | 2021 Successor (Feb 10-Jun 30) | 2021 Predecessor (Jan 1-Feb 9) | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total Taxes | $57 | $41 | $120 | $65 | $18 | | Total Taxes ($/Mcfe) | $0.15 | $0.17 | $0.17 | $0.18 | $0.17 | - Severance and ad valorem taxes in the 2022 Successor Quarter increased $16 million, driven by $14 million from improved pricing and $7 million from the Vine and Marcellus Acquisitions[305] - Severance and ad valorem taxes in the 2022 Successor Period increased $37 million, driven by $21 million from improved pricing and $13 million from the Vine and Marcellus Acquisitions[306] Gross Margin by Operating Area Gross margin for the three months ended June 30, 2022, significantly increased to $2,341 million ($6.24/Mcfe) from $566 million ($2.40/Mcfe) in the prior-year quarter. This improvement was largely driven by higher sales prices and increased volumes from acquisitions. For the six months ended June 30, 2022, gross margin was $3,840 million ($5.40/Mcfe) Gross Margin by Operating Area (Three Months Ended June 30, Millions USD, except $/Mcfe) | Operating Area | 2022 Successor | 2021 Successor | | :------------- | :------------- | :------------- | | Marcellus | $1,024 | $135 | | Haynesville | $851 | $83 | | Eagle Ford | $466 | $303 | | Powder River Basin | — | $45 | | Total Gross Margin | $2,341 | $566 | | Total Gross Margin ($/Mcfe) | $6.24 | $2.40 | Gross Margin by Operating Area (Six Months Ended June 30, Millions USD, except $/Mcfe) | Operating Area | 2022 Successor | 2021 Successor | 2021 Predecessor | | :------------- | :------------- | :------------- | :--------------- | | Marcellus | $1,545 | $250 | $80 | | Haynesville | $1,394 | $134 | $36 | | Eagle Ford | $845 | $491 | $114 | | Powder River Basin | $56 | $69 | $16 | | Total Gross Margin | $3,840 | $944 | $246 | | Total Gross Margin ($/Mcfe) | $5.40 | $2.58 | $2.34 | Natural Gas and Oil Derivatives For the three months ended June 30, 2022, total losses on natural gas and oil derivatives were $(514) million, an improvement from $(740) million in the prior-year quarter. This included $(857) million in realized natural gas losses and $436 million in unrealized natural gas gains. For the six months ended June 30, 2022, total losses were $(2,639) million Total Losses on Natural Gas and Oil Derivatives (Three Months Ended June 30, Millions USD) | Metric | 2022 Successor | 2021 Successor | | :------------------------------------------ | :------------- | :------------- | | Natural gas derivatives - realized losses | $(857) | $(11) | | Natural gas derivatives - unrealized gains (losses) | $436 | $(422) | | Oil derivatives - realized losses | $(189) | $(113) | | Oil derivatives - unrealized gains (losses) | $96 | $(194) | | Total losses on natural gas and oil derivatives | $(514) | $(740) | Total Losses on Natural Gas and Oil Derivatives (Six Months Ended June 30, Millions USD) | Metric | 2022 Successor | 2021 Successor | 2021 Predecessor | | :------------------------------------------ | :------------- | :------------- | :--------------- | | Natural gas derivatives - realized gains (losses) | $(1,285) | $(16) | $6 | | Natural gas derivatives - unrealized losses | $(936) | $(304) | $(179) | | Oil derivatives - realized losses | $(348) | $(174) | $(19) | | Oil derivatives - unrealized losses | $(70) | $(200) | $(190) | | Total losses on natural gas and oil derivatives | $(2,639) | $(694) | $(382) | General and Administrative Expenses Net G&A expenses for the three months ended June 30, 2022, increased by $12 million to $36 million, primarily due to adjustments in employee benefits and compensation. Per Mcfe, net G&A remained flat at $0.10. For the six months ended June 30, 2022, net G&A increased by $23 million to $62 million Total G&A, Net (Millions USD, except $/Mcfe) | Period | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | 2021 Successor (Feb 10-Jun 30) | 2021 Predecessor (Jan 1-Feb 9) | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total G&A, net | $36 | $24 | $62 | $39 | $21 | | Total G&A, net ($/Mcfe) | $0.10 | $0.10 | $0.09 | $0.11 | $0.20 | - Gross compensation and benefits and non-labor expenses increased by $21 million in the 2022 Successor Quarter and $25 million in the 2022 Successor Period, primarily due to adjustments in employee benefits and compensation and timing of stock award grants[314] - Allocations and reimbursements increased by $9 million in the 2022 Successor Quarter and $23 million in the 2022 Successor Period, primarily due to increased drilling and production activity from the Vine and Marcellus Acquisitions[315] Separation and Other Termination Costs The company recognized $11 million in separation and other termination costs during the 2021 Successor Quarter and Period, and $22 million in the 2021 Predecessor Period, related to one-time termination benefits for employees. No such costs were incurred in the 2022 Successor periods Separation and Other Termination Costs (Millions USD) | Period | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | 2021 Successor (Feb 10-Jun 30) | 2021 Predecessor (Jan 1-Feb 9) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Separation and other termination costs | — | $11 | — | $11 | $22 | Depreciation, Depletion and Amortization Depreciation, depletion, and amortization (DD&A) for the three months ended June 30, 2022, increased to $451 million ($1.20/Mcfe) from $229 million ($0.97/Mcfe) in the prior-year quarter. This increase is primarily due to the Vine and Marcellus Acquisitions. For the six months ended June 30, 2022, DD&A was $860 million ($1.21/Mcfe) Depreciation, Depletion and Amortization (DD&A) (Millions USD, except $/Mcfe) | Period | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | 2021 Successor (Feb 10-Jun 30) | 2021 Predecessor (Jan 1-Feb 9) | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | DD&A | $451 | $229 | $860 | $351 | $72 | | DD&A per Mcfe | $1.20 | $0.97 | $1.21 | $0.96 | $0.68 | - The absolute and per unit increases in DD&A for the 2022 Successor Quarter and Period are primarily the result of the Vine Acquisition and Marcellus Acquisition[317] Other Operating Expense (Income), Net For the six months ended June 30, 2022, other operating expense, net, was $31 million, primarily driven by $33 million in costs related to the Marcellus Acquisition, including integration, consulting, financial advisory, legal fees, and change in control expenses Other Operating Expense (Income), Net (Millions USD) | Period | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Period from Feb 10, 2021 through June 30, 2021 | Period from Jan 1, 2021 through Feb 9, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :--------------------------------------------- | :-------------------------------------------- | | Other operating expense (income), net | $8 | $(4) | $31 | $(2) | $(12) | - During the 2022 Successor Period, approximately $33 million of costs related to the Marcellus Acquisition were recognized, including integration costs, consulting fees, financial advisory fees, legal fees, and change in control expense[319] Interest Expense Total interest expense for the three months ended June 30, 2022, increased to $36 million from $18 million in the prior-year quarter. For the six months ended June 30, 2022, it increased to $68 million from $30 million in the 2021 Successor Period. This rise is attributed to increased outstanding debt obligations, including the assumed Vine senior notes and higher borrowings under the Exit Credit Facility Total Interest Expense (Millions USD) | Period | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | 2021 Successor (Feb 10-Jun 30) | 2021 Predecessor (Jan 1-Feb 9) | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total Interest Expense | $36 | $18 | $68 | $30 | $11 | - The increase in total interest expense is due to increased outstanding debt obligations, including the assumption of Vine's $950 million senior notes and increased borrowings under the Exit Credit Facility[321] Reorganization Items, Net In the 2021 Predecessor Period, the company recorded a net gain of $5.569 billion in reorganization items, net, primarily from the gain on settlement of liabilities subject to compromise related to the Chapter 11 Cases. No reorganization items were recognized in the 2022 Successor or 2021 Successor periods Reorganization Items, Net (Millions USD) for 2021 Predecessor Period (Jan 1 - Feb 9, 2021) | Item | Amount | | :------------------------------------------ | :----- | | Gains on the settlement of liabilities subject to compromise | $6,443 | | Accrual for allowed claims | $(1,002) | | Gain on fresh start adjustments | $201 | | Total reorganization items, net | $5,569 | - No reorganization items, net were recognized for the 2022 Successor Quarter, 2022 Successor Period, 2021 Successor Quarter, or 2021 Successor Period[322] Income Taxes Income tax expense for the 2022 Successor Period was $31 million, with an effective tax rate of 6.2%. The effective tax rate for the 2021 Successor Period was 0.0%, and for the 2021 Predecessor Period was (1.1%), which included a $57 million benefit from the elimination of income tax effects associated with hedging settlements Income Tax Expense and Effective Tax Rate (Millions USD) | Period | Income Tax Expense (Benefit) | Effective Tax Rate | | :---------------- | :--------------------------- | :----------------- | | 2022 Successor Period | $31 | 6.2% | | 2021 Successor Period | — | 0.0% | | 2021 Predecessor Period | $(57) | (1.1%) | - The income tax provision for the 2021 Predecessor Period included an income tax benefit of $57 million for the elimination of income tax effects associated with hedging settlements as part of fresh start accounting[323] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk Commodity Price Risk The company is exposed to volatility in natural gas, oil, and NGL prices and uses derivative instruments to mitigate this risk, which are considered highly effective. As of June 30, 