EXPAND ENERGY Corp quarterly report, Q2 FY2020

Business context and reporting period

The supplied filing is Chesapeake Energy Corporation’s unaudited Form 10-Q for the quarter and six months ended June 30, 2020; it does not identify Expand Energy Corp. Investors should verify the issuer and filing before relying on this summary. Chesapeake is an independent U.S. oil and gas exploration and production company. It filed for Chapter 11 protection on June 28, 2020 and was operating as a debtor in possession at quarter-end.

Financial performance and position

Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise indicated.

Metric	Q2 2020	Q2 2019	Six months 2020	Six months 2019
Total revenue and other	$521	$2,386	$3,062	$4,582
Operating income (loss)	$(541)	$278	$(8,768)	$96
Net income (loss)	$(276)	$98	$(8,589)	$77
Interest expense	$137	$175	$282	$336

Six-month operating cash flow was $773 million, versus $853 million a year earlier. Investing cash use was $856 million, including $843 million in drilling and completion costs; financing provided $159 million. Cash ended June at $82 million.
At June 30, current assets were $690 million and current liabilities were $2.389 billion, a reported net working capital deficit of $1.699 billion. Total liabilities were $10.741 billion, including $8.135 billion classified as liabilities subject to compromise. Total equity was a deficit of $4.188 billion.
Debt totaled $9.095 billion before classification: $1.929 billion of revolving-facility debt was current, while $7.166 billion was classified as liabilities subject to compromise. No DIP facility borrowings were outstanding at June 30.
Q2 oil, gas and NGL sales were $440 million, down 63% year over year; marketing revenue was $240 million and marketing margin was negative $2 million. Q2 production averaged 421 thousand barrels of oil equivalent per day, versus 496 thousand, and reported revenue per BOE was $11.46 versus $26.12.

Material changes versus the prior comparable period

Six-month revenue and other fell 33%; oil, gas and NGL sales fell 45%. Management attributed the sales decline primarily to lower prices, with reduced volumes from curtailments, natural declines and shut-in wells also contributing.
The six-month net loss included an $8.446 billion impairment of proved oil and gas properties and a $76 million sand-mine impairment. Total impairments were $8.522 billion, compared with $2 million in the prior-year period.
Other significant items included $412 million of exploration expense, largely non-cash unproved-property impairments; an $80 million non-recurring charge for gathering and transportation contract terminations; and $394 million of net reorganization income, including a $518 million gain from writing off unamortized debt premiums and discounts, partly offset by financing-related expenses.
Chesapeake repurchased approximately $160 million principal amount of senior notes for $95 million, recording a $65 million gain. It also paid $55 million in DIP financing costs during the six-month period.

Outlook, commentary, risks and contingencies

Management stated that substantial doubt exists about Chesapeake’s ability to continue as a going concern. Continued operations depend on compliance with DIP covenants, court approval and implementation of a reorganization plan, and obtaining exit financing.
The restructuring support agreement contemplated cancellation of existing common and preferred equity without a distribution. The proposed plan’s terms remained subject to court approval and conditions; completion or timing was not assured. The filing warns existing equity trading is highly speculative.
The DIP facility provided for up to approximately $2.104 billion in commitments, including up to $925 million of new-money revolving capacity and approximately $1.179 billion of roll-up term loans; final court approval followed on July 31, 2020. Up to $2.5 billion of exit facilities were contemplated, subject to conditions. The filing cites exit-financing conditions including $500 million minimum liquidity and specified leverage and asset-coverage tests.
Management forecast 2020 capital expenditures of $1.0–$1.2 billion, compared with $2.2 billion in 2019, and said reduced spending would lower future production. It reported workforce reductions affecting about 13% of employees, with estimated annualized savings of about $36 million, and oil-production reductions from shut-ins during May and June.
COVID-19, depressed commodity prices, continued market volatility, restructuring costs, potential contract rejections, and uncertainty over the Chapter 11 process pose material risks. Undiscounted gathering, processing and transportation commitments were $7.339 billion; the filing notes some contract obligations may be renegotiated or rejected in bankruptcy.
The filing discloses pending royalty and other litigation, including a HOOPP arbitration seeking rescission or $215 million plus other relief, and Oklahoma earthquake-related lawsuits. Outcomes and potential losses may differ materially from estimates.
Common stock left the NYSE and began OTC Pink trading as CHKAQ on June 30, 2020; the NYSE filed to delist the securities in July. Preferred dividends were suspended. A 1-for-200 reverse split took effect April 14, 2020.

Important facts for investors to verify

Confirm the issuer: this source is Chesapeake Energy Corporation, not Expand Energy Corp.
Check the subsequent court-approved plan, restructuring outcome, treatment of existing equity and whether exit financing was completed.
Verify current liquidity, DIP borrowings and covenant compliance; the June 30 cash balance and borrowing status predate final DIP approval.
Review updated commodity prices, hedge positions, capital spending, production and the effect of contract changes on cash costs.
Track claims reconciliation, litigation exposure and any material adjustments to liabilities subject to compromise.