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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  Chesapeake Energy Corporation    CHKAQ

CHESAPEAKE ENERGY CORPORATION

(CHKAQ)
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CHESAPEAKE ENERGY : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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05/11/2020 | 08:26am EDT

Introduction

The following discussion should be read together with the condensed consolidated
financial statements included in Item 1 of Part I of this report and in Item 8
of our 2019 Form 10-K.
We are an independent exploration and production company engaged in the
acquisition, exploration and development of properties to produce oil, natural
gas and NGL from underground reservoirs. We own a large and geographically
diverse portfolio of onshore U.S. unconventional natural gas and liquids assets,
including interests in approximately 13,700 oil and natural gas wells. We have
significant positions in the liquids-rich resource plays of the Eagle Ford Shale
in South Texas, the stacked pay in the Powder River Basin in Wyoming and the
Anadarko Basin in northwestern Oklahoma. Our natural gas resource plays are the
Marcellus Shale in the northern Appalachian Basin in Pennsylvania and the
Haynesville/Bossier Shales in northwestern Louisiana.
Our strategy is to create shareholder value through the development of our
significant resource plays. Current market conditions make it difficult to
execute on this strategy; however, we continue to focus on reducing debt,
increasing cash provided by operating activities, improving margins through
financial discipline and operating efficiencies and maintaining exceptional
environmental and safety performance. To accomplish these goals, we intend to
allocate our capital expenditures to projects we believe offer the highest
return and value regardless of the commodity price environment, to deploy
leading drilling and completion technology throughout our portfolio, and to take
advantage of acquisition and divestiture opportunities to strengthen our cost
structure and our portfolio. We continue to seek opportunities to reduce cash
costs per barrel of oil equivalent production (production, gathering, processing
and transportation and general and administrative) through operational
efficiencies, including but not limited to improving our production volumes from
existing wells. In response to current market conditions, we have reduced our
workforce, curtailed production and reduced capital, which will further reduce
future production.
Recent Developments
COVID-19 Pandemic and Impact on Global Demand for Oil and Natural Gas
On March 11, 2020, the World Health Organization declared the ongoing
coronavirus (COVID-19) outbreak a pandemic and recommended containment and
mitigation measures worldwide. The pandemic has reached more than 200 countries
and territories and has resulted in widespread adverse impacts on the global
economy and on our customers and other parties with whom we have business
relations. To date, we have experienced limited operational impacts as a result
of restrictions from working remotely or COVID-19 directly. As an essential
business under the guidelines issued by each of the states in which we operate,
we have been allowed to continue operations, although for the health and safety
of our employees we chose to have our non-essential personnel work remotely. As
a result, since mid-March, we have restricted access to all of our offices and
have directed employees to work remotely to the extent possible. Those employees
who are unable to work remotely are being closely monitored and are taking
precautions to minimize the risk of exposure. We will begin to re-open our
offices in phases beginning mid-May. These actions since mid-March have allowed
us to maintain the engagement and connectivity of our personnel, as well as
minimize the number of employees required in the office and field. However, due
to severe impacts from the global COVID-19 pandemic on the global demand for oil
and natural gas, financial results for the three months ended March 31, 2020 are
not necessarily indicative of operating results for the entire year as only one
month of the Current Quarter was impacted by COVID-19 and the related economic
volatility. Moreover, future operations could be negatively affected if a
significant number of our employees are quarantined as a result of exposure to
the virus.
Our first priority in our response to this crisis has been the health and safety
of our employees and those of our other business counterparties. We have
implemented preventative measures and developed corporate and regional response
plans to minimize unnecessary risk of exposure and prevent infection, while
supporting our employees, contractors and vendors to the best of our ability in
the circumstances. We have a business continuity team for health, safety and
environmental matters and personnel issues, and we have activated this business
continuity team to address various impacts of the situation, as they develop. We
also have modified certain business practices (including those related to
employee travel, employee work locations, and cancellation of physical
participation in meetings, events and conferences) to protect the health and
safety of our employees, contractors and communities in which we operate by
conforming to government restrictions and best practices encouraged by the
Centers for Disease Control and Prevention, the World Health Organization and
other governmental and regulatory authorities.