2022, natural gas and oil derivatives were net liabilities of $2,062 million and $428 million, respectively. A 10% price change would significantly impact derivative valuations and revenues - The company's results of operations and cash flows are impacted by changes in market prices for natural gas, oil, and NGL, which have historically been volatile[333] - Derivative instruments are used to mitigate a portion of exposure to adverse price changes and are considered highly effective in achieving risk management objectives[333] Fair Values of Natural Gas and Oil Derivatives (Net Liabilities, Millions USD) as of June 30, 2022 | Commodity | Amount | | :---------- | :------- | | Natural Gas | $(2,062) | | Oil | $(428) | - For the 2022 Successor Period, a 10% increase or decrease in prices would impact natural gas revenue by approximately $355 million, oil revenue by $102 million, and NGL revenue by $13 million[335] - A 10% increase in forward natural gas prices would decrease the valuation of natural gas derivatives by approximately $483 million, while a 10% decrease would increase it by approximately $475 million[335] Interest Rate Risk The company's interest rate exposure primarily relates to floating-rate borrowings under its Exit Credit Facility. As of June 30, 2022, with $996 million in outstanding variable-rate debt, a 1.0% increase in interest rates would result in an approximate $10 million increase in annual interest expense - The company's exposure to interest rate changes primarily relates to borrowings under its Exit Credit Facility, which bear interest at floating rates[336] - As of June 30, 2022, outstanding borrowings under the Exit Credit Facility totaled $775 million for Tranche A Loans and $221 million for Tranche B Loans[336] - A 1.0% increase in interest rates, based on variable borrowings as of June 30, 2022, would result in an approximate $10 million increase in annual interest expense[336] ITEM 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures As of June 30, 2022, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective - As of June 30, 2022, management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective[339] Changes in Internal Control Over Financial Reporting There were no changes in internal control over financial reporting during the quarter ended June 30, 2022, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting - There were no changes in internal control over financial reporting during the period covered by this quarterly report on Form 10-Q that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[340] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings Chapter 11 Proceedings The Chapter 11 Cases, which became effective on February 9, 2021, provided for the treatment of claims against the company's bankruptcy estates, including pre-petition liabilities - The Plan in the Chapter 11 Cases, which became effective on February 9, 2021, provided for the treatment of claims against the company's bankruptcy estates, including pre-petition liabilities[343] Litigation and Regulatory Proceedings The company is involved in various litigation and regulatory proceedings, many of which were in early stages as of the Petition Date. Accrued liabilities are estimated on a case-by-case basis, and most pre-petition legal proceedings were settled or will be resolved through the claims reconciliation process - The company was involved in a number of litigation and regulatory proceedings as of the Petition Date, many in early stages and seeking indeterminate damages and penalties[344] - Total accrued liability for litigation and regulatory proceedings is determined on a case-by-case basis, representing an estimate of probable losses[344] - The majority of pre-petition legal proceedings were settled during the Chapter 11 Cases or will be resolved in connection with the claims reconciliation process[345] Business Operations The company is involved in various lawsuits and disputes incidental to its business operations, including commercial, personal injury, royalty, property damage, and contract actions. Most pre-petition cases were settled or will be resolved through the bankruptcy claims process - The company is involved in various lawsuits and disputes incidental to its business operations, including commercial disputes, personal injury claims, royalty claims, property damage claims, and contract actions[345] - The majority of these pre-petition legal proceedings were settled during the Chapter 11 Cases or will be resolved in connection with the claims reconciliation process[345] Environmental Contingencies The oil and gas business carries environmental risks, which the company mitigates through policies, programs, and reviews. Environmental reserves are established for probable and estimable liabilities. The company was dismissed from Oklahoma lawsuits alleging earthquake causation - The nature of the oil and gas business carries certain environmental risks, which the company addresses through