CHESAPEAKE ENERGY CORPORATION Item 1.01 Entry into a Material Definitive Agreement. OnDecember 3, 2019 ,Chesapeake Energy Corporation ("Chesapeake") entered into the Second Amendment (the "Amendment") to Amended and Restated Credit Agreement, dated as ofSeptember 12, 2018 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), by and among Chesapeake, as borrower,MUFG Union Bank, N.A. , as administrative agent, and the lenders from time to time party thereto. The Amendment, among other things, (i) permits the issuance of certain secured indebtedness with a lien priority or proceeds recovery behind the obligations under the Credit Agreement without a corresponding 25% reduction in the borrowing base under the Credit Agreement, if issued by the next scheduled redetermination of the borrowing base, (ii) increases the amount of indebtedness that can be secured on a pari passu first-lien basis with (and with recovery proceeds behind) the obligations under the Credit Agreement from$1 billion to$1.5 billion , (iii) increases the Applicable Margin (as defined in the Credit Agreement) on borrowings under the Credit Agreement by 100 basis points, (iv) requires liquidity of at least$250 million at all times, (v) for each fiscal quarter commencing with the fiscal quarter endingDecember 31, 2019 , replaces the Secured Leverage Ratio (as defined in the Credit Agreement) financial covenant with a requirement that the First Lien Secured Leverage Ratio (as defined in the Amendment) not exceed 2.50:1 as of the end of such fiscal quarter, (vi) increases the maximum permitted Leverage Ratio (as defined in the Credit Agreement) as of the end of each fiscal quarter to 4.50:1 through the fiscal quarter endingDecember 31, 2021 , with step-downs to 4.25:1 for the fiscal quarter endingMarch 31, 2022 and to 4.00:1 for each fiscal quarter ending thereafter, and (vii) requires that Chesapeake use the aggregate net cash proceeds of certain asset sales in excess of$50 million to prepay certain indebtedness and/or reduce commitments under the Credit Agreement, until the retirement of all of Chesapeake's senior notes maturing beforeSeptember 12, 2023 . The above description of the material terms and conditions of the Amendment is a summary only, does not purport to be complete, and is qualified by reference to the full text of the Amendment attached to this Current Report as Exhibit 10.1. Item 8.01 Other Events. Pro Forma Financial Information As previously disclosed in the Current Report on Form 8-K filed with theSecurities Exchange Commission (the "SEC") by Chesapeake onFebruary 1, 2019 , onFebruary 1, 2019 ,Coleburn Inc. , aDelaware corporation ("Merger Sub") and a wholly owned subsidiary of Chesapeake, completed its previously announced merger withWildHorse Resource Development Corporation , aDelaware corporation ("WildHorse"), pursuant to the Agreement and Plan of Merger, dated as ofOctober 29, 2018 , as amended (the "Merger Agreement"), among Chesapeake, Merger Sub and WildHorse. Pursuant to the Merger Agreement, Merger Sub merged with and into WildHorse (the "First Merger"), with WildHorse continuing as the surviving corporation. Immediately following the effective time of the First Merger, WildHorse merged with and intoBrazos Valley Longhorn, L.L.C. , a wholly owned limited liability company subsidiary of Chesapeake ("BVL") (the "Second Merger" and, together with the First Merger, the "Merger"), with BVL continuing as a wholly owned subsidiary of Chesapeake. This Current Report on Form 8-K is being filed to, in addition to the information described below, provide pro forma condensed combined financial information relating to the Merger, which is incorporated herein by reference, for the year endedDecember 31, 2018 and nine months endedSeptember 30, 2019 . As previously disclosed in the Current Report on Form 8-K filed with theSEC by Chesapeake onMay 9, 2019 , during the first quarter of 2019, Chesapeake voluntarily changed its method of accounting for oil and natural gas exploration and development activities from the full cost method to the successful efforts method. Accordingly, we have recast certain information in this filing to reflect the retrospective application of this change in accounting principle for the unaudited pro forma condensed consolidated financial information as of and for the year endedDecember 31, 2018 .