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There is considerable uncertainty regarding the extent to which COVID-19 will
continue to spread and the extent and duration of governmental and other
measures implemented to try to slow the spread of the virus, such as large-scale
travel bans and restrictions, border closures, quarantines, shelter-in-place
orders and business and government shutdowns. One of the largest impacts of the
pandemic has been a significant reduction in global demand for oil and, to a
lesser extent, natural gas. This significant decline in demand has been met with
a sharp decline in oil prices following the announcement of price reductions and
production increases in March 2020 by members of the Organization of Petroleum
Exporting Countries (OPEC+) and other foreign, oil-exporting countries. The
resulting supply/demand imbalance is having disruptive impacts on the oil and
natural gas exploration and production industry and on other industries that
serve exploration and production companies. These industry conditions, coupled
with those resulting from the COVID-19 pandemic, are expected to lead to
significant global economic contraction generally and in our industry in
particular.
Oil and natural gas prices have historically been volatile; however, the
volatility in the prices for these commodities has substantially increased as a
result of COVID-19 and the OPEC+ decisions mentioned above. While an agreement
to cut production has since been announced by OPEC+ and its allies, the
situation, coupled with the impact of COVID-19, has continued to result in a
significant downturn in the oil and gas industry. Oil prices declined sharply in
April 2020 and remain volatile. Strip pricing for natural gas has increased as a
result of the oil price war; however, the impact of these recent developments
and our business are unpredictable. We expect to see continued volatility in oil
and natural gas prices for the foreseeable future, and such volatility, combined
with the current depressed prices, has impacted and is expected to continue to
adversely impact our business. A continued low level of demand or prices for oil
and natural gas or otherwise would have a continued material adverse effect on
our business, cash flows, liquidity, financial condition and results of
operations.
As of the date of this Form 10-Q, our efforts to respond to the challenges
presented by the conditions described above and minimize the impacts to our
business have yielded results. We have moved quickly to implement strategies to
reduce costs, increase operational efficiencies and lower our capital spending.
In April, we underwent a reduction in workforce impacting approximately 13% of
our employees. In connection with the reduction, we expect to record a
non-recurring charge of approximately $22 million in the second quarter of 2020
and we anticipate an estimated annualized savings of approximately $36 million.
Due to current oil prices and midstream constraints, we have shut-in wells and
delayed turn-in-lines, which will reduce our projected oil production by
approximately 50% and 37% in May and June, respectively. As market conditions
improve, we will return wells to production and complete our drilled but
uncompleted wells. We anticipate our capital expenditures for the remainder of
the year will range between $500 and $700 million and will be focused primarily
on our gas assets. We have not received any funding under the CARES Act or other
federal programs to support our operations and do not anticipate that we will.
We are continuing to address concerns to protect the health and safety of our
employees and those of our customers and other business counterparties, and this
includes changes to comply with health-related guidelines as they are modified
and supplemented.
We cannot predict the full impact that COVID-19 or the significant disruption
and volatility currently being experienced in the oil and natural gas markets
will have on our business, cash flows, liquidity, financial condition and
results of operations at this time due to numerous uncertainties. The ultimate
impacts will depend on future developments, including, among others, the
ultimate geographic spread of the virus, the consequences of governmental and
other measures designed to prevent the spread of the virus, the development of
effective treatments, the duration of the outbreak, actions taken by members of
OPEC+ and other foreign, oil-exporting countries, governmental authorities,
customers and other thirds parties, workforce availability, and the timing and
extent to which normal economic and operating conditions resume. For additional
discussion regarding risks associated with the COVID-19 pandemic, see Item 1A
"Risk Factors" in this report.
Reverse Stock Split
On April 13, 2020, our Board of Directors and our shareholders approved
a 1-for-200 (1:200) reverse stock split of our common stock and a reduction of
the total number of authorized shares of our common stock as determined by a
formula based on two-thirds of the reverse stock split ratio.
The reverse stock split became effective as of the close of business on April
14, 2020. Our common stock began trading on a split-adjusted basis on the NYSE
at the market open on April 15, 2020. The par value of the common stock was not
adjusted as a result of the reverse stock split.
The reverse stock split was intended to, among other things, increase the per
share trading price of our common shares to satisfy the $1.00 minimum closing
price requirement for continued listing on the NYSE. The price condition will be
deemed cured if on the last trading day of any calendar month within six months
following the receipt from the NYSE of the notice of non-compliance, we have a
closing share price of at least $1.00 and an average closing share

