Chesapeake Energy Corporation — Form 10-K Summary
Issuer note: The supplied filing is Chesapeake Energy Corporation’s Form 10-K, not a filing identified as Expand Energy Corp. It covers the fiscal year ended December 31, 2020; fourth-quarter figures are unaudited. Filed March 1, 2021.
Business context and reporting period
Chesapeake is a U.S. onshore oil and gas exploration and production company with operations in the Marcellus, Haynesville, Eagle Ford, Brazos Valley and Powder River Basin. The company filed for Chapter 11 on June 28, 2020, and emerged on February 9, 2021. Pre-emergence financial results are not directly comparable with the reorganized company’s future results; fresh-start accounting was expected to produce material adjustments.
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $5.296 billion | $8.595 billion |
| Net loss | $9.750 billion | $308 million |
| Loss available to common stockholders | $9.756 billion | $416 million |
| Cash from operating activities | $1.164 billion | $1.623 billion |
| Capital spending on drilling and completion | $1.111 billion | $2.180 billion |
| Oil-equivalent production | 163 million boe | 177 million boe |
| Average sales price, before derivative gains | $16.84/boe | $25.57/boe |
Revenue fell about 38%, reflecting lower commodity prices and lower sales volumes. Oil, natural gas and NGL sales declined 39% to $2.745 billion; derivative gains were $596 million, compared with $5 million in 2019. Production expense was $2.29/boe, while gathering, processing and transportation expense was $6.64/boe.
The $9.750 billion net loss was driven largely by $8.535 billion of impairments, including $8.446 billion on proved oil and gas properties, as well as $796 million of net reorganization expense. The impairment was primarily associated with lower forecast commodity prices. Fourth-quarter 2020 revenue was $1.259 billion, operating income was $176 million, and net loss attributable to Chesapeake was $416 million.
Liquidity, debt and reserves
At December 31, 2020, cash was $279 million and the net working capital deficit was $1.986 billion. The company reported $1.929 billion outstanding on its pre-petition revolving credit facility and $8.643 billion of liabilities subject to compromise, including $7.166 billion of debt. No DIP borrowings were outstanding at year-end. Operating cash flow less drilling and completion spending was approximately $53 million, before other investing activities.
Upon emergence, pre-petition debt was restructured or extinguished under the plan. Initial post-emergence financing included $1.0 billion of senior notes and approximately $271 million drawn under the exit credit facility. The facility had an initial $2.5 billion borrowing base and $1.75 billion of revolving commitments; these are facility amounts, not additional debt outstanding. Year-end proved reserves were 802 million boe, down from 1.572 billion boe in 2019, including substantial downward revisions tied to development-plan changes, prices and financing uncertainty.
Material changes, outlook and risks
- Restructuring and asset actions: The company canceled predecessor equity upon emergence and issued new shares and warrants under the plan. It sold Mid-Continent assets for $130 million and exchanged certain Haynesville assets for improved midstream contract terms.
- Cost and workforce actions: Chesapeake reduced its workforce by 25% in 2020 and a further 15% in February 2021. It estimated roughly $70 million of annualized savings from the 2020 reduction and stated that 2021 annualized cash costs were expected to be about $1 billion below 2019.
- 2021 capital outlook: Management forecast capital expenditures of $670–$740 million, including capitalized interest, and approximately 110–125 gross wells brought online across five to six rigs, with about 80% of spending directed to natural gas assets. Plans could change with market and business conditions.
- Post-emergence targets: Management stated targets of net leverage below 1x, a long-term capital reinvestment rate of 60%–70% of EBITDAX, and maintenance capital of $700–$750 million annually, excluding capitalized interest. It also set a goal of net-zero direct greenhouse gas emissions by 2035.
- Hedging: As of February 25, 2021, management reported hedges covering 77% of forecast 2021 oil production at $42.69/bbl and 74% of forecast 2021 natural gas production at $2.67/mcf. Hedges reduce price exposure but can limit gains if market prices rise.
- Key risks and contingencies: Risks include commodity-price and COVID-19 volatility, post-bankruptcy execution and covenant compliance, reserve-estimation uncertainty, midstream commitments, access to federal permits and changing environmental or climate regulation. The filing also describes royalty litigation, a securities arbitration seeking rescission or $215 million plus other relief, wrongful-death lawsuits arising from a 2020 well-control incident, and environmental and earthquake-related claims. Some potential losses were not estimable.
Important facts for investors to verify
- Confirm the issuer and security being analyzed: this filing is for Chesapeake Energy Corporation, and predecessor common equity was canceled upon emergence.
- Review the final post-emergence balance sheet and fresh-start accounting, which were not finalized in this filing.
- Track the exit facility’s borrowing-base redeterminations, covenant headroom, debt balances and liquidity needs.
- Assess whether forecast cost savings, capital spending, production and leverage targets are being achieved under actual commodity prices.
- Monitor reserve revisions and development of PUDs, as well as the outcomes and potential costs of material litigation and contract claims.