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Reserve Information We reported our Standardized Measure of discounted future net cash flows in our Annual Report on Form 10-K for the year endedDecember 31, 2018 , which was$9.495 billion atDecember 31, 2018 . We are reporting in this Current Report on Form 8-K the PV-10 of our proved developed reserves atSeptember 30, 2019 , which was$5.872 billion using NYMEX strip pricing measured atSeptember 30, 2019 and$6.977 billion usingSEC pricing measured atSeptember 30, 2019 . PV10 is a non-GAAP financial measure and differs from the Standardized Measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. PV10 is a computation of the Standardized Measure of discounted future net cash flows on a pre-tax basis. PV10 is equal to the Standardized Measure of discounted future net cash flows at the applicable date, before deducting future income taxes, discounted at 10 percent. We believe that the presentation of PV10 is relevant and useful to investors because it presents the discounted future net cash flows attributable to our estimated net proved reserves prior to taking into account future corporate income taxes, and it is a useful measure for evaluating the relative monetary significance of our oil and natural gas properties. Further, investors may utilize the measure as a basis for comparison of the relative size and value of our reserves to other companies without regard to the specific tax characteristics of such entities. We use this measure when assessing the potential return on investment related to our oil and natural gas properties. PV10, however, is not a substitute for the Standardized Measure of discounted future net cash flows. Our PV10 measure and the Standardized Measure of discounted future net cash flows do not purport to represent the fair value of our oil and natural gas reserves. Further, estimates of our proved reserves and our PV-10 measure for the interim period presented below have been prepared internally and have not been reviewed or audited by our third-party reserve engineers. With respect to PV-10 calculated as of an interim date, it is not practical to calculate taxes for the related interim period because GAAP does not provide for disclosure of Standardized Measure on an interim basis. The following table provides the PV-10 of our proved developed reserves atSeptember 30, 2019 using NYMEX strip pricing andSEC pricing; the PV-10 of our proved developed reserves (less reserves acquired in 2019) usingSEC pricing as ofSeptember 30, 2019 ; the PV-10 of our proved developed reserves atDecember 31, 2018 usingSEC pricing; the PV-10 of our proved reserves usingSEC pricing as ofDecember 31, 2018 ; and a reconciliation of the PV-10 of our proved reserves usingSEC pricing to the Standardized Measure of discounted cash flows atDecember 31, 2018 : ($ in millions) Proved Developed PV10 @ 9/30/19 NYMEX Strip(1) $ 5,872 Plus: Change in pricing assumptions from NYMEX strip to SEC 1,105 Proved Developed PV10 @ 9/30/19 SEC (2) 6,977
Plus: Change in pricing and other assumptions from
1,178
Proved Developed PV10 @ 12/31/18 SEC including acquired reserves 8,155
Less: Proved Developed PV10 of Acquired Reserves @ 12/31/18 SEC (1,978 )
Proved Developed PV10 @ 12/31/18 SEC 6,177
Plus: Proved Undeveloped PV10 @ 12/31/18 SEC 3,350
Total Proved PV10 @ 12/31/18 SEC (3) 9,527
Less: Present value of future income tax discount at 10% (32 )
Standardized Measure of discounted future cash flows @
(1) Based on NYMEX Strip pricing measured atSeptember 30, 2019 averaging$51.88 /bbl and$2.67 /mcf (2) Based onSEC pricing measured atSeptember 30, 2019 averaging$57.77 /bbl and$2.87 /mcf (3) Based onSEC pricing measured atDecember 31, 2018 averaging$65.56 /bbl and$3.10 /mcf
NYSE Notification
The average closing price of our common stock,
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Chesapeake will have a period of six months following the receipt from the NYSE of the notice of non-compliance to regain compliance with the minimum share price requirement, with the possibility of extension at the discretion of the NYSE. If, after receipt of the notice, Chesapeake fails to regain compliance with Section 802.01C of the NYSE Listed Company Manual by the end of the cure period, the Common Stock will be subject to the NYSE's suspension and delisting procedures. If the Common Stock ultimately were to be delisted for any reason, it could negatively impact Chesapeake as it would likely reduce the liquidity and market price of the Common Stock; reduce the number of investors willing to hold or acquire the Common Stock; and negatively impact Chesapeake's ability to access equity markets and obtain financing. The NYSE notification does not affect Chesapeake's business operations or itsSecurities and Exchange Commission reporting obligations and does not result in a default under any of Chesapeake's material debt agreements. If the Common Stock were to be removed from listing on the NYSE (and the Common Stock were not to become listed on other specified stock exchanges), holders of Chesapeake's convertible senior notes would have a right to require Chesapeake to repurchase their notes. Item 9.01 Exhibits. (d) Exhibits.
Exhibit No. Document Description
10.1 Second Amendment to Amended and Restated Credit Agreement, dated
as of December 3, 2019 among Chesapeake, MUFG Union Bank, N.A.
and the Lenders party thereto.
99.1 Unaudited Pro Forma Condensed Consolidated Financial Information
of Chesapeake for the year ended December 31, 2018 and nine
months ended September 30, 2019 .
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document).
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