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price of at least $1.00 over the 30 trading-day period ending on the last
trading day of that month. On April 1, 2020, the NYSE tolled the compliance
period through June 30, 2020. As a result of the reverse stock split, each 200
pre-split shares of common stock outstanding were automatically combined into
one issued and outstanding share of common stock. The fractional shares that
resulted from the reverse stock split were canceled by paying cash in lieu of
the fair value. The number of outstanding shares of common stock were reduced
from approximately 1.957 billion as of April 10, 2020 to approximately 9.784
million shares (without giving effect to the liquidation of fractional shares).
The total number of shares of common stock that we are authorized to issue was
reduced from 3,000,000,000 to 22,500,000 shares. All share and per share amounts
in the accompanying condensed consolidated financial statements and notes
thereto were retroactively adjusted for all periods presented to give effect to
this reverse stock split, including reclassifying an amount equal to the
reduction in par value of our common stock to additional paid-in capital.
Adoption of Rights Plan
On April 23, 2020, our Board of Directors declared a dividend of one Right
payable on May 4, 2020 for each share of our common stock outstanding on May 4,
2020 to the shareholders of record on that date. In connection with the
distribution of the Rights, we entered into a Rights Agreement with
Computershare Trust Company, N.A., as rights agent. Each Right entitles the
registered holder to purchase from us Preferred Shares.
The Rights Agreement is intended to protect value by preserving our ability to
use our tax attributes to offset potential future income taxes for federal
income tax purposes. Our ability to use our tax attributes would be
substantially limited if we experience an "ownership change," as such term is
defined in Section 382 of the Code. A company generally experiences an ownership
change if the percentage of its shares of stock owned by its "5-percent
shareholders," as such term is defined in Section 382 of the Code, increases by
more than 50 percentage points over a rolling three-year period. The Rights
Agreement is intended to reduce the likelihood of an ownership change under
Section 382 of the Code by deterring any person or group of affiliated or
associated persons from acquiring 4.9% or more of our outstanding shares of
common stock.
The Rights Agreement will expire on the close of business on the day following
the certification of the voting results from our 2021 annual meeting of
shareholders, unless our shareholders ratify the Rights Agreement at or prior to
such meeting, in which case it will continue in effect until April 22, 2023,
unless terminated earlier in accordance with its terms. This summary description
of the rights plan does not purport to be complete and is qualified in its
entirety by reference to the Rights Agreement, which was filed as an exhibit to
our current report on Form 8-K filed on April 23, 2020.
Liquidity and Capital Resources
Liquidity Overview
Our ability to grow, make capital expenditures and service our debt depends
primarily upon the prices we receive for the oil, natural gas and NGL we sell.
Substantial expenditures are required to replace reserves, sustain production
and fund our business plans. Historically, oil and natural gas prices have been
volatile; however, the volatility in the prices for these commodities has
substantially increased as a result of COVID-19 and the OPEC+ decisions
discussed in this Form 10-Q. Oil prices in particular have plummeted in the past
few weeks. We expect to see continued volatility in oil and natural gas prices
for the foreseeable future, and such volatility, combined with the current
depressed prices, has impacted and is expected to continue to adversely impact
our business. A continued low level of oil, natural gas and NGL prices has
affected and could continue to negatively affect the amount of cash we generate
and have available for capital expenditures and debt service and has had and
could continue to have a material impact on our financial position, results of
operations, cash flows and on the quantities of reserves that we can
economically produce or provide as collateral to our secured lenders and
creditors. If the current depressed prices persist or decline throughout 2020,
our ability to comply with financial covenants under our revolving credit
facility during the next 12 months will be adversely affected. Based on our
current forecast, we do not expect to be in compliance with our financial
covenants beginning in the fourth quarter of 2020. Failure to comply with these
covenants, if not waived, would result in an event of default under our
revolving credit facility, the potential acceleration of outstanding debt
thereunder and the potential foreclosure on the collateral securing such debt,
and could cause a cross-default under our other outstanding indebtedness. Other
risks and uncertainties that could affect our liquidity include, but are not
limited to, counterparty credit risk for our receivables, access to capital
markets, regulatory risks and our ability to meet financial covenants in our
financing agreements.
As a result of the impacts to the Company's financial position resulting from
declining industry conditions and in consideration of the substantial amount of
long-term debt outstanding, the Company has engaged advisors to assist

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with the evaluation of strategic alternatives, which may include, but not be
limited to, seeking a restructuring, amendment or refinancing of existing debt
through a private restructuring or reorganization under Chapter 11 of the
Bankruptcy Code. However, there can be no assurances that the Company will be
able to successfully restructure its indebtedness, improve its financial
position or complete any strategic transactions. As a result of these
uncertainties and the likelihood of a restructuring or reorganization,
management has concluded that there is substantial doubt about the Company's
ability to continue as a going concern.
As of March 31, 2020 and December 31, 2019, we had a cash balance of $82 million
and $6 million, respectively. As of March 31, 2020 and December 31, 2019, we had
a net working capital deficit of $442 million and $1.141 billion, respectively.
As of March 31, 2020 and December 31, 2019, our working capital deficit included
$420 million and $385 million, respectively, of debt due in the next 12 months.
As of March 31, 2020, we had $1.011 billion of borrowing capacity available
under our revolving credit facility, with outstanding borrowings of $1.900
billion and $89 million utilized for various letters of credit. See   Note 4
of the notes to our condensed consolidated financial statements included in Item
1 of Part I of this report for further discussion of our debt obligations,
including principal and carrying amounts of our notes.
We closely monitor the amounts and timing of our sources and uses of funds,
particularly as they affect our ability to maintain compliance with the
financial covenants of our revolving credit facility. Furthermore, our ability
to generate operating cash flow in the current commodity price environment, sell
assets, access capital markets or take any other action to improve our liquidity
and manage our debt is subject to the risks discussed above and the other risks
and uncertainties that exist in our industry, some of which we may not be able
to anticipate at this time or control.
We currently have no access to capital and other financial markets. In response
to the lack of new capital and funding, we are considering strategic
alternatives, which may include but are not limited to additional expense
reductions; seeking a restructuring, amendment or refinancing of existing debt
through a private restructuring; and reorganization under Chapter 11 of the
Bankruptcy Code. Additionally, our customers and counterparties are experiencing
uncertain economic conditions which may impact their ability to make payments to
us, which could adversely affect our business, cash flows, liquidity, financial
condition and results of operations.
Derivative and Hedging Activities
Our results of operations and cash flows are impacted by changes in market
prices for oil, natural gas and NGL. To mitigate a portion of our exposure to
adverse market price changes, we enter into various derivative instruments. Our
oil, natural gas and NGL derivative activities, when combined with our sales of
oil, natural gas and NGL, allow us to better predict the total revenue we expect
to receive.
As of May 8, 2020, including April and May derivative contracts that have
settled, we had 2020 downside oil price protection through swaps and collars at
an average price of $59.95 per bbl. We had 2020 downside gas price protection
through swaps at $2.76 per mcf and under put spread arrangements based on an
average bought put NYMEX price of $2.06 per mcf and exposure below an average
sold put NYMEX price of $1.80 per mcf.

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                             Oil Derivatives(a)
Year   Type of Derivative Instrument   Notional Volume    Average NYMEX Price
                                           (mmbbls)
2020   Swaps                                        21          $59.63
2020   Two-way collars                               1       $65.00/$83.25
2020   Basis protection swaps                       10           $2.58
2021   Calls                                         5          $61.58
2022   Calls                                         4          $61.58
                         Natural Gas Derivatives(a)
Year   Type of Derivative Instrument   Notional Volume    Average NYMEX Price
                                            (bcf)
2020   Swaps                                       199           $2.76
2020   Calls                                        17          $12.00
2020   Basis protection swaps                       46          ($0.28)
2020   Put spread                                   94        $2.06/$1.80
2021   Calls                                        96           $2.75
2021   Call swaptions                               14           $2.80
2022   Call swaptions                               15           $2.80

___________________________________________

(a) Includes amounts settled in April and May 2020.



See   Note 11   of the notes to our condensed consolidated financial statements
included in Item 1 of Part I of this report for further discussion of
derivatives and hedging activities.
Debt
We are committed to reducing total leverage to achieve long-term net
debt/EBITDAX of 2x. To accomplish this goal, we intend to allocate our capital
expenditures to projects we believe offer the highest return and value
regardless of the commodity price environment, to deploy leading drilling and
completion technology throughout our portfolio, and to take advantage of
acquisition and divestiture opportunities to strengthen our cost structure and
our portfolio. Increasing our margins means not only increasing our absolute
level of cash flows from operations, but also increasing our cash flows from
operations generated per barrel of oil equivalent production. We continue to
seek opportunities to reduce cash costs (production, gathering, processing and
transportation and general and administrative), improve our production volumes
from existing wells, and achieve additional operating and capital efficiencies
with a focus on growing our oil volumes.
We may continue to use a combination of cash and borrowings and the proceeds
from asset sales to retire our outstanding debt or preferred stock through
privately negotiated transactions, open market repurchases, redemptions,
exchanges, tender offers or otherwise, but we are under no obligation to do so.
Revolving Credit Facility
Our revolving credit facility matures in September 2023 and the current
aggregate commitment of the lenders and borrowing base under the facility is
$3.0 billion. The revolving credit facility provides for an accordion feature,
pursuant to which the aggregate commitments thereunder may be increased to up to
$4.0 billion from time to time, subject to agreement of the participating
lenders and certain other customary conditions. Scheduled borrowing base
redeterminations will continue to occur semiannually. Our borrowing base was
reaffirmed on November 1, 2019. Borrowings under the facility bear interest at a
variable rate. As of March 31, 2020, we had outstanding borrowings of $1.900
billion under our revolving credit facility and had used $89 million of our
revolving credit facility for various letters of credit. Our next borrowing base
redetermination, scheduled for the second quarter of 2020, is not complete.
Although we believe we have adequate reserves value to support the reaffirmation
of our full borrowing base, we believe it is likely the lending group will
reduce our borrowing base due to our distressed financial position. See   Note
4   of the notes to our condensed consolidated financial statements included in
Item 1 of this report for further discussion of the terms

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of our revolving credit facility. As of March 31, 2020, we were in compliance
with all applicable financial covenants under the credit agreement. As of
March 31, 2020, our total leverage ratio was approximately 3.70 to 1.00, our
first lien leverage ratio was approximately 1.44 to 1 and our fixed charge
coverage ratio was approximately 3.55 to 1.
Fluctuations in oil and natural gas prices have a material impact on our
financial position, results of operations, cash flows and quantities of oil,
natural gas and NGL reserves that may be economically produced. Historically,
oil and natural gas prices have been volatile, and may be subject to wide
fluctuations in the future. If the current depressed prices persist, combined
with the scheduled reductions in the leverage ratio covenant, our ability to
comply with the leverage ratio covenant during the next 12 months will be
adversely affected. Based on our current forecast, we do not expect to be in
compliance with our financial covenants beginning in the fourth quarter of 2020.
Failure to comply with this covenant, if not waived, would result in an event of
default under our revolving credit facility, the potential acceleration of
outstanding debt thereunder and the potential foreclosure on the collateral
securing such debt, and could cause a cross-default under our other outstanding
indebtedness.
Contractual Obligations and Off-Balance Sheet Arrangements
From time to time, we enter into arrangements and transactions that can give
rise to contractual obligations and off-balance sheet commitments. As of
March 31, 2020, these arrangements and transactions included (i) certain
operating lease agreements, (ii) open purchase commitments, (iii) open delivery
commitments, (iv) open drilling commitments, (v) undrawn letters of credit,
(vi) open gathering and transportation commitments, and (vii) various other
commitments we enter into in the ordinary course of business that could result
in future cash obligations.
Capital Expenditures
We have significant control and flexibility over the timing and execution of our
development plan, enabling us to reduce our capital spending as needed. As a
result of the impact to global oil demand primarily caused by the COVID-19
pandemic, we are reducing our forecasted 2020 capital expenditures to a range of
$1.0 billion - $1.2 billion compared to our 2019 capital spending level of $2.2
billion. This reduction in spending will reduce our future production levels.
Management continues to review operational plans for 2020 and beyond, which
could result in changes to projected capital expenditures and projected revenues
from sales of oil, natural gas and NGL.
Credit Risk
Some of our counterparties have requested or required us to post collateral as
financial assurance of our performance under certain contractual arrangements,
such as gathering, processing, transportation and hedging agreements. As of May
7, 2020, we have received requests and posted approximately $95 million of
collateral related to certain of our marketing and other contracts. We may be
requested or required by other counterparties to post additional collateral in
an aggregate amount of approximately $172 million, which may be in the form of
additional letters of credit, cash or other acceptable collateral. However, we
have substantial long-term business relationships with each of these
counterparties, and we may be able to mitigate any collateral requests through
ongoing business arrangements and by offsetting amounts that the counterparty
owes us. Any posting of collateral consisting of cash or letters of credit
reduces availability under our revolving credit facility and negatively impacts
our liquidity.
Sources of Funds
The following table presents the sources of our cash and cash equivalents for
the Current Quarter and the Prior Quarter.
                                                                  Three Months Ended
                                                                      March 31,
                                                                  2020          2019
                                                                   ($ in millions)
Cash provided by operating activities                         $      397$     456
Proceeds from divestitures of proved and unproved
properties, net                                                        7    

26

Proceeds from revolving credit facility borrowings, net              310    

436

Proceeds from sales of other property and equipment, net               -    

1

Total sources of cash and cash equivalents                    $      714$     919



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Cash Flows from Operating Activities
Cash provided by operating activities was $397 million in the Current Quarter
compared to $456 million in the Prior Quarter. The decrease in the Current
Quarter is primarily due to the result of lower prices for the oil, natural gas
and NGL we sold and lower volumes of natural gas and NGL sold offset by higher
oil volumes sold. Cash flows from operations are largely affected by the same
factors that affect our net income, excluding various non-cash items, such as
depreciation, depletion and amortization, certain impairments, gains or losses
on sales of assets, deferred income taxes and mark-to-market changes in our open
derivative instruments. Only one month of the Current Quarter was impacted by
COVID-19 and the related economic volatility and a continued low level of demand
or depressed prices for oil and natural gas or otherwise would have a continued
material adverse effect on our cash flows. See further discussion below under
Results of Operations.
Uses of Funds
The following table presents the uses of our cash and cash equivalents for the
Current Quarter and the Prior Quarter:
                                                      Three Months Ended
                                                          March 31,
                                                        2020            2019
                                                       ($ in millions)
Oil and Natural Gas Expenditures:
Drilling and completion costs                    $     501             $ 

515

Acquisitions of proved and unproved properties           6                 6
Total oil and natural gas expenditures                 507               

521

Other Uses of Cash and Cash Equivalents:
Cash paid to purchase debt                              93                 1
Business combination, net                                -               

353

Additions to other property and equipment               11                 9
Dividends paid                                          22                23
Other                                                    5                 8
Total other uses of cash and cash equivalents          131               

394

Total uses of cash and cash equivalents          $     638             $ 

915



Drilling and Completion Costs
Our drilling and completion costs decreased in the Current Quarter compared to
the Prior Quarter primarily as a result of decreased drilling and completion
activity. Our average operated rig count was 14 rigs and spud wells were 71 in
the Current Quarter compared to an average operated rig count of 20 rigs and 79
spud wells in the Prior Quarter. We completed 74 operated wells in the Current
Quarter compared to 83 in the Prior Quarter.
Cash Paid to Purchase Debt
In the Current Quarter, we repurchased approximately $156 million aggregate
principal amount of our senior notes for $93 million. See   Note 4   of the
notes to our condensed consolidated financial statements included in Item 1 of
Part I of this report for further discussion of the notes repurchased.
Business Combination - Acquisition of WildHorse
In the Prior Quarter, we acquired WildHorse for approximately 717.4 million
shares of our common stock and $381 million less $28 million of cash held by
WildHorse as of the acquisition date.
Dividends
We paid dividends of $22 million and $23 million on our preferred stock in the
Current Quarter and the Prior Quarter, respectively. On April 17, 2020, we
announced that we were suspending payment of dividends on each series of our
outstanding convertible preferred stock. Suspension of the dividends did not
constitute an event of default under any of our debt instruments. We eliminated
common stock dividends in the 2015 third quarter and do not anticipate paying
any common stock dividends in the foreseeable future.

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Results of Operations
Oil, Natural Gas and NGL Production and Average Sales Prices
                                               Three Months Ended March 31, 2020
                            Oil             Natural Gas             NGL                    Total
                       mbbl                mmcf                mbbl                mboe
                     per day    $/bbl    per day    $/mcf    per day    $/bbl    per day      %     $/boe
Marcellus                  -        -        976     1.97          -        -        163     34     11.85
Haynesville                -        -        556     1.68          -        -         93     19     10.10
Eagle Ford                63    48.53        159     2.18         19    11.71        108     23     33.38
Brazos Valley             41    46.30         69     0.60          9     5.26         61     13     32.55
Powder River Basin        17    43.23         89     1.84          6    13.30         38      8     26.01
Mid-Continent              5    44.75         49     2.24          3    14.06         16      3     23.38
Retained assets(a)       126    46.93      1,898     1.86         37    10.71        479    100     20.53
Divested assets            -        -          -        -          -        -          -      -         -
Total                    126    46.93      1,898     1.86         37    10.71        479    100 %   20.53

                                               Three Months Ended March 31, 2019
                            Oil             Natural Gas             NGL                    Total
                       mbbl                mmcf                mbbl                mboe
                     per day    $/bbl    per day    $/mcf    per day    $/bbl    per day      %     $/boe
Marcellus                  -        -        948     3.54          -        -        158     33     21.23
Haynesville                -        -        759     2.94          -        -        126     26     17.63
Eagle Ford                61    59.78        148     3.58         24    21.70        109     23     43.01
Brazos Valley(b)          23    59.32         23     2.04          3     8.25         30      6     47.55
Powder River Basin        16    50.93         82     3.38          6    18.57         36      7     33.70
Mid-Continent              8    52.93         58     2.82          6    21.64         23      5     30.77
Retained assets(a)       108    57.85      2,018     3.27         39    20.03        482    100     28.23
Divested assets            1    48.05          5     2.48          -        -          2      -     25.59
Total                    109    57.80      2,023     3.27         39    20.03        484    100 %   28.22


___________________________________________

(a) Includes assets retained as of March 31, 2020.



(b) Average production per day since the date of the WildHorse acquisition on
February 1, 2019, 59 days, was 35 mbbl, 35 mmcf and 5 mbbl for oil, natural gas
and NGL, respectively.
Oil, Natural Gas and NGL Sales
                                      Three Months Ended
                                          March 31,
                                  2020       2019     Change
                                       ($ in millions)
Oil                              $  539$   566      (5 )%
Natural gas                         320        595     (46 )%
NGL                                  35         69     (49 )%

Oil, natural gas and NGL sales $ 894$ 1,230 (27 )%

The decrease in the average price received per boe in the Current Quarter resulted in a $335 million decrease in revenues, and decreased sales volumes resulted in a $1 million decrease in revenues, for a total net decrease in revenues of $336 million.

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Oil and Natural Gas Derivatives

                                                              Three Months Ended
                                                                   March 31,
                                                                2020           2019
                                                                ($ in millions)
Oil derivatives - realized gains (losses)                 $    127$   10
Oil derivatives - unrealized gains (losses)                    712             (269 )
Total gains (losses) on oil derivatives                        839          

(259 )


Natural gas derivatives - realized gains (losses)               51              (36 )
Natural gas derivatives - unrealized gains (losses)             17               (6 )
Total gains (losses) on natural gas derivatives                 68              (42 )
Total gains (losses) on oil and natural gas derivatives   $    907$ (301 )


See   Note 11   of the notes to our condensed consolidated financial statements
included in Item 1 of this report for a discussion of our derivative activity.
Marketing Revenues and Expenses
                          Three Months Ended
                              March 31,
                      2020       2019     Change
                           ($ in millions)
Marketing revenues   $ 724$ 1,233     (41 )%
Marketing expenses     746       1,230     (39 )%
Marketing margin     $ (22 )$     3     833  %


Marketing revenues and expenses decreased in the Current Quarter primarily as a
result of decreased oil, natural gas, and NGL prices received in our marketing
operations.  Marketing margin decreased in the Current Quarter primarily due to
loss on inventory due to lower prices.
Other Revenue
                        Three Months Ended
                             March 31,
                      2020          2019    Change
                          ($ in millions)
Other revenue   $    16$  15      7 %


Other revenue relates primarily to the amortization of deferred VPP revenue. Our
remaining deferred revenue balance of $50 million will be amortized on a
straight-line basis through 2021. See   Note 6   of the notes to our condensed
consolidated financial statements included in Item 1 of this report for further
discussion of our VPP.

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Oil, Natural Gas and NGL Production Expenses

                                                                       Three Months Ended
                                                                           March 31,
                                                                 2020           2019       Change
                                                                ($ in millions, except per unit)
Marcellus                                                    $         9     $      9          -  %
Haynesville                                                           11           14        (21 )%
Eagle Ford                                                            36           41        (12 )%
Brazos Valley                                                         27           14         93  %
Powder River Basin                                                    18           14         29  %
Mid-Continent                                                         21           25        (16 )%
Retained Assets(a)                                                   122          117          4  %
Divested Assets                                                        -           (2 )     (100 )%
Total oil, natural gas and NGL production expenses           $       122$    115          6  %


Marcellus                                                    $      0.58$   0.63         (8 )%
Haynesville                                                  $      1.30$   1.22          7  %
Eagle Ford                                                   $      3.62$   4.15        (13 )%
Brazos Valley                                                $      4.98$   5.36         (7 )%
Powder River Basin                                           $      5.28$   4.36         21  %
Mid-Continent                                                $     13.95$  11.79         18  %
Retained Assets(a)                                           $      2.80$   2.69          4  %
Divested Assets                                              $         -     $ (10.24 )     (100 )%
Total oil, natural gas and NGL production expenses per boe   $      2.80

$ 2.64 6 %

___________________________________________

(a) Includes assets retained as of March 31, 2020.
The absolute and per unit increase in the Current Quarter was the result of the
acquisition of WildHorse in 2019 and our higher production in liquids-rich
operating areas, which generally involve higher production expense per boe
relative to our gas-rich operating areas.
Oil, Natural Gas, and NGL Gathering, Processing and Transportation Expenses
                                                                      Three Months Ended
                                                                          March 31,
                                                                2020           2019        Change
                                                               ($ in millions, except per unit)
Oil, natural gas and NGL gathering, processing and
transportation expenses                                    $         285     $   274          4  %
Oil ($ per bbl)                                            $        3.40$  3.47         (2 )%
Natural gas ($ per mcf)                                    $        1.32$  1.21          9  %
NGL ($ per bbl)                                            $        5.70$  5.57          2  %
Total ($ per boe)                                          $        6.55$  6.29          4  %

The absolute and per unit increase in oil, natural gas and NGL gathering, processing and transportation expenses was primarily due to the acquisition of WildHorse in 2019 and an increase in oil production.

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Severance and Ad Valorem Taxes

                                                       Three Months Ended
                                                           March 31,
                                                    2020               2019     Change
                                                ($ in millions, except per unit)
Severance taxes                          $          31                $   34     (9 )%
Ad valorem taxes                                    23                    17     35  %
Severance and ad valorem taxes           $          54                $   51      6  %

Severance taxes per boe                  $        0.71$ 0.78     (9 )%
Ad valorem taxes per boe                          0.53                  0.37     43  %
Severance and ad valorem taxes per boe   $        1.24                $ 

1.15 8 %



The per unit decrease in severance taxes was primarily due to the reduction in
net revenue value brought by decreased prices in areas where tax is calculated
on net revenue instead of production. The absolute and per unit increase in ad
valorem taxes was primarily due to the addition of Texas assets through our
acquisition of WildHorse, which increased the amount of oil and natural gas
reserves that were subject to ad valorem taxes.
Exploration Expense
                                                    Three Months Ended
                                                        March 31,
                                                 2020      2019     Change
                                                     ($ in millions)
Impairments of unproved properties             $   272$  18    1,411  %
Dry hole expense                                     7        -      n/a

Geological and geophysical expense and other 3 6 (50 )% Exploration expense

                            $   282$  24    1,075  %


The increase in exploration expense is the result of non-cash impairment charges
in unproved properties, primarily in our Brazos Valley, Powder River Basin,
Haynesville and Mid-Continent operating areas. See   Note 12   of the notes to
our condensed consolidated financial statements included in Item 1 of this
report for further discussion.
General and Administrative Expenses
                                                                       Three Months Ended
                                                                            March 31,
                                                               2020             2019          Change
                                                                ($ in millions, except per unit)
Gross compensation and overhead                            $      161$      195          (17 )%
Allocated to production expenses                                  (30 )            (35 )        (14 )%
Allocated to marketing expenses                                    (4 )             (4 )          -  %
Allocated to exploration expenses                                   -               (4 )       (100 )%
Allocated to sand mine expenses                                    (2 )              -          n/a
Capitalized general and administrative expenses                   (21 )            (13 )         62  %
Reimbursed from third parties                                     (39 )            (36 )          8  %
General and administrative expenses, net                   $       65

$ 103 (37 )%


General and administrative expenses, net per boe           $     1.50

$ 2.34 (36 )%

The decrease in general and administrative expenses is primarily due to a reduction in compensation expense.

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Restructuring and Other Termination Costs
In the Current Quarter, we incurred a charge of approximately $5 million related
to one-time termination benefits for certain employees.
Depreciation, Depletion and Amortization
                                                                     Three Months Ended
                                                                          March 31,
                                                                2020           2019       Change
                                                              ($ in millions, except per unit)
Depreciation, depletion and amortization                   $         603     $   519         16 %
Depreciation, depletion and amortization per boe           $       13.83

$ 11.90 16 %

The absolute and per unit increase in the Current Quarter is primarily the result of a higher depletion rate. The increase in depletion rate per boe primarily reflects our higher concentration of capital deployment in liquids-rich operating areas, which generally involve higher finding costs per boe relative to our gas-rich operating areas, as we focus on expanding our margins through disciplined investing in the highest-return projects. Impairments

                                                              Three Months Ended
                                                                  March 31,
                                                                2020              2019
                                                               ($ in 

millions)

Impairments of proved oil and natural gas properties $ 8,446

      $   -
Impairments of other fixed assets and other                       76                 1
Total impairments                                      $       8,522$   1


In the Current Quarter, we recorded impairments of proved oil and natural gas
properties related to Eagle Ford, Brazos Valley, Powder River Basin,
Mid-Continent and other non-core assets, all of which are due to lower
forecasted commodity prices. Additionally, in the Current Quarter we recorded a
$76 million impairment of our sand mine assets that support our Brazos Valley
operating area for the difference between fair value and the carrying value of
the assets. See   Note 13   of the notes to our condensed consolidated financial
statements included in Item 1 of this report for further discussion.
Other Operating Expense
                                Three Months Ended
                                     March 31,
                                   2020             2019
                                  ($ in millions)
Other operating expense   $       83$  61


In the Current Quarter, we terminated certain gathering, processing and
transportation contracts and recognized a non-recurring $79 million expense
related to the contract terminations. The contract terminations removed
approximately $169 million of future commitments related to gathering,
processing and transportation agreements.
In the Prior Quarter, we recorded $23 million of costs related to our
acquisition of WildHorse, which consisted of consulting fees, financial advisory
fees, legal fees and travel and lodging expenses. Additionally, we recorded $38
million of severance expense as a result of our acquisition of WildHorse. A
majority of the WildHorse executives and employees were terminated. These
executives and employees were entitled to severance benefits in accordance with
existing employment agreements.

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Interest Expense
                                                        Three Months Ended
                                                            March 31,
                                                         2020         2019
                                                         ($ in millions,
                                                         except per unit)
Interest expense on senior notes                     $     129$   144
Interest expense on term loan                               38            -
Amortization of discount, issuance costs and other           7            6
Amortization of premium                                    (44 )          -
Interest expense on revolving credit facility               22           17
Realized gains on interest rate derivatives                  -           (1 )
Unrealized losses on interest rate derivatives               -            1
Capitalized interest                                        (7 )         (6 )
Total interest expense                               $     145$   161

Interest expense per boe                             $    3.34$  3.72

Average senior notes borrowings                      $   5,783$ 8,207
Average credit facilities borrowings                 $   1,648$ 1,021
Average term loan borrowings                         $   1,500      $     -


The decrease in interest expense on senior notes is due to the decrease of the
average outstanding balance on our senior notes. The increase in interest
expense on the term loan is due to the issuance of our term loan in the fourth
quarter of 2019. The increase in amortization of premium is due to the issuance
of our senior secured second lien notes in the fourth quarter of 2019.
Losses on Investments
In the Current Quarter, the hydraulic fracturing industry experienced
challenging operating conditions resulting in the current fair value of our
investment in FTSI falling below book value of $23 million and remaining below
that value as of the end of the Current Quarter. Based on FTSI's operating
results and FTSI's share price of $0.22 per share as of March 31, 2020, we
determined that the reduction in fair value is other-than-temporary and
recognized an impairment of our entire investment in FTSI of $23 million.
Gains on Purchases or Exchanges of Debt
In the Current Quarter, we repurchased approximately $156 million aggregate
principal amount of senior notes for $93 million and recorded an aggregate gain
of approximately $63 million. See   Note 4   of the notes to our condensed
consolidated financial statements included in Item 1 of this report for further
discussion.
Income Tax Benefit
We recorded a $13 million income tax benefit in the Current Quarter compared to
a $314 income tax benefit in the Prior Quarter. Our effective income tax rate
was 0.2% for the Current Quarter compared to 93.7% for the Prior Quarter. The
rate for the Prior Quarter was due to the partial release of the valuation
allowance against our net deferred tax asset position as a result of the
acquisition of WildHorse. Our effective tax rate can fluctuate as a result of
the impact of discrete items, state income taxes and permanent differences. For
the Current Quarter, our estimated AETR remains nominal as a result of having a
full valuation allowance against our net deferred tax asset position for federal
and state purposes. See   Note 8   of the notes to our condensed consolidated
financial statements included in Item 1 of Part I of this report for a
discussion of income taxes.

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Financial and Non-Financial Disclosures for Certain Securities Registered or

                                Being Registered
Chesapeake Energy Corporation is a holding company, owns no operating assets and
has no significant operations independent of its subsidiaries. Our obligations
under our revolving credit facility, term loan, senior secured second lien notes
and outstanding senior unsecured notes and convertible senior notes listed in
  Note 4   of the notes to our condensed consolidated financial statements
included in Item 1 are fully and unconditionally guaranteed, jointly and
severally, by certain of our 100% owned subsidiaries. Our BVL subsidiaries are
guarantors of our obligations under the revolving credit facility, term loan and
senior secured second lien notes, but are not guarantors of our obligations
under our outstanding senior unsecured notes or convertible senior notes as of
March 31, 2020. Chesapeake has an obligation to add our BVL subsidiaries as
guarantors of our obligations under such notes on or before June 20, 2020 in
accordance with the various indentures governing the same. Subsidiaries with
noncontrolling interests, consolidated variable interest entities and certain de
minimis subsidiaries are non-guarantors.
The tables below are summarized financial information provided in conformity
with the SEC's Regulation S-X Rule 13-01 for Chesapeake Energy Corporation
(parent) on a stand-alone, unconsolidated basis and its combined guarantor
subsidiaries as of March 31, 2020 and December 31, 2019 and for the three months
ended March 31, 2020. This financial information may not necessarily be
indicative of our results of operations, cash flows or financial position had
these subsidiaries operated as independent entities.

© Edgar Online, source Glimpses